
Ways startups get screwed - rayhano
http://rayhano.com/post/27553501572/10-ways-startups-get-screwed
======
mattmaroon
His advice about lawyers is bad. Very bad. Not incorporating properly can sink
you quickly, especially if co-founder disputes come up. I've seen perfectly
good startups get sunk that wouldn't have had they just gotten the founder
contracts right in the beginning (especially with respect to vesting).

They cost so little in the grand scheme of things and take so little time. I
don't know what he means about them becoming advisers. Mine have never advised
me in any unnecessary capacity, and I suspect he just has experience (first or
second hand) with some Saul Goodman type.

Get an experienced startup lawyer to help you incorporate at a bare minimum.
Many will even defer something like your first $15k of fees (more than enough
to get started) in the hopes of earning more business later when you turn into
the next YouTube.

~~~
rayhano
The VERY SAME happens even when lawyers are involved. If you're naive, paying
a lawyer doesn't protect you from that. But ASKING people who have been there
and done this (and made mistakes) DOES protect. Far moreso than a lawyer who
is just regurgitating template documents.

$15k?? Only in the US. It costs £15 to incorporate a company in the UK...
maybe a little more if you want 'extras'.

You are RIGHT about making sure the incorporation is done properly, but that
is not the same as hiring a lawyer to do it.

~~~
joshmlewis
He didnt say it costs 15k but that sometime lawyers will defer the first 15k
of billing in hopes of you getting bigger and helping you with other things.

~~~
mattmaroon
It is humorous to me how critical reading skills have dropped here over the
years. Two people somehow took away from my comment that it costs $15k to
incorporate, even though I said it was cheap and the $15k is more than enough
to get started.

I miss the old HN where every thread didn't get bogged down with stuff like
that.

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kcodey
I totally agree with the "negative people" part. I once gave the groupon
elevator pitch to a relative who knows nothing about what's going on in terms
of start ups or anything internet. His response was it was the the stupidest
idea ever and he thought I should focus my efforts on something more worth
while. I then told him they started 4 years ago and it's a billion dollar
company. His reaction was priceless.

I mention this story because everyone will always be negative if they have
never heard of what you are doing. That's just human nature. As entrepreneurs
we have to keep plugging forward amidst the criticism and build our dreams.

~~~
MaxGabriel
I think that's the wrong lesson to take. The reality is that no company is
going to appeal to everyone--and a relative who's disconnected from "anything
internet" probably never would have used Groupon. You've learned something
about your target market.

A good lesson for everyone is that our personal needs from a business aren't
the same as everyone else's, even tech people. After all, I'm still a little
in shock that Bingo Card Creator sells for $30.

~~~
rayhano
Nice answer! Crystallising WHO you are selling/targeting is a difficult art.

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bluedevil2k
#1 should always be medical insurance coverage. Large corporations get group
plans at big discounts, and then offer it to their employees for free or
hugely discounted rates that aren't taxed at all. Big corporations give health
care coverage away for free as a perk.

Good luck getting the same plan at a start-up. Buying an individual plan is
grossly expensive, especially if you're married with kids. Even if you're
lucky enough to be at a startup with a group plan, you probably won't get it
for free. And your company surely won't get the big discounts Dell, IBM, and
HP get.

~~~
rayhano
I really don't understand the obsession with insurance, especially medical
insurance. Does NOBODY understand that the casino/insurance company DOES NOT
LOSE. i.e. YOU pay them more money than they will EVER pay for your
treatment...

The mind boggles at how brainwashed people are about insurance. In the UK
motor insurance and buildings insurance is mandated by law or mortgage
agreements. So those are unavoidable. By life insurance, medical insurance,
etc are scams.

Self-insure.

~~~
Spooky23
I had a back injury that required surgery. Total cost: $150k.

My wife recently had a child. Minor complications ensued at delivery. Total
cost: $40k.

My cost for insurance? $3,120 a year, plus about $400/year in copays. The
gamble has worked out for me.

~~~
rayhano
Incredible! Obviously my comment has no credibility in the US. It's
incomprehensible in Europe to incur such costs.

Have you guys thought that you have such high costs because the massive US
insurance industry is taking a cut?

~~~
Spooky23
Yeah, it's insane here. Note that my employer pay 75% of my insurance premium
as well.

I don't think the insurance industry per se is the cause. There are many
issues that books have been written on.

Fundamentally though, because we lack any basic "safety net", yet require
hospitals to provide emergency care without regard to payment hospitals are
forced to recover massive losses by raising rates for everyone. That's why a
cesarean childbirth can cost $40k -- if a woman in labor who didn't get
prenatal care shows up, they need to care for her and don't get paid.

So we end up in this false debate where opponents to "socializing"
insurance/medicine don't understand what is wrong, because they have middle-
class jobs with paid insurance as a benefit. It doesn't compute for some
reason that they are already paying for it!

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msrpotus
He's right about some of those but others are just ridiculous. Sure, being
home with your family or socializing with other people at an event might not
contribute much to your startup, but you need to relax sometimes. It's
dangerous to confuse that with work but if you don't want to burn out, it's
also dangerous to work all the time without any break.

~~~
madmax108
_" I was socializing"_ is one of the most common excuse people use when they
procrastinate, be it socializing with family, friends or like-minded people.
As Ray says:

>> WHY THE HELL AREN’T YOU BUILDING YOUR PRODUCT AND TALKING TO CUSTOMERS?

When you have a startup in it's initial phase, it's like a baby. It requires
your sole undivided attention. I've seen way too many startups die because the
founders spent more time trying to make their product popular rather than work
on a good product first.

As a hacker, I completely understand what Ray means in pt #10. There are times
when all I want is to code straight out, no distractions, no relaxation, heck,
no contact with the outside world. It's just a hacker thing. :)

Work-Life balance is important, but sometimes(esp. when you are a core member
of a startup team), my work _is_ my life! :)

Well written Ray, and best of luck with Wigwamm! :)

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swombat
> _8\. Agencies - This ranges from people who want to build your product to
> those who want to file your R &D tax credits. You can spend a lot of time
> talking to agencies, as there are a LOT of them around. Some are genuinely
> useful partners. You’ll often have speakers at Hacker News London espousing
> the benefits of using an agency that worked wonders and had aligned
> incentives. And that is the key, make sure your incentives and those of
> people you work with are aligned. Bonus structures do not work. If people
> fail, there’s got to be pain. There will be for you, after all, if your
> startup fails._

Well, I hope GrantTree falls into the "genuinely useful partners" category!
I'm not a fan of development agencies for startups, but for tax and grants
getting a specialist firm involved makes sense, imho.

Not sure about the title, btw... are those really ways startups get screwed,
or just aspects of running a startup?

~~~
rayhano
Maybe the title was sensationalist... :)

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Jacqued
I strongly clicked with the Investor part. It's funny that every one and their
mother is saying they are part of a seed fund these days, while they do not
invest in companies that have less than 2 years/15 employees/numerous
clients/revenue in the 7 digits already.

And, maybe could he add : "11. Hacker News. After reading it for a while and
understanding a bit better what it means to run a startup, just stop reading
it all day long and focus on your customers. I've seen startups fail because
the founders hired people only to monitor HN and report on interesting
stories"

~~~
joshmlewis
I think the last comment is ridiculous, if they are starting a company and
they literally hired someone to report on HN stories, they need to not be
starting a business.

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mammalfriend
This seems like bad advice from someone who is not especially experienced at
building startups. As he suggests, there are kernels of knowledge but the
recommendations are unbalanced and in many cases suggest he made newbie
mistakes (e.g. - I didn't know how to manage my lawyer, so you should not hire
one at all!).

There seems to be an abundance of advice out there regarding startups from
people who have very limited experience, and it's a bit worrying to see it get
voted up on hackernews so easily.

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TomGullen
Over a sample size of about 10 million page views, our top 4 referring domains
of all time are all exclusively social media, and account for a total of
around 30% of our visits. Twitter is the most engaging, on average Twitter
referals view 4.5 pages per visit.

I think it's easy to dismiss social media, it's gotten quite clichéd, it's
sometimes dull, it's sometimes frustrating, but if you understand the
differences between each channel and utilise them properly they can have great
benefits.

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sreyaNotfilc
Schmerg has already stated #11. Here's my #12.

#12... Reading blogs/articles about startups. I'm guilty of this as well. Its
ok to ready every once and a while, but the constant research on startup life
does take you out of your element.

Put your head down and get to work! Its all up to you and you alone. Make the
effort, and get to coding/building. The rest will fall into place.

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alexro
Can somebody more experienced in the matter attest there are no seed money in
the UK? I was under impression that Launch48, Seedcamp and others do a great
job here.

~~~
schmerg
If you have a startup that is taking a proven idea and exploiting a niche
("twitter for left handers", "ebay for counterfeit goods", "airbnb for
dyslexic vegetarians") or you're taking an existing business model and
disrupting it via the internet (car rental, clothes swaps, food delivery) then
you may well find seed money in the UK.

But if it's a new idea (new product/service) then in my experience even with a
team with a proven track record, and a product built up and running to proof-
of-engineering-principle, there aren't many people who can look at an idea and
a first version and see beyond the fact that it's new, different and raw to
see the opportunity to invest.

It would seem the early stage money is not tech-savvy, not _excited_ by tech,
and is looking for iteration over innovation. That is, it's risk averse and
favours the reliability of a decent chance of incremental gains rather than
lower chance of much bigger gains.

I haven't met everyone, by a long stretch, and it may well be that my
product/pitch is wrong, but genuine innovation doesn't seem to come through
the UK seed/VC channels, while such products start in the UK they generally
find seed money from the US.

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spyder
Just a friendly reminder about the title of the submission from the HN
guidelines: _If the original title begins with a number or number + gratuitous
adjective, we'd appreciate it if you'd crop it. E.g. translate "10 Ways To Do
X" to "How To Do X," and "14 Amazing Ys" to "Ys." Exception: when the number
is meaningful, e.g. "The 5 Platonic Solids."_

~~~
smackfu
That's weird.

------
benatkin
Y Combinator is different from other accelerators in that it isn't an
incubator. This is part of what sets it apart IMO.

I think that TechStars is an exception to the rule about accelerators and
incubators being little more than a distraction, but you're entitled to your
opinion. The benefits of Y Combinator are much clearer.

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ojbyrne
I don't accept that "negative people" somehow screw a startup. Handling
criticism makes for a stronger product.

~~~
rayhano
Sure, if you're ready to 'handle' them. When you've quit your job and are
embarking on this adventure, you're fragile. Depression IS common among
startup founders. It's lonely at times. Those negative people can be
dangerous.

But yes, at the right time, they serve to strengthen.

~~~
billswift
Except that once you start avoiding or ignoring them, it is never likely to
become the "right time". Handling criticism appropriately is one of the most
important skills any would be entrepreneur (or consultant or any other small
business person) needs to develop.

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xmmx
0\. Adding a launchrock page before anyone has any idea who you are.

~~~
TomGullen
"A/B testing launch pages" is one utter waste of time tactic I'm constantly
surprised gets so much attention from new startups.

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schmerg
11\. Blogging :)

~~~
antidaily
Well, he got me to click over to his startup.

~~~
rayhano
And what did you think of Wigwamm?

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otibom
This is unreadable on mobile.

~~~
MaxGabriel
To add detail, when I zoom in on my iPhone the text from the top-left
(Innovation Thoughts: ... ) covers the main body of text.

~~~
rayhano
Yes, sorry, you're right. This Tumblr theme is frustrating on mobile... I'll
work on it.

