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Build your own Startup Death Clock

A few months ago I created a fun device at WPEngine to focus everyone’s attention the most important thing.

If nothing changes, when will you run out of money?

Sometimes fear is a good motivator. In this case, fear takes the form of a tiny spreadsheet:

I know it’s looks silly to name the very day that we run out of money — why not include the hour and minute too? Clearly it’d be more accurate to say “sometime in Q1 2011.”

But the goal here isn’t accuracy, it’s motivation and focus. Nothing drives correct thinking about getting to profitability like facing your own demise. No hedging, no estimating, no complex Profit & Loss projections, just a date.

Confronted by an ultimatum, your thoughts crystalize. Maybe some of those things on your to-do list for this week aren’t as important as you thought. Maybe you could get v1.0 out the door faster. Maybe you should be spending your time getting revenue instead of ruminating on the philosophy of startups with strangers in the comment section of some blog. (Err, except for this blog of course!)

[UPDATE: @rjrodger created an awesome, easy tool for this at]

So did it work?

Four minutes after emailing this internally someone responded with a way for us to launch a week earlier than planned. Three minutes after that another email appeared with a focused list of “must-haves” before release (with a few items omitted from the previous “must-have” list).

Yeah, it works.  Try it!

Tracking Progress

Of course as you improve your profitability — hopefully through more revenue but possibly through lower expenses — this date will change. Tracking that change over time is an easily-digestible demonstration of progress, and/or acceleration of progress.

Here’s our actual data:

death clock chart
It’s easy to see that we’re replacing our burn to some extent, with a notable down-spike when we make a new investment that eats cash. It’s a particularly nice way to visualize just how big of an investment we made, and how subsequent income replaces it (or doesn’t).

Even better: Tracking your break-even date

Tracking “death” is good motivation, but it’s so negative! If you actually have revenue — and it’s growing, and growing faster than expenses — there’s another more positive and more useful way to plot your progress: Your anticipated break-even date.

Here’s how we generate this date for WPEngine. First we track our expenses measured daily as “monthly accural revenue for past 30 days.” Put another way, if 100% of our expenses for this month (salaries, servers, bandwidth, credit cards) were paid on a single day, how much would it be?

Second we track the same concept but with revenue. Our customers pay us monthly, but everyone is on a different day of the month (specifically, 15 days after they signed up, when their trial expired).

The result looks like this (dollars intentionally omitted… there’s a limit to transparency!):

We can see that revenue is catching up with expenses, so how do we project when that date will be?

The idea is to approximate both of these curves with straight lines and see where they’d intersect. The simplest linear estimation is to just draw a line between the first and last point in the window and project from there, but this products erratic results due to the normal bumps and dips in the graphs. So it turns out you need to use least-squares regression to generate approximation lines that are relatively immune to minor undulations. Determining the x-value for where the two lines intersect is as easy as setting the linear equations equal and solving for x.

(For those of you actually following along with the math, remember that what you’ve just computed is the number of days from the beginning of the data window that the two lines intersect. I also convert that into an actual date, e.g. March 14th, 2011, not a relative date, e.g. 127 days from “now.”)

The result is worth the effort; here’s our projected break-even date over time:

When the date is moving out it means we’re being less efficient (either at expenses or revenues or both), and the same in reverse. Recently it’s stabilized which is a good sign that we’re starting to lock in our process, and with the break-even date much closer than our running-out-of-money date, we’re confident we won’t run out of money.

And perhaps most importantly of all, as soon as anything changes for the worse, we see it. No surprises three months later when suddenly we realize we don’t have enough money to keep going.

It ends

As you approach cash-flow break-even, your “run out of money” date accelerates into the future. As you blow past that magical moment, your business can sustain itself indefinitely without further cash investment, and the date becomes infinite.

That’s the end of the chart. Congratulations, now there’s only 47 other metrics you need to be tracking.

Oh well, we should all be so lucky.

Let’s compare notes

What other simple, motivating metrics can you use early on in your startup? What’s your death-day? Join the conversation in the comment section.

Reputation isn’t as powerful as you imagine

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The most common reaction to my recent announcement of starting a new WordPress hosting company was that this blog provides me with a ridiculous unfair advantage.

But was it?

Here’s what people said:

“[You’re starting from nothing] except approximately 18,000 prospects. How convenient. ;) I wish I had that kind of mailing list starting out.”

You’re doing this the easy way, publishing this post so that thousands of users see it.”

“It is, of course, simple to talk about how easy it is to be popular, when you’re the already established prom queen.”

Fair point, but what actually happened after that post announcement? How unfair was this advantage?

Interestingly, Eric Sink got the same reception years ago when he launched a little company of his own. It’s worth hearing Eric defend himself because it’s just like my scenario, but because this happened six years ago I can reveal his results at the end of this post:

“Reactions to my Winnable Solitaire experiment were mostly positive, but several people claimed my experiment was “unfair” or “invalid”. In a nutshell, they argued that because I am already “famous” for my writings about the business of software, I have an advantage that is not available to my readers. My experiment is therefore meaningless because I did not duplicate the conditions a regular person would be facing when trying to launch their own micro-ISV.”

Let’s start with the results of my post:

WPEngine got two new signups. Only two. That with 17,000 wonderful, loyal, friendly, supportive RSS subscribers and as many page-hits from Twitter and HackerHews.

Not exactly the massive boost you or I was expecting. I figured on 10-20 new customers at minimum and dreamed of 50. I was wrong by an order of magnitude.

Eric had a similar result: One month into his Winnable Solitaire experiment he had sold a total of six copies. Hooray for fame.

And let’s put this into broader context: At WPEngine we had 50 paying customers (not prospects) before my post went live. Most pay $49/mo, a few pay north of $1000/mo (large blogs with serious traffic). So whatever we did without the advantage of this blog was far more important, at least in the one case of getting initial customers. (I’ll explain exactly how we did that in future posts.)

Still, the blog was instrumental in getting those first 50 customers, but not because I’m able to push WordPress hosting onto 17,000 unsuspecting victims. One of the biggest reasons was in building the team.

It’s no secret that the team is a critical factor in a startup’s success; have you ever heard otherwise? But there’s precious little advice about finding and gathering that stellar team. Interviews on the subject invariably turn up explanations like “we went to school together” or “we worked together” or “we met at StartupWeekend.” In short, you put yourself in an environment where you’re likely to interact with other intelligent, capable people, and hope that you find someone socially compatible who is also crazy enough to want to do a startup. It’s a good strategy, and anyway what else can you do?

I knew I needed a killer team for WPEngine — not just “capable,” but a group that would itself be an unfair advantage. See, WordPress hosting is already a commodity, with every hosting company on Earth offering something at every price point from $0/mo, $5/mo, $15/mo, $40/mo, and even $500/mo + $200/hr consulting fees. In a mature market you need severe points of differentiation, and one of those (I felt) had to be the team itself.

We needed someone like Aaron Brazell. Aaron is a WordPress core contributor and the author of WordPress Bible (Wiley). He’s famous enough that strangers at WordPress conventions ask for autographs of their dog-eared copy of his infamous tome. He has seventeen zillion Twitter and blog followers, most of whom are themselves active in the WordPress community. He knows all the major players in the industry including the key folks at, BZ Media (the CopyBlogger media group), ProBlogger, and members of the press at Mashable, TechCrunch, and others.

Maybe with an Aaron we’d have a chance. His network should provide an ocean of free leads. His reputation transferred to the company would bless us with instant credibility. His press connections should give us pops of traffic and external legitimacy. His intimate knowledge of WordPress internals and roadmap should mean our service is technically superior. That’s a lot of advantages! Maybe enough to make or break the company.

Well we got Aaron, and it’s because of this blog. When I called Aaron he was charging an obscene (and well-deserved) hourly rate for WordPress consulting in Washington DC, but he was yearning for the startup life. He was ready for the trade-off of less money now in exchange for more money later, and for building something of lasting value instead of the impermanent drudgery of un-screwing hacked WordPress installations.

And the blog sealed the deal. Aaron could have joined (or startup) any number of startups, but he liked WPEngine because he wanted to do a startup with me. And he wanted to do a startup with me because the blog revealed my attitude, perspective, and credentials.

Aaron picked up, moved to Austin, and has already been instrumental to our success thus far.

So fame does help in important ways — enough even to deserve the title of “unfair advantage” — but startups are still hard and unlikely to succeed no matter who’s at the helm. Case in point? Eric Sink.

Eric’s experiment eventually failed. Well, “fail” is a too harsh a word, it’s just the one in-vogue nowadays, especially when describing an wonderful experience in which you had fun, learned a lot, grew as a person, and wouldn’t trade it for anything, particularly not a dull, predictable day job. You know, the kind of “fail” that characterizes a lot of software startups.

On sales of $216, Eric sold Winnable Solitaire for a small sum. Of course neither the exit nor the to-date revenue amounts to anything that anyone would declare a solid success.

WPEngine’s revenue to date is several orders of magnitude more, so hopefully we’ll avoid that fate. Still, our expenses are also orders of magnitude more than Eric’s, and as I hope I’ve shown, although we have decided advantages it’s never an easy road.

But then, if it were easy it wouldn’t be worthwhile, right?

Have your thoughts about reputation changed, or is this blog still an unfair advantage? Continue the debate in the comments.

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If you build it, they won’t come, unless…

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This is Part 5 of the 5-part series: 5 lessons from 150 startup pitches.

Ask a technical founder about his startup, and he’ll proudly describe his stunning software — simple, compelling, useful, fun. Then he’ll describe his cutting-edge platform — cloud-based, scalable, distributed version control, continuous integration, one-click-deploy. Maybe you’ll even get a wobbly demo.

“Great,” I always exclaim, sharing the thrill of modern software development, “so how will people find out about this brilliant website?”

Cue sound of cicadas buzzing.
(Or “crickets chirping” but in Texas the cicadas are louder.)

Four uncomfortable seconds later, a smile breaks across the founder’s face. “Here it comes,” I think, “there is a strategy after all!”

Except the “strategy” is a tirade of drivel I’ve heard so many times I can lip-sync as the words spew out the founder’s mouth:

  • “We’re going to A/B-test AdWords campaigns until we discover our hook.”
  • “We’re going to A/B-test our landing pages until the right message appears.”
  • “We’re better than everyone else at SEO.”
  • “A friend of mine knows how to get popular on Twitter.”
  • “We’re going to get reviews on blogs.”
  • “We’re going to start with our own network and grow it from there.”
  • “We’re going to use an affiliate program so our customers sell it for us.”
  • “We’re putting a ‘Retweet’ button inside the product to encourage viral growth.”

The obvious problem is that every new startup on Earth says exactly these things. Nowadays the “strategy” above sounds the same as:

  • “We’ll have a website so people can read about us.”
  • “We’ll have an email address so people can communicate with us without picking up the phone.”

Yes, you’re going to do those things, but since millions of other people are doing that too, you’re still invisible. Visibility-fail. Anyone-gives-a-crap-fail.

OK, so what can you do to rise above the cacophony that is the Internet? Here come a few ideas; leave more and discuss in the comments!

Infection built-in, not bolt-on

WhenBusy is a bootstrapped startup that lets people schedule meetings with you in currently-available time-slots without you having to share your calendar [disclosure: I’m an advisor]. For example, here’s what the founder’s (Josh Baer) availability looks like:

whenbusy schedule

Instead of trading emails with lists of available time-slots, Josh just sends the link to this page and the other person uses the product to schedule a meeting. This is the viral step: Having trialed the tool, the stranger might use it herself, then more people find out about it, and so forth.

Note that at no point did I say “a button lets people ‘like’ this on Facebook.” I know of no companies who have “gone viral” because of buttons. Buttons are good — why not use them? — but they don’t make your product intrinsically viral like WhenBusy.

Which is OK — not all products need to be viral! But if it’s not viral you still need a killer method of finding customers, and if it is supposed to be viral it better be encoded in the DNA of the application, not bolted on as an afterthought.

Frightening honesty

Balsamiq Mockups is a ludicrously popular wire-framing tool. The software is good — don’t get me wrong — but what sets Peldi (the founder) apart isn’t prescient feature selection or bug-free releases, it’s his startling transparency. He published revenue figures even when they were still pathetic, he pledged loudly and eagerly to give away lots of free copies to non-profits, and he revealed all his (remarkably effective) marketing strategies (updated here) even though it meant competitors would learn them too.

He didn’t just have an “authentic voice,” he made public promises. That’s compelling.

He didn’t just “tell it like it is,” he gave up his marketing secrets and opened his company books. That’s newsworthy.

This isn’t merely “being human” and all that claptrap, it’s almost too much honesty, like when you ask someone how it’s going and they tell you about a weird pustule on their middle toe that’s been oozing since last Wednesday.

In a world where everyone and their brother is “joining the conversation” (oops, I use that phrase constantly!), you have to truly bare your soul if you want to compete on the transparency front. It’s not for everyone, and I’m not suggesting it ought to be, but there’s no sense in half-assing it.

Making Oprah cry

The number one mistake founders make when trying to generate press is talking about what the company does rather than telling a compelling story.

Does Twitter get press when it helps Iranians fight an illegitimate government or when it creates a new internal IT process to increase up-time? Does Apple win the hearts (yes, hearts) of millions because of their obsession with design or because of their development APIs? Does 37signals have over three million users because their software is “better” than the competition, or is it because they motivate designers and entrepreneurs through their writing and philosophy?

Without a powerful narrative, your chances of getting big press and enthusiastic users who spread the word for you approach zero as a limit.

It took me years to figure this out at Smart Bear. At first when someone asked what the Smart Bear tool suite was, I would say:

Smart Bear makes data-mining tools for version control systems.

It’s a description so esoteric that, although accurate, not even a hardcore geek would have any idea what it is, much less why it’s useful.

Years later, when it was clear that code review software became our sole focus, I got better at describing it:

You know how Word has “track changes” where you can make modifications and comments and show them to someone else? We do that for software developers, integrating with their tools instead of Word and working within their standard practices.

Better, yes, and for a while I thought I nailed it, but still no press. Eventually (thanks to helpful journalists) I realized that I was still just describing what it is rather than why anyone cares. I left it up to the reader to figure out why she should get excited.

Eventually I developed stories like the following, each tuned to a certain category of listener. Here’s the one for the journalists:

It’s always fun to tell a journalist like you that we enable software developers to review each other’s code because your reaction is always: “Wait a minute, you’re seriously telling me they don’t do this already?” The idea of editing and review is so embedded in your industry you can’t imagine life without it, and you’re right! You know better than anyone how another set of eyeballs finds important problems.

Of course two heads are better than one, but developers traditionally work in isolation, mainly because there’s a dearth of tools which help teams bridge the social gap of an ocean, integrate with incumbent tools, and are lightweight enough to still be fun and relevant.

That’s what we do: Bring the benefits of peer review to software development.

Now the reason for excitement is clear: We’re transforming how software is created, applying the age-old techniques of peer review to an industry that needs it but where it’s traditionally too hard to do. That’s a story.

It took me five years to figure out (a) I needed a story and (b) what the story was. It’s hard. But one story beats a pile of AdWords A/B tests.

Advertising → [transmogrification] → Revenue

Yeah yeah, nowadays marketing is about “relationships” and “authority” and other things which cost time but not money. It’s all I hear about anymore.

But don’t be so quick to throw out the idea of spending money to make money. Advertising isn’t dead; you can still buy eyeballs. I’m not talking about “triage” strategies like buying AdWords linking to a page of ads, I’m just pointing out that most companies on Earth don’t depend on “joining the conversation” to acquire customers.

It sounds simple: The average cost of acquiring a customer is $C (advertising, sales, support, doing demos) and the lifetime revenue you get from that customer is $R, so if C < R you have a business. C can be driven down with cheaper ads, better lead quality, a more efficient conversion rate, and straightforward trials with minimal tech support.

Of course it’s not that simple, and many business plans I’ve seen (unintentionally) omit many of the true costs of acquisition. Read this great interview with Sean Ellis at VentureHacks for a great discussion of how to seek a repeatable, profitable model where C < R, and then optimize and grow. It’s a little heavy on the “huge VC-style company” strategy for my style, but you’ll come away with a strong perspective on how to build a machine that turns advertising dollars into (a greater number of) revenue dollars.

Celebrity Championship

I already beat you to death about how celebrity endorsement can serve as an untouchable competitive advantage, and it’s also an answer to how to burst out of the dull roar of Internet marketing.

Take me. I’m no Seth Godin, but consider what I could do if I were a co-founder in a new software development tool company:

  • I have personal relationships with the CEOs and other influencers at hundreds of software development companies. During ideation, they would brainstorm. During beta-testing they would be guinea pigs. After release of v3.0 some would be ready to become paying customers.
  • I have relationships with editors of nearly all software development publications (on-line and off); I’ve already published articles with them. Some would help vet our stories, some would publish our articles.
  • I’ve bought ads in every major (and quite a few minor) software development websites, magazines, newsletters, conferences, and webinars. So when it’s time to advertise, we’ll come in with the right message for the audience and probably cut a deal.
  • If you read this blog you’re probably a software developer, so even just a few mentions here might be more powerful than $10,000 in A/B tested Google AdWords.
  • If we were trying to raise money, my previous success would not only get us the initial meetings but would be a significant bump in our chance of raising it.

While everyone else is mucking about with a new blog, blasting their LinkedIn network with pleading emails, and paying out the nose to test AdWord variants, we’re years ahead in the marketing war.

Let’s generate more ideas

Share the love in the comments section. Let’s come up with more ways to reach customers that isn’t the same as everyone else.

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It’s time to nut up or shut up

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It’s time for me to nut up or shut up.

I need to put my money where my mouth is.

We’re going to separate the men from the boys.

I’m going to whip out the dick, slap it on the table, and get out a ruler.

Did I miss any other clichés?

I’ve been lecturing you about how to build honest, successful little bootstrapped startups for a few years now, and you’ve been patient, attentive, and in those spunky moments which I very much appreciate, vehemently argumentative.

But I can’t rest on my laurels. I need to build a new company and do it in front of you, so you can see me walk the walk. Smart Bear is no longer a sufficient excuse for me to give advice.

See, my companies Smart Bear and ITWatchDogs are both in a can’t-fail situation with regard to my personal reputation. Yes they were successful, but both were sold, which means if anything goes wrong I can just blame it on the new guys and I retain a pristine reputation.

That’s nice for me I suppose, but it ought to give you pause. What if the reason Smart Bear was successful is different than what I’m preaching here? What if it was mostly luck? What if the lessons I learned then aren’t as applicable now? What if all this is just survivor bias?

Can he do it again?

Let’s find out.

I’ve started a new company called Fast, Secure, and Scalable WordPress Hosting. It’s real: this blog and 50 others are hosted there right now.

I could describe it and tell you why you should host your blog there too, but another thing I’m going to do is bring you along in the journey of making this company: The thought process in decisions we make, the mistakes, the successes, how we recognize the difference, how we interact with customers, how we thrill some, how we piss others off, and how we expect to pay the bills.

So check out the website! What do you think? What’s your first reaction? We can chat in the comments about what’s good and bad.

Oh, and of course if you’d like to experience this yourself — both an awesome WordPress experience and working with me and other super talented people on this new venture — sign up for a site and join the party!

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Impossible that @ChrisBrogan and I are BOTH right, so don’t listen to either of us

Tweet this! — Learn How Human Business Works – Beyond Social MediaChris Brogan, prolific social media how-to author, blogger, and $22,000/day consultant, recently wrote a post describing his “Simple Blogging Formula” in under 1000 words.

In case you needed proof of the efficacy of this formula, know that the post was re-tweeted 700 times and Chris currently enjoys an RSS readership north of 57,000.

Thing is though, I do almost the opposite of his formula. Such as (like, the Iraq, and, such as):

  • Chris: “I try to blog almost every day … first, and foremost, my assumption is that frequency matters.”
    Me: I post once a week, occasionally twice, sometimes less.
  • Chris: “Decide what the post should do for you: [list of possible goals]  I start each post with a plan of what I want it to do.”
    Me: I try to convey something I find interesting and useful, something I didn’t know before my own successes and failures. I have no other “purpose;” rarely is there a call to action. I hope folks will share posts they like and subscribe if they want more, but even that doesn’t have a defined goal.
  • Chris: “I start with a headline … I then find a picture on Flickr … [then I write it]”
    Me: Posts start with a concept, but rarely is my headline still correct by the end of the writing. Pictures or cartoons come last of all, designed to reinforce and enhance the writing rather than define the subject of the content.
  • Chris: “I make sure that post is brief, unless I want bookmarks, and then I make it much longer.”
    Me: My posts are like Fight Club bouts: They go on as long as they have to. And my natural style is to write longer articles. (Read: I like to hear myself bloviate; Or: I’m not good enough to be pithy; Or if you’re feeling generous: I have a lot to say.)

You could point out that I have a paltry 17,000 RSS subscribers instead of his magnificent 57,000 and that this post will be probably be re-tweeted a measly 100 times instead of 700, therefore Chris wins. But aren’t my numbers impressive enough to be called a “success?” Both formulas appear to work.

So who’s right? And how do you pick which formula to copy for yourself?

It’s logical to select Chris’s formula, particularly since it’s nearly identical to that professed by the other power-house how-to blogging sites like Problogger (133,000 subscribers) and Copyblogger (129,000 subscribers). Who could argue with such empirical success? Not me.

And yet, of those hundreds of thousands of adherents, how many enjoy similar levels of RSS devotion and Twitter-powered adulation?  Or even an order of magnitude less like me? Almost none. So is it truly a formula, as in “formula for success?” I don’t think so.

Besides, for every successful site following the “frequent, brief, goal-oriented” formula, there’s another — like mine — that is the opposite (“infrequent, lengthy, purposeless”) with plenty of success as well. But that doesn’t make my style a formula either.

In fact, the only conclusion you can draw is that, like building a startup worth millions, creating a popular blog cannot be accomplished by following a formula. Or rather, there isn’t a single formula which produces success, or even dramatically increases your chance at success over other so-called formulas. (Formulae?)

So instead of following rules about post length, post frequency, writing style, whether bullets points and choppy sentences are good or evil, whether it’s OK to curse, or how many link-sharing icons you promote, none of which seem to actually correlate with the success of a blog, I suggest you ask yourself this:

What easiest for me?

If you don’t have more than 200 words to say, don’t fluff it up. If you love spinning out protracted sentences sewn loosely together with armies of semicolons, do it. If you have a visceral need to provide three specific examples immediately following an a sweeping generalization marked by a large, red font, follow your rhythm.

After all, one thing successful blogs do have in common is that the writing matches the personality and quirks of the author. So embrace your quirks!

When you reinforce your natural behavior instead of cramming yourself into someone else’s box, you’ll automatically write better, write more, communicate better, and be happier doing it. It maximizes your ability to create something awesome.

Indeed, there’s one thing Chris mentions almost as an aside which is echoed in all blogging advice you get anywhere, including from me:

“If you’re not creating great stuff, then people move on.”

I would add:

If you’re not creating great stuff, people won’t subscribe in the first place, and they won’t re-tweet you or otherwise spread your links, and anyway, what are you doing?

As I’ve detailed at length, I believe content + luck = blogging success. Everything else is style. Everything else you can take or leave. Everything else you should mold to your own abilities and preferences and goals.

Less time reading advice, more time doing!

(Except reading my advice, of course! Remember, my ego is inexorably tied to the re-tweet and RSS count. Don’t think for a minute I’m being sarcastic either…)

Oh yeah, I almost forgot, Chris says I need a call to action.  OK, subscribe, then re-tweet, then leave a comment about how this is idiotic or wise or obvious or clarifying or …

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Killer articles on startups

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Keepstream is one of the five Capital Factory companies graduating today at Demo Day here in Austin. With their new web tool you can collect tweets and snippets, arrange as nicely-formatted collections, then share directly or embed in blog posts as I’ve done below.

Besides shilling for them, I’ve been wanting to make these kinds of posts periodically. It’s nice to highlight awesome articles about startup that I didn’t write!

(Full disclosure: Through Capital Factory I’m both an investor and mentor for Keepstream.)

New Blog Post: “You’re a developer, so why do you work for someone else?”
You’re a developer, so why do you work for someone else? | Intermittent Intelligence
Aaron Brazell
POST: Everything I Needed To Know About Entrepreneurship, I Learned from Star Wars
Everything I Needed to Know About Entrepreneurship, I learned from Star Wars —
Dharmesh Shah
6 Simple Selling Tips For Software Entrepreneurs (from OnStartups)
6 Simple Selling Tips For Software Entrepreneurs

6 simple tips for selling more software.
Mark Suster
US Economic Risks (Sept 2010): Impact on Investors & Entrepreneurs
US Economic Risks (Sept 2010): Impact on Investors & Entrepreneurs | Both Sides of the Table

This post was originally published in a shorter (more sensible) format in the Wall Street Journal online.  If you’re short on time click on the WSJ link and
Steve Smith
Startup Business Checklist 2010
Startup Business Checklist 2010 : Steve Smith’s Blog

Below is my current checklist for startup businesses in 2010.  This is meant to be relatively industry-agnostic and focuses primarily on online components of the business (meaning, it may not apply to businesses which avoid the Internet for whatever reason
Neil Davidson
New blog post. Pricing a breakthrough product:
Pricing a breakthrough product – Business of Software Blog

If you’re a horse rider then coming off your horse is something that’s going to happen to you occasionally: This rider survived – walked away, in fact – because he was wearing a special protective jacket. As the rider fell,…
Jason Shen
How To Land a Killer Job At a Tech Startup Out of College –
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New Product: USERcycle – a better way to track and engage your customers: #leanstartup
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Great parable by @edwinmoh on what the VC world is like:
Football+babyThrice Around the Block: The Growth Mystique: A Silicon Valley Parable

Thoughts on marketing, technology commercialization and Silicon Valley startups by a high tech executive
Alexander Blom
Great basic guide on VC / Startup liquidation preferences:
Beware the trappings of liquidation preference | VentureBeat

Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, PLLC, a boutique corporate law firm specializing …
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RT @BobWalsh 5 Mistakes Developers make Selling to Developers
5 Mistakes Developers make Selling to Developers
Seth’s Blog: But what have you shipped?
Seth’s Blog: But what have you shipped?

Yes, I know you’re a master of the web, that you’ve visited every website written in English, that you’ve been going to SXSW for ten years, that you were one of the first bloggers, you used Foursquare before it was…
How we collect first impression feedback from our new users by sending a simple welcome email –
I Welcome New Users on Tuesdays – Prefinery Blog

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How a startup should leverage a virtual assistant

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rob_wallingRob Walling generously allowed me to reprint this excerpt from his new book, “Start Small, Stay Small: A Developer’s Guide to Launching a Startup” available in paperback and Kindle from Amazon and in PDF and ePub from

Rob is one of the most successful “micropreneurs” — creators of small, cash-generating startups frequently sold for cash. He blogs to 10,000 web entrepreneurs at Software by Rob and co-hosts the podcast Startups for the Rest of Us.


I receive essentially the same reaction when I mention that I use virtual assistants, and that I recommend them for anyone starting a startup. It’s a mix of shock and excitement.

They’re shocked I’ve been able to pull it off, and excited at the thought that they might be able to do the same. The conversation almost always turns to questions about where to find virtual assistants and how a startup can use one.

This article intends to answer those questions.

What is a Virtual Assistant?

A virtual assistant (VA) is a remote worker hired to complete tasks you should not be doing as the founder of a startup.

These can be research tasks, like finding every tech blogger who blogs about cats, repetitive tasks like creating 100 affiliate links for products in a Word document, or ongoing tasks like monitoring a handful of job boards and posting new jobs to your website.

The term VA has grown to describe any remote contract worker, including people who help with audio editing, video editing, bookkeeping, webmaster tasks, link building, and so on. A VA can be domestic or international, as long as they have a computer and an email account.

Why Should My Startup Use a Virtual Assistant?

startups-for-rest-of-usOutsourcing to a virtual assistant will dramatically reduce the time you spend on administrative tasks, and increase the time you can commit to growing your business.

The value proposition of a VA deals with how you monetize your time. If you monetize it at $50/hour and you can pay a VA $6/hour to handle administrative tasks, this frees up time for you to create real value in your business by developing new features or expanding marketing efforts.

Performing tasks you could pay someone else $6 to accomplish is a foolish use of an entrepreneur’s time.

My VAs have saved me literally hundreds of hours over the past few years.

[Editor’s Note: This is especially true for you starting up while still employed where your time is scarce and your existing income should be used to buy more of it.]

Case Study: How I Launched One Month Earlier Using Outsourcing

More than two years ago, my business partner and I discussed launching a hosted version of our ASP.NET invoicing software, DotNetInvoice.

We developed the plan and task list, and estimated the effort at around 160 hours including development time needed to make DotNetInvoice a multi-tenant application. But given the heavy competition in the hosted invoicing software market and the level of effort of the task, it was continually placed on the back burner.

The Shearing
After our initial estimate, every six months for the past two years we’ve revisited the idea of a hosted version until one day in November of last year.

On this day we stopped looking at the hosted version as a new product line, and started looking at it as a market test; to see if we could build enough of a customer base to warrant a major investment in the hosted invoicing market space. With that in mind, things started flying off our “must-have” list.

One large piece we removed was automating sign-up and provisioning of a new hosted installation.

In an ideal world, when a customer wants a new hosted account they would fill out a web form with all of their information and their new hosted version would be ready in 30 seconds. But that amount of automation — given the fact that we have to create a new sub-domain, a new database, and copy physical files — would take a substantial amount of time to develop and QA.

So we tossed it.

Another feature we left on the cutting room floor was the need for a custom purchase page; a page where someone enters their details to make the purchase. In a desperate attempt to bring this entire project down to less than two days work we simply utilized PayPal subscriptions.

Not the optimal approach, but it works quite well for testing out an idea before we invest another day into this project.

Iteration vs. Automation
As a developer, the features we dropped seem like a necessity from day 1. Not automating this process creates the ongoing repetitive work that computers are designed to handle. Manual work — this is what computers are supposed to save us from!

But by getting over the need to automate everything to infinite scale and putting a VA in charge of manually creating new hosted accounts, the time investment to get this feature launched dropped from 160 hours of work to about 10 hours.

I can hear the cries of developers around the world as I write this: “You can’t launch a half-baked solution! You’ll never go back and fix it!”

Most of us have worked in corporate environments where you’re never allowed to go back and refactor code. This burns into our psyche that you don’t want to launch a semi-functioning solution because you’ll never have time to go back and fix it.

But the benefits of being my own boss and being a tiny software company are that I can come back to this anytime. In fact, the day the amount of money paid to my VA for handling this task exceeds a certain amount, I will be very motivated to automate it.

Ideally, by the time I code it up, we’ll have many customers using the platform which means I’ll be working on a product I know is viable, and that’s paying for the time I’m spending to automate it.

Agile Development, meet Agile Business.

Through a bit of outsourcing to a VA, you can get to market with less up-front expense and in dramatically less time than if you try to automate everything.

Had we chosen to automate everything, the worst potential outcome would have been investing 160 hours of time (a huge amount of time for a startup), and then scrapping the whole thing. When you’re working on a small team you can’t afford to throw away that much time.

The Lesson
The lesson is that before you launch your product, think about the processes you can avoid automating.
How about reminder emails? How about monthly billing? Could a human being run a report once a month and send emails or charge credit cards?

This is not the paradigm we typically think of as developers because we’re used to enterprise IT shops where everything has to scale infinitely.

As a startup, you’ll have plenty of time before you need to scale, and you may never need to scale if the idea doesn’t work. Every hour spent writing code is wasted time if that code could be replaced by a human being doing the same task until your product proves itself.

The Two Points When a VA is Most Helpful

There are two key points during the life of your startup where your life will be much easier if you use a virtual assistant (VA):

  1. While proving out your product/market
  2. After your product launch

Let’s look at each one.

Point #1: Developing a Proof of Concept

In the DotNetInvoice case study above, I used a VA to short-circuit my product development time so we could begin to prove out the product’s concept with much less effort than if we had built everything in code.

As I’ve automated pieces of my businesses, I’ve noticed an interesting trend: nearly anything I try to automate is easier to outsource first, then automate down the line once the volume warrants it.

The reason for this is that at any given time you’re likely to have, say 30 tasks on your plate, and you should be trying to remove as many as possible from your task list; both one-time and ongoing tasks.

Out of 30 tasks you might be able to outsource 6 or 8 of them tomorrow if you spend 2-3 hours today writing up the processes. Compare that with automation, which can take a week or more to get each task off your plate since it takes a lot of code to automate a task.

As a startup, one of your advantages is that you move very quickly. You can roll out new features much quicker your competition. And being able to manually process some parts of a task can often reduce your development time by 50-80% which allows you to get the feature out the door and in front of customers.

If customers decide to use it, then you can automate it. If not, you can throw what little time you spent on it away. You develop the minimum required functionality to make the bare bones feature work; nothing more. You scaffold the rest with a human being; your VA.

Then, as needed, you improve the back-end automation iteratively.

Your startup time plummets to near zero even though your maintenance costs are a bit higher since you’re paying someone an hourly rate to handle the task.

But that’s ok, because every task you outsource to someone making $6/hour is a task that frees you up to develop new features and focus on marketing — things that make you a lot more than $6/hour.

In addition, outsourcing provides you with a written process for the task that serves as a blueprint if the time comes later to automate it.

Point #2: After Your Product Launch

The next most important time to use a VA is once your product has launched and you need to begin supporting customers.

Customers make it necessary to put processes in place for marketing, sales, support, and back-end admin tasks. Any ongoing work that can be described in a written process can be outsourced to a VA and save incredible amounts of time for the founders.

If you do not outsource these tasks, they will get in the way of work that’s truly productive for your business.

While most entrepreneurs feel like they need to keep the reins on level 1 email support, level 1 sales questions, manning the live chat window on your website, directory submissions, minor HTML tweaks, keyword research, link building, following up on canceled subscriptions, and running month-end reports, getting these tasks into the hands of a competent VA frees up vast amounts of time that can be spent growing your business.

And the cost is negligible.

Don’t fall into the trap of needing to handle everything yourself. You are now an entrepreneur.

Case Studies

Here are two case studies to give you an idea of how you might use a VA in your own startup, whether serving a core business function or as administrative support.

Case Study #1: Market Research

In 2009, I launched the Micropreneur Academy, a private membership community for startup founders. For the launch event I wanted to contact several bloggers in the startup and microISV space.

I have a list of blogs that I read and quickly added them to my list to send a personal, targeted email to each. I receive enough pitches each month to know that sending a mass email to bloggers doesn’t work.

In the back of my mind, I knew there were other startups/microISV blogs out there that I don’t read, but I didn’t want to spend the time to track them down. More importantly, I didn’t want to spend the time trying to find their contact information. Enter my VA.

I tasked my VA with finding blogs that deal with startups/microISVs and rank in the top 100k in Technorati. The deliverable was a Google spreadsheet containing the blog URL, blogger’s name and blogger’s email.

The final spreadsheet contained 28 blogs. It was up to me to go through each one and become familiar with their content, determine its relevance to my message, and craft a targeted and personal email. Many blogs dropped off the list after a quick glance, but in the end the time saved by delegating this research task to a VA was well-worth my $12.

Case Study #2: was an e-commerce site I purchased with hopes of a high level of automation.

The problem is that beach towel dropshippers are not the most high tech businesses, and none of them offered any kind of API for order placement. All orders had to be manually placed through their web-based shopping carts.

In the early days, I planned to build a screen scraper to pull orders from my database and automatically place them with the four dropshippers I used, but realized the level of effort and QA that would be required for this were substantial and the resulting interface would be brittle due to the screen scraping.

Instead, I assigned a VA to place all of the incoming orders. I never revisited automation due to the lack of ROI on the time it would have taken to build the screen scraping interface.

Running the site using a VA instead of automation saved me time in the long run, as I would never have made back my initial time investment on the 50+ hours required to fully automate the order placement process.

Easing Into a VA

Outsourcing is a learned skill, just like writing code. If you rush into it too quickly, you’ll wind up disappointed with the results. This is most often due to the fact that you don’t yet know how to work with a VA.

One of the plusses of having a VA is that you can ease into them over the course of several months. Since utilizing a VA is a learned skill, you are best to start slowly by finding someone who will work on individual tasks, then move to part-time if needed, and finally to full-time.

These hiring arrangements are described below:

  • Task-based — ($3-10/hour overseas, $12-50/hour in the U.S.) You assign your VA an individual task and give them a deadline and maximum time to spend on the task. Since your VA works for other clients, they are in charge of prioritizing all of the tasks they receive. Task-based VA’s are a great starting point to learn the ropes of delegating.
  • Part-time — ($2-7/hour overseas, $10-$40/hour in the U.S.) Part-time VA’s are dedicated to you for a certain portion of their week (typically 10, 20 or 30 hours). Part-time VA’s are cheaper by the hour than task-based VAs, but you need enough work and experience to keep them busy during the time you are paying for.
  • Full-time – ($1-$5/hour overseas, $8-35/hour in the U.S.) As you might imagine, a full-time VA is a lot of responsibility. While offering the lowest hourly rates, you need 160+ hours of work to keep them busy. If your VA is self-managing, you can lay out tasks a month at a time. If they need supervision, it’s probably not worth bringing them on full-time.

The Steps

The key to learning how to work with a VA is experience. The question is: how can you get started easily and with little risk? The steps are:

  1. Find a VA
  2. Start with a single task and gradually increase the amount of work as you gain comfort
  3. If things don’t work out, find a new VA

When I began outsourcing three years ago I found that when I received the finished product I was elated that I hadn’t spent 3-4 hours doing it. This made me realize how many other tasks I was able to accomplish during that time frame.

Step1: Finding a VA

I’ve had the best results hiring VA’s in the Philippines. This is not to say that the U.S., India, Bangladesh or other countries do not have quality VA’s, but the Filipinos learn English in school, do not tend to be entrepreneurial (thus are less likely to steal ideas), and are culturally service-oriented.

You may find another country to be more compatible with your management style, but after working with 10+ VA’s, I now work almost exclusively with Filipinos. The main exceptions are my audio and video editors in the U.S. and Canada.

In my experience, you will be best off with one of a few choices when looking for a VA:

  1. Task-based VAs
    • Search ODesk under Admin Support -> Personal Assistant or Other.
    • Search Google for “virtual assistants.” Typically the best looking websites are the firms that have their act together.
    • Search Elance under Admin Support -> Admin Assistant.
  2. Part-time VAs
    • Search ODesk under Admin Support -> Personal Assistant or Other.
    • Search Google for “part-time virtual assistants”
  3. Full-time VAs
    • Search ODesk under Admin Support -> Personal Assistant or Other.
    • Search Google for “full-time virtual assistants”

I’ve had positive results and have personally hired a VA using every method listed above.

My current favorite is I’ve had exceptional luck with them, and their project management tools are helpful in making sure your VA is working on your tasks. Their time clock takes screen shots of the VAs screen at random intervals so you can see the task they are performing.

A Note: Solo vs. Team

Many VA’s work in teams, whether under the umbrella of a single company, or in a loose affiliation.

Solo VA’s tend to be cheaper than team or larger firms.

For recurring work that’s critical to your business, it’s nice to work with a team. You will typically have a primary VA but when he’s on vacation his replacement will step in.

For ongoing work that’s not terribly time-sensitive, I’ve found solo VA’s work out well.

When getting started, my advice is to stick with a larger VA firm. You will pay a little more but you will have more reliability, higher security and will be able to easily find a replacement when you need one.

How to Evaluate a Potential VA

My first piece of advice is to avoid spending too much time worrying about screening your VA before you hire them. In the end, how well they work out depends entirely on how well they accomplish their tasks.

In other words, reliability and the ability to understand your instructions and ask good questions are the key factors. Without hiring someone you can’t get an idea about their reliability; only about their ability to understand and ask questions.

To do that, you need to evaluate their written English (or whatever language you will be working in). This includes hiring U.S.-based VAs; competent written English skills are not a given even for native speakers.

If you’re looking for general help, the only noticeable difference between the 10 VA’s you are screening is their hourly rate and their ability to speak and write English.

If you need specialized work performed, you may have an additional requirement that they also know how to edit audio, for example. In that case, ask for samples of past work and experience doing the exact task you will have them to do.

The best way I’ve found to evaluate English skills is to email back and forth a few times, asking 2-3 basic interview questions. This will be a good indication of how well they will be able to understand your instructions, and their responses are a good indicator of how well you will be able to understand their questions. The best approach is to email with 3-5 VA’s at once to speed up the process.

If you’re working with a VA firm, I recommend requesting someone with excellent written English, and performing the step above with that person. If they don’t live up to your standards, request a new VA and repeat the process.

In the past I’ve asked for writing samples but this has failed me. The problem with asking for writing samples is a VA can easily send something that’s been heavily edited, or a piece written by someone else. During an email exchange you can be certain that you’re catching a true glimpse of their English abilities.

Step 2: The First Task

Properly utilizing a VA is a learned skill. Very few developers will do it right the first time, which leads many who try it to give up after the first attempt. To keep you from falling into this trap, we’re going to look at the best way to delegate, describe and limit tasks in the section below.

After determining your VA has solid English skills, the next step is to send them your first task. You should be able to tell after one task if they are going to work out.

If you’ve never worked with a VA, you should assume they are not technically minded. They will have basic computing skills but are nowhere near techies, so you have to prepare instructions for them as if they were your mom or dad (or at least my mom or dad).

The following is unlikely to work:

Open a command prompt and type ‘ipconfig’

But this should:

In your start menu go to the Run menu, type ‘cmd’ and hit enter. Once the window opens type ipconfig and hit enter.

With that in mind, here is how I suggest you assign your first task:

  • Back everything up before you let them touch production files. It’s unlikely they will be malicious, but they might accidentally break something.
  • Provide detailed instructions in bulleted/numbered format.
  • Screenshots help enormously. Screencasts are even better. I record multiple screencasts each month for my VAs. Jing is perfect for this.
  • Timebox your requests. As an example, let’s say you have twenty blog URLs and you want your VA to find the contact information for each one (whether it’s an email address or a contact page). Provide the list of URLs to your VA and indicate they should work for 1 hour and then update you on their progress. In this manner you can both check if they’re doing it right, and see how long it’s taking them. If it’s taking longer than you think it should, ask how you can help.
  • Assume they are not as fast as you are. If 1 URL takes you 1 minute, assume it will take your VA 5 minutes at first and they will eventually get down to 3 minutes. They will never be as fast as you are. But at $4-6/hour it’s hard to complain.
  • If you have a timeline, spell it out (e.g. “I need these by tomorrow”). If not, let them know you can wait 2 days for the results. They work when we are sleeping so you’ll never get anything the same day.

Step 3: If Things Don’t Work Out, Find a New VA

Finding a VA is about trial and error. I’ve worked through more than 6 VA’s to find the folks I work with today. It’s a similar process when finding a designer, developer, or any outsourcing partner. You can only tell so much from a resume; the best way to evaluate is to try them out, and this means if they don’t work out you should make the decision quickly to find someone new.

It’s critical that you feel comfortable with the person you’re working with. It’s better to cut someone loose early in the relationship before you’ve trained them on the inner workings of your business.

If you’re working with a VA firm it’s easy: simply ask for a new VA and if you can, give a specific reason why the first one did not work out.

If you’re using an individual, head back to your stack of candidates from Elance, Google or ODesk. The odds are low that you will find someone great on your first try. But finding someone great will make a huge difference in the success of your outsourcing effort.

Did you make it this far? Awesome, let’s talk some more.

Let’s continue the discussion in the comments!

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The right way to position against competition

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This is Part 4 of the series: 5 lessons from 150 startup pitches.

After seeing hundreds of startup pitches for this year’s Capital Factory program, I can tell you that the two most common errors in positioning a company against competition are, strangely, opposites:

  1. Claiming you have no competition.
  2. Defining your company’s offering and positioning by combining “the best” traits of 6 competitors.

This isn’t just a problem when pitching — it’s a problem with you defining who your customers are, what they want, and your role in the marketplace.

Let’s break down the ways these fallacies manifest and what you can do instead.

There is no competition

Here’s what this sounds like in the wild, and my reaction when I hear it:

  • “I have no competitors.”
    Either you’re ignorant of direct competition, or your not considering alternate solutions like “build it yourself.”
  • “No one is doing it like we are.”
    Of course you’re going to position your company with a unique offering: exclusive features, a distinctive culture, a refreshing pricing plan, an innovative sales strategy, etc.. But uniqueness doesn’t imply lack of competition!
  • “There’s no competition because this is an industry that has never used software to solve this problem.”
    I know that sounds like a good thing, but what this also implies is that you’ll have to convince computer-phobic people to trust software, and that’s a disadvantage. You’re competing against the status quo.
  • “There’s no competition because people haven’t realized it’s a problem.”
    If they don’t already know they have the pain, the sales process is going to be excruciating. There’s a word for that — evangelism — which conjures other words: Expensive, difficult, time-consuming.

If you’re tempted to argue that you’re the exception, here’s how to elucidate the advantages you’re seeing, but in a way that actually makes sense as a business strategy:

  • We’ve carved out a niche specific enough that no one else is actively targeting it. There are similar competitors A, B, and C, but they’re not targeting this niche because of X, and would be hard for them to switch into this niche because of Y. In fact, it’s quite possible that we’d end up partnering with or being bought by A, B, or C exactly because our idea is similar but out of their reach.
  • We’ve identified a market too small for the large, established players to address, but big enough to build a company. For example, because an 800-pound gorilla like Microsoft is so inefficient at building new software, it can’t go after a market unless there’s a billion dollars at stake. We think there’s a solid business to be made in this hundred-million-dollar market. However, whereas Microsoft can’t afford to build this from scratch, if we show good growth and profits it would be an obvious acquisition target for them.
  • We’ve created technology so different from the incumbents that we’re changing the conversation about how people solve this pain.  Though it’s different, our solution is very easy to describe and to use. (Example: Netflix)
  • Our target customer has traditionally solved this pain themselves or just lived with the pain rather than paying for relief. However, a combination of newly-available technology and modern mindset makes this the right time for a new software play.For example, my company Smart Bear created the first commercial peer code review tool. Before us, there was no software competition but there were plenty of alternative processes — looking over someone’s shoulder, sending emails with diffs, code review meetings, even “Formal Inspections.” By tackling a few specific annoyances with peer code review and leveraging newer technology (like the advent of ubiquitous version control), we completely changed what a “code review” could be.
  • It’s true that this industry hasn’t yet seen a software solution, but that’s not because they hate computers, but rather that it hasn’t been possible to address that market with software. Now it is because (pick one):
    • We’ve built an improbable team that spans geeks and industry insiders.
    • New hardware/networks have just appeared which makes this possible.
    • New attitudes towards the Internet (e.g. ubiquity of Facebook even among traditional technophobes) enables new workflows.
    • This industry is commoditized so giving a player the slightest edge is a big deal.
    • This industry is just now starting to show tangible signs of embracing technology.
    • We have three lead customers signed up for alpha testers; if we make them successful the case studies will be all the evangelism we’ll need.

Defining your company by the competition

Your company is defined by its own strengths, values, customers, and products, not by how it compares with other companies. You need a strong position, something that would be equally clear and compelling even if competitors didn’t exist.

Here’s some ways this mistake manifests:

  • “We combine the best traits of our competitors, letting them show the way to our success.”
    I like the idea that you can learn from the mistakes and successes of similar companies, but “combining the best” misses the point. There are specific tradeoffs each of those companies are making; things you see as “not best” might in fact be best for their target market. Why are you sure that your notion of “best” will result in enough customers who not only agree with you, but is so convinced that they’re willing to switch to you?
  • The rubric.
    A chart with one row for each “feature” and one column for each of six “competitors.” There’s checks and X’s everywhere, except of course a glowing, highlighted column representing your company which just happens to be full of checks. C’mon, everyone knows this is bullshit; it’s insulting.
  • “We’re just like competitor X, only we’re Y.”
    In that case you’re betting your future on the fact that Y is overwhelmingly compelling to a large market segment. X automatically has advantages over you (brand, customers, revenue, inside knowledge, a team, momentum), so Y had better be brain-explodingly awesome.
    Oh, and it’d better be impossible for X to implement Y — or even 1/3 of Y — themselves. Talk about putting your fate in others’ hands!
  • “We’re the same as X, only cheaper.”
    Being cheaper is a strategy, but it can’t be your only strategy. It’s too easy for competitors to change price or offer deals. Typically the best customers aren’t as price-sensitive anyway, so you’re actually biting off a less desirable segment of the market. Often this claim is paired with “We’ll do 70% of the features for 50% of the price,” but supplying less for less is not inspirational.

So how do you look inward to establish your company, contrasting with the competition but not letting the competition dictate your identity?

  • We’re targeting the market segment defined by X, Y, and Z.  We’ve spoken with 20 potential customers who match at least two of those criteria, and they agree our product is exactly what they need and that none of our competitors are doing an acceptable job addressing their issues.
  • Our company has core value X that we exude everywhere from our AdWords to our tech support to our product. (Example value: Simplicity. A simple product with few features, low-cost, pain-point obvious, not tackling complex problems, focussed on making life easier rather than on saving money.) We own this value because we’re completely committed; this is the one point on which we will never compromise. Our customers know it and value this too, which is why it doesn’t matter what features, prices, or advertisement our competitors have.
  • This is the competitive matrix. Note that each player in this space is targeting a different market segment, as is clear from feature selection, pricing, and advertising/messaging. We, too, are targeting a niche; as you can see our offering is consistent with owning that niche, and doesn’t overlap significantly with competitors. It would be difficult for any of them to “switch” into our niche, because as you can see they’d have to change the product, pricing, and their company’s persona; that’s a risk we’re willing to take.
  • We’re going after competitor X. We know they already have a ton of advantages over us — well-known, well understood, and a deep feature list. However they haven’t done anything new in 3 years and we have evidence that their customer base is pissed off. Not only that, they’re famous for annoying attributes A, B, and C (Examples: buggy, slow, confusing, must install, expensive, crap tech support). We see a huge opportunity in their wake of destruction, vacuuming up their customers with our overwhelming advantage. They can’t do this themselves because they’re too big to turn the ship, and anyway the past 3 years shows they’re not able to change.

What else?

How do you cope with competition, incorporating it into your strategy while not letting it consume you? Leave a comment and join the conversation.

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A vote for me is a vote for dipshit businesses everywhere

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Let’s get the self-aggrandizing plea for attention out of the way:

Please vote for my SxSW panel entitled “A Bootstrapped Geek Sifts Through the Bullshit.”

It answers questions like “How do I get the courage to just start when I know so little about what it’s really like at a startup?” and “How do I balance the utility of learning from others with wanting to go my own, unique way?”

Plus it’s ironic; I’m giving advice about how to take advice. You know, like finding a black fly in your Chardonnay. (White flies are harder to see and therefore not ironic, you see.)

OK, now on to the good stuff…

Champion of the dipshits

Michael Arrington wrote an interesting piece today at TechCrunch about how VCs are pissed that great entrepreneurs are taking under $500k of angel money instead of $2m their money.

The real reason they’re pissed is that VCs are increasingly unnecessary to get companies started, both because of inexpensive technology and marketing channels and because there are enough angel investors that founders don’t have to sell the entire farm for ridiculous amounts of cash they don’t really need.

And then, for the few companies that really do need VC-sized investments to take them from product/market fit to explosive growth, by the time they start touring Sand Hill Road their valuations are sky-high; they’ve already got all the trappings of a successful company, the major risks having been removed during the angel round.

All this is explained in clear detail in Paul Graham’s his piece on the future of tech investing — a must-read for anyone interested in financing. He’s is biased, of course, because he leads the 200+ company Y-Combinator incubator, but his predictions have already come true for many founders I know personally.

Of course the VCs aren’t happy about this. This excerpt from the TechCrunch article made me livid:

The VCs, for their part, fight back more quietly. They point out that very few angel funded startups end up very big or interesting. “An entire generation of entrepreneurs are building dipshit companies and hoping that they sell to Google for $25 million,” lamented a venture capitalist to me recently. He believes that angel investors are pushing entrepreneurs to think small, and avoid the home run swings. And you don’t get a home run unless you swing hard, he says. When you play it safe you nearly always lose.

Rather than provide a cogent argument for why founders ought to take VC money anyway, the response is to call the company a “dipshit” and reveal the astounding arrogance that a few founders selling their company for $25m is somehow a failure.

To understand what’s really being said here, you have to replace the word “you” with the actual antecedents.  So: “When you play it safe you nearly always lose” should read: “When founders play it safe VCs nearly always lose.”

But founders often win.

That’s what gets me about this entire attitude — it’s about returns for their fund, not success for the founders. Which is how it should be, understand, because they have a fiduciary duty to their investors, not to the founders of the companies they invest in. It’s OK for them — it’s their job — but it’s not OK for you. “You” being “you, entrepreneur, reading this, the one who matters.”

At last year’s Capital Factory Demo Day, Mike Maples Jr. gave the keynote address. He gave the statistic that only 9% of the companies they invest in succeeded. And his venture firm is considered one of the more successful ones. (By the way, Maples is now doing super-angel deals. Interesting.)

The math is simple: Only one in ten companies need to hit, but it needs to hit big, like 100x the original investment. Of course no one wants the rest to fail, but every one will be pushed into explosive growth, which means strapping a rocket to the back of each one, even if that means the vast majority will just blow apart.

Great for them, bad for the founders.

The last thing they want is for founders to wake up and realize that this isn’t necessarily a good way to build a company. They don’t want you to realize that if you shoot for reasonable, profitable growth, it’s far more likely to work, far more likely to produce a company that not only pays the bills but is a valuable asset, one that you might sell someday for millions of dollars, like I did.

For them, a little, solid company for $25m to Google is dipshit material. For you and me, it’s a life-altering home run.

Until I hear a rational argument for why super-angels, angels, or friends-and-family rounds are worse for founders than a standard A-round from a VC, I’m just going to ignore these emotional, self-serving statements.

And I suggest you do too.

Focus on building a company you’re proud of, not how big and disruptive you can be. Focus on getting to profitability as the greatest measure of success. Focus on selling customers, not selling investors.

And vote for that SxSW panel so I can spread the Good Word to others.  :-)

Is my argument healthy or too far the other way? When is it right to take VC money right off the bat? Let’s continue the discussion in the comments.

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Yes, but who said they’d actually BUY the damn thing?

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This is Part 3 of the series: 5 lessons from 150 startup pitches.


Of hundreds of startup pitches at Capital Factory, almost none had unearthed 10 people willing to say, “If you build this product, I’ll give you $X.”

Meditate on this: Hundreds of people ready to quit their day jobs, burn up savings, risk personal reputation, toil 70 hours per week, absorb as much stress as having a baby (believe me, I’ve done both)….  all without identifying even ten measly people actually willing to pay for what they’re peddling.

Short-sighted, no?

If you can’t find ten people who say they’ll buy it, your company is bullshit.

Aren’t you sick of every startup blogger on Earth badgering you about this? Steve Blank says “get outside the building,” Eric Ries says “seek validated learning,” Sean Ellis says “seek product/market fit,” Drew Houston says “the only way to learn on a $0 budget is to talk to people.”

I say “find ten people who say they’ll buy.” I say “get off your ass and produce hard evidence that customers are in your future light cone.”

But you’re still not listening. You repeat these mantras at Lean Startup Meetings but you’re not doing it.

You’re understandably scared of been proved wrong, especially now that you’re all worked up about the new business idea, and extra especially after you’ve already told friends and family you’re doing this and they’re expecting you to complete your quest.

But jeez people, you’re not even trying. And worse, you’re inventing lame excuses for why you’re not trying.

Full power to forward shields y’all, I’m coming for you.

“I’m scratching my own itch. Since I’m my own target customer, I already know what to build.”

Oh! I didn’t realize your typical customer is observant enough to recognize monetizable pain, creative enough to invent products, able to convince others to work for free and invest money and time with you, and passionate enough to quit her job to pursue unproven ideas.

Fooey! By definition, if you’re a startup founder you’re explicitly not your customer.

“Scratching your own itch” is how all three of my companies started, but it’s only that — the start. It’s the spark of inspiration, not the strategy. It’s the grain of sand tickling the oyster, not the pearl.

Look! Smart people agree:

“Be a user of your own product. Make it better based on your own desires. But don’t trick yourself into thinking you are your user.”  Evan Williams, founder Blogger & Twitter

“If the VP of Engineering thinks the target customer is just like him/her, you’re doomed.  If the VP of Marketing thinks the target customer is just like him/her, you’re doomed.”  Cranky Product Manager

“Our customers did a lot of stuff that I would never do. We think differently. We solve our problems differently. We have different needs and wants. Repeat after me: You are not your customer.”  Eric Ries, Lean Startup leader (repeating a conversation with a startup founder)

In fact I challenge you to find one founder of a real business who thinks “I’m the customer” is the only market validation you need.

“There are millions of potential customers, so it doesn’t matter what only ten of them think. I need to just start; later I can survey and learn something statistically significant.”

If there are millions, it’s trivial to find ten. If you can’t find even ten, then either there’s not millions or those millions aren’t interested in you.

Businesses don’t start with millions of customers, they start with one, then ten, then a hundred, and then a thousand. But most don’t get past ten.

If you haven’t gotten ten to at least say they’ll buy, where do you get your hubris to proclaim that thousands actually will buy?

“My customers can’t understand mock-ups. I have to build it first.”

You shouldn’t need screenshots or PowerPoints to convince someone in your target market that what you’re doing is compelling. If your concept is so esoteric that you can’t describe it in 30 seconds at a cocktail party, it’s either too complex or you don’t understand it yourself.

Even if I concede that some folks can’t grok mock-ups, remember that your first customers will by definition be early-adopters who are OK with alpha software. If you can’t find a few of those and get them excited about your product, maybe your product isn’t exciting.

“I suck at sales/marketing; I need to build a product so compelling it sells itself.”

The world is filled with decent products that make no money. You know this!

Oh fine, you want empirical evidence? Here’s a list of the top 100 Twitter clients, and here’s some more. Now:

  • How many do you suppose are decent pieces of software that basically work?  (My guess: 80%)
  • How many do you suppose produce any revenue?  (My guess: 5%)
  • How many do you suppose produce enough revenue that, after hosting and marketing expenses, they result in a profitable company where the owner doesn’t need a day job?  (My guess: <1%)

Conclusion: If your goal is a business (not a hobby), building charming, novel software isn’t enough.

You and I know you have the ability to build cool new software. We agree that will be fun and exciting. But that’s not going to create a business.

Writing code is what you love, so you myopically decide that’s what you’ll do. But what you should do is just the opposite: Attack the part of the business you’re least sure of, you’re least qualified for.

If you’re still not convinced, think of it as project risk management. In a big software project do you tackle the high-risk, ill-defined stuff first, or do you postpone that to the end? Obviously you address the unpredictable stuff first — most of the project risk is due to the unknown, so the earlier you can sort out uncertainty the more time you have to deal with the consequences.

I’m making the same argument, except the “high-risk unknown” is “everything that’s not code.” Your code will be good enough; it’s the other stuff that will probably sink your ship — unable to find customers or unable to convince the target audience they should open their wallets.

No sense in postponing it.

“My friend/brother/co-worker/dentist thinks it’s a great idea.”

Your mother thinks you’re smart and good-looking, but that doesn’t mean I do.

It doesn’t matter what non-entrepreneurs think because they’re not versed product/market fit, squeezing blood from evanescent budgets, and using Facebook for advertising instead of sharing the latest FailBlog movie.

In fact it only barely matters what real entrepreneurs think, because they’re not expert in your problem domain, they might have outdated notions, they might be biased against certain ideas and technology, and they carry baggage from good and bad experiences (due as much to timing and luck as anything else).

The only thing that matters is that people are willing to give you money! Business “experts” can argue all day long that it makes no sense to buy shoes over the Internet, but as long as people give Zappos $1 billion per year, it doesn’t matter what experts say.

When ten people say they’ll give you money if you build this thing, that’s the only validation that counts.

What else?

What other excuses have you heard? Which excuses are you using now? Leave a comment and continue the conversation.

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