Archive for the ‘Internet entrepreneurs’ Category

Becoming an entrepreneur & the things that inspire us

Wednesday, May 14th, 2008

This week’s article for The Industry Standard is more personal than other articles that I’ve written for them in the past. It’s here: How to Make the Leap from Corporate Hack to Entrepreneur. I give some tips, but mostly the article is a first-person account of my transition from working at a big company to founding my start-up.

In the article I mention a vacation that I took to Arizona. That trip happened in May 2007 – Chris and I went to Phoenix, Sedona & The Grand Canyon to celebrate our first anniversary. At the time we went, I wasn’t thrilled with my job any longer. I was getting the itch to leave, but I couldn’t quite put my finger on why. I loved the people I worked with, I had a good position, relatively good money…but I wasn’t really happy anymore and I couldn’t figure out why.

Then I went to Taliesin West.

I am not a huge architecture fan. I mean, I like architecture, but I don’t know much about it. Chris studied architecture for a year or two in school before switching to industrial design, but even so, going to visit an architecture-related exhibit isn’t what we would normally choose to do. But we were on a road trip and wanted to stop wherever the wind blew us, and however it worked out, we ended up at Taliesin West.

We took the tour. It was an hour-long, guided. In the tour, we went through various buildings on the school campus – Wright’s office, the studio and gardens, the private gathering room and even the family’s bedrooms. All along the way the guide kept telling us all these cool facts and interesting things, totally creative stuff that had my mind racing. Here are a few things that I saw and learned:

– There was an observation point on the grounds where Frank Lloyd Wright and one of his wives (he had three during his lifetime) used to bring chairs to every single night in the spring and summer, to look at the valley around them. There was nothing as far as the eye could see. Standing at that point today, the entire sprawl of Phoenix/Scottsdale was visible.

– The students who attended the school actually built the school before they could attend. They used only the materials that were available on the land. All of Wright’s designs were built to make sure that the buildings blended into the surroundings, and brought the outside inside, as well. This is called organic architecture, and he was way ahead of his time with it.

– Even after the grounds were built, new students didn’t get to live in the buildings. Their first year, they had to go out into the surrounding wilderness area and build their own dwelling on a slab that was there for that purpose. This was like a crash course in architecture – if your dwelling wasn’t good, you would be living with the insects and other animals. Married students often brought their families to experience this with them.

– Frank Lloyd Wright was a major movie buff, so there is a movie theater on the grounds. It’s pretty dark inside the theater, however, so he had the builders dig small cut-outs into the rock along the floor, and installed lights – the first track lighting ever.

– When Wright was a boy, there was a certain set of blocks that he always played with – Froebel blocks. He often credited these blocks as laying the foundation for the basic principles of architecture that he used throughout his career.

Ok, so those are some random things, and you might read them and think “so what?” Or you might think that some are cool and others are mundane. But I left Taliesin West with my mind racing about all the ideas that I had heard, and with the need to be creative burning up in my chest.

It took me a bit of time before I eventually left my job to start Pure Incubation. But this visit to Taliesin West started the avalanche. After this visit, I knew in my heart that I had to leave my corporate gig.

And this visit also reminded me just how important it is to find things that inspire us. To visit new places, see new things, meet new people, take a chance on something unexpected. You never know where inspiration might strike.

These pictures are all from various people on Flickr – all better than any of the pictures I took that day. They are all from Taliesin West.

Taliesin West
Photo by andy54321

Taliesin Sculpture
Photo by bluecanary_dreams

Japenese taliesin
Photo by bluecanary_dreams

Furniture taliesin
Photo by andy54321

10 reasons entrepreneurs should take more vacations

Thursday, April 17th, 2008

As I write this post, I’m getting ready to go away for a long weekend with Chris (my husband) to visit friends and family in Philadelphia. Anyone who has read this blog for any length of time knows that both of us are entrepreneurs – Chris helped start Spine Frontier a couple of years ago and I started Pure Incubation back in September. It may be obvious from that statement alone, but let me just come right out and say it – we are both insanely busy with our jobs. It is hard to get away for a vacation – even for a weekend – and to take a day off (gasp!) is practically impossible. But we are doing it this weekend.

Philly loveAs I was thinking about leaving, though, all the reasons why we shouldn’t go away kept swirling through my head. And they almost kept us from going (we didn’t book our flights until 5 days ago, for example). So I thought it might be useful to give my fellow entrepreneurs a list of 10 reasons that they should take more vacations. Refer back to this post anytime you are considering going away, but almost back out. Be strong! Take that vacation!

1) You work too much. I have no problem with working hard – or long – but if you are an entrepreneur, it’s likely that you work too much. Like to the point where you aren’t getting enough sleep, exercising regularly or eating well. Working a lot isn’t necessarily the best way to be productive and it’s hard to stop once you’re in the habit. So stop everything for a couple of days, get some sanity back, and you’ll be able to return to the job with a more realistic outlook on work duration – and you’ll likely be more productive during the hours that you are working.

2) New environments spark creativity. Right before I quit my last job, I took a vacation to Arizona. On the trip, we went to visit Taliesin West, the Frank Lloyd Wright school of architecture. I know very little about architecture, but seeing the amazing creative environment that was built at that school was so inspiring to me that I know that I had to leave my job. It opened my heart up again to the creativity that was just dying to come out – and that I could bury in the sameness of my everyday life.

Dance Philadelphia3) You are getting boring to be around. This is happening to me. I meet with friends for a drink or dinner, and they ask me what’s going on, and pretty much the only thing that I have to tell them about is my business. And to me, it’s really exciting and fun and interesting to talk about my work. But I can tell that their eyes are starting to glaze over at times. Going on a vacation will give me something else to talk about – outside of my work.

4) It’s been a long time since you’ve been on a vacation. Admit it – when’s the last time that you took a vacation? A real one. A work trip doesn’t count. If it’s been longer than 6 months, it’s time.

5) You need to reconnect. For me, the trip will be great because I’ll be able to reconnect with Chris. We see each other during the worst part of our days – in the mornings (when I can barely function) and after work (when all Chris wants to do is veg out and recover from the insanity of his day). A vacation is going to give us the opportunity to spend the good parts of our days together – and this is important. Maybe you need to reconnect with your spouse, or your friend, or your kids or your parents – or maybe you just need to reconnect with yourself (solo vacations are highly underrated in my opinion). Invite whoever it is that you’re missing to go away with you and spend the time reconnecting.

6) You need to get out of the house. OK, this one might just be for me. But my office is IN my house, and I can never escape work (or the house). I love where I live, I look at the ocean from my office window, but I need to get outside of these walls. If you work from home, which many entrepreneurs do for a season, you know what I mean.

7) It’s helpful to remind yourself why you’re working so hard. Most of us aren’t working our butts off for nothing. There is usually a dream, a goal, a vision to come at the end of it. For me, I want to be able to travel. So taking periodic vacations reminds me why I’m doing all of this.

Joan of arc of philly8) You need some fresh air. You’re probably working so hard and so much that you spend most of the daylight hours in your office, wherever it may be. You need to get outside, to breathe the air, to have the sun shine on your face. Typically people spend time outside on their vacations, whether it’s strolling through a neighborhood or doing something active.

9) Talking to people in other places will help your business. No matter what your company is doing or building, you have customers that you need to serve. And getting out of your familiar bubble will allow you to talk to people about what you’re doing – and will help you refine your ideas to make sure that you’re serving them better.

10) Vacations are fun. At least, they should be. And if a vacation isn’t fun to you, do something that is. The point is, you need to lighten up sometimes, have a little fun, laugh, joke around, remember that everything isn’t serious and at the point of imminent collapse (which is how entrepreneurs usually feel).

Bonus #11) Your employees want you to go away. (This is for those of you who have employees.) If you ever worked for someone else, you know how it is when the boss is away – there’s a feeling of freedom, of lightness, of relief. As the boss, you may not want your employees to feel this freedom. But it’s important not only for you to get a break, but for your employees to get a break from you. When you get back from vacation, you’ll find that they are refreshed, as well.

Happy travels!

(the pictures here are all from Philly – “Love” by vic15, Dance Philadelphia by my aim is true, Joan of Arc by pwbaker)

More on starting a company in an economic downturn

Friday, March 21st, 2008

Yesterday, The Industry Standard published an article that I wrote about why it’s a good idea to start a company in a recession. The article is here. (You should probably read it if you want to follow the rest of this post.)

Hacker News logoThis article generated quite a bit of buzz on Y Combinator’s Hacker News, so I wanted to take a minute to respond to some of the comments. Here’s the link to that chatter.

– The most common disagreement with the article seemed to be that many of the points that I was making about why it would be good to start a company in a recession also apply to starting a company in a boom. I agree completely. However, we unfortunately are not in a boom at the moment – we’re in (or entering into) a recession. The viewpoint of the article is “since we’re in a recession…” not “if you could pick between recession or boom…” I wholeheartedly agree that if you could set your ideal conditions in which to start a company, a boom would be the time.

– One commentor wrote: “start a company at a time and a place where there are no constraints and even the biggest idiot can be successful.” I disagree with the notion that there is ever a time that there are no constraints on a start-up. If there aren’t constraints, there should be. And this is the point I was trying to make. In a boom, start-ups don’t always SEE the constraints as readily or operate with restraint – but they should if they want to be using best business practices and give themselves the best chance of success. A recession forces those contraints on a start-up – but those constraints aren’t BAD. They help set good patterns and behaviors for running a business.

– In my opinion, it is not true that there is ever a time or place that “even the biggest idiot can be successful.” Successful idiots – especially in the world of start-ups – are rare.

Finally, various commentors suggested three other reasons that it’s a good idea to start a company during a recession and I wanted to include them here because I thought that they were worth mentioning:

1) “Your competitors will go bust.” -m0nty

Another commentor put it this way:

“Because the well-funded riff-raff drops out sooner.” -edw519

2) “Businesses that increase market efficiency in novel ways seem, to me, more likely to succeed during a recession. This is so obvious that I’m surprised the article didn’t mention it.” -mkn

3) “Also could get one more attention — maybe — because the media won’t necessarily expect anyone to be doing anything positive. Recessions are one big moan, and the ‘yipee!’ of a startup will stand in stark contrast.” -sabat

Thanks for all your commentary – keep it coming.

(Update: The discussion is continuing here: http://news.ycombinator.com/item?id=142792)

My new gig: The Industry Standard

Thursday, March 20th, 2008

I have been a fan of The Industry Standard for a long-time – I have written about them before, and many of you will remember the magazine version of The Industry Standard as being the fastest growing magazine of all time before the bubble burst, taking The Standard down in its wake. Now The Standard is back, with an online-only site that focuses on a prediction marketplace.

And I’m the newest writer/contributor to the site.

My first article is up now – Five reasons why a recession is a good time to start a company. Go read it, comment on it, let everyone know what you think about it. And then come back to 16thletter and let me know what you think.

Industry Standard article

Extend your personal network today – especially if you're an entrepreneur

Tuesday, March 18th, 2008

I’m not one for networking. In fact, I’m a little bit shy. You probably wouldn’t think that if you met me, but it’s true. On my way to an event when I know that I have to meet a lot of new people, I am getting myself psyched up for it. Afterwards; I relax. Or sometimes collapse.

So this advice is not given lightly.

Go network. Do it now. Especially if you’re an entrepreneur.

HandshakeI have to admit, I was a networking doubter. Reconnecting with people who I haven’t seen in years, reaching out to people who are nearly strangers…these things are daunting. But since I started Pure Incubation, every single time that I’ve talked to someone or met with someone in an effort to extend my personal network, it’s helped my business.

Today I met with a finance guy who I worked with about four years ago. He helped package up the financials for Connexus Media back in 2004 when it was sold to Ziff Davis. I got in touch with him because it seemed like it would be a good idea to get him involved now so that he will have an understanding of my businesses for when I might be ready to sell or raise some capital for one of them.

This meeting was fantastic. Not only was he enthusiastic about what I was doing (which was very encouraging) but he offered to help out with advice and direction until I need to bring him on board. Along with that, he has his own ecommerce business that is totally interesting and he inspired me with some stories about how he is making money selling marshmellow roasting sticks (his biggest money-maker) and furniture made from old skis.

Networking might be difficult for you, it might not come naturally, but extend your personal network today. Send an email or give a call to someone who you either know or admire, and see where it leads.

Photo by Mykl Roventine

Starting a company and being an entrepreneur

Tuesday, February 26th, 2008

Founders at Work book coverThe past couple of weeks I have been doing a series on starting companies and being an entrepreneur. These posts are all based on the book Founders at Work: Stories of Startups’ Early Days, by Jessica Livingston. If you haven’t read the book and you either have a startup or are planning on starting a company, I highly recommend it.

Here’s a summary of the posts:

Getting started

- How to get over the fear and start your own business
Four hurdles to jump after starting a business

Money issues

- 5 ways to save money on your start-up
5 places to spend money on your start-up

7 ways to raise money for your start-up

The successful entrepreneur

- The #1 most important personality trait of an entrepreneur
10 less-than-great personality traits of entrepreneurs

10 less-than-great personality traits of entrepreneurs

Monday, February 25th, 2008

Number 10While the most important trait of an entrepreneur must be his or her flexibility and adaptability, it’s also true that people who found start-ups often have some less-than-stellar qualities that help them be successful in their ventures.

Here’s a look at 10 qualities that some entrepreneurs share that may help them be great at starting a company, but not so great at existing in normal society. The quotes below are all taken from Jessica Livingston’s book, Founders at Work.

Entrepreneurs are…

1. Paranoid – “Distrust of others, sometimes reaching delusional proportions.” Sometimes founders have a good reason to be paranoid; other times, they are worried for nothing. But most founders are a little jumpy.

“[We were afraid] they would copy us, or what if they just shared this idea with Netscape? Or shared it with anyone else. You have to realize that in those days we had nothing – just the idea…There was not much to protect in terms of IP. Whoever built it first would win the market. So we were afraid and that’s why we kept that as the secret.” – Sabeer Bhatia, cofounder, Hotmail

“We worried about competitors, but it was an unreasonable fear. As a friend once pointed out, most gunshot wounds are self-inflicted.” – Philip Greenspun, cofounder, ArsDigita

2. Self-promoting – Since many founders are working alone or with small teams, they have to be their own biggest fans.

“After I sent out that first email, I went rollerblading around a big office park where Tellme was based. I went up to a random guy and said, “Hey man, have you checked out hotornot.com yet?” He said, “No, what’s that?” I said, “Dude, just go check it out!” Then I went home and watched our logs for Tellme and saw a hit come in 10 minutes later, and then more hits kept coming from different people within Tellme.” – James Hong, cofounder, HOT or NOT

3. Delusional – “Having an unshakable belief in something untrue.”

“I just remember the general feeling that there was very little to risk…Of course, all that is false; there’s a lot of risk and you are never fully equipped.” – Ann Winblad, cofounder, Open Systems

4. Insomniacs – Most founders will admit to a general lack of sleep and an overwhelming feeling of exhaustion at various stages of their company’s inception.

“We were just working around the clock, literally. What I would typically do is not sleep for 2 nights, then I would get 4 hours of sleep and go back to work for another 2 days in a row, and then get 4 hours, and so on. It was the hardest I’ve ever worked in my life. Sometimes I’d take 10-minute cat naps by just laying my head down on my shoulders – just so I’d get some REMs. As soon as the dreams would come, it resets your brain a little bit and you’re able to work again. We were sleeping at our desks.” – Steve Perlman, cofounder, WebTV

“As I was getting interviewed by the Wall Street Journal, or some big pub guy, all I remember was that he went off to the bathroom for a second, and they brought out my omelet. The next thing I remember, I woke up, and I was on the side of my own omelet, and there was no one at Buck’s. Everyone was gone. They just let me sleep.” – Max Levchin, cofounder, PayPal

5. Filled with visions of grandeur – Nearly all start-up founders think that they are going to have a huge impact, that they are going to change the world. Otherwise, why would they go through this hell?

“What held people together was the belief that you’re really going to change the world. I think that’s the nature of many startups. You believe that what you are doing is going to have a dramatic impact. You might not exactly know how, but you really have a belief. That keeps you going and going through many changes and a lot of uncertainty.” – Ray Ozzie, founder, Groove Networks

6. Stubborn – “The quality of being inflexible.” When you found a company, not everyone is going to agree with you along the way. Not only do you have to be too stubborn to go along with them, but you also have to be too stubborn to quit.

“I think one of the things that kills great things so often is compromise – letting people talk you out of what your gut is telling you. Not that I don’t value people’s input, but you have to have the strength to ignore it sometimes, too. If you feel really strongly, there might be something to that, and if you see something that other people don’t see, it could be because it’s that powerful and different. If everyone agrees, it’s probably because you’re not doing anything original.” – Evan Williams, cofounder, Blogger.com

7. Tall-tale tellers – Most founders wouldn’t call themselves liars, but most have, well, stretched the truth from time to time to make their companies seem more established.

“If anybody ever did want to come and visit us, we pulled all kinds of tricks to make ourselves seem more legit. When that first giant company wanted to buy us and sent people over to check us out, all we had in our so-called office was one computer…So we borrowed a few more computers and stuck them on desks, so it would look like there was more going on.” – Paul Graham, cofounder, Viaweb

“I met with 43 VCs…I remember saying to them, “Look, in 4 years, we’ll be doing $18 million in revenue with $4.5 million of profit. After that, the sky’s the limit I’m an ex-venture guy; I’m telling you the truth. We can get to $18 million in year 4, and 30 times $4 million is a $120 million valuation for the company at that time.” They all told me $18 million wasn’t interesting. And I’d say, “But most people will tell you $50 million, and you know they’re lying. I’m already discounting it because I’m a venture guy just like you are.” And they’d say, “Yeah, but $18 million just isn’t interesting.” So I changed my spreadsheet to say $50 million. And they said, “OK, that’s pretty interesting.” – James Currier, founder, Tickle

8. Obsessive – “Excessive in degree or nature; fixated.” This is the personality trait that leads entrepreneurs to spend hours and hours and hours and hours on the contemplation of one tiny problem. This is also the quality that can lead to incredible products.

“You have to be very diligent. You have to check every little detail. You have to be so careful that you haven’t left something out. You have to think harder and deeper than you normally would…It has all these kinds of things and not one bug ever found. Not one bug in the hardware, not one bug in the software. And you just can’t find a product like that nowadays. But, you see, I had it so intense in my head, and the reason for that was largely because it was part of me. Everything in there had to be so important to me. This computer was me.” – Steve Wozniak, cofounder, Apple Computer

9. Dirty – “Filthy.” This is often a result of sleeplessness, obsessiveness and stubbornness.

“My admin…tells stories about coming in in the morning and trying to clean up. She’d pick up a folded pizza box and get scared because she’d find a guy sleeping underneath it – it was covering his face. It was really bad. My dog, when my wife would bring him over, he would find burritos, because the place was just a pigsty.” – Steve Perlman, cofounder, WebTV

10. Moody – “Given to frequent changes in mood, sulky, temperamental.” I define this as the day-to-day changing of emotions and state of mind, often based on absolutely nothing.

“You wake up one morning and you feel great about the day, and you think, “We’re kicking ass.” And then you wake up the next morning, and you think “We’re dead.” And literally nothing’s changed…It’s completely irrational, but it’s exactly what you go through.” – Joe Kraus, cofounder, Excite

Photo by psd

The #1 most important personality trait of an entrepreneur

Friday, February 22nd, 2008

There are a lot of things that go into starting a business – fearlessness, dedication, risk-taking, money and perhaps a bit of stupidity. But the number one characteristic that seems to be common in all entrepreneurs is their adaptability – their willingness to change plans and go in a different direction when needed.

In her blog today, Penelope Trunk wrote that it really isn’t possible to know if your idea for a start-up is any good. I agree with her. And I believe that this is the reason that founders need to be so adaptable. If you don’t know if an idea is any good before you start, it’s highly possible that along the way you might find out that it isn’t that good. Or that there is a better idea. If that happens (and it often does), you need to be willing to make a change, and quickly. “Founders need to be adaptable,” says Jessica Livingston, author of the book Founders at Work. “Not only because it takes a certain level of mental flexibility to understand what users want, but because the plan will probably change. People think that startups grow out of some brilliant initial idea like a plant from a seed. But almost all the founders I interviewed changed their ideas as they developed them.”

Changed priorites ahead signYesterday, Chris came home from work and told me that his company received their third FDA approval. This is a big deal in the medical device industry because it’s the point when a company can start marketing and selling its products (i.e. making money). I started to congratulate him but he told me not to bother. It turns out that after they had sent the application for approval, the designers discovered a flaw, so they are already working on version 2 of this device. Although they got the approval, the product is essentially going to be tossed out. He didn’t seem too phased. “Things change,” he said.

This flexibility is something that I’m working on as a key component of my start-up. I have to be flexible since a core part of my business model is starting a lot of businesses at the same time, some of which will not go as planned. At my first board meeting, one of the board members suggested that I start a software company as one of my launches for Pure Incubation. This wasn’t one of the original plans, but it seems like a good idea – possibly even a great idea (no one knows for sure yet!) – so I’m going to be flexible and incorporate that business idea.

Here are some other stories from the people profiled in the book Founders at Work:

“Over the years, I’ve learned that the first idea that you have is irrelevant. It’s just a catalyst for you to get started. Then you figure out what’s wrong with it and you go through phases of denial, panic, regret. And then you finally have a better idea and the second idea is always the important one.” – Arthur von Hoff, cofounder, Marimba

“We built this app for the Palm Pilot, which was getting pretty good growth. We were getting 300 users a day. Then we built a demo for the website, which was functional, so you could do everything on the website that you could do on a Palm Pilot, except the website was unsexy and we really didn’t care. It was like, ‘Go to the website and download the Palm Pilot version. It’s really cool.’…Sometime by early 2000, we realized that all these people were trying to use the website for transactions, and the growth of that was actually more impressive than the growth of the handheld device, which was inexplicable because the handheld device one was cool and the website was just a demo…We had the moment of epiphany, and for the next 12 months just iterated like crazy on the website version of the product, which is today’s PayPal.” – Max Levchin, cofounder, PayPal

“I came up with the idea to do a simple-to-install database at the back end. Then you’d use the browser as the front end. It could store any piece of information at the back, but the browser would be used to display it…So I wrote a business plan and didn’t know what to do with it…I knew Jack and knew that he was a great software and hardware engineer. So I shared this idea with him…While we were putting the business plan…together and were working at FirePower Systems, they installed a firewall around our corporate intranet that prevented us from dialing out to our personal email accounts. I had an account at Stanford and Jack had one at AOL, so we would dial out and email each other. but we couldn’t do that anymore because the firewall prevented us from accessing our personal accounts. So we ended up exchanging information on floppy disks and on physical pieces of paper. That’s when it occurred to us, ‘Wait a minute, we can access any website in the world through a web browser. If we made email available through the web browser, that would solve our problem.’ ” – Sabeer Bhatia, cofounder, Hotmail

“Entrepreneurs have to keep adjusting to…everything’s changing, everything’s dynamic, and you get this idea and you get another idea and this doesn’t work out and you have to replace it with something else. Time is always critical because somebody might beat you to the punch.” – Steve Wozniak, cofounder, Apple Computer

“[Our original idea was not just a DVR.] It was this flamboyant, home server network thing. And we actually got funded based on that. When we got into the technology, we realized, ‘Hey, network technology isn’t quite there yet. The idea of a server is fine, but how do you explain it to the average consumer?’ We learned very quickly that this was going to be a hard sell and a hard thing technologically…We went back to the VCs and said, ‘Thank you very much for the money. We’ve changed our minds. Here’s what we’re going to do and here’s why we think it’s a good idea.’ ” – Mike Ramsay, cofounder, TiVo

“Flickr was kind of a lark. It was a side project that we built while we were in the process of building Game Neverending. The back-end development of the game fell really far behind the front-end development, and so while we were waiting for the back end to catch up – being restless hacker types – we built this sort of instant messenger application in which you could form little communities and share objects. And we just added the ability to share photographs. So Flickr started off as a feature…Eventually, we had to put the game on hold and stop development on it because Flickr was really taking off.” -Caterina Fake, cofounder, Flickr

What do you think? What’s the most important personality trait of an entrepreneur?

Photo by Redvers

5 places to spend money on your start-up

Friday, February 15th, 2008

As a rule, most start-ups are short on cash and want to spend as little money as possible to give their business enough runway to take off. But there are some times that it doesn’t make sense to bootstrap because it may do more harm than good.

Here are the five places to spend money on your start-up to give you a better chance at success.

1) Get a good bookkeeper or accountant. This piece of advice doesn’t apply if you are a bookkeeper or accountant, but I am not. Having a good bookkeeper is worth every Stack of moneypenny. I love – no, I adore – my bookkeeper. Not only is she helpful in getting my budgets together, paying all my bills and cutting checks to all my contractor’s, but because of her past experience, she also has been able to help me with a number of other start-up issues, such as opening a bank account, wiring money overseas, setting up an LLC, registering a DBA, and a number of other business issues that it would have taken me hours to figure out how to do without her. Some people are able to find this experience and expertise elsewhere – with a business partner or advisor, for example – but it’s incredibly valuable to have someone on your team that has done the paperwork before. It will save you hours of work and will keep you from making costly mistakes.

“One of the hassles of ONElist was that I was the one managing the books the first year, as well as answering the 200 support emails every night, as well as doing all this other stuff. I guess I’m torn with how cheap do you want to go with a startup. Having an accountant is kind of a nice frill.” – Mark Fletcher, founder, Bloglines

“One [of the biggest challenges starting a start-up] is, in general, not knowing what’s ‘normal.’ Investors hand us ‘normal’ term sheets, consultants ask for ‘normal’ fees. I’m 21 – I haven’t seen enough of the extremes to know what’s normal.” – Blake Ross, creator, Firefox

“We knew what we knew, which was the product. But there were all these little things that you just have no clue about. It was incredibly overwhelming.” – Mena Trott, cofounder, Six Apart

2) Hire a great lawyer. Do not try to save money on a lawyer. A great lawyer will keep you out of trouble and out of court (which kills a lot of start-ups before they can ever gain traction). A lawyer will also help you when it’s time to raise money or sell your business. Spend money here – it may seem like a waste or too big of an investment, but it’s well worth the cash.

“They’d put in a right of first refusal. Since I was a young entrepreneur at the time, I didn’t understand that this basically meant that you couldn’t go to any other VC…We didn’t have a very good lawyer back then.” – Sabeer Bhatia, cofounder, Hotmail

3) Hire employees with special skills and experience. Stick with contractors vs. full-time employees as long as possible, but when you are hiring, it’s worth a little extra money to get someone who has the special skills and experience that you need. For example, I need a series of reports written in SQL Reporting Services. This is a customized list of reports, I know someone who has written these types of reports in the past, and I am going to hire her to do it for me again, even though it might cost me a little more than a rookie SQL programmer. I am willing to pay her extra because I know that she is good, and she won’t have to spend a lot of time making mistakes and fixing them (because she’s already made her mistakes in the past). Chris hired someone to handle his company’s regulatory issues with the FDA – and he spent a little bit more to get someone who had previous experience working with that particular government agency, which just might help get their products through the FDA pipeline a little more quickly. Plus, the inside knowledge of how the organization works will save them hours of time in preparing documents and submissions.

“The difference in almost any position between someone who does a good job and someone who does a great job might be 20% more in salary, but it’s 100% or 200% more in throughput. If you can have enough people in the company that work twice as efficiently as the person sitting next to them, because they just know what to do, what not to spend time on…It’s just, hey, you give this engineer a task, and it’s just done right in half the time as the next person.” – Stephen Kaufer, cofounder TripAdvisor

4) Splurge on occasional perks that make a difference. Sometimes small splurges can make a huge difference in the company’s culture, and are worth every penny. For me, that means something as small as taking people out to dinner (with their families and significant others) to celebrate whenever we hit a big milestone, to thank them and to mark the $20k espresso machineoccasion. Chris’ company, at a recent conference in Jamaica, instead of getting each employee an individual hotel room, rented a villa (for just a bit more money) that came with a private cook, housekeeper and butler. The experience that we had on that trip far exceeded what it would have been if we didn’t have authentic, home-cooked Jamaican breakfast every morning. The extra cost was worth every penny.

“We were very frugal and we didn’t spend money on frills, but after the IPO there was a really bad time for Marimba when it was very difficult to hire people, and all the early people that had been there 3 to 4 years were starting to leave. Morale was very low, and so I went to the CFO and said, ‘Look, I want to buy an espresso machine.’ And he said, ‘No, we can’t do that, it’s too expensive.’ A few weeks later when another senior engineer quit, I said, ‘Screw it, let’s buy an espresso machine.’ So Jonathan and I went online and bought this super-duper Italian, fully automatic, $15,000 espresso machine on his credit card and submitted the expense form. The CFO almost had a baby…They came and installed the espresso machine and it was the best money we ever spent. Every morning, people would meet and crowd around it…people loved it, they couldn’t stop talking about it. A month later, the CFO came and said ‘I’m sorry, we should have done this years ago.’ And it tells you something about where you spend your money and what you spend your money on. It’s not just business-related expenses. You also have to create an environment that you like so that people are happy and feel they are valued.” – Arthur van Hoff, cofounder, Marimba

5) Spend when it will accelerate the business. The first four months of my start-up, all my Web sites were running on a hosted server that cost about $40/month. Low-cost, low-bandwidth – and I didn’t need anything more than that. Shortly, I will be rolling out a Web application that will need a more robust server environment, so I splurged on getting my new servers set up well ahead of time. I started paying for the servers in January (I likely won’t be using them full-power until March), but having the extra time to set up and test and move all my existing sites will allow my business to hit the ground running when the application is finally delivered.

“I wouldn’t recommend [skimping on hardware sometimes]. We often had to replace stuff we bought because we had been so worried about costs.” – Mena Trott, cofounder, Six Apart

“As you’re growing…what I tried to foster here is an attitude of risk-taking, where all I want to know really is what’s my downside scenario in terms of time and opportunity cost?…If the amount of time spent making a mistake is small, don’t be afraid to make a lot of mistakes without a lot of time analyzing whether you should or shouldn’t do it. On the Web, it’s particularly easy to try something and get feedback. If it doesn’t work, drop it.” – Stephen Kaufer, cofounder, TripAdvisor

Eventually, even after a combination of saving and spending, start-ups often get low on money and need to look for additional funding. Next week, I’ll talk a bit about where start-ups can get cash, and the pros and cons of each option.

All of the quotes in this article are from the wonderful book Founders at Work: Stories of Startup’s Early Days, by Jessica Livingston.

Money photo by luismi1985
Victoria Arduino Venus Century Espresso Machine, $19,932.00.

5 ways to save money on your start-up

Thursday, February 14th, 2008

After you’ve made the decision to start your own company, and have gotten past some of the early emotional hurdles, the next issue that comes up is usually money. Specifically, how you can you use the money that you have – which is usually limited – and make it last as long as possible. In fact, when Jessica Livingston asked the founders that she interviewed for the book, Founders at Work, about their advice for would-be entrepreneurs, it was often “spend as little as possible.” (All the quotes that are used here are from that book.)

Here are five great ways to save money with your start-up:

1) Take as little salary as possible. When I quit my job to start Pure Incubation, I took a huge pay cut. I didn’t go salary-free, but Chris and I came to an agreement about the lowest salary I could take so that we could still afford to live the lifestyle that we wanted. I still take trips, I still eat out, but we have cut back in a lot of areas. Some people are even able (and willing) to not take a salary at all. Obviously, if you can go this route it’s ideal. Overhead costs from salaries often are a huge burden to businesses, and the lower the salary you take, the longer your money will last.

Some people aren’t able to take such a huge pay cut, so they keep their day jobs. This works for some people, who either don’t work long hours, have a job that isn’t very demanding, or don’t need to put in a ton of hours to get their business off the ground, either because they’re patient, or their business/idea isn’t time-sensitive. This is a great way to keep your salary down if you can do it – essentially, you’re being paid by the company for which you’re working 9-5, which is helping to support your start-up.

“We were…both working, so we decided to spend all of the time on the weekends and evenings building this product. Then it came to a point that one of us had to quit our job to focus full-time on it, so I told Jack, ‘I’m single and don’t have a family. Why don’t you quit and start working on this and I’ll give you half of my salary?’ So at least he could support his family. I didn’t need that much money.” – Sabeer Bhatia, cofounder, Hotmail

“Initially we put in a little bit of money, I think $25,000 each. If you don’t take a salary, that can last you a long time.” – Arthur van Hoff, cofounder, Marimba

2) Don’t get traditional office space. I live in a two-bedroom apartment. It’s a great apartment, second floor, ocean view – and it’s plenty of space for me and Chris. When I first started thinking about starting a company, I was planning on setting up shop in our second bedroom, which is where Chris worked when he was starting his company. But as I looked at the space, I realized that I wouldn’t be happy in that room. So I got a new desk (from IKEA, definitely don’t spend a lot of money on office furniture!) and it matched the rest of the house well enough that I could set it up in our sunroom – the view from my office is of the ocean and I love “going to work” every day.

Front porch officeIf you have a space in your house that you use for your office, do it. After overhead, the next biggest cost of business is often office space – and renting office space is like throwing money out the window. If you work with other people, see if they can work from home, too. Use IM, email and phone calls to communicate, and have meetings at your local coffee shop or at your dining room table.

If you must be in the same location, find as inexpensive a space as possible. When Chris got his first office, it was a tiny little space that cost about $400 per month in the Cummings Center, a converted shoe factory in Beverly, MA. But the great thing about that space is that there are hundreds of other office spaces in the building, so when he outgrew the space (which happened quickly), he was able to transfer the lease to a bigger office. The other great thing about the Cummings Center is that it’s close to the commuter rail, so when he needs to hire more people, he can look in Boston, as well as the outlying communities for talent.

“[We worked] in Robert’s apartment. His housemate was away that summer, and I moved into his room. Robert used to get up early, whereas I stayed up till four and got up at noon. So we would kind of work a 24-hour schedule.” – Paul Graham, cofounder, Viaweb

“We had a friend who was subletting a space, and he had a contract job that kept him out of the office all the time, so we sublet his subletted space. This was in 2002…there were failed dot-coms all over the place, so office space was cheap.” – Caterina Fake, cofounder, Flickr

3) Hire contractors vs. full-time employees. There are many reasons to start off hiring contractors vs. full-time employees. For one thing, contractors usually expect to work from home (allowing you to forgo the office space), and they often have their own equipment. Employers aren’t expected to pay for healthcare or 401k costs for contractors, and if you hire a contractor and they aren’t doing a good job, you can fire them without paying a severance or feeling completely terrible since contract work, by its nature, isn’t permanent. Chris’ first full-time hire didn’t end up working out, so he had to let her go, and it was one of the most traumatic things that he had to do in the early days of his business. He didn’t sleep for a week, and they ended up paying her a month’s salary in severance (mostly out of guilt, I think). Since then, he’s started hiring contractors and moving them to full-time when he’s ready.

I’m currently working with about 20 contractors. I’m the only full-time employee, but I am still able to get everything done, and I don’t have the worry about overhead depleting my bank account. And if there is a month when money is tight, I can cut back on contractors. Plus, often when you’re starting out, you don’t need 40 hours a week of a specific skill set – or if you do, it’s a temporary thing that will end after a project is complete. It is only when your business is at a point when it needs a dedicated 40 hours per week committed to a specific task or set of tasks that it’s time to hire a full-time employee.

“One of the things that I did…with Bloglines was rely upon an outsourcing site, in this case eLance, for a lot of things…So, if I wanted to put together a presentation and I needed a couple of graphics, I put up a proposal on eLance and ended up working with some lady in Australia who turned things around in 6 hours, for $50. So sites like that are so amazingly powerful, which is just one more reason why it’s really easy to do very small companies, because you don’t need a graphic designer necessarily.” – Mark Fletcher, founder, Bloglines

Save money sign4) Cut back on everything you possibly can. The other places where you can really save money will be different for every business. For me, I have kept expenses down by taking a chance on some less-experienced writers and designers who are working on building some of my sites and writing content. When I need a stellar design that only someone with vast experience can pull together, I’ll hire that person – but until then, I’m comfortable with getting my business cards designed professionally for $150 and printing them out at Staples (on high-quality card stock, of course). Other people find other areas to save.

“Do everything as cheaply as you possibly can.” – Paul Graham, cofounder, Viaweb

“Reduce. Do as little as possible to get what you have to get done. Do less of it; get it done.” – Joshua Schachter, founder, del.icio.us

“Even if you raise money, spend it as if it’s your own and you have none. Your organization has got to remain smart and lean. Be cheap. There’s no shame in being cheap. I still fly coach.” – James Hong, cofounder, HOT or NOT

“We basically sat in the garage coding for around 18 months. In retrospect, it was really fun…It got cold in the garage and we didn’t have a heater, so we would use the dryer for heat. We’d tape the little button down that made it run with the door open.” – Joe Kraus, cofounder, Excite

5) Take on some contract work. This isn’t exactly a money-saving strategy, but it is a way to build a little extra cash, which amounts to the same thing. I have been offered a number of contract projects since starting Pure Incubation, most of which I’ve turned down. But on a selective basis, I have taken on a few projects. The ones that I’ve chosen have either been in my power alley of experience (meaning that I didn’t have to work too hard to get them done and could charge a premium for my expertise), or have allowed me to be paid to extend my skill set in an area that I didn’t previously have experience.

For example, I recently took on a marketing project that involved sending out a direct mail piece. I own an Internet-based company, I do everything online, typically. But I realize that I may need to do some direct mail at some point in the future. By taking on this project, I learned about the issues with the U.S. Postal Service, international mailing and made contact with local printers and marketing copywriters. The best part – I was paid to learn.

“The consulting company was a means to an end. It was to get cash flow, so that you could build a real software company.” – Joel Spolsky, cofounder, Fog Creek Software

“We were chosen under a Request for Proposal bid to build a student accounting system for a vocational school in the state of Minnesota, which helped us focus on what we were going to do…It was really a one-off. It also told us how we could underestimate a project, how we would manage a project, how we would manage engineers, how we would manage or own time. And we got paid for learning on the job.” – Ann Winblad, cofounder, Open Systems

Although it’s great to save as much as possible, there are times when you still need to spend. I’ll talk about those times tomorrow.

Front porch office photo by Daniel Morrison
Do it Yourself photo by colros