Welcome, my name is Roy Rodenstein and I love helping entrepreneurs. With this blog I aim to share what I've learned to help others start, and win. My hope is to develop how2startup into a wiki for the startup community.

5 Reasons Startups Move to Silicon Valley, and 5 Things Boston Can Do to Keep Them

October 20th, 2010    Share

Galen Moore, tech & finance journalist at Mass High Tech, recently asked for my views on why startups leave Boston for the Valley. While the topic comes up every few months, I think several factors are a bit different than what I usually hear discussed, and having done angel investments in both places now I think I have additional perspective.

Today MassHighTech published my comments, and I’m posting them in their entirety below as well. Look forward to feedback whether here, on MHT.com or Twitter!

The common knock on Boston is we don’t have enough angels, they don’t move fast enough, and they don’t invest in consumer Internet startups. That’s not really true.

There are some awesome angels here. I have co-invested with several, and they can move fast and add real value. Speaking for myself I feel like I have enough contacts and pull that I could get any solid company funded here.

That said, the reality is entrepreneurs do leave Boston to relocate in Silicon Valley (TaskRabbit, Baydin, WePay, etc., in recent memory). Here are five legitimate reasons why they’re doing so:

1) Number of Consumer Angels
There are about 30-40 active, fast angels in Boston with interest and/or experience in consumer. Not a small number, but probably about 10 times lower than the Valley. What Boston exit has resulted in a well-known, formalized group of angels coming out of it?
Since fundraising is to a degree a “game of chicken,” time and effort can be a barrier when entrepreneurs (especially first-time founders) can realistically only gain quick access to five to 10 angels.

2) Dollars/(Control+Speed) Ratio

Most consumer entrepreneurs these days, anywhere in the country, have read about and follow the ‘Lean’ startup mantra. Thus they want to maintain as much control as possible early on – e.g., not giving up a board seat or blocking rights for a sale – rather than rushing to VC money. Individual angels typically invest about $25,000, and with rounds commonly being $300,000 to $1 million, you can’t realistically fill that with 20 individual angels.
This means getting money from super-angels or micro-VCs.
And the number of well-known, easily accessible super-angels and micro-VCs in Boston is…roughly 1 – Founder Collective. NextView Ventures will be great, but they’re still fundraising. Many Boston VC firms are open to doing seed-stage investments, but Chris Dixon has (largely rightly) warned founders of signaling issues with those deals.

But bona fide, Boston super-angels or micro-VCs who will say “I’m in for $150,000” after one phone call, are near zero. Out west I can roll off Dave McClure/500 Startups, Ron Conway/SV Angel, Chris Sacca/lowercase, Mike Maples, Jeff Clavier, Eric Schmidt’s fund, etc., off the top of my head.

3) Not enough frequent investors
As a corollary, there are few angels or micro-VCs here doing investments with enough speed and volume that they treat them as calculated bets. There are examples of companies with a great idea but limited traction, or with big traction but a first-time founder, that are interesting enough for West Coast folks to place some bets on because they are doing 30 or 50 deals a year. For individual investors (like myself) or the scant superangels/micro-VCs here doing 10 deals a year, each one has to be thought through more fully.

4) Valuations and terms
As another corollary, founders are often in the driver’s seat these days when it comes to negotiating terms, and West-Coast investors are much more lenient. I think it’s again because when you do 30+ deals a year, any single one isn’t worth haggling over, but when you do five or 10, it can make a difference. The larger number of angels and small funds in the Valley makes greater competition for deals. This, combined with the higher tolerance for risky bets, means valuations can be double in the West versus the East. This isn’t always entirely good for entrepreneurs, as overly high valuations can come back to bite in a very bad way, but if all goes well and the company keeps growing, it’s great.

5) The Skynet Factor
To paraphrase Terminator II, the Valley is an order of magnitude closer to being self-aware, and evolving at a rapid pace as an innovation ecosystem. Chalk it up to the weather, social personalities, whatever the reasons. When I was working at PARC – Palo Alto Research Center – I started using Google when it was just a research project at Stanford. By the time other parts of the country started to try it, Google was an innate part of the fabric out West. This phenomenon happens in every consumer area. Whether it’s Y Combinator’s special access to Facebook’s latest private-beta APIs; knowing about 10 stealth but highly innovative startups; or sharing secret tips over beers on what viral or SEO or marketing technique worked for Quora, Mint or Tagged, there is a big knowledge-sharing and access advantage. Like having better information in the stock market, that makes a material difference in decision-making.

There are more wrinkles, but to me these are five key factors that are not discussed as often or as clearly in the coastal conversations.

What can we work on here in Boston? Five things.

1) Get some more consumer(-ish) exits and encourage more angel investing.

2) Build real channels to the Boston higher ed system, which, other than MIT (and to a degree, Harvard) is very disconnected from the venture community.

3) Do a better job guiding local founders on the options and routes for success in Boston. There are fantastic events here, but not as many focused on practical, actionable advice. I think what many founders want is no-attitude, frank answers from peers they can trust.

4) Continue encouraging New York (and hopefully San Francisco) micro-VCs and super-angels to invest in Boston-based companies. For example, I just co-invested in a Boston company with a top West Coast micro-VC and there was no pressure to move.

5) Be more transparent with Boston founders and acknowledge that the Valley has a lot to offer them. We lose credibility by not doing so. At the same time, more effectively provide access to all the key related areas where we excel, like mobile, SaaS and analytics.

photo credit: David Paul Ohmer

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Starting from The Heart: Bill Warner’s Founding Advice

September 28th, 2010    Share

Bill Warner Startups from the Heart Session

A few months ago I was a mentor at Startup Weekend and had the privilege of co-leading a session with Bill Warner. Besides being one of the most active and SF-connected angels in Boston, Bill is of course one of our entrepreneurial treasures in Boston, having founded Avid -which any video/photo/creative person or Mac fan will revere- as well as Wildfire, which besides being ahead of its time gave a big boost to Rich Miner, who went on to co-found Android. So, co-lead is a bit of an overstatement- as Bill has his Startups from the Heart approach down and I was happy to see it in person and contribute where relevant. I came away thinking that it’s definitely a worthwhile exercise for founders to go through early on.

Before that session I had heard of Startups from the Heart but hadn’t really understood what the idea was or how it worked. While not a complicated exercise, it definitely benefits from some discipline and faciliation. I’ll do my best here to explain it as well as my take.

Bill asks, not necessarily in this order:

1) What is your Intention?

My interpretation of this, without getting into semantics, is- “Why are you starting this company? What change would you like to see in the world as a result?” I think one of the obstacles some founders face with this question is that it can come across as a purely do-gooding bias. I think that is an aspect, and if it’s a core part of your startup that is fantastic, but I believe that this question is very relevant regardless. You need to be setting out to create a specific change and have real passion and intention to achieve it.

The #1 trip-up that the Startup Weekend participants faced here was getting into their product mindset right away. For example, a meeting-scheduling startup might be founded with this intention-

right: I intend to save people time and stress by taking the hassle out of setting up meetings

wrong: I intend to build a calendar for people to pick time slots for meetings

This is the key, though. THIS INTENTION IS ONLY “RIGHT” IF IT’S WHAT YOU ACTUALLY INTEND! The point of the exercise is not to change your mind, “get you to think big” or “sway you toward social responsibility.” It’s to make sure you are cognizant and can articulate your founding impetus. While this exercise may seem a bit silly and obvious to some, I think there is definite value in crystallizing and committing to what you intend. It will be a bedrock that you can refer to later in sharing your vision with others and in making many key decisions in your startup.

2) What do you Believe?

This question is meant to get you to clarify the foundation for your Intention. Again, it’s not intended (in my view, at least) to force you into “believing” something do-gooding or world-changing, but to make explicit the beliefs that underlie what you’re setting out to do. For example, Alex Patriquin at Wattzy did a great job with this in a pitch of his I saw when helping with the entrants for Angel Bootcamp. He talked about how he believed that homeowners were being cheated out of a lot of money by inefficient energy appliances and homebuilding practices, and that he was personally fed up with his high electric bills and difficulty in taking control of the problem. This would lead pretty directly into what he Intends to do…

While a bit redundant perhaps with Intention, I think these two questions work together to really clarify your original motives. These are things that, years down the road, you’ll hopefully be able to hang your hat on. For example, with Going, my cofounders -Rebecca and Geoff- and I Believed that big cities were full of undiscovered treasures, with many more interesting and fulfilling things to do for everyone regardless of their interest than any person could find, remember, learn about, plan for, etc. And thus we set out with the Intent to make it much easier for people to learn about all the amazing, fun, interesting things to do in their city, and also to help the people creating those activities -museums, DJs, charities, kickball leagues, restaurants, rollerskating event planners- find their audience in a more direct way.

3) Who are your People?

I think this is one of the key questions in Bill’s approach, and particularly close to my heart as I’m a huge advocate of Customer Development. Even with an Intention and Belief, it’s important to be more explicit about who you care about, whose life you are trying to impact. “Everyone” is usually not a good answer. There usually is some group you care more about, if you really think it through. It’s ok if this group is people similar to you, again the idea is to reflect and verbalize your thoughts, not necessarily to change them. But if you don’t feel like you are setting out to address the needs of a certain group, or groups, of People, that is a major red flag.

I was speaking with a top micro-VC firm recently about a potential investment, and this came up as a key criterion. If a company has a great Intention, even a good product embodying it, but doesn’t have a People, it’s a red flag. A startup that doesn’t set out thinking about who will use their product, who needs it, who will benefit, as a constant element of what they are doing, is scary. Without the user or customer as a core part of a company’s foundation it will be much harder to do Customer Development, decide what a Minimum Viable Product is, when Product-Market Fit has been achieved, etc. And as a founder, it’s much less likely you will be excited and satisfied by what you’re doing in the long run if you’re not doing it for anyone in particular (besides yourself).

4) What is your Invention?

While Bill had this question earlier, perhaps because Intention and Invention sound good together :) I think it’s most appropriate as the last one. The three previous questions feed into this one. Ok great, you intend to do something, it’s based on certain beliefs/assumptions/tenets, and it’s *for* someone(s). Now, let’s talk about what it is… the thing, the product.

What was interesting and might surprise you after the “mushy” questions above is that this was the hardest one for the Startup Weekend founders to articulate. The reason was that Bill required -totally spot-on the money- that the description of the invention be jargon-free. It must be explained in a way that anyone, especially your People, can understand. Bill mentioned that women tend to be better at this exercise, and I can see that. Most people, even non-hacker founders, immediately dove into features, buzzwords, and other in-the-weeds aspects of their product. For example, take Tungle.me-

bad: It’s a system for self-service schedule management that integrates with 3rd party sites via iCal and other standards.

good: It lets people who want to meet with you see when you’re free (but not that you’re busy at 3 taking Roofus to the doggie spa) and request a specific meeting time that you can then approve.

Bill introduced a great “scaffolding” (in educational theory terminology) or technique to help the founders with this one. He said, imagine you’re at Show & Tell day in a 3rd grade classroom, and you have to tell the kids what you do. This had a huge impact… the founders now instinctively started simplifying their language and talking in human terms that really got at the benefit vs. buzzwords of their invention. I definitely recommend this.

How Starting from the Heart is Relevant

I believe that having gone through the above exercises will help you in many ways, including practical ones, as you build your startup. Who should you hire? People that share some of your beliefs and intentions, ideally, and that can understand your people. What features should you add to your MVP? Ones that are aligned with beliefs/intentions/people.

Of course companies can and should pivot. If the pivot is small, your Intention and Beliefs may not have changed, but perhaps your People and Invention have. If your pivot is large, you can do this exercise from the top to make sure the new foundation is explicit. You’d be surprised how easy it is, two years into a startup, to have pivoted 5 times and be operating on fumes and gut with no anchor in these underlying keystones anymore. That makes it really hard for both you and your team to make good decisions quickly and can get you mired in endless debates because any idea can have equal merit if they’re not easily measured against a core yardstick.

Conclusion

While there are many frameworks for framing early startups, and you should take advantage of several, I think that Startups from the Heart is one of the simplest and most useful ones. The fact that it also can emphasize social good is a bonus. I really enjoyed seeing Bill in action and hold the entrepreneurs’ rapt attention. I’m doing my part by doing 1-on-1 mentoring sessions at his upcoming MassTCL Unconference, and look forward to seeing some of you there!

Other good posts on this topic:

photo credit: boston.startupweekend.org

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My Year As An Angel

September 13th, 2010    Share

I’ve been supporting startups for a long time, but was very much heads-down on my own -Going- for several years. Too much so, I think. I’ve also helped a number of VCs on due diligence, deal sourcing, etc. but had not done my own angel investments. Since the acquisition by AOL and initial integration, I’ve had a chance to come out of “blinders on” mode and get involved in several ways.

In addition to my job at AOL/Going, I’m currently a startup mentor for MassChallenge, for the Founder Institute, and for ASTIA (a great nonprofit for women-led startups in NYC with past successes like Mobissimo and Scout Labs) and happy to be a Hacker Angel finally putting some money where my mouth is :) ) I have to say, it’s been absolutely awesome to be involved with so many great entrepreneurs and try to help where I can. I’m going to leave my views on the current hot topics -superangels, VCs, converts, etc.- for another day. Today I’m very excited to finally be able to talk about my first angel investments, a couple of which have recently opened up more publically!

Location analytics - Locately

Locately - An awesome Boston company and MassChallenge finalist, Locately (formerly Cadio Mobile) just announced their $300k angel round. Locately is a location analytics company, focused squarely on businesses. For example, they help retailers figure out where to open their next store, whether their customers are also visiting competitors’ branches, and what other locations around town are good cross-promotion channels. The great thing about their model is it’s phone-agnostic and platform-agnostic, not reliant on downloading apps and sporadic check-ins, and has already won them an SBIR grant from the National Science Foundation. Founders Thaddeus, Eric and Drew are smart but pragmatic, coming from places like MIT and Endeca and have revenue in the door and deals with Nielsen, Havas and Harris. I participated in the round with my fellow Hacker Angels Gabe Weinberg, Jeff Miller and Joshua Schachter, along with David Cancel, Mike Volpe, Reed Sturtevant and Katie Rae‘s Project 11 and others. I’m proud to say HackerAngels led the round- great work, Gabe.

Video Transcriptions for SEO - SpeakerText

SpeakerText - Pretty much anyone who’s been on the internet in 2010 has heard of these guys. SpeakerText came out of a journalist’s experiences (with a slight detour fighting massive forest fires) and helps video publishers make their videos more usable. With ST 2.0, unveiled on TechCrunch last week by Erick Schonfeld, it’s easy to navigate videos by an accurate text transcript, jump to key points out of an hourlong video, and share clips with friends. Their transcription technology combines ASR with smart crowdsourcing, so it’s robust to a lot of the funny errors that automated transcripts have.  This round is not announced yet but I’m very excited to be backing a guy who knows how to shake the world up, Matt Mireles, with rockstars in the making Matt Swanson and Tyler Kieft. I led the round, which was the first outside money in, with fellow HackerAngel Jeff Miller and some other greats to be announced.

Social profiles in gmail - Rapportive

Rapportive - Founders, if you’re looking to raise money, there’s no better example this year than Rahul Vohra, founder/ceo of Rapportive. Whether winning top pitch awards at The Next Web, raves at Open Angel Forum, or getting the best headline of 2010 from ReadWriteWeb editor Marshall Kirkpatrick -“Stop what you are doing and install this plugin”-, Rahul and co-founders Martin and Sam did it all. Seriously, if you’re not using Rapportive, do stop what you’re doing and install it. It shows you a picture of who you’re emailing with, their latest tweets, one-click connect on LinkedIn, and even more goodness for SMBs’ service and sales groups. The $1M round was announced recently by Jason Kinkaid at TC, and I’m thrilled to have co-invested with Dharmesh Shah, Shervin Pishevar, Paul Buchheit, Jason Calacanis, David Cancel, Gary Vaynerchuck, Dave McClure’s 500 Startups, Venture Hacks, and the wily Chris Keller. Oh yeah, YCombinator too :)

CIO community for critical IT decisions - xPeerient

xPeerient - You never forget your first, right? I learned about xPeerient through innocent eavesdropping on another couple’s conversation while dancing tango- true story! Why the ‘x’? Why the “Peer”? Boston-based xPeerient is a community for CIOs/CxOs to learn from each other as peers, exchange best practices, and specifically to help each other with purchasing and sourcing. If you’re about to place an order for 200 phone lines, or buy 10 licenses to Oracle 802.11g, you want to know who else has recently made a similar purchase… how’s it working out for them… what negotiation tactics got them a good price… xPeerient supports all this in a safe, private community, and then lets vendors make special offers to targeted, qualified purchasers. Mark Hall, the founder/CEO, was head of global IT at IDC as well as CIO of CIO Magazine (how meta :) ) so he knows the space cold and is working with a great founding team. I participated in the second angel round, with co-investors including David Chang of Where and others to be announced along with the funding.


Unnamed YCombinator Stealth Startup – My hands are tied, I can’t talk about this one just yet, but it’s delicious, touchy-feely, always at your service, and kicking serious bicoastal bootay. Stay tooned :)

My first year as an angel is still going, and I hope to have more to announce soon. If you’re an entrepreneur looking for advice, feedback, or funding, don’t hesitate to hit us up at HackerAngels.

photo credit: Horia Varlan
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Andrew Parker Sparks Boston’s VC Firmament: The “Entry” Interview

June 11th, 2010    Share

When I was an undergrad at Georgia Tech, my friends would sometimes refer to MIT as “the Georgia Tech of the North.” Years later I did end up at MIT. Andrew Parker, longtime Associate at Union Square Ventures in NY, is moving north as well to Boston’s Spark Capital. Regarding his impending arrival next week, Roger Ehrenberg tweeted him a “Welcome to USV North!”, to which Andrew quick-twitted back “or am I departing Spark South?”

Semantic fun aside, Andrew’s arrival is exciting for the Boston startup scene. A hacker out of Stanford, Andrew did some LAMP development but his real passion was Human-Computer Interaction, probably a large reason he has a keen appreciation for consumer products.

Andrew was kind enough to answer a few questions to help us get to know him and his new role a little better:

What are a couple of interesting tidbits for Boston entrepreneurs to know about you?

I’m originally from the Boston area, so this is a bit of a homecoming for me. I grew up in Wellesley and went to Belmont Hill for high school before heading across the country for college.  I approach venture capital from the perspective of an engineer (spent some time writing code on a project built on the LAMP stack) and product designer (did design and product management work for a startup called Homestead, which was bought by Intuit a few years back).

How would you compare the SF, NY and Boston scenes from what you know? (qualitatively, not “who kicks whose butt”)

I have little familiarity for the Boston startup scene, so I’d defer comment on that for now.  As for Bay Area VS NYC, they’re Apples and Oranges.  I think a company like Foursquare had to be in New York to be built (because of the geographic density and emphasis on going out all the time) and a company like Facebook needs to be built in the Bay Area (because of the sheer number of engineers they need to hire). Companies raised in a specific geography will naturally become shaped by their geography.

Also, slightly unrelated, I think a big turning point for New York was Google opening an office in NYC about 5 or so years ago. I believe it is Google’s second biggest office next to the Mountain View mothership, and it’s good for a number of reasons: 1) it’s a great source of talented engineers looking to jump to startups; 2) rich, early Google employees have invested in early stage startups in the city; and 3) they help draw programmers away from Wall Street and show them that there’s a whole interesting world of programming outside of writing a new derivatives-trading mechanism.

What will be your focus at Spark? Any particular spaces or goals?

I’ll focus on investing in consumer-facing web services. Only the applications layer of the stack. Spark has investments outside of the applications layer, and I look forward to learning more about investing in lower layers of the stack, but I know that’s not my strong suit going into this new gig.  I imagine early on, the stuff I’ll be looking at will be a pretty natural extension of the stuff I’ve been looking at for the past 4 years at Union Square Ventures.

On a personal level, what are some things you like to or want to do around Boston? (reader suggestions welcome!)

I’m a Red Sox fan, so you’ll definitely catch me at Fenway.  Running along the Charles.  I had a lot of fun on a Dodgeball team in NYC… it’s such a hipster sport.  Don’t know if people do that up in Boston or not, but if so, that would be fun.

[Yep, WAKA kickball is big in Boston! -RR]

Tell us a bit about how Andrew thinks about the space. What are some companies you have an opinion on, e.g. overhyped, underhyped, contrarian view?

The market for consumer facing web services on the whole is growing faster that people believe (if that’s possible). More people are coming online, who have more prior experience with computers, who are more trusting of web services, who know more people online, all while high speed access is both getting faster and more widely available. These are some of the factors that combine to create the demand for consumer-facing web services, and they multiply together, which fuels their growth. The only constraint to this growth I see is people’s attention. Because attention is the new scarcity, it’s more important than ever that entrepreneurs work on problems that people genuinely care about, otherwise you will fail to capture users’ attention.

Also, many ideas from the original bubble that failed before can now succeed, because the environment is more fertile now: more potential users and faster bandwidth. So don’t dismiss an idea because it was unsuccessful 5 years ago. “The times they are a changin’.”

What are two things that consumer space founders can do to improve their interactions with potential investors?

1) Keep pitch emails short (your site should speak for itself — if it doesn’t then the splash page needs help).

2) If the VC is not in the target audience for your service, help him/her talk to the target audience so they’re more likely to understand the value prop.

Bonus: Always put action items (I’d like a call… Can you intro to…) at the top of emails.

Thanks again to Andrew and welcome! You can follow him on Twitter @andrewparker and check out his blog.

photo credit: Mykl Roventine
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Interview for Barcelona World Innovation Summit

May 27th, 2010    Share

I’ve been busy helping with the Boston Angel Bootcamp, a great event coming up next week, so apologies for the lack of posting recently.

I was contacted by the great folks at Hit Barcelona / World Innovation Summit, a top international event coming up in June. Alas I won’t be able to be there, but Dave McClure, Dennis Crowley, Randy Komisar from Kleiner Perkins are attending among other US-based folks, along with a diverse group from around the world.

They asked me about a few topics like “What do you recommend to wannabe entrepeneurs who want to start a company now?” and “What are the major entrepreneurial mistakes to be avoided?” so if you want to read my thoughts, check out the interview:

http://blog.hitbarcelona.com/there-are-definitely-advantages-to-starting-a-venture-now/

photo credit: Wolfgang Staudt
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Fundraising Debugged: My BarCamp Presentation

April 20th, 2010    Share

Last weekend at MIT’s Stata Center, 500+ hackers, designers and assorted geeks gathered for BarCamp Boston 5. The organizing team including Shimon Rura, Jay Neely, Sooz Kaup and many others did a great job, thanks on behalf of all attendees.

BarCamp is an unconference, specifically, anyone can propose a session on any topic, gauge audience interest based on votes, and then lead the session or even request that someone expert in the topic lead it. The final set of sessions, many with slides online, is on the BarCamp Wiki. Also interesting was the “10-second intros” portion, where a couple of hundred people gave their elevator pitch to other attendees; though time-consuming, it was a nice way to get a sense of who was there and to also spot specific people you might want to meet.

I was up until 5AM working on my presentation and grabbed one of the first speaking slots. Thanks everyone who attended the session, we had some good dialogue and questions despite a tight 30-minute timeframe. My biggest learning were some interesting rumors of intangible benefits of having Paul Graham aka Y Combinator on your cap table (a cap table, or capitalization table, is basically a ledger/roster of investors and stockholders), such as a higher chance of avoiding major dilution (or cramdown) if raising funds at a lower valuation than the last round (a down round).

I posted the presentation -Fundraising Debugged: When, Why & Who to Raise (and not raise) Money From- to SlideShare, embedded below. It covers:

  • Timeline of fundraising process for my startup, Going.com, from founding and bootstrapping, to quitting my day job, to seed and VC funding and acquisition by AOL
  • Fundraising Decoder Ring: a one-slide comparison chart of the costs, benefits and characteristics of funding via boostraping, friends & family, seed/incubator funds, angels, and VC
  • Deeper Pros/Cons/Bottom Line for each source
  • Bustin 4 Myths about VC Funding
  • List of advanced fundraising topics and Further Resources

I’ll be breaking down fundraising further in later posts. As always, appreciate your comments, questions and experiences.

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I’m Starting A Company! Now… What?

March 24th, 2010    Share

Thanks to everyone for the comments on my last post about the raison d’etre of this blog, it’s nice to start seeing a bit of community around my little grain of sand contribution to startups. In the spirit of that post, today I want to talk about the very beginning phase of a startup.

I find that the initial decision to start a venture and the motivations around it are areas that are very rarely discussed. Perhaps it’s a boring topic, or perhaps the information or reasons are considered too self-evident to be worth a look. But my experience coaching a number of new and even repeat entrepreneurs I do run across these questions, so maybe I’m not the only one.

You’re starting a company? First off, congrats! – mazeltov! – ¡enhorabuena! – уra!

Starting a venture, whether full-time, part-time, small or large, is an act of courage and a commitment to effort, and I do believe everyone is a winner at this stage. Now, the next step that’s usually brought up at this point is analyzing the startup’s chances of success. Team, product, market sizing, revenue model… and those are all great and topics covered often (tho I reserve the right to blog my spin on them :) But I want to not skip over something important: the why.

Why are you starting a company? What do you hope to get out of it?

When I co-founded Going (originally HeyLetsGo), I did spend some time pondering this question, but knowing what I know now, there is a lot I missed. I think a typical example, and certainly part of my own motivation, is well expressed by Harj Taggar of Y Combinator: “My motivations for doing my first startup were simple and mercenary. I wanted to get never-have-to-work again rich and thought a startup represented the best chance of achieving that goal.  I didn’t question that motive in any great depth.” When I think about it, though, there are all colors of the rainbow for potential benefits and motivations. In no particular order:

  1. Money, and lots of it: Perhaps the simplest and most common motivation. What’s interesting is that, depending on the funding path you choose, it can actually be easy to lose money, and if you cover that downside it can be hard to really strike it rich.

    Consider:

    • If you’re un- or under-employed when you start the company, or are an “individual contributor”, then a founder-level role will probably eventually result in a higher salary. If you’re a director or VP, you may well remain flat or actually take a pay cut. However, any salary is predicated on you either achieving profits (the ideal) or getting funding.
    • Getting to profitability, especially to a level where you can pay yourself a standard salary, typically takes several years at least. Many companies get to break-even but don’t become -or choose not to become- profitable.
    • Getting funding certainly can help you get a salary, but while it can dampen the downside, it also will dampen the upside. So you may not lose out on a salary but if you do well you will lose out on some of the upside.
  2. As many other wise bloggers have said, founders typically should not pay themselves market salaries, probably ever. Besides helping set a tone of frugality, it can simply be mathematically a bad idea as it shortens your runway, especially if you have several founders. Perhaps our board member Bob Davis, former Lycos CEO and now successful VC at Highland Capital, put it best: “Startups are about value creation, not salary accumulation.”

    Bottom Line: When starting Going, I quit my job at IBM cold-turkey (they’d acquired the previous startup I was at) and walked away from a very substantial bonus. At Going we spent about 15 months bootstrapping, and paid ourselves $0. We then did a seed round and paid ourselves “rent + food,” $2-3k. Once we did a full A round, we moved to below-market-but-reasonable levels. And yes, there was a period where the founders chose to take a moderate pay cut to conserve some cash. 5 years later, once all was said and done, I calculated my weighted annual income taking all of those phases into account, and it was a much more informative picture. The point is, Money is a great motivator, but run some numbers so you’re not surprised down the road. It’s easy to end up in the hole if you have a small exit but had no income for 3 years.

  3. Fame, or at least a name for yourself: Of course few startup founders become famous in the celebrity sense, and even fewer are considered cool -see Richard Branson vs. Michael Dell- so if you’re looking for groupies and sneaker endorsements, this may not be your golden ticket. Fame can take many forms, though:

    • A name for yourself could mean that, if your startup does well, you could do consulting or speaking at Chris Brogan’s rates- and Chris more power to you and great explanation of the why
    • It could mean that, next time around, you’ll have your pick of startup opportunities, and founders and VCs alike may seek you out
    • Perhaps you’d like to write a book or three, like Guy Kawasaki, Ramit Sethi, or Jason Fried.
  4. Bottom Line: One of my theories with Going, and also with taking VC money, was that if I did well and built a good reputation, I would be light years ahead career-wise and networking-wise, and that finding a good job in the future would be much easier. In many ways I think these “network benefits” are some of the greatest and most likely outcomes of being an entrepreneur. One lesson for me here which I’ll share is to not be so heads-down focused on your startup that you miss some of this – maximize your startup’s value, but spend quality time with people who will be around long after the dust has settled.

  5. Lifestyle, or being your own boss: Although less common, this is often a key motivator as well for starting a business. People have been turning their hobbies into careers forever, and exhortations about “Lifestyle Design” by Tim Ferriss and others certainly add fuel to that fire. Especially for people who are sick of feeling powerless of mismanaged by higher-ups, or not challenged by their work, this is a strong siren call to entrepreneurship. Here’s my take:

    • You will absolutely have more freedom to manage your time and projects as an entrepreneur. This is not a myth (unless you’re doing a lot of direct sales and support internationally).
    • However, how you respond to that freedom is what matters. Some people, given the option to work longer hours, will keep at it like rats pushing the sugar-water lever; the 37signals folks are outspokenly against this scenario, and Caterina Fake has written a concise and utterly civilised summary on working smarter which I agree with. Others may not be able to the freedom and may have real problems with distraction or procrastination. Fortunately, the majority of entrepreneurs seem to achieve a decent balance of both harder work and greater flexibility.
    • But, in all but the smallest startups, you always have a boss. Maybe it’s a co-founder, a VP or the CEO. Maybe it’s investors or the board. If not, it’s your customers, and your conscience.
    • And, you are now the boss. This is in fact often a much harder adjustment. What you do will impact many people, both through your own work and also through the tone and culture you set. This is a big new responsibility for many.
  6. Bottom Line: I’ve always gotten by on little sleep. I like sleep (almost?) as much as the next person, but it’s sometimes… unproductive ;) Fine, call me a workaholic if you will. The bottom line for me was that I take my responsibilities, first and foremost to our employees, very seriously, perhaps too much so. So yes, I worked my butt off, but that wasn’t new for me, and I did enjoy the freedom to take an hour or three off or work remotely when visiting my family in Argentina (I also closed our A round from Paris but that’s a story for another day). I take pride in the fact that many of our employees were shocked by the degree of freedom and lack of checking up on them at Going, while maintaining high productivity.

  7. Passion, or changing the world: Oh yes, love for an idea, a desire to make a change in the world, to contribute in some way, is a very powerful motivator as well. Of course the phrase “change the world” is cliche now in the startup world, and it’s arguable whether it’s truly applicable to some ventures. Whence this passion?

    • There are many direct agendas that startups can advance: your ideas might save people time to spend with their friends, or might help them make money to support their family; you might be working directly in an environmentally-supportive area like the really inspiring RecycleBank; or you might reduce user frustration, entertain people or help them unleash their creativity
    • Ultimately, what matters is that the entrepreneur feels they are making a positive impact. Whether you really are fighting cancer, or making people happier in various ways, following what you can’t stop thinking about, what you really feel you can make your mark on, will be satisfying to go after.
  8. Bottom Line: With Going, we absolutely set out to change the world. We wanted to make the cold and faceless city warmer, and more, uh, face-ful; to help people really enjoy everything their city had to offer, to get off the computer and have great experiences with friends and with new people; and to help great local venues and organizations reach the right audience for what they offer to their city’s cultural, culinary or entertainment buffet. While we haven’t changed the entire world yet, I absolutely feel like we made a difference- yes, marriages happened from connections on Going, artists made it big (ok Lady GaGa probably would have been a hit anyway… ;) ) and millions of people have found something cool and exciting to do in their city. We also helped influence the Local + Social + Mobile space, generated millions in revenues, and -what stays with me the most- helped significantly advance the careers and finances of our employees and their families. So go on, put on those rose-colored shades about your startup’s mission and change the world!

Now, what do you think are the motivations for starting a company? I can still think of several others but am interested in your thoughts. See also Jason Cohen’s famous Rich vs. King post about why he sold, and David Heinemeier Hansson compellingly present the opposite view to Jason Calacanis.

So what’s the point of all this dissection of motives? The point is that the choices you make -from funding, to choosing your co-founders, to hiring, to when to step on the gas with sales- will have a huge impact on which of the benefits you were after can be realized. Stay tuned.

P.S.: For those of you curious about the LinkedIn to Twitter contact mapper I’ve been working on, I hit a major snag in that the Twitter API basically makes it extremely difficult. However, I am exploring some other ideas and hope to have some good news soon!

photo credit: tuppus

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Does the World Really Need Another Startup Blog?

March 16th, 2010    Share

startup blogI spent the last decade working to build a couple of startups, and while I’ve always taken time to help fellow entrepreneurs, I have been too heads-down to do it as extensively as I would like. how2startup is part of giving myself that leverage and reaching more people- hopefully with content that is helpful. My nature is to be very analytical (blame MIT, or we can do cause vs. effect research :) ) and practical, so I will try to bring those viewpoints here and try to provide resources and commentary that are both clear and real-world applicable.

In terms of target audience and tone, I’m going to aim for a bit broader spectrum than some of the great existing blogs. Fred Wilson, Mark Suster, Chris Dixon, Eric Ries, Sean Ellis and others do a great job with in-depth insights on some advanced and some basic topics, and Brad Feld and Venture Hacks have excellent series catering to more novice entrepreneurs. However, having recently attended Dave McClure’s talk at Dogpatch Labs Boston, it feels to me like there is still a big gap between what is posted in the blogosphere and what is really getting through in a consumable way to many entrepreneurs. Chris Dixon recently did a great post on developing new startup ideas and why founders don’t always get enough early feedback; I agree with his breakdown, but I feel there are several more basic reasons for this problem, which I’ll address in a later post. As another example, the recent mini-firestorm around Mark Suster’s views on the “fail fast” mantra -clearly largely a semantic issue- also shed light on the need for more clarity. If our super-human thought leaders have a hard time disentangling and agreeing on the semantics around such core topics of the Lean Startup methodology, imagine how confusing it must be for first-time or second-time entrepreneurs!

Many topics that are even more complicated and nuanced, such as what kind of fundraising is right for you -if any!-, when you should go about it, how to do customer development in practical terms, etc. are ones where perhaps I can provide another set of eyes and perspective on.

My next planned posts are as follows:

  • “I’m starting a company! Now what?”
    • Why are you starting a company? Real entrepreneur motivations and cost/benefit.
    • Is it a company or a hobby? Both are cool, but you may want to decide.
  • Fundraising: Why and When (not yet How)
    • Funding is cool, but should you do it? Why people raise money, and whether it makes sense for you.
    • Comparative matrix of Bootstrapping, Friends & Family, Angel, Seed/Incubator, and VC sources, discussing when each does or does not make sense

On another note, I am working on a Twitter tool that I think will be useful to a lot of folks in the startup and venture world. I’ve invested a lot in my network and track most of it via LinkedIn. As I’ve gotten deep into Twitter I’ve wanted a good way to find who in my LinkedIn tweets so I can view or add them. I’m putting the finishing touches on v1 and am really looking forward to letting others use it and getting feedback.

Look for these posts soon and safe travels back from #sxsw!

photo credit: mikecogh

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Believe It: Why Nurture Trumps Nature in Entrepreneurship

March 1st, 2010    Share

The last few days have seen a small firestorm around the question of “are entrepreneurs born or made?” with Fred Wilson, Vivek Wadhwa, Mark Suster, and Coach Wei weighing in. While I think as often happens much of the argument is semantic -do you define entrepreneur to mean the founder of a $1B company, or a small business owner growing her marketing consulting business- there are some core beliefs I have in this area.

First, my credentials. Well, this won’t be a long list. But what I can say is that I was fortunate enough to take Marvin Minksy’s Society of Mind class while at MIT, as well as minoring in cognitive science and the like. While I’m no real expert, I must confess to being a bit surprised to so many tech-folk are so focused on the Hardware and dismissive of the Software.

In systems terms, you could perhaps summarize my view as: while it’s true that a 133MHz Intel 80486 CPU will run a given software program orders of magnitude slower than today’s processors, computer science mathematically demonstrates that it’s equally easy for the software to squander computing resources and reverse this balance. A bad algorithm, mis-management of memory, or simply buggy software can reduce even the shiniest new computer to a frustrating pile of molasses or a Blue Screen of Death.

Yes, of course a certain level of IQ is required to be a successful entrepreneur. Of course an amount of perseverance, a modicum of self-discipline, and most of all passion. But do the smartest people -in raw IQ- become the most successful or richest? Do people with “only average” or above-average IQ wallow in mediocrity? As David Wurtz -a smartie Googler- so eloquently puts it in his post “Smart People Should Do Stupid Stuff” this is not the case at all. A minimal level of mental and emotional competence are needed, but beyond that, what strikes a particular person’s passion and unleashes their drive is all up to nurture.

As Mark Suster does so eloquently, I will offer a personal story. When I was in elementary school, I was a distracted, unreliable, unambitious kid. I would lose things constantly, mostly umbrellas. My grades were fine, my heart was not in school. One day in 2nd grade or so, the teacher changed seating arrangements in the class, and I was sat next to Fortuna, a girl with the best grades in the class. All of a sudden I had a challenge on my hands. Something kicked off my competitive spirit, and from that point on I tried to match or beat my desk-mate in all the tests. To my surprise, and probably to my parents’, in a matter of a month I became a focused, dedicated student. I stopped losing umbrellas. And, academically, I never looked back.

As Mark does, I will give you one more story. Years later I was at the MIT Media Lab. I had started there to do a PhD, as every ounce of my soul told me I wanted to work in a research lab like Xerox PARC. After being let down by the pace of innovation in academia, I ended up at a B2B search startup, purportedly to split my time between hacking and Usability. And once again, something happened that changed me forever. We would be sitting in these meetings, and they would go on and on. People would talk slowly, meekly, and little progress was often made. Finally I just started getting fed up. Nothing was getting done, my time was being wasted, and people were just not speaking up. Even though I was pretty new, and had never in my life had a “serious office job” before, I just couldn’t take those excrutiating meetings anymore. So I spoke up. I started talking, speaking my mind, driving decisions, actions, follow-ups. Only much later did I realize that what I had done was learn to fill a leadership void.

You say those qualities were already in me, part of my potential nature, only dormant? I agree 100%. But I feel they are also there in most people, only dormant. And I mean this not at all in a feel-good way, I mean it in a dispassionate, mathematical, Turing machine + evolutionary biology sense.

A friend of mine runs Alliebeans, an Etsy store of cute and practical embroideries. Right now it’s a hobby. But with the right mentor, or if she had another chunk of change in the bank and felt more ready to take a risk, or if she got pissed off about a competitor’s shoddy bags, I believe she would take the plunge and take over the world with her Chocolate Hippos bags. I think everyone has latent passions, although I do think some people’s lend themselves more or less to commercialization, at least in the form of a startup.

These days I am so resilient, competitive, inspiring, perspiring, and decisive -to name a few of Mark’s 12 Entrepreneur DNA characteristics- that people tell me I scare them when playing Taboo due to my intense focus and drive flying through the cards like the tasmanian devil. My whole family equally thinks I’m weirdly intense. Heck, it’s probably the #1 keyword cited by my ex-girlfriends (not always in a good way ;) ) I was not born this way. I was a quiet, unfocused, distracted person… but circumstances dragged me, kicking and screaming, into the person I am today. And I have seen time and again, there is always a topic, an idea, a cause, a dream that lights up people’s faces and is something they would have equal Leadership, Tenacity, Charisma and Drive for… most people just haven’t been lucky enough to find their latent passion yet.

photo credit: mira66

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Upcoming Topics on how2startup

February 25th, 2010    Share

Word seems to be trickling out about this blog so I guess I better get it in gear!

As part of the open nature of how2startup, I wanted to share some of the topics I am slating for upcoming posts. I’d like to leverage an embeddable voting widget to let people suggest new topics and vote these up/down (considered UserVoice but their price ramp is pretty steep) but that will come later. For now, some topics I am mulling or feel I have an opinion on worth sharing:

  • Fundraising
    • Angels, VCs, and Vangelis (yes that is my working title, no do not steal it)
    • FAQ: “When is the right time to talk to VCs?”
    • how to pitch, what to expect, how to prepare
  • Founding
  • Customer Development
    • Getting feedback on your startup: when, why and how
  • Marketing
    • Customer acqusition, conversion funnels, viral loops
    • Matt Brezina’s 4-metric view of customer acquisition
  • People
    • Inefficiencies in networking, contacts, job matching
    • Recruting for startups, guerrilla techniques
    • How to meet the people you want to meet
    • Are 3 heads better than 2? Decision-making at startups
  • Local
    • Lessons from the trenches at Going
    • Foursquare, Gowalla, Yelp and precursors
  • Resources
    • Bloggers to follow, entrepreneurs/angels/VCs to meet, funding sources, coworking, etc.
  • Grab Bag
    • Who’s using Twitter
    • Why Mark Weiser would heart the iPad

As always, comments, suggestions, requests are most welcome. Now I have some writing to do…

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