My Advice to Aspiring Entrepreneurs? Build Something!

I’ve been connected or introduced to a handful of aspiring entrepreneurs recently, folks that have lots of work experience, but no experience starting a company from scratch.  And the first question is always the same, “I don’t know how to get started”.

Ten years ago my advice might have been different, likely starting with the creation of a well thought out business plan that you use to raise money around based on the concept and research alone.  But today the costs of starting a business continue to plummet, particularly the costs to actually build a Minimum Viable Product or at least a prototype.  Simplified programming languages, open source code and dramatically reduced cloud-based hosting, processing and storage costs through services like Amazon EC2 and S3 have not only reduced the costs to build, but more important have enabled thousands of entrepreneurs to start businesses without the need for an outside cash infusion.    And there is no better way to share your vision and get others excited about your idea than to physically demonstrate it with a powerful product experience.  Gone are the days of million dollar investments required to get a demonstrable product, complete with features and functionality.

So the answer to the question is simple – Build something that you can use to:

  • Get others to actually use and thus prove value and traction,
  • Share with investors to get them excited about your product vision, and
  • Reduce the “cost of money” if and when you actually do raise capital

But what if you as the entrepreneur don’t have the skills to code a prototype or build a product yourself?  Easy, get immediately integrated into your local tech community events or get networked and find a technical co-founder.  Notice I didn’t say go find a engineer and convince them to build you something on the cheap or even free in exchange for “some shares”.  Rather, do your homework on the market opportunity, tell a compelling story and share your vision in a way that gets them excited and committed, even if part-time, to the success of the product which will inevitably require lots of iterations to get “right”.  Why should they be a co-founder?  Because engineers are the world’s scarce startup resource and, in my opinion, often the most underestimated from a strategic standpoint given the importance of technology in company building.

It’s really a subject of a future post and I digress, just go get a technical co-founder and thank me later.

The Hardest Decision That No One is Forcing You to Make, But You Should

One of the inevitable truths about startups and building a real business from scratch, is that you rarely get it right from the start.  Meaning, most assumptions made in the beginning about the business model, target market, customer profile, product features, etc will change over time as you build, learn and adjust.  And this cycle often repeats itself several times over the course of the first few years.

Although the decisions to change the product in a different direction, or to abandon sales efforts in a particular segment or to completely pivot the business model are extremely difficult, especially since the team is so invested in confirming rather than disproving hypotheses, these decisions pale in comparison to the most difficult decision – letting go of good people, employees who are top or strong performers but now have a skill mismatch.

To be clear, I’m not talking about terminating non-performers.  If you can’t do this as an entrepreneur within the first 90 days of someone’s employment, then you should try another line of work.  I’m talking about terminating, in many cases, top performers in their trade, its just that their trade is no longer a burning, urgent requirement to build your business based on how requirements are evolving.

Why so ruthless you say?  Because you won’t have room on the payroll for the skills you really need, you will get marginal contribution from top performers that are skill mismatched, and you are increasing risk that you won’t get the traction you need before you run out of money or a competitor eats your lunch.  When you have 5, 10 or 20 employees, every single person must be the best that exists and must gel culturally.  Everyone in the company should demand this level of performance and since “like attracts like”, it makes recruiting only the best that much easier.

Listen, I don’t take any satisfaction for decisions like this that impact people’s lives so deeply, in fact I don’t sleep for nights before it happens, but the consequence of inaction is too large.  The key is to handle these terminations in a dignified, empathetic way.

One last point.  As you look at your team and recognize that there are several folks that unfortunately aren’t cutting the mustard, let go of them all at once.  And when you do it, embrace the remaining team and reinforce that they are the foundation for the company going forward.  In my experience, top performers recognize when there is a lackluster contribution by others and will have more respect for a tough decision that actually breathes more life into the organization by creating cash runway and room to hire the right people.

Back on the Grid

Wow, it’s been an extremely intense past 2.5 months in Startupland.  I haven’t written since December and I really miss the therapy in it.  Why no writing?  I’ve been channeling all my professional energy and mind share into working through a critical stage in my company’s development (which we are still in), and I’ve been hesitant to write about it transparently given the confidential nature of the issues I face everyday.  While I’m a huge fan of complete transparency, it’s not my place to share these details (despite my desire to do so), especially the unflattering, unsexy, fall-on-your-face realities of building a company when partners and customers have access to them.  So I’ve struggled with what to write about and in what level of detail such that its useful and insightful and, most important, so that others can learn from the tough stuff.

But I’m back!  And committed to striking a balance in what I share.  In the past 8 weeks, I literally have 20 topics listed that correlate directly to challenges, learnings, failings, big wins and the emotional roller-coaster that is my life right now.  I can point to several days when I had feelings of unsurpassed confidence and outright despair – in the same day!

I’m anxious to share more and will over the coming days and weeks, at least once each week.

Don’t Go It Alone, Get Out of Your Bubble

Since I’ve moved to Austin and joined BlackLocus roughly 6 weeks ago, I’ve probably had 30+ meetings with individuals outside the company.  Why?  Because without exception I learn something from every one of these meetings that will help me be a better leader and reduce risk of failure during this critical phase of the company’s development when there are foundational decisions we are making every day.  You may be thinking, “Geez Taylor, why don’t you just put your head down and get to work instead of networking your way out of business”.  There’s clearly a balance here and I’m not suggesting that you should network for networking’s sake, but rather identify folks that have specific and relevant experience dealing with the issues most pressing right now in your business.  And by the way, it need not be successful experience, there is a ton to be learned from other people’s mistakes.  Wouldn’t you rather learn from someone else’s setback than your own?  Whether its the need to raise money, or perhaps figure out a go-to-market strategy, or even how to tackle a tough engineering problem, there are likely people in your extended network that are ahead of where you are today and have navigated, either successfully or unsuccessfully, the urgent problem you have to solve.  In either case, that perspective is valuable as input into your decision.

Now there is a consequence to seeking multiple points of view and getting so much data as input.  Ultimately you have to formulate a point of view, have conviction and make the tough decision.  And doing so with so much external data can be more difficult and confusing particularly if there are a lot of disparate viewpoints on the same issue or problem.  But that’s what leadership is!  Putting your ego aside, realizing you aren’t the master of everything, seeking external viewpoints and data, then distilling it all and having the courage to make a decision and execute against it.

Early Stage Priority Confusion

During the early stages in a stressful, lonely place I call StartupLand, it can be overwhelming determining where to focus scarce resources, both people and money.  There’s endless product issues to address – customer features, performance, reliability, scalability – and if you have a Minimum Viable Product and a bit of luck there are existing customers to support and retain.  Add to the mix the need to both acquire more customers and add other strategic partners to complement your product.  Don’t forget recruiting, if you are funded and enjoy the ability to grow your team, sourcing and interviewing talent can literally take up 30-50% of everyone on the team in the early days.  Oh, and your Board and investors will require some care and feeding through reporting and monthly or quarterly meetings.  That’s a lot to juggle if you have a small team (5-15) trying to tackle each of these priorities.

So how and where do you focus scarce resources?

By being ruthless about both prioritizing and sequencing those priorities where maximum traction can be proven in the shortest period of time.  And by traction I mean proving that customers will buy your product at a price that has a path to sustainability.  In my experience, it means allocating resources in 2 primary areas in the early days:

  1. Harden the Minimum Viable Product.  Specifically, ensure the product 1) has only the most basic feature set, defined as the minimum set a customer is willing to pay for, and 2) is minimally performant, reliable and scalable meaning just sufficient in all 3 categories to retain customers and enable a six-month window of customer growth.  Probably the single biggest pitfall to avoid is allocating resources to make your product more feature rich than it has to be simply because you think your customer must have those features, all at the expense of making a more basic product work flawlessly.  Your customers probably don’t need those features yet and if you have any paying customers, then you’ve proven they don’t.
  2. Get and maintain momentum in sales/customer acquisition.  If one customer is willing to pay for your product as it exists today, then find another one willing to pay.  Then another.  There is nothing that defines traction more effectively than increasing customers and revenue.  You can be unprofitable and raise money with customer traction.  You can offset costs and hire more people with customer traction.  The world of possibilities to tweak, market and scale your business open up with customer traction.

At the end of the day, these are the only things that truly matter for an early stage startup.  Build the most basic product that you can sell, and then sell it.  And if you can sell it, then don’t build custom features, in fact don’t build any features beyond the product you can already sell until you have more resources on board.  Don’t harden the product for performance, reliability and scalability that you’ll need two years from now, harden it enough to get through the next six months of sales.

Sure, there’s lots to do from this point, but until #1 & 2 are achieved, nothing else matters, so don’t be tantalized to spend the cycles working on other high value, but optional workstreams.  Be ruthless.

Startup America Partnership, Austin-style

I was invited to attend a luncheon this past Friday hosted by the Austin Chamber of Commerce and the Austin Technology Partnership to discuss the soon-to-launch Startup America Partnership Austin program.  Startup America is a national program launched this past January at the White House and founded by the Case and Kauffman Foundations to further entrepreneurship across the country.  It’s mission is to provide entrepreneurs with the resources they need to conceive, launch and grow new companies and it is taking a local approach to mobilize resources supported by the muscle of a national brand.  There are some heavyweight influencers tied to this effort including Steve Case, Michael Dell, Reed Hastings (Netflix), Reid Hoffman (LinkedIn) and Magic Johnson.

Austin, through the leadership of the Austin Chamber, is taking a pioneer role in being one of the first handful of communities to officially launch its program under the SA brand.  The idea is to gather expertise, talent, customers, services and capital and package these resources at highly discounted rates and/or unique offerings to assist entrepreneurs at various stages of their company’s development.  Another large part of the Austin mission is to create a net inflow of entrepreneurs from other cities to choose and build their companies in Austin.

I was introduced at the lunch by John Price, a friend, serial Austin entrepreneur and Chair of SA Austin, who is spearheading much of the launch effort for Startup Austin in conjunction with other local organizations including the Chamber and SXSW.  In many ways, the story of my new company BlackLocus and its relocation from Pittsburgh to Austin combined with my relocation from Los Angeles, reinforces what Startup Austin is trying to achieve on a broader scale – promote entrepreneurship not just by home growing it, but also by attracting talent from other places in the country to start and grow their companies in Austin.

I’m excited to work with John in any way I can to assist in bringing additional talent and new businesses to Austin.

Texas Venture Labs / Austin Technology Incubator

My new company, Blacklocus, is an Austin Technology Incubator (ATI) company and we presented yesterday at the Texas Venture Labs Expo in Austin.  I stopped by to hear the pitches of 5 graduating companies, including ours.  I was deeply impressed by the presenting companies, at least 3 of them are truly innovating massive industries including online commerce (us!), nuclear power and combustion engines.  These programs are examples of increasing efforts by the University of Texas to integrate with the local business community to develop entrepreneurs, facilitate investment and commercialize research generated through the University.

Now that we are fully relocated to Austin, I’m really energized to get more involved.  There are several objectives I have for “getting involved” with the local entrepreneurial technology community:

  • Build the BlackLocus brand locally through thought leadership, mentoring and recruiting outreach.  The more we promote our vision and progress, the more attractive we will become to partners, customers and employee candidates.
  • Do my part to further entrepreneurship and development of high growth companies in Austin.  This community has so much to offer for entrepreneurs, venture investment, existing companies looking to relocate and I’d like to become involved in initiatives that promote and actualize those attributes.  Capital Factory and Startup America are examples of successful and far reaching programs to promote our city and develop successful new companies.  There is a real talent shortage here, as in many high tech hubs across the country, and it really is a zero sum game that we need to solve.
  • Actively invest in promising high-growth startups.  As I’ve written about previously, I’m active but picky in my search for investments in new companies where I have something to offer in addition to capital.

Yesterday was a great introduction to a few programs dedicated for furthering local entrepreneurship and I look forward to becoming far more integrated over the coming months.

Looking for Funding? Try AngelList

I recently attended a talk on Angel investing given by Brad Feld and David Cohen at the Boulder TechStars Bunker.  One of the challenges I’ve been unable to get my head around as a prospective startup investor is how do I get access to the most promising startups?  All of the “high profile” startups that are started by the most accomplished entrepreneurs are almost impossible to get access to.  There’s a small community of well known Angels and entrepreneurs that circle these startups and get first dibs at seed level funding.  Makes sense.  If I’m starting a company, I want “smart” money in my deal.  Not just cash, but cash from accomplished business builders and investors who have a track record of helping companies be successful and generating a return on their investment.

So the question is, as an unknown investor with some success starting and building companies, how do I get access to the better deals?

Enter AngelList, an online marketplace for startup entrepreneurs and prospective investors to connect started by serial entrepreneur Naval Ravikant.  Here’s how it works:  Startups can register and create a listings page that contains their product, screenshots, video, team and advisors.  What really makes it interesting is that you can see which prospective investors are “following” the company and which are “endorsing” the company.  Investors must also register and be “qualified”.  To be qualified, an investor will be evaluated one of two ways, either by how many current community investors are Twitter followers or by having a certain number of current investors “endorse” you as someone they would trust and co-invest with.  This qualification process I believe gives the community credibility and its working based on the list of over 2,000 incredibly accomplished investors and entrepreneurs listed on the site.  The latest, unverified stat I heard was that AngelList was adding 20-40 startups per day.

Now, does AngelList by itself give me access to the most high profile deals?  No, but it sure does begin to provide transparency and level the playing field.  Gone are the days when prominent VC’s had proprietary access to deal flow.  Now everyone – entrepreneurs, Angels and VC’s – has to be scrappy and compete.

This level of market transparency is also great for startup entrepreneurs.  They now have access to a broad range of investors and in this era of AngelList and social media, you can get to almost anyone if you can efficiently articulate your pitch and cut through the volume of social media noise.  But access is no longer the issue.

The final implication to consider from this increasingly transparent and open investment environment is on valuations.  I’ve said before that we are not in a “bubble” similar to high-flying times of 1999, but pre-money valuations right now are pretty darn high I think due to numerous factors but certainly at least two:  1) huge success stories like Facebook, the LinkedIn IPO, Zynga, Groupon, etc. have investors over-exuberant about finding the “next big stock” and 2) an increasingly transparent market (via AngelList, Second Market, Sharespost and social media in general) is allowing anyone to invest in startups, creating more demand and driving prices up.

It will be interesting to see if the market becomes more transparent and open, if valuations will continue to rise, stabilize or fall and what effect a fall in valuations might have on the supply/demand equation for startup financing.

Tech is Alive in Austin

I just spent two packed days in Austin, TX connecting with members of the technology startup community, both entrepreneurs and also the investment community.  I also had a chance to spend some overdue quality time with my two nieces, Zoe (2) and Shelby (9 months).  My brother Chris lives in Austin and is part of a group of entrepreneurs and investors that are really shaping Austin’s present and future role in fostering a comprehensive environment for companies to launch and thrive.

Austin grew up in the early 90’s as a technology community hub, particularly in Enterprise Software and Hardware, as the birthplace of Dell, Tivoli, Vignette and Trilogy among others.  Today, slowly but surely there seems to be a newer crop of companies emerging in Consumer Internet and Mobile – HomeAway and BazaarVoice being two successful examples – and a whole slew of new and exciting startups that are getting funding locally through Austin Ventures, Silverton Partners, NEA and even outside of Austin from firms such as Boulder-based Foundry Group.  Startup programs such as Capital Factory and Startup America Partnership, in addition to the large and local University of Texas, are helping to perpetuate and grow Austin’s track record of starting, scaling and exiting new businesses all while enjoying a great quality of life.

I was really energized by what is happening in Austin and look forward to my next visit.

One thing is clear, people love living in Austin and they rarely leave.  And if they do, they come back.  Exciting times in the heart of Texas.

Don’t Hate Me Cause I’m a Business Guy

I recently read a fantastic post by Jacob Quist entitled “Why Engineers Distrust Business People” that provided a unique perspective on what I never fully understood, but was always aware, to be a common tension between deeply technical folks and those of us who are far more competent in non-technical arenas such as business operations, business development, sales or marketing.  In Jacob’s post, he believes the foundation of this distrust is due to the fact that historically engineers have been directed at the highest levels of the organization by business people and it only takes a few bad experiences to perpetuate a stereotype.  This is certainly a 2-way street, there are plenty of bad engineers and technical leadership out there, but typically its the business side of the house that directs the organization.  At least historically.  Jacob is right, its all about providing mutual value which leads to mutual respect.  Now with so many new startups founded by engineers, there’s a burst of independence from these bad experiences, creating a challenge for even the most effective, accomplished business entrepreneurs to find “co-founder” opportunities unless they bring the idea or concept to the table.

As a “business guy” who’s worked closely with engineers in startups for over 10 years, I’ve consciously made efforts to complement, not contribute to (read: get in the way of), the technical aspects of the business while treating the technical/engineering function equally if not more important than anything that drives the success of the organization.  Most recently I’ve tried to take it one step further, a step that I rarely see other business folks embrace – ensuring technology leadership has an equal seat at the table at the highest levels of strategy and product development and enabling the technical staff, the engineers, to contribute to product development in the form of a “safe challenge” dialogue with the product team.  This view has evolved over time for me as I’ve been exposed to increasing levels of strategic talent in the technical individuals I’ve worked with.  Experienced engineers often have incredible design and product sensibilities because they are the closest to the end product.  While they may not create the original design or spec, they are problem solvers in implementation, constantly iterating to find the best solutions.  And they usually understand a product’s complexity better than anyone, which HAS to be considered in any strategic product discussion.

So to all of you startup engineers out there, especially those who are founders and assuming you need a business partner (and you do, subject of a future post!), what should you look for in your “business partner”?

  • Demonstrable success in starting, building and scaling a startup.  These are 3 distinct phases of a company’s early growth that require different skills and perspective, and you need someone that has success in all three.
  • Philosophically aligned on the role of technology.  Ask the tough questions about the qualities of a great CTO, the role of the engineers and how strategic decisions are made for the organization.
  • The business co-founder does not have to be the CEO.  This is a great ego-check moment.  There should at least be a dialogue and healthy debate, never a default assumption.  And discussing how roles will evolve as the company grows is equally important.
  • Find an overall athlete (COO or Head of Ops)  instead of a functional expert.  This is probably the most controversial point that many will disagree with.  Many founders want to solve their most immediate need (more sales, marketing to acquire customers) and thus seek to find deep experience in a single skill as the first or second key leader.  I would contend that in a startup, there are a dozen areas that need leadership now to properly set the company up for success and that if every other attribute on this list is met, the “right” business partner can fill any immediate functional need sufficiently in the interim.  Another important point – acquiring and building out a talented, cohesive and high performing leadership team is difficult and a skill that should be historically demonstrated by your partner.
  • Ability to immediately contribute.  Leadership recruiting, product strategy, fund raising, sales, business development, marketing – the seasoned business lead can successfully step into most of these roles initially as the other functional leaders are recruited.
  • Test for worst case scenario.  When all hell breaks loose and it looks like the business is going to crater, how will your partner deal with it?   Do you share common philosophies on hiring, spending, tough decision processes?  This is difficult to predict, but you have to talk about worst case, because in a startup, worst case is most likely case!

What other qualities should you look for in your “business” partner?

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