

5 things I knew (or should have) before my startup, but didn't learn until now - kschults
http://blog.wepay.com/2010/03/11/5-things-i-“knew”-or-should-have-known-before-starting-a-company-but-didnt-fully-understand-until-now/

======
zhyder
We too have learned the hard way about 5.: customer acquisition is tough.

5.1. We'd read it before but hadn't quite internalized the cardinal rule: Cost
of Customer Acquisition < Lifetime Value of customer (CCA < LV).

5.2. It's easy to think "hey my product costs me only $1, and the competition
charges $100: I'll do great by just charging $10". But when you're charging
$10 you won't be able to pay $30 per ad click, and so will (continue to) lose
customers to your competition.

~~~
patio11
I could talk about reason 5.2 for a whole afternoon. It is one of the best
reasons not to compete on price.

Additionally, if you're doing ads on Google, there are some weird interactions
here that Econ 101 would not predict. For example, although Google describes
AdWords as an auction, it is really "auction-like": the highest bid doesn't
necessarily win. One factor which can cause lower bids to beat higher bids is
if the lower bids have account history. You get account history by winning the
auction lots of times.

If you're scratching your head thinking "How does that matter?", consider a
software market where one vendor has a product priced at $30 and another has a
competing product priced at $22. Their conversion rates and CPCs might very
well be similar on day one, resulting in a cost-per-action of $25. One vendor
might choose to participate in the auction while the other does not. As the
participating vendor's campaign picks up positive history, Google may cause
their CPC to decline due to improved account history, perhaps resulting in a
CPA closer to $12 ~ $15. Vendor #2, seeing this, might think "Darn! I'd sure
love to advertise if it cost $12 ~ $15", and then turn on their ad campaign...
only to find that it still costs them $25. (In some cases, it could actually
cost _more_ as a result of their competitor's success.)

The above example is somewhat simplified. AdWords can get complex fractal-
style.

~~~
lsc
The interesting part of this 'don't compete on price' advice is that in many
markets (the market I am in included) marketing is often more than half what
you are getting from the customer. In the example above, instead of paying
$12-$15 per customer to goog, what about dropping your price by $10 and seeing
what happens? If your product is comparable, it only takes one reddit article
comparing you to the competition to get a whole lot of interest.

I can tell you from experience that if you can undercut the competition by
half, you get a lot of slack when it comes to not having all the cool features
the other guy has.

One of the things that I think many people miss about competing on price is
that if you don't have the marketing muscle of the compititon, you need to be
dramatic about your price. few will go with an unknown to save 10%; but if you
can save 50%, well, that's a pretty good argument to go do some research on
that unknown company, no?

(Overall, my position on the 'compete on price' / 'never compete on price'
debate is "do what you are good at" - if you are good at selling to people
with money, sure. charge a premium and take advantage of your connections and
skillset. Rich people and large corporations need stuff, and there's nothing
wrong with giving it to them. On the other hand, if you are good at being
cheap and bad at selling, well, maybe you should think about attracting the
attention of people willing to do research by lowering your price.)

~~~
mbrubeck
Since he politely didn't shill for himself above, I'll point out that lsc is
the founder of <http://prgmr.com/> which has crazy low prices for virtual
hosting.

------
anon-acct
Using a throwaway account to say this: be EXTREMELY careful picking your
cofounder. Mine in my last venture was a close friend who had an extremely
accomplished background. But he turned out not to have good ethics (ie, ended
up stealing money!) and everything imploded. I even totaled my car because I
was so upset as I came from a meeting with him, and my life was hell for a few
months.

I don't blame myself because my cofounder had so many great attributes that he
seemed like a good partner at the time, but still, I urge all of you to assume
nothing and tread carefully when choosing a cofounder. Those worst case
scenarios? They happen sometimes. :(

~~~
adrianwaj
Sounds like he betrayed you - took your loyalty for granted, or rather
something he could use to his advantage. You have to be sensitive to ill-will.
I can be nice to you for 2 years, but something then flips for 2 seconds and
all those niceties came at a price. (well not me, but that's the line of
thinking) Bait-and-switch, fineprint insertions, backoffice fraud can all
happen in a moment, have lasting consequences and be basically irreversible
within what would otherwise be a solid relationship. On the other hand, a
relationship can be rocky but trust-worthy. Smooth-talking, flattery, over-
attention: anything that boosts the ego will eventually come at a price, the
question is what and when. It happens in families.

------
david927
_I recently saw a post on Hacker News, where somebody created a [find-a-
cofounder] spreadsheet. ... Literally 99% of the rows read something like
this: "I am a business guy/entrepreneur/mba/professional; I am looking for a
technical cofounder;"_

No. It's "literally" around 20% to 30%. The rest were tech people looking for
business types or other tech people. Here's the spreadsheet:
[http://spreadsheets.google.com/ccc?key=0AgCvDTyBjHdOdDFfMENq...](http://spreadsheets.google.com/ccc?key=0AgCvDTyBjHdOdDFfMENqeWVGNVFxTXdnaDZBRkd0cUE&hl=en)

You were lazy (you didn't even bother to google that spreadsheet and look) and
spoke in platitudes/over-generalizations and reiterated conventional wisdom.
Shame on you. The truth is not only different but much more interesting.

 _Everyone knows that it's easy to have an idea._

No, it's not. So many of those entries are people who are technical but
looking for a good idea to work on. "Business types are a dime a dozen." Not
so. A good business development person will rock your project. How many great,
but dead, sites are out there? Plenty.

 _Picking the right cofounder is important._

Fuck that nonsense. You're mouthing the words someone else gave you. If you
have an organic cofounder -- great; go for it. I'm not against having
cofounders. But if you think for one moment that a project _needs_ more than
one founder, and you have to pick one for the project to succeed, you simply
don't know what you're talking about.

~~~
maxwin
>'But if you think for one moment that a project needs more than one founder,
and you have to pick one for the project to succeed, you simply don't know
what you're talking about'

Not that I agree with you completely. But I think it is important to not take
an influential person (like pg)'s words for granted without your own critical
thinking and some healthy doubts.

Like PG said, a lot of startup fails because they're single founders (without
emotional support and other reasons). However,If you pick a co-founder just
because PG or other VCs/bloggers said so, a lot of times, your co-founder will
be the source of your failure.

Every person's situation/problem is different and all roads lead to Rome. I am
kind of disappointed that PG developed a "formula" and believes that everyone
should fit into that formula. If you don't, you're out of the game.

A good hacker finds his ways to make the system works for him by breaking the
rules (or by finding the hidden rules that seems to defy the written rules).

You ready to break PG's rules?

------
100k
Paul surveyed the YC founders a while back to find out what surprised them
about founding a startup, and when he collated the answers he realized all the
things that were surprising where things he'd already warned people about.

It's an old saw that wisdom cannot be taught, it must be experienced.

I have found this to be true.

~~~
gstar
Really excellent to know. I didn't believe quite how much disruption gets
caused by raising money. Keeping on selling and working at the product while
that's happening is desperately hard.

------
epi0Bauqu
"Traction is the only thing that matters."

I could not agree more with this. If you get traction everything else falls
into place so really you should be spending all your time figuring out how to
do this and then making it happen.

The problem is as you say, it is of course non-trivial. However, while all
cases are different, I do think there are strategies and best practices that
one can employ. Your next post should be about the ones you've picked up. For
my part, I'm doing a book on the subject with the goal to demystify the whole
process of getting traction from every angle, <http://tractionbook.com>

~~~
paraschopra
Hey, great idea for a book.

Just one extremely minor suggestion: use a better cover image for the book :)
The existing one is fine but I think it can be improved a lot to give it a
more professional and serious look.

~~~
epi0Bauqu
Thx. Yeah, that's just a placeholder.

------
thinkbohemian
Interesting, i'm a technical sole founder who is very capable of doing
EVERYTHING, though i would be much more efficient if i could compartmentalize.
I'm constantly on the lookout for my "otherhalf" but can't quite find any non-
technicals that seem up-to-snuff any tips on what to look for in a non-
technical co-founder?

Nobody in the world has Bill’s exact skill set, and looking back on it, that
skill set is exactly what we needed

What skill set should I look for?

~~~
trevelyan
Single founder here who thinks the emphasis on co-founders on HN is overrated.
Investors may see it as a credentialing and stabilizing mechanism, but once
risk is taken out of the picture and a product has revenue it only makes sense
to bring someone else on board if they'll more than cover their costs and a
co-founder is the most expensive hire there is at that point.

~~~
lsc
I think it depends on your skillset, too. Some of us have a hard time sharing
control. Personally, this is one of the reasons I've always wanted to run my
own company. I mean, It's possible, with the right person, that it'd turn out
okay, (I'm looking at you, Chris.) but in general, not having the ability to
say "Uh, no, it's my company, we're doing it my way." is something I'm loathe
to give up.

Now, I don't think this is necessarily a bad thing; For as long as I've been
running my company, I've had excellent people helping me. If you can hire
smart, you can get talent cheap. And let's be honest; no other sane person
would have stuck with me for the four years I took bringing prgmr.com into
profitability. If I had taken on a co-founder rather than just paying people,
the company would have died a long time ago.

However, I think that investors might be on to something when they filter me
out; I mean, I would have the exact same problems with investors as I'd have
with co-founders. (this is causing some problems now that my bottleneck is
capital rather than marketing or anything else.)

~~~
trevelyan
You should promote your business more on HN, Luke. I just visited it through
your sig and am in your market. Currently pay for two virtual servers at MT.
One doesn't get much use except as a backup server and I'm paying considerably
more for it than what you charge.

Back on point, I don't mean to claim investors are irrational. I just don't
think the reflexive "get-a-cofounder" drumbeat that is amplified here is
really useful. If it were that easy and such an important determiner of
success, I'd expect more investors to back single-founder projects instead of
shying away from them. It would be a no-brainer to try and grow projects with
revenue and traction.

But it doesn't happen. Which suggests to me that finding a good cofounder is a
difficult enough problem that telling someone to do it is not useful advice.
Or no more useful than just telling them to get customers. That is what seems
to help me more than anything.

~~~
lsc
eh, right now I've got more customers than I can handle, (see capital problem
above) I'm re-entrenching and focusing on my original (and most profitable)
market, the hobbiest crowd, (and developers who know *NIX well enough to
handle a low-ram instance) so hopefully that will iron out the capital
bottlenecks for me, and get me some more hardware so I can start selling
larger domains, too.

But yeah, I agree, finding a good co-founder is very difficult, even before
you start hitting the co-founder problems that aren't problems when you have
employees.

------
chime
Does anyone else who quit their job and went fulltime into their startup want
to add anything about their experience? Did it make you a lot more productive?
Were you worried about paying the bills? How were you able to stay on track?
Where did you find the motivation? How did you stay sane and not go crazy?

~~~
billclerico
when we started wepay we quit and had cash for a few months. we ran out. i
worked odd jobs off craigslist to pay rent (like tutoring math, wordpress
consulting, etc). i was still 10x more productive than when I was working
fulltime in another job and trying to work parttime at night. i think it all
comes down to comfort. you're too comfortable in a fulltime job.

~~~
gridspy
I'm still in my fulltime job (see [http://blog.gridspy.co.nz/2010/02/part-
time-entrepreneur.htm...](http://blog.gridspy.co.nz/2010/02/part-time-
entrepreneur.html)) but I can see the benefit of having the "sink or swim"
pressure.

Everyone close to me, including my co-founder, keeps telling me to stay
fulltime until I have a replacement income from GridSpy. It sounds like there
is contradiction on this from the HN crowd.

~~~
cullenking
It depends on what stage of life you are in. If you are young and have plenty
of time to develop savings and family in front of you, going all out and
dropping your full-time job isn't a crazy risk. You make it, or you snag
another job when you can no longer operate without more income.

On the other hand, if you have responsibility to children, a partner, a
mortgage payment etc then yeah, you need to know you won't let those things
fall apart.

I personally am used to living off a small income because I've been going to
school for the past many years. If I was used to $80k a year in earnings, it
would take alot more to make the plunge to full-time.

------
cullenking
I posted a response comment on the article itself, and I'll expand here.

Customer acquisition is more expensive in some markets and cheaper in others.
If you are building out a tool for a group of people who already have an
internet presence (forums, news sites etc), acquisition is MUCH cheaper. In
the beginning of the business you have time but no money, so use that time to
talk on those forums, get those people helping you design your product. They
will become fanatical users and spread the word about the cool new site THEY
helped shape, not to mention provide you insight that you never would have
gotten yourself.

We get a huge amount of comments/suggestions/feedback from our users (10-20 a
day), and it is very very common to see ones like this, which came in today
from one of our early acquisitions:

"BTW, I continue to 'pimp' the site ever chance I get. I post my rides on
facebook, BF, and RBR, and share rides and routes with club members. Garmin
Connect and TC are so weak, but thats what a lot of them use. Should be low
hanging fruit!"

The best advice I can give (in my limited experience) is to engage with your
users and build that sense of community and loyalty. It will payoff big, as we
are starting to finally realize!

------
aditya
+1 about how hard it is. No wonder people stay in jobs, the stress and
uncertainty is mind-numbing.

------
geoffc
Have to disagree on point 4 about Boston. I have raised VC during the boom and
the bust here, it is do-able, maybe not as easy as the Valley but not
impossible either. Agreed on the importance of customer traction.

~~~
aberman
I just reread my post, and I realize how point #4 sounded. It was somewhat
unintentional.

Raising money _in silicon valley_ is hard to do without being part of the
silicon valley in-crowd.

Raising money in Boston is hard to do in general, but I don't think it's
impossible (although I wouldn't know). I don't think we were ready to raise
money when we were still in Boston, and I certainly don't blame investors for
not throwing money our way at the time. We were a very different company in
Boston than we were after YCombinator.

------
jayphelps
Very insightful. Thanks for sharing. I myself have had several "investors" who
are interested in a project of mine, only to turn out they're just rich real
estate guys looking for a midlife crisis. Sure, I could take their money, and
it would last a few months, maybe even a year. But at such an early stage,
what you really need are connections. Especially if you don't have a strong
team. I'm a lone wolf right now, but only because I can't seem to find someone
who has what it takes to start a company. I agree with the article: You need
more than just anybody. You need your other half. (So to speak) They
complement and fill in any gaps and vice versa.

Time and time again at work or on freelance projects, I find myself pulling
other people's weight. Now this sounds conceited, but sometimes it's just the
truth, and I'm sure you can't have any of that in a start-up, if you want to
succeed!

------
maxwin
I think it is important to not take an influential person (like pg)'s words
for granted without your own critical thinking and some healthy doubts.

Like PG said, a lot of startup fails because they're single founders (without
emotional support and other reasons).

However,If you pick a co-founder just because PG or other VCs/bloggers said
so, a lot of the times, your co-founder will be the source of your failure.

Every person's situation/problem is different and all roads lead to Rome. I am
kind of disappointed that PG developed a "formula" and insists that everyone
should fit into that formula. If you don't, you're out of the game.

A good hacker finds his ways to make a system work for him by breaking the
rules (or by finding the hidden rules that seems to defy the written rules).

Are you ready to break PG's rules?

------
bluishgreen
"Trust me, you’re not, and no matter how much you think you know about what
it’s going to be like, when that first jab comes, you’ll begin to truly
understand for the first time."

I think some one has to pitch in and add some perspective here. This, frankly
is not helping. I appreciate the warnings and all - but the echo chamber is
getting a bit too loud lately. The worst thing that will happen is I will
fail. Miserably and in front of the whole world for everyone to see the
weakling stupid naive ass that I am. Whats so bad about that? Relax people,
stay calm. It will all work out just fine. Trust me! :)

~~~
paraschopra
I used "Trust me" in a blog post [http://visualwebsiteoptimizer.com/split-
testing-blog/debunki...](http://visualwebsiteoptimizer.com/split-testing-
blog/debunking-seven-common-excuses-for-not-doing-ab-testing/) and my friend
quickly reminded me that it is a cliche and usually doesn't add much value to
the argument. Ideally, your argument should be so strong that it doesn't
require an explicit reminder for readers to trust you.

~~~
bluishgreen
We only have a bunch of things going on for us. Happiness, Love, Adventure,
Sadness and Loneliness. But would you rather not be happy because it is
cliche. Emotion is cliche and so is cliche. The above post was not to appeal
to your logical sense but rather to intuition. So I don't really have a case
as to why you should trust me. In fact that part was to inspire some
stupidity. The line between stupidity and adventure is a very thin one. Find
yours. I will just stand out here on the stupid side and shout out some
encouragement. Thats all.

------
thibaut_barrere
I agree with most of the article, except on the following points:

> 1\. If you are not full time, then you are at a huge disadvantage

There are pros and cons. If you are your own investor, then working full time
on one project is also putting all your eggs in the same basket.

Also having multiple projects allows to make a better prioritization (ie:
remove crap) in my experience.

> 2\. ... Your cofounder should be somebody that refuses to quit

My opinion is quite the contrary: I'd never pick a cofounder that refuses to
quit when it makes sense.

'The Dip' is the obvious recommended book on that topic.

~~~
thibaut_barrere
Last comment:

> Unless you’re part of the Silicon Valley in-crowd AND you

> have traction, you’re not going to raise venture capital

This one is really an over-generalization... There are many places in the
world with founded companies that didn't put a foot in the SV (Paris for what
I know).

------
pinstriped_dude
Excellent use of "as it turns out" (reference to a post on HN in recent days
about how PG uses "it turns out" very effectively)

~~~
aberman
I was wondering if anybody would catch that ;)

