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.

As 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.

3) 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.

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)

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Anyone who has read this blog for any length of time knows that my company Pure Incubation is working on starting lots of companies. You probably also know that when I get to announce the launch of one of them, I am really excited (and usually a bit relieved!)

Today I get to announce that my latest project is launching: Fat J Records.

I’ve been working on getting this independent record label off the ground for awhile, but I feel like it’s finally official because I’ve signed my first artist: Cara Austin.

Check out her site here: www.caraaustin.com.

I’ve mentioned Cara Austin here before – because I really like her music - but now I am more than just a fan, I’m her label.

To be honest, I’m still figuring out all the kinks with what’s involved with owning and running a record label. The idea to even start this type of business came from a post that I wrote earlier this year about the music industry and the things that are changing with the way that music is sold and promoted because of the Internet. That post is here if you want to give it a read.

The bottom line about the online music business is that no one has it just right yet, so I figured that I might as well jump in now when all the fun stuff is happening.

One thing that I know for sure is that the Internet is changing the fan/artist relationship, and with that in mind, Cara Austin’s blog has launched on Tumblr. I think that the Tumblr microblogging platform might be just perfect for an artist blog that will likely include a lot of pictures, quotes, and short bits and links, as well as video and audio clips. I’m going to be the primary writer of the blog, and I won’t only be posting about Cara Austin and her musical career, but also about our adventures in exploring the online music industry – so feel free to give a read or follow us there.

Second, I don’t think that the online music business models are going to be figured out by one small independent label working alone. So with this post, I invite all of you to get involved. Do you have ideas about what needs to happen to change the music industry? Why don’t you post them here. Are you an independent record label yourself, or an Internet business that is making the best use of the new music models that are emerging? Let’s work together. Send me an email and let’s see if and how we can collaborate.

The launch of a business is always exciting. But today is particularly thrilling for me as the music industry is all new for me. It’s seems sure to be a wild ride.

Popularity: unranked [?]

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.

I 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

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March 14 is Pi Day, celebrated by math lovers, math teachers, and mathletes of all kind around the U.S. I am celebrating because this blog is named after pi  – the 16th letter of the Greek Alphabet.

I have never “celebrated” pi day before, but trust me – some people are avid fans. At piday.org, you can read up on all the fun activities that people have planned, watch pi raps, and send happy pi day post cards. Here are some other ways that people are celebrating the holiday:

“At my school we are making pi shirts with fun expressions like “Cutie Pi” or “Easy as Pi”. It will be very fun because we get to bring in pies too!” – Kyra

“I will recite all of the digits of pi that I have memorized (I know 113!), watch the excellent indepenedent film “Pi” (from 1998)! And eat lemon pie, Yum!” – Jared

“pi day has been celebrated by my family for years since we came from sweden. we turn off all the lights and pray in a circle. sometimes we eat pie or have fun pie fights with my little cousins. Pi day really does make the world go ROUND!! ” – Chris

“saying PI to everyone I greet.” - Kisa

Happy Pi Day! And if you plan to celebrate, please leave a comment to tell us all how.

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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.”

Yesterday, 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

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One of the biggest issues with starting a company – and keeping it running – is finding the cash to stay in business. Even if you work hard at saving money, only spending on the things that are necessary, it is fairly likely that there will be a time when you need more capital.

I am still in the early stages of my start-up, and only have first-hand experience with angel investments, but the following is a rundown of the common ways to raise money for your start-up. Once again, I’m drawing heavily on the stories of the entrepreneurs from Founders at Work by Jessica Livingston for the quotes included here.

The good news for anyone who has limited resources when starting a company is that entrepreneurs seem to agree that this can be a good thing. The need to conserve resources often leads to creativity, hard-work, and a drive to succeed that can be missing when money is available and things are easier and more comfortable. So the first piece of advice when you’re thinking about raising money is to make sure that you really need it before going after cash.

“One of the things we’re seeing that we really don’t care too much for is that way too many companies are taking money when they don’t need it. And the whole idea we had was that having too little money is a great way of getting great product because it’s a way to get focused.” – David Heinemeier Hansson, partner, 37signals

“The money was scarce, but I’m a big believer that constraints inspire creativity. The less money you have, the fewer people and resources you have, the more creative you have to become. I think that had a lot to do with why we were able to iterate and innovate so fast.” – Caterina Fake, cofounder, Flickr

“I really liked the discipline that came from a bootstrapped startup. I think that everybody that goes and does a startup – even if they don’t do a major startup that way – should start a business that is having to make people happy with them day one, through contracts, through small scale sales, whatever it is. How low can you go? How can you build something really inexpensively? How can you not spend money on furniture and matching carpet and those sorts of things?” – Brewster Kahle, founder, Internet Archive/Alexa Internet

“The advice I would give is to avoid [raising money]. I would say spend as little as you can, because every dollar of the investors’ money you get will be taken out of your ass – literally in the sense that it will take stock away from you, but also the process of raising money is so horrible compared to the other aspects of business. You can’t work your way out of it like you can with other problems. You’re at other people’s mercy.” – Paul Graham, cofounder Viaweb

“I think in general being overcapitalized is a path to failure. The VCs want you to spend. There are general ills with being overfunded.” – Joshua Schacter, founder, del.icio.us

1) Use your own money
In my opinion, this is the best way to fund a start-up if you have the capital to invest. Not only will this ensure that your decisions are not controlled by outsiders, it will also guarantee the highest percentage of profit if you sell. It’s also incredibly motivating if your own money is on the line every day. Of course, if you don’t have extra capital and you’re trying to self-fund, that can be a painful process of skimping and saving every dime – as well as living day-to-day with poverty and uncertainty. So this is probably only a viable option if you have significant personal wealth, or have put money aside in savings.

“There are pros and cons to taking money. The best kind of company is one where you don’t have to take any money…I funded the first few years myself. But eventually, I took some money from Mitch Kapor and then others. Not so much because I needed it at that point, but because I knew that, ultimately, you cannot accomplish something completely on your own. You really need to develop a network of people who win when you win.” – Ray Ozzie, founder, Groove Networks

2) Get a loan
There seems to be a general sentiment that small businesses and start-ups are not able to get bank loans. The truth is, there are loans that are earmarked for small businesses. Bank loans can require collateral to secure them, however, and the terms make all the difference in the world, so be sure to read the agreement closely.

“We lucked out and got an interest-free loan from the Canadian government. We’d applied for it, and gotten rejected, and then just sent the same application in again when it was open again, and much to our surprise, we got it.” - Caterina Fake, cofounder, Flickr

3) Apply for grants
From the research I’ve done, it appears that the United States government does not have any grants for small businesses owners, but there are state-based grants available. This list from About.com includes links to the state-based programs. If you’re based in Canada or elsewhere outside the U.S., you may have more luck finding government grants.

“We heard about these government programs, and we started applying for them. It was a lot of work to actually apply for these things, and then it was a lot of paperwork to maintain them. In the early days, they weren’t really big grants. They were rather small, and sometimes you wondered if it was worth all the trouble. But it was very helpful when we needed it. As you become experienced, and as the government agencies that we were working with became comfortable with what we were doing and recognized that we were onto something, the grants became more interesting.” – Mike Lazaridis, cofounder, Research In Motion

4)Put it on your credit card
While it can be difficult to get a bank loan or a government grant, most small business owners (depending on their personal credit histories) are able to obtain some kind of business credit card. The typical issues related to spending on credit apply, with the biggest concern being that the business will fail leaving the entrepreneur with a huge credit card bill to pay off. According to Joe Knight, co-author of the book Financial Intelligence, in a BusinessWeek article, “the worst thing in the world is to have your business fail and be stuck personally with $50,000 in debt at 21% interest.”

“There are more choices nowadays for people – angel money, for example. And many things are much less expensive to do now. You can go further on your credit card than you could before. I want entrepreneurs to make informed choices when it comes to financing. Understand what the impacts and implications are for different financing options.” – Mitchell Kapor, cofounder, Lotus Development 

5) Get consulting work or side jobs
This suggestion is something I covered in an earlier article about how to save money on your start-up. It’s a popular way for flexible start-ups to get some extra cash - money earned from side projects assigned to the company or one of the start-up founders can then be used as an infusion of cash for the business.

“The first year was entirely self-funded. It was just doing this work mostly for HP. HP basically funded Pyra for the first year, unbeknownst to them, because at the time you could charge a decent amount of money for doing pretty simple web application development. If one of us was working on that full-time, it would pay for three of us (not that we were paying ourselves much).” – Evan Williams, cofounder, Pyra Labs

6) Find angel investors
Angel investors are typically wealthy individuals who use their own money to fund a start-up in exchange for repayment of the investment (with interest), or a percentage of the company or both. Angel investors are often friends, family members or previous business partners or associates – or people who are in the start-up founders’ extended network. (This is a good reason to start networking now!)

Angel investments provided me with the initial funding for my business, and angel money has been an excellent way to make sure that I have the capital to fund my start-up, while at the same time having the flexibility to work on a variety of things in different markets without too much outside control. This is how Chris’ company is funded, as well, and it is an increasingly popular way to fund companies, especially in high-tech.

“We all tried to get $3,000 from each of our parents, and five of the six parents put up, so we had $15,000. After graduating, three of us lived in one house in Palo Alto, and three of us lived in another. We set up shop in the garage of the house that I was living in. It was the classic setup. My parents came up and they saw the garage and wound up buying us some nasty carpet. The tables were all Formica. I won a fax machine at Office Depot. We stole our chairs from Oracle Corp.” – Joe Kraus, cofounder, Excite

“We were very encouraged that the angel investors wanted to invest. We gave demos to two investors. We only wanted to raise $50,000, but both of the investors who saw the demos said yes. So we thought, ‘All right, we’ll raise $100,000 then, since they both said yes.’” – Paul Graham, cofounder, Viaweb

7) Take on venture capital
For me, and for most of the founders featured in the book, venture capital is the type of money that is surrounded in the most mystery. Typically, start-up founders don’t understand venture capital or how it works until they go through a funding round with the venture capitalists. There is also a great deal of fear surrounding the idea of working with venture capitalists, and often a great deal of resistance to taking money from them. However, for companies that need a lot of cash to see their idea come to life or to push them to the next stage of growth, venture capital can be a good option.

“Once you start down the treadmill of taking venture capital, it’s ‘How many rounds before people give up on your or you have a positive exit event?’ So you’re really setting yourself up. The best by far is to structure it so that you don’t have to take money.” – Ray Ozzie, founder, Groove Networks

“We took no investments because there were so many horror stories about what VCs would do to you. ArsDigita was the most public one, obviously, of kicking out the founders and then mismanaging the company and bringing in the so-called professional management.” – Joel Spolsky, cofounder, Fog Creek Software

“We didn’t have any desire to take money. We had heard all these horror stories about people receiving venture money, and even though we didn’t think we could have the aspirations to be something huge, we certainly didn’t want to crash and burn because we took money when we shouldn’t have. And we didn’t know anything about it. Are you supposed to pay them back? We didn’t understand that investors put money in and they own a part of your company. All we had heard were bad things that happened, and we didn’t know why.” – Mena Trott, cofounder, Six Apart (they eventually did take VC money)

“It’s one of those things where, if you look back now, when everyone walked away with a ton of money, everyone loves everyone. We had this great time, etc. It’s generally more complicated than that where, when the company is doing well, they’re happy and they think they’re great. The company’s not doing well; they’ve overpaid and they’ve been too nice. It’s half and half.” Max Levchin, cofounder, PayPal

“Then we found one venture capital firm, Brentwood Venture Capital. Jeff Brody, a VC there, saw it and he thought it was great. He said, ‘We want to invest.’ And they were prepared to put in $4.5 million…It was great, since we were plumb out of money. I would have lost everything; my house; I would have been deep in debt; the company would have folded; it would have been a bad scene.” – Steve Perlman, cofounder, Web TV

The next article in this series on start-ups will talk about one of the key attributes of an entrepreneur – the willingness and ability to change plans quickly, and to adapt to outside pressures and influences.

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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 penny. 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 occasion. 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.

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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.

If 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

4) 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

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Making the decision to start a business is just the beginning. Along with all the actual work you have to do (which I’ll write about later this week), there are other early hurdles, some of them mental, to jump. Here are four:

1) Telling other people. For me, this one was tough. I had worked with the people at my company for almost 8 years, and many of them were like a second family. But telling them was nothing compared to telling my real family. Breaking the news to my parents that I was thinking of quitting my job was difficult, but they were supportive. Both of my parents were elementary school teachers, my dad taught at the same school, the same classroom and grade, for more than 30 years before he retired. He told me that doing something that I loved was incredibly important because I will spend too much of my life working to not love what I’m doing. Good advice, I thought.

But telling them that I was starting a company – and an Internet company that starts other companies – was a whole different story. My mom’s response: “Thank God Chris has a job.” The real issue, though, was that they didn’t (and probably still don’t really) understand what it is that I do. This is not surprising because very few people understand what I do. But I knew for sure that they were both on my side when I went home for a visit at Thanksgiving, and my mom had print-outs of my Web sites (she actually printed copies of the sites on her color printer) propped up on her hutch in the dining room. Adorable.

“My mother and father thought I had lost my mind, because I had this great job at Xerox, a nice big office overlooking the whole Bay Area. They said, ‘What are you doing?’” – Charles Geschke, cofounder, Adobe Systems

“[I had to tell my parents that I wasn't finishing school], but what was actually harder was having to go to the president of the university and ask for a leave of absence. I had never met him before. It was quite interesting because he apologized for having to try to disuade me from it. After he finished his speech, he wished me the best of luck and shook my hand with a big smile. I rememberd that, and ironically, 20 years later he’s one of RIM’s board members.” – Mike Lazaridis, cofounder, Research In Motion

“My parents thought I was pretty much over the top because I had this very prestigious job at the Federal Reserve Bank and went to work every day from my apartment to this beautiful bank and got promoted and made a bunch of money for my age. Why would I quit? It was very hard to communicate to people who weren’t in the very small software industry what you were doing. People didn’t question you; they couldn’t even converse with you. At Thanksgiving: ‘What do you do again?…OK, thanks, that sounds really interesting.’ …People didn’t quit their jobs and start these companies. Although once you become an entrepreneur, it’s sort of like becoming an alien. You notice there are other aliens!” – Ann Winblad, cofounder, Open Systems

Photo by iowa_spirit_walker

2) Having faith that it’s going to work. You have to believe that your idea is going to work before you decide to start the company, but continuing to have faith in your vision is something that you have to choose to do every day. For me, it’s hard when I read articles about how many small businesses fail because I tend to make decisions based on probability and best-case scenerios. So the probability is (based on the stats) that my business will fail. But I have to have faith, I have to decide every day that I will beat the odds, that my company will not become a statistic. That I will succeed. The good thing for me is that my business model has failure built in, which is fantastic, because I’m already planning to fail. I’m starting a number of things at the same time with the full knowledge that some will not succeed. But the trick is to hold onto the faith that some of them will succeed.

“It took a lot of faith. You call it vision, but it’s a combination of vision and faith that 1) it’s going to happen someday, and 2) it has value, and 3) you can actually accomplish it in an economic way and promote it so that you can fund the development and growth of the business. That’s pretty tricky stuff.” – Mike Lazaridis, cofounder, Research In Motion

3) Embracing the uncertainty. When you start a business, you may be trying to hold onto faith that it will be a success, but you don’t really know that it will be. Along with that, you don’t always know where you’re next client will come from. Or employee. Or dollar. So you have to come to a point of accepting the not knowing, embracing the uncertainty. For me, it’s kind of a thrill to be working this all out as I go because I have come to believe that no matter what I face, I’ll figure it out. It might not be today or tomorrow, but eventually, I’ll either determine a way to get around the issue, find someone to help me with it, or overcome it in some way.

“Part of the excitement was just seeing how the world would respond. I kind of like uncertainty to some extent, because it’s a little bit of suspense and excitement and adventure, almost, right? And you can learn a lot even if things don’t work out. But not everyone likes adventure. A lot of people seem to be against uncertainty, actually. In all areas of life.” – Paul Buchheit, creator, Gmail

4) Remembering that there are pros and cons. I got married fairly recently (May 2006) and for at least a year following that event, almost everytime I saw someone I hadn’t seen in awhile, they would ask, “How’s married life treating you?” That exact question. Since starting a business, the question has morphed to, “How’s the business coming along?” I love that people ask about both my marriage and my business, but the truth of the matter is that with both, there are pros and cons. The trick is making sure that there are more pros than cons.

For the first few months after starting the business, I had a really hard time with the isolation of working at home, alone, with no one else around to talk to all day or who fully understood what I was doing. I tried a lot of things to overcome this, and the thing that ended up working the best was going to Panera Bread and using their free wi-fi. At least there I was around people, and the din from the conversations helped me feel not-quite-so-alone. Lately, that con has turned into more of a positive. I love being able to set my own schedule and to work at my own pace, and I’m able to get things done faster than ever. The good can become bad and the bad can become good in the blink of an eye – the key is remembering that, and working constantly to turn the negatives positive.

“Startups are just so amazingly fun; they are so amazingly stressful. Whether you are an engineer or whether you are a founder, at least for me, it takes every emotion you’ve got and multiplies it 100-fold. Higher highs, lower lows than any other work experience. A startup is all-encompassing, so do it when you are young and when you don’t have a family because you’ll lose it all.” – Mark Fletcher, founder, Bloglines

“It’s a combination of sudden freedom to run things as you please and crushing responsibility in which you know you have to do certain things in a certain way at a certain time. That eradicates all of that freedom.” – Joshua Schachter, founder, del.icio.us

Tomorrow, I’ll continue this series with a discussion of the financial issues that go into a start-up.

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

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Starting a business all begins with the first step - the statement, which then turns into a belief, that later turns into a mantra  – that I AM STARTING A BUSINESS. This step happens differently for everyone, but this is my story of how I got over the fear and started a business, supplemented with the stories of friends and acquaintances and the entrepreneurs featured in the book Founders at Work: Stories of Startups’ Early Days. (All the quotes below are from that great book. If you are an entrepreneur, buy it today, it will inspire you.)

I’m convinced that in order to be able to get over the fear and start your own business, most people go through some combination of the following things:

You can’t keep doing what you have been doing. I am pretty sure that starting a business involves some level of desperation. For me, when I made the decision to start my own thing, it was early 2007, I was working for Ziff Davis Media, heading the product development team for the Web Buyer’s Guide. Things were going great with the division – we were one of the favorites in the company, making money hand over fist with a long list of the top clients in the industry. I was working with an amazing team of people, I truly liked and respected my bosses and the people who worked for me. But I was growing increasingly dissatisfied with my job. The problem was, with things going so well, I had little hope that they would ever change. The better things went with the group, the worse I felt about the job because I had to keep things going, to make sure that the clients stayed happy, to just do more and more and more and more of the same.

I love building new things. I like the creativity of it, the innovation of it, the challenge of trying to figure out how to solve problems. I enjoy gathering a team of people who can all collaborate to get something done. And I like the thrill of launching something new. I couldn’t possibly stand to stay still, the lack of creativity was sucking me dry. I had to do something else.

You realize that the only way to do what you want to do is to start your own thing.  Once I knew that I wanted to do something else, I knew that I wanted it to be related to using the Internet, and I knew that I wanted it to be creative. But the more that I thought about it, the more that I knew that going to just some other company wasn’t going to solve my problems. I already worked with really great, smart people. And another company would make me specialize, as well. I realized that what I really wanted to do was have the flexibility to do lots of different things, all the time, just the way that I wanted them done. There is no job description that reads that way.

“I think the hallmark of a really good entrepreneur is that you’re not really going to build one specific company. The goal – at least the way I think about entrepreneurship – is you realize one day that you can’t really work for anyone else. You have to start your own thing. It almost doesn’t matter what that thing is.” – Max Levchin, Cofounder PayPal

You understand the odds are against you, but you believe that you will beat the odds. The statistics for businesses to fail are staggering. It’s something like 8 out of 10 businesses don’t make it past the first year, and 8 out of 10 of those don’t make it past the second year. Something horrible like that. But, I believe I will be one of the successful ones. Why? Because I know I can do it, which is not a good reason, I’m sure. But if I didn’t believe that I would succeed, I would never have started in the first place. There has to be some level of (sometimes irrational) optimism in every business founder.

You figure out your biggest points of fear and try to work around them. For me, the prospect of starting a company led to three major fears. One, I didn’t know how to do the stuff related to starting a business because I hadn’t done it before. So I found some mentors and a business partner who have vast experience in this area and who can help me when I have questions. Two, I was concerned about putting Chris (my husband) and I in debt because of the business. I overcame that fear by taking a very small salary out of the initial seed money. I took a fairly substantial pay cut, but having just a small monthly income gives me the peace of mind that I am at least not going backward in my financial situation. Three, I was concerned that everyone I knew would think I was crazy. That issue was not something I could fix, but it was a personality flaw anyway, so I decided that being faced with that type of opposition would help me to grow as a person so it was worth facing the fear. The fears will be different for everyone, but all business owners will have to figure out how to face them.

“About the next day after I said no to starting Apple…my friend Allen Baum called me in the afternoon and he said, ‘Look, you can start Apple and go into management and get rich, or you can start Apple and stay an engineer and get rich.’ As soon as he said it was OK to do engineering, that really freed me up. My psychological block was really that I didn’t want to start a company. Because I was just afraid. In business and politics, I wasn’t going to be a real strong participant. I wasn’t going to tell other people how to do things. I wasn’t going to run things ever in my life…I just couldn’t run a company. But then one person said I could be an engineer. That was all I needed to know, that ‘OK, I’ll start this company and I’ll just be an engineer.’ To this day, I’m still on the org chart, on the bottom of the org chart – never once been anything but an engineer who works.” -Steve Wozniak, Cofounder, Apple Computer

You realize that other people do this all the time. The other thing that really helped me was to realize that other people start companies all the time, which led to the feeling that if they could do it, I could do it too. Chris started a business in 2006, and it was doing well, so that was encouraging. I was part of a company that was a start-up that was acquired by Ziff Davis, so I had seen how it was done firsthand. Although starting a company was daunting, just knowing that other people had started companies in the past was helpful.

“We both had parents who were entrepreneurs, so the idea of running your own business was a normal thing. There are people who come from backgrounds where they’re used to working for a company, and they couldn’t dream of doing it themselves and not having that safety net. When your parents and family are entrepreneurs, you know it’s nothing special. I worked at big businesses and I worked at small businesses beforehand, so the idea of starting your own business was just a normal thing.” – Dan Bricklin, cofounder, Software Arts

You weigh the benefits vs. the risks and responsibilities. For me, the timing was right to start a business. I was married, with an income-producing husband (who is also an entrepreneur, but his company, which builds medical devices for spine surgeries, had four submissions into the FDA for approval and it looked good that they were going to make it). I didn’t have any kids, no mortgage, no debt. My risk was very low because my responsibility was light. This is one of the reasons that so many young people are starting companies, because it doesn’t hurt them too much to do it. If things fail, they can always put on their resumes that they were the founder of a company. People who have a lot of responsibility have a harder time making this jump, and it is really important that they carefully weigh the risks before starting anything.

You jump in, even if it’s stupid. At some point, after you consider all these things, you just take the plunge. For me, that involved going to my bosses, thanking them for everything they had done for me, and resigning from my job. I was lucky because I was able to make a slow transition, I gave them a lot of notice, and I took some time off between Ziff Davis and my new business. Not everyone will have the luxury, but at some point, that statement has to be made: “I’m going to start a company.”

“There are a lot of programmers that are very tentative about starting their own companies. There are a lot of working programmers doing something they hate, with some company that they hate, but they need money to pay the mortgage. So they figure, ‘I’ll develop something in my spare time. I’ll put in 1 hour every night and 2 hours on the weekends and I’ll start selling it by downloads.’…But because they never really take the leap and quit their job, they can give up their dream at any time. And 99.9% of them will actually give up their dream. If they take the leap, quit their job, go do it full-time – no matter how much it sucks – and convince one other person to do the same thing with them, they are going to have a much, much higher chance of actually getting somewhere. Because they either have to succeed or get a job. Sometimes ‘succeed’ seems like the easier path than actually getting a job, which is depressing. So quit your day job.” – Joel Spolsky, cofounder, Fog Creek Software

Tomorrow, I’ll talk about what happens after you make the leap.

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