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.

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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