Posts Tagged ‘Start-ups’

My blog confessions and non-resolution

Tuesday, December 2nd, 2008

If you read this blog with any frequency, you already know that I’m in a bit of a “blog slump.” It’s gotten so bad, that the recent series that I wrote took me nearly a month to complete. A month! I didn’t even realize it was that bad until I just went back and looked at the dates. I should have realized that things were dire when people started alerting me to the fact that I completely missed my promise of a second post being “up tomorrow.”

Writer's blockSo here’s the thing – I have a blogging problem. Actually, I have a few of them. First, I write long posts. Again, this is not news to anyone who reads this blog, past English teachers, or anyone who has ever received an email or a greeting card from me. I’m wordy. I don’t think that this is an inherent problem; the issue is that it takes me too long to write a blog post. When I was in the early days of blogging, I had time on my hands. Now, my business obligations are taking up a great deal of time and I need to cut back on the amount of time that I spend blogging without cutting back on blogging itself – this has been tricky. Actually, it’s been more than tricky. I’m totally bombing at it.

Second, I have heard from a lot of people that the posts that they enjoy the most are the ones that bring in my personal experiences with starting a business. So I’ve been working on trying to figure out a format that I could use that would incorporate more of that type of content. But I’ve been struggling with trying to figuring out the balance of how to write about what I’m doing without a) sounding like a total prima donna and b) actually including information that will be interesting and/or useful to people. If I start writing about my day-to-day experiences, I am more than a little concerned that it will bore all of you to tears.

Finally, I do enjoy the long-form, analysis and informational writing that I have been doing all along, and I don’t want to give it up.

Those are the confessions.

So starting today, I’m going to try something new. I’m going to start adding a different kind of post to my blog repertoire. I stole this idea from one of my favorite blogs, Dooce. In her blog, Heather Armstrong includes a post called Daily Style, which is a short, daily post that includes a photo and a description of some kind of product that she likes and uses. The idea is that she takes something from her everyday life and writes a bit of commentary about it and includes a picture. The end.

Let me first say that Heather Armstrong does this incredibly well. So well, that this year she won the Lifetime Achievement Award at the Bloggies. She’s been copied many times before and will be many times again – and what I do will be a cheap rip-off imitation and probably slightly embarrassing, especially if it is compared to her site.

But here’s the thing. Starting a business is a risky thing. It involves a lot of borrowing nuggets of ideas from people who have gone before, mixing them up in a new way and throwing them out there for the world to see, comment on, reject or embrace. The start-up world isn’t pretty or neat. And nothing would ever get done if someone didn’t get an idea and just decide “What the hell. It’s worth a try.”

So here I go with my experiment in blogging more personally about my start-up journey. This is not a resolution – I am not promising a certain number of posts per day or per week, and I’m not sure that I’ll stick with this format forever. After all, an entrepreneur must be flexible and willing to make quick strategic changes. But based on my confessions, I need to try something new. And although I can’t be sure that this plan will work, I can at least remind myself that the experiment is part of the journey.

Photo by miss pupik

Types of online advertising

Friday, August 22nd, 2008

My cousin Jay (hi Jay!) is in the process of building and launching his own online business, and he sent me a note this week (OK, he sent it two weeks ago, I’ve been busy!!) asking me about online advertising and how it works. I ended up writing him a fairly long-winded email in response, but I thought that there were enough nuggets in the message to make it worth re-posting.

Offline advertising

Here is a (somewhat edited) version of the email that I sent him. Please forgive me for the rough format.

The most basic type of Internet advertising (which is sometimes called “online media” or just “media”) is the standard banner ad. The banner ad has been around for years and was pretty much the first type of advertising that was sold online. When banners first went up, they got high click-through rates and companies could charge high fees for them, but the rates have dropped significantly over time. Banner advertising is usually sold based on a CPM (cost per thousand) basis calculated against page views. CPMs vary depending on the market that you’re in – consumer markets get a lower CPM than B2B markets – and they range usually anywhere from $10-$40 (approximately). The reasons that B2B audiences can charge a higher CPM is that there is the assumption that they are reaching a “higher qualified” more “high-value” audience. To sell this type of advertising, you’ll need quite a bit of traffic, and some information for potential advertisers about the type and quality of audience you reach. Demographics, reach, influence, etc. will all help. In the consumer market, advertisers are looking for a lot of reach – meaning high numbers of page views. Also, to run banner advertising on your site, you’ll need some kind of third-party ad server (a company that serves the ads and measures delivery and click-through for you), such as Doubleclick/DART. Also, it’s probably worth mentioning that “banner” advertising has evolved to include all kinds of ad sizes and types, such as skyscrapers & leaderboards (refers to ad sizes), interstitials (the type of ads that pop up as you go from page to page on a website), overlays, etc.
 
If you are interested in running banner ads on your site, but you don’t want to have to sell the ads yourself, there are a lot of third-party ad networks that will use your available inventory (pages on your site) to run their ads, and you get a percentage of any revenue generated. This is a good option for early in a business when you don’t have the sales staff and technology resources available to do serious selling. Blue Lithium, Tribal Fusion and Casale Media are some companies that do this.
 
If you don’t have the page views that you need to sell straight banner ads on a CPM basis, you might try to sell a site “sponsorship.” This is often harder to sell (especially these days) because with sponsorships you aren’t necessarily guaranteeing page views or any other measurable metric (although you could guarantee those things), but instead you are offering companies the chance to have exclusivity or sponsorship of a specific section of your site. Sponsorships can get complicated, but you can basically cook up any kind of arrangement that you can think of.
 
Google AdSense is a great way for publishers (and Websites) to get started with online advertising. It’s easy to sign up for an account, and by setting things up and “playing with” Google’s tools and going through the training, you’ll pick up a lot of the online advertising terminology and best practices. It’s also the kind of thing that you can set up and forget – so it will just run and serve on every page of your site without a lot of interference. I run Google AdSense on many of my sites, and it does produce revenue – again, the higher the value the keyword and the more page views you have on your site, the more money that you’ll make. On the flip side (from the advertiser’s perspective) most marketers who do online promotion use Google AdSense (although when you use it to advertise, it’s called AdWords), primarily because it’s a type of “performance-based media” that shows advertisers/marketers immediate “ROI.” These two terms you will see again and again with online advertising, as the trend with online marketing moves to media that has measurable results. The other great thing about Google AdSense is that it will help you quickly be able to track your monthly traffic and page views and what your traffic is “worth.” So if you’re doing financial modeling you can include that data for potential investors.
 
Another ROI-based type of online advertising is lead generation. Lead generation is when an advertiser/marketer pays you money to know more about specific members of your audience than just that they “viewed” an ad. With lead generation, advertisers usually get contact information (either email, phone, mailing address or all three), and other pieces of data that they consider to be valuable. With lead generation, companies are able to get anywhere from $10-$200 PER LEAD (as opposed to the $10 CPMs that I mentioned earlier), because the companies are willing to pay to know specifically who their potential customers are, and for the ability to market to them in the future. Lead generation works best on a site where users need to register to access data/services/etc. 

 

A variation on lead generation is co-registration, which is where a company that collects registration data can add a question or a check box on their registration form asking “would you like to receive information from X company?” If the user checks that box, they are “co-registered” for both your site and the other company’s site, as well.
 
ONE WORD OF CAUTION ABOUT ONLINE ADVERTISING AS A BUSINESS MODEL. (This was applicable to Jay, but might be relevant to you as well, so I’m leaving it here.) Since you are building a site that requires users to enter a lot of data, fill out forms and generally interact with the site a great deal in order for the site to be successful, you will need to think very carefully about on which pages it makes sense to have advertising. For example, running Google AdSense is fine on an information page (a page that someone gets to and might realize that they are in the wrong place), but putting Google AdSense on a registration page, where it might distract a potential registrant from completing a form, is not the best idea. In that instance, getting them to complete the reg form is probably worth far more than having them click that Google AdSense link.

 

I hope that this helps someone out there! If you have any questions, please feel free to post them below and I’ll try to answer.

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

7 ways to raise money for your start-up

Tuesday, February 19th, 2008

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.

SevenThe 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.

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

Microsoft vs. Yahoo: And the winner is…Flickr!

Thursday, February 7th, 2008

By now, everyone has heard about Microsoft’s unsolicited (and unwanted) bid to take over Yahoo. You’ve read Google’s evil(ish) response. And Microsoft’s counter. Perhaps you’ve even followed the commentary for, for, for, for, for and against, against, against, against, against the deal. And the analysis about whether it would be bad or not bad for start-ups.

My opinion: either way, everything’s going to be alright. If Yahoo is absorbed by Microsoft, the world will continue. If there are services that Yahoo offers that Microsoft eliminates, another company will build products and services to take their place. If Yahoo and Google make a deal and Microsoft is left hanging, and Google turns from the good guy to the bad guy and Microsoft starts being seen as the underdog, well, that will be weird, but it will be OK. If some third-party comes and bails out Yahoo (which is not likely at this point), things are going to be fine.

Either way, some people are going to be happy. Some people are going to be unhappy. But business will continue. Something similar happened when Adobe bought Macromedia, a deal that was bemoaned by many as the demise of good creative software. But the deal went through and there is still good creative software. There will be tough times, there will be struggles, but change sometimes fosters creativity and innovation – and both of those can be better than a company withering away on the vine, which may have been Yahoo’s fate if no one stepped in and did something.

But all of that aside, I think that the real winner in all of this hubbub is Flickr. Not Yahoo, even though they own Flickr, but Flickr itself.

I noticed early on in all the discussion about the possible Microsoft/Yahoo deal that various pundants would write an analysis of the situation and then would say something like, “No matter what happens, don’t you dare hurt my Flickr.” I commented on it, and thought it was interesting.

Then a whole movement erupted.

Currently, 2,672 Flickr users have banded together to fight Microsoft’s acquisition of Yahoo because they are afraid that it might hurt their Flickr. This is just one of the thousands of protest photos that have been uploaded:

Microsoft Yahoo Flickr
Photo by robsv

You don’t see users of Yahoo e-mail worrying. Yahoo Small Business services, which are popular and have a lot of users, aren’t protesting. It’s just the Flickr users.

So in my scorebook, Flickr is the winner. They built a brand that people love, and not only do they love the brand, but they are willing to fight for the company. Flickr did this by creating a service that’s easy to use, allows interaction, fosters community, and is free.

Or do you think that these Flickr users really just hate Microsoft that much?

Webinno Boston #16: My recap

Wednesday, January 30th, 2008

Last night I attended the Web Innovators Group (Webinno) meeting in Boston. It was the 16th meeting put on by the group (the first that I attended) and it was packed out! Web Innovators Group logo
Honestly, I thought it would be a smaller meeting with fewer people, but there were probably somewhere around 500+ people in attendance. It was definitely standing room only when the presentations were happening. (This picture is just one corner of the room, it looked like this everywhere.)

At Webinno Boston

The way that the meeting worked was that there were three featured companies (called “Main Dish Presentations”) who presented for about 5-10 minutes each and answered two questions after they finished. This was then followed by six highlighted companies (called “Side Dish Presentations”) who each pitched their products for 30 seconds.

The Main Dish presenters were:

Urban Interactive
Urban Interactive Logo“Provides a platform that creates mixed-reality mobile adventures, transforming a cell phone into a modern-day Dick Tracy watch. Users download missions to complete throughout a city, bringing them closer to their surroundings, heritage, local events and neighbors.”

My take: I think that Urban Interactive is a really cool idea, and after a quick look at the program, I was most excited to see this presentation. It is obvious that a lot of time has been spent on the interface to make it look very “spy ready” and the technology seemed to function well, at least the part that was demonstrated.

The primary issue that I see with this product is that it seems like it would be hard to set up new adventures. For example, a mission at the Boston Museum of Science was used as the demo adventure. The very first step in the mission was to find the museum, and then go to the front desk and ask for a code. This, in itself, means that every employee at the Museum of Science would need to be trained about this program and how it works, because they’ll get a ton of questions. Or, (and I think that this is how they do it), the adventures would only be able to be “taken” on a schedule, in which case, Urban Interactive employees (or Boston Improv actors) could participate and help the adventurers along. This will severely limit the usage of the product.

To the company’s credit, its next plan is to work on the ability for users to create their own missions, but until they get over this hurdle, I don’t expect that the product will be able to get any kind of critical mass.

Like I said, I really like this idea, so I’m pulling for this one to work. I think for it to succed, they need to scale back a bit on trying to do everything, and focus on one core business (tour operators, museums, schools or corporations, pick one), just until they get things off the ground.

SpotScout
SpotScout logo“We believe that, if given the right tools, individuals and communities can solve their own parking problems by creating virtual markets for parking information. Whether a parking garage, a private space, or a space on the street, our software enables space seekers to acquire timely information on space availability before arriving at their destinations.”

My take: The presenter described this company as “kind of an eBay for parking spaces,” and I think that SpotScout is a great concept and will be useful in cities where it can be tough to find parking (New York, San Francisco, Boston). It appears that the service hasn’t yet launched, so it’s tough to see how many people will use it and how it will work when it goes live. But I’m betting that this product will be a success. I have had to look for parking in Boston and driven around and around and around…looking at many empty parking lots that businesses don’t use at night but have “No Parking, Tow Zone” signs posted on them. Just think of the utility for drivers -and the extra cash for businesses – that could result from this product. Also, I would definitely use SpotScout if I could make a reservation in a parking garage for a Red Sox game, for example. I would be able to lock in my price and my spot, and I wouldn’t have to get to the game three hours early to park.

As long as SpotScout is able to figure out how to get the local garages involved so that they know what SpotScout is and how to use it, and as long as they are able to sign up enough users so that there are people both providing spots and telling each other when they’re coming and going, I think that this will be a huge hit. If it is a success, I can imagine someone driving around the city all day, parking at meters when they find an open one, and then posting to SpotScout their departure information, to make some extra cash. This was the best of the Main Dish presentations.

MakeMeSustainable
MakeMeSustainable logo“The Facebook application provides creative ways to fight global warming. It engages users with tools to reduce their carbon footprint and ties in competition and community components that enable them to visualize their larger impact.”

My take: I should start up by saying that I’m not a huge Facebook user. I have an account, I check it occassionally, and I use it to talk to my friends, but I am by no means a super-user. Perhaps because of that, MakeMeSustainable just doesn’t thrill me. I appreciate the concept behind it – getting users to reduce their carbon footprint -and the execution of the product is actually great (very well-designed, charts, graphs, etc.), but I just don’t see this being a tool that would get someone to take long-term action. It might be cool for awhile, but will it really make a difference?

I think that the company’s smartest move is the partnership that they’re making with various musicians – and if they can tap into that type of super-star fan base, as well as associate their brand with people like Dave Matthews, they might have a shot.

Next came the Side Dish Presenters, and I was much more impressed with many of these products and concepts. Remember, they only presented for 30 seconds, so I only got limited information.

Survol
Survol logo“Mobile platform for fast effortless use of Web sites, feeds, search results and widgets”

My take: The presenter said that this was “a better way to access the Web on any mobile phone,” but I have to be honest, after listening for 30 seconds I have no idea what Survol is and what it does. Their Web site was not much help.

Glassbooth
Glassbooth logo“Do you know where the candidates stand on the issues? Glassbooth is an innovative website that pairs a massive database of information on the presidential candidates with an inviting design for exploration. Users tell the site which issues they think are important, respond to a series of statements based on that input, and find out which presidential candidate most closely aligns with their views and why.”

My take: I love this concept, and from the user’s perspective, I really like that Glassbooth is a non-profit and therefore not aligned with any commercial biases or candidates. I just went through the site and I found the user experience to be excellent. It was helpful to have the issues lined up (with links to articles about the topics so I could read up on things that I am not totally sure about), and at the end of the survey, along with a suggestion of what candidate mostly aligns with my beliefs, I could find out details about what each of the candidates’ positions are on each of the issues, based on what they have said in the past and their voting history. This was a cool site and I highly recommend it for anyone who is still trying to figure out what candidate is going to get their vote.

Buildium
Buildium logo“Whether you’re a professional property manager, condo owner or a member of an HOA, Buildium has a property management solution to meet your needs.”

My take: I really liked this product, as well. The presenter told a compelling story about a guy who was in charge of his condo association and how he needed tools to help him manage the budgets, bills, planning and other stuff for that role. Since I have heard many stories about condo associations and the difficulty of being involved in them, it seems like Buildium would help. Note, however, that I haven’t seen these tools in action. I just like the concept.

MyHappyPlanet
MyHappyPlanet logo“The leader in social networking for language learning and cultural exchange. We provide a platform for language learners to improve their foreign language skills through peer-to-peer learning and user-generated learning materials.”

My take: MyHappyPlanet is one of those ideas that makes you say “why didn’t I think of that?” The basic premise is that there are people all over the world who are trying to learn languages, so the site lets them partner up and practice with each other. So, for example, I’m in the U.S. and I am a native English speaker, and I want to learn Spanish. The site lets me partner with someone in Spain who is trying to learn English to practice. This is such a great idea, and I could see it spinning out lots of other products, educational and commercial (globalization. localization and translation services, especially). It also helps that this site already has 80K-100K users.

Socrato
Socrato logo“A Web-based test preparation and assessment platform. Helps users quickly identify their strengths and weaknesses, enabling them to focus on the right areas faster, saving study time.”

My take: Basically, Socrato is a test preparation and learning tool that is trying to help students study better for standardized tests. This product didn’t pique my interest particularly, but I like the concept. 

Mofuse
Mofuse logo“A hosted mobile site creation application geared toward content publishers such as bloggers. Using the MoFuse application, anyone can create a mobile-friendly version of their website or blog in just a few minutes.”

My take: I didn’t get a good sense of Mofuse from the presentation, and it left me feeling a bit like it was irrelevant. My site looks great on the iPhone, afterall, and my bet is that all mobile Web browsing is all heading in that direction.

The next Web Innovators Group meeting is in Boston on April 2nd.