A very good read for any first-time entrepreneurs. My own experience is that there are two kinds of decisions in startups, one that is life-and-death and one that is not. Life-and-death decision is very easy to make. But making the right life-and-death decision is like avoiding a car accident that never happens or saving the economy from total collapse. Your only material reward is that you get to live. Decisions that are not life-and-death are much more difficult to make in a startup. They are actually much more important to the success of a startup. Making good decisions in startups obviously requires experience but it also requires good judgment. And good judgment has to do with when and how to build up creditability with your co-Founders and your shareholders, and when and how to cash in your political earned capital to mobilize the company behind an unpopular decision that you have made based on imperfect data. More importantly, good judgment has to do with maintaining a positive feedback loop to constantly re-up your credibility with your constituents so that you do not inadvertently over-extend your reserve. I believe when the President spoke about "deficit-of-trust" last night, he understood. Good luck, everyone.
A very good read for any struggling entrepreneurs. Obviously, no entrepreneurs would walk away with a $45M severance package and call it a failure. However, when entrepreneurs do fail, either due to our own inexperience or outside factors, the first thing we need to repair is our reputation. Again, my own painful experience with recovery is not that different from falling off a bike. In the process of getting back on track, your attitude and your outlook are the most important. It is natural that you want to get even. Think positive. Whatever you do, do not get into other people’s way and do not wish for other people’s fall. You are now at your most vulnerable and deflated stage of your life. You don’t have any money. You don’t have any friends. Your reputation is in complete ruin. As a result, you can’t afford to be negative and you can’t afford to be surrounded with negative people. Not having the ability to be constructive doesn't give you the license to do destructive. Whatever you do, stay away from bad Juju. Now is the time to levitate yourself. Now is the time to fill your head with positive thoughts ... "if you work really hard, amazing thing will happen." I love this guy.
This is a good read for any first-time entrepreneurs who often underestimate the importance of having mentors. Interestingly my wife asks me the other day whether or not I am "retired", "on a break", or just waiting for new opportunities. To which I said I don't know. But what I do know is that I no longer have the fire in my belly and until I get it back or until I meet someone who has it, I am just whatever. It turns out that first-time entrepreneurs also underestimate the importance of having conviction, and how alluring and contagious that ball-of-fire can be to potential mentors.
Years ago I met an older gentleman who obviously had a lot that I could learn from and I was excited that he was willing to listen. But he told me that he was busy and asked that I returned the following week. When I returned, he said he had studied my presentation and thought that it had potential. More importantly, he was interested in taking a closer look. Then he tossed my business card across his desk and said, "If you want me to help you, you need to change your business card. You are not the VP of Engineering, you are the CEO. If you don’t believe in yourself, how do you expect others to believe in you? Don’t waste my time if you are not willing to take charge of your dream."
This turns out to my most important lesson in selling, especially about selling shit that I don't have. As Yoda would say, "Believe in the force or not believe in the force, there is no try."
Ever since I graduated from college, I have been fired from every job I ever had. Each time, I decided that the timing was right for me to start my own company. In retrospect, I failed whenever I focused entirely on my "vision" and succeeded when I learned to rely on my "peripheral" vision. This is a tough time to be an entrepreneur. It is too easy to think of the current downturn as just another economic setback. Instead, we need to think of this as the end of a 60-year cycle. Since 1949, the Chinese have been lifting themselves by their bootstraps, initially with their communist ideology but eventually by manufacturing low-cost consumer products and by reinvesting their earnings in foreign debts to keep interest rate artificially low (sort of like the Opium War in reverse). Now there are two World powers competing for markets and resources, fundamentally changing the long-term prospect of the American middle class. But for every crisis, there is an opportunity. Going forward I encourage all bootstrapping entrepreneurs to be patient, to keep an eye on the peripherals and to maintain discipline by consistently ask ourselves these really tough 20 questions (I find the YouTube video to be inspiring). This is not a race. When my son and I climbed Kilimanjaro last year, the porters would constantly sing in Swahili, "Haraka haraka haina baraka, Pole pole ndio mwendo", meaning "hurry hurry has no blessing, slowly slowly the world moves." Sounds about right. I also hope that you enjoy the following which is Part I of my two-part trip report. Good luck, everyone.
I think the biggest problem with VC's is that there is absolutely no quality control. When an entrepreneur decides to raise money, we will need to talk to at least 20 to 50 firms and most of the VC's that we speak to really have no clue as to what it takes to build a sustainable business. So after a while, if all we do is to chase after VC money, we become part of their echo chamber. My experience is that VC's are not miracle workers. I believe one study shows that 5% of the VC’s make 95% of the money. Therefore as entrepreneurs, we are competing with 95% of the dogs for 5% of the meat. I think bootstrapping is very important for both entrepreneurs and for the VC's. In my experience, the only way to have a meaningful conversation with VC's is when we are already shipping products. I usually don't even prepare a separate PowerPoint presentation. Instead I start the meeting by saying, "Let me show you how I convince customer ABC to buy our product". Life is good after that.
The following is a good read if you want to learn more about VC's from an entrepreneur's perspective.
I think the biggest problem with VC's is that there is absolutely no quality control. When an entrepreneur decides to raise money, we will need to talk to at least 20 to 50 firms and most of the VC's that we speak to really have no clue as to what it takes to build a sustainable business. So after a while, if all we do is to chase after VC money, we become part of their echo chamber. My experience is that VC's are not miracle workers. I believe one study shows that 5% of the VC’s make 95% of the money. Therefore as entrepreneurs, we are competing with 95% of the dogs for 5% of the meat. I think bootstrapping is very important for both entrepreneurs and for the VC's. In my experience, the only way to have a meaningful conversation with VC's is when we are already shipping products. I usually don't even prepare a separate PowerPoint presentation. Instead I start the meeting by saying, "Let me show you how I convince customer ABC to buy our product". Life is good after that.
The following is a good read if you want to learn more about VC's from an entrepreneur's perspective.
I agree with this 100%. My own opinion is that the biggest myth is when VC talks about building team, they always talk about recruiting A players, with the idea that only A players could recruit more A players whereas B players would recruit only C players, etc. Having taught at UCLA for nine years, my own experience is that there are two kinds of A students. The first are nominal A students who on occasion receive A+'s and the second are really B+ students who on occasion receive A-'s. The A+ students tend to be extraordinarily smart but interestingly, most are also extraordinarily generous. They don’t worry too much about competition and they don’t mind others in their class also receiving A’s, doing well along with them. In other words, they have no problem sharing oxygen. The B+ students who work hard to get A’s are smart as well but they tend to be very competitive and in comparison less generous. In other words, they are passionate but not necessarily compassionate (like me). My experience is that they tend to carry more emotional baggage and they are high maintenance (like me). In summary, it is not enough to recruit A students. Unless they are generous as well, they tend not to be good team players.
The problem is actually the opposite, that S-Corp is not a scam but LLC is a tax hawk. If your bootstrapped startup ever becomes profitability, you will learn quickly that taxation (with or without representation) is your number one cost (more than labor, more than sales and marketing). First you pay 15.3% self-employment tax, then 35% Federal tax, then 9.3% State tax (if you live in California) and finally 9.25% sales tax (if you live the Bay Area), that's 69% tax before net profit (necessary for rainy days). As my good friend Art once told me, everyone eventually becomes a "conservative", you just have to have something to "conserve" first. I immediately became a conservative when I saw profit and I believe you will too. If you want to avoid double-taxation (i.e., first tax as an individual, then as a Corporation), then you have two choices. You can form an LLC or you can form a S-Corp. The advantage of LLC is that there is a lot less legal overhead and there is no restriction with foreign ownership (this is a big deal if you happen to have a co-Founder who is not a US resident or citizen or if you have partners overseas). The problem with LLC is that ALL of your profits are taxed as self-employment income (15.3% off the top). On the other hand, with S-Corp, you do need to pay yourself a market-value salary (or you will be subject to audit so it is never a scam as some commenters would suggest). In my own experience, the optimal solution turns out to be that of forming your startup as an LLC but file a S-Corp (form 1120S). The following is a good read.
The video is dated but still worth watching, especially the end. The point is, How do you know if you have an idea good enough for a startup? I had done two startups in the last fifteen years. The first one everyone thought it was a great idea, especially the VC's. It required tremendous amount of capital and I was able to secure $65M of VC funding. However, as with most startups in the late-90's, we crashed-and-burned when the last bubble bursted. My second company is completely bootstrapped. The VC's thought it was a terrible idea but fortunately most customers we talked to thought otherwise. After we became profitable, the VC's were kicking down our door wanting to buy a piece of the action. I took the opportunity to start my early retirement (before the bubble bursted in 2007). Lesson learned: listen to Paul Graham but kick it up a notch. Don't just build something someone wants and don't build something someone willing to invest, instead build something someone willing to buy. Good luck, everyone.
Interesting article written from the perspective of a VC. For anyone out there who is thinking of joining a startup, my suggestion is that you go in with open eyes, not open heart. If you are going to be hired as employee, make sure you are treated as an employee and are compensated accordingly. The test is simple. Are you going to be paid at market value? If you are, no problem. It would be a great learning experience and you are not taking any financial risk (opportunity risk, may be). But if you are asked to cut back (or even forgo) on salaries, then you are a co-Founder no matter how long the startup has been around, how long the Founder has been working on his/her idea and who is the VC's behind the scene. Make sure you are rewarded as such (i.e., lots of Founder stock, not stock options). Most importantly, you need to learn the difference between "liking" someone and "respecting" someone. As an entrepreneur, you don't need to "like" someone to have a business relationship with them. It is not an ethical violation to pretend to like. You just cannot pretend to "respect".
