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Dharmesh Shah gave a presentation at the Business of Software conference called Everything I Know About Startups. He posted a video of it to his blog, OnStartups. If you’re in the software industry or work with startup companies, you should watch it. The video lasts about an hour, but the insights Dharmesh gives you will last much longer.
Dharmesh lists the ten key points from his presentation — I’ve copied them below — but you need to hear his explanation to understand the rationale behind each.
1. Your idea can suck. Just get started.
2. You can be in the middle of nowhere and still build a great business.
3. Not having cash breeds good behavior. It’s helpful to have constratints.
4. In defense of the modest outcome: You don’t HAVE to build the next Facebook. Modest liquidity events are highly under-rated.
5. “I’m a complete introvert. It’s not that I don’t like people, I just don’t like beind around them a whole lot.”
6. Something’s changed here. You don’t have to spend a lot of money to get your message out there.
7. The real issue with VC is not the cost of capital (which is high), but how hard it is to actually raise it.
8. You have to go through the 12 flaming hoops of venture capital.
9. All the time you should’ve been spending solving your customer’s problem, you use to start to solve the VC’s problem.
10. Write a blog, not a business plan.
We’ll be giving all of these points deep thought over the coming months.
Paul Graham posted a Fundraising Survival Guide for start ups to his website. It’s a subject that’s been on my mind a lot lately.
Tick tock tick tock
When we started Infovark, we had roughly enough money to get through the first year. We did a fairly good job of budgeting, all things considered. We’ll be able to stretch our initial round further than planned, basically because we hired a few specialists under contract rather than another full time employee. We were also pleasantly surprised at the number of high quality software development tools you can get for free or at reasonable cost. (Microsoft’s Empower for ISVs was a particular boost.)
But when you’re a startup, the clock is always ticking. I can hear it now: “Time is money is time is money….” This is the mantra of the founder. It’s what gives us sleepless nights. It leads to fear and indecision. The search for additional funding can obscure the real goal of starting the company: building something useful — and having fun while doing it.
Infovark has by far been the best work experience of my life. Not merely because the Burrow is conveniently located in my basement — though it’s nice not to fight traffic — but because I’ve finally gotten a chance to create a product from scratch. I’ve never had the chance to do that before, and I’ve been learning a lot in the process. (That’s entrepreneur shorthand for making more mistakes faster than ever before.)
I’m really excited about this stage of the project. We’ve gotten an initial round of feedback from our alpha testers, and we’re mapping out the plan to get us to beta. But I can also hear the clock ticking…
That means at some stage — probably sooner than we’d like — we’ll have to leave the Burrow in search of funding. It’s a scary prospect for introverted software engineers. We’ll have to explain what we’re building, why we’re building it, and why you ought to invest in it. That means we’ll have to define why people will want to buy it and how much it will cost for them to get a copy. These are yet more things to add to our long, growing list of things that aren’t writing code. Except that getting funding is far from trivial, as Paul Graham points out. It’s a matter of survival.
Brad Feld at Feld Thoughts posted a slide by Adam Smith relating the Southpark underpants gnomes to pitching venture capitalists. The slides were meant to demonstrate how not to sell an idea to a venture capitalist. I understand the point, but I think if venture capitalists find themselves listening to gnome-like business plans they themselves are partly to blame.
Brad’s posted the clip from the Southpark episode, so I’ll just give a quick recap of the gnomes’ three phase plan:
The hardest part of any startup is figuring out Phase 2. Phase 1 is easy; it’s doing what you do best. For a software company, that means making software. For an author, it’s writing a book. For an artist, it’s creating art. Phase 3 is the goal: Making money, achieving fame, winning awards, etc. Phase 2 is the trick: finding a way to get from doing what you do best to the ultimate goal.
Often, someone starting out has only the talent and the dream. Figuring out how to make the dream a reality is a combination of hard work and dumb luck.
The idea behind venture capital is not simply to give new startups access to seed money. There are plenty of ways to raise funds. You could take out a business loan, put a second mortgage on the house, or hit up friends and family for cash. Part of the reason why startups turn to a venture capitalists is to get the benefit of their experience with other startups. In other words, it’s to get help with Phase 2.
Many of the current Web 2.0 darlings succeeded without any sort of business plan at all. YouTube was losing money hand over fist and had several copyright infringement lawsuits pending when Google rescued them. Google themselves nearly went broke before they hit upon the advertising formula that powers the attention economy. Facebook hasn’t figured out their model yet. Twitter has no means of visible support beyond VC backing. With these examples in mind, it’s hard to blame startup founders for glossing over Phase 2.
Yes, build it and they will come is the call of hopeful idealists everywhere. But boundless optimism is a necessary requirement for an entrepreneur. It goes with the territory. Venture capitalists, of all people, should appreciate that.