You missed the most important part: Keep your sanity.
Trying to get funding is described as "soul sucking" even by Paul Graham and in our experience this is a startup killing move. Very few people talk about mental health for entrepreneurs and for us the most challenging times was talking to investors. If a constant stream of people told you, your business was not worth spending time or money, after how many rejections will you start doubting your company and even yourself?
Investors asking for a stream of documents, asking us to drive down for partner meetings, arriving late at meetings, un-responsive to emails: They all take a toll on the startup and more importantly on entrepreneurs.
Getting funded is a rat race. You get the money and then clock starts ticking for sales, series A,B,C , 10x the returns etc.
The startup newsletter are full of wins, and VC fundings and "we are killing it bro" mentality but how often do we stop to talk about those that failed?
> but how often do we stop to talk about those that failed?
The failures of VC-funded startups (e.g. recently Juicero, Rethinkdb, etc on HN) are discussed more often than the failures of self-funded startups.
Also, as far as I can tell, a significant number (most?) of the startups listed at autopsy.io[1] are VC-funded. In contrast, the self-funded startups that fail usually die a quiet death without discussion because they were never big enough to be mentioned in Techcrunch/Wired/Engadget/etc.
They need another catchy phrase to reply to this, along the lines of "if you never try, there's nothing to survive". Survivorship Bias is at the top of the list of "reasons not to try", and it's a shame to see it dragged out every time you see a success story.
The thing I live on today was Job Quittin' Sideproject #5. The first four died without ever letting me quit any jobs. Is #5 "survivorship"? Or is it "persistance"?
Let's say the chance of getting a business working, even for a smart guy, is only 10%. Does that mean you shouldn't try? Or does that mean it will take on average half a dozen attempts to make it work?
I like to think it's the latter.
Here's a bit that I wrote about all this a week or so ago:
> Let's say the chance of getting a business working, even for a smart guy, is only 10%.
It's much, much lower, according to any reasonable estimation. For all startups, I've seen "less than 1%" on many occasions. That obviously excludes tons of failures that are never reported anywhere -- sometimes that are never even incorporated, despite trying to build/sell a product.
> Does that mean you shouldn't try?
For the vast majority of people, yes! "Try" has costs -- time, money, life, and relationships. To really try will often cost tens of thousands of dollars. Most people can't afford to gamble so much with such a tiny chance of success.
Are you thinking VC-backed startups, or maybe lumping them in to your calculation?
Remember, we're talking bootstrapped businesses designed for profitability. I think you'd be hard pressed to make ten real efforts in a row, learning lessons as you go, without getting one of them to stick.
For VC's, where "profitable and growing linearly" equates to failure, then sure, the odds are worse. But that's just another reason not to go that route.
tens of thousands of dollars
For what it's worth, the 4 big multi-year failures I reference above cost maybe a few thousand dollars total over the span of 10 years, and happened primarily in spare nights & weekends during the course of an otherwise active and non-ruined life. Most people who met me never knew it was happening at all, and no friday beers were missed as a result of the aforementioned bootstrapping.
I suppose it depends on how you differentiate between startups and small businesses, but the failure rate might not be as bad you would think depending on how you expect to run your business. Only 50% of small businesses will have failed after 5 years[0], which is a significantly lower rate of failure than you typically hear for startups.
If you decide to start a lifestyle business as opposed to a high-growth startup you may be more successful in terms of wealth and health.
That's a good point. I was using "startup" to mean "building a new product with a new company," but that's not always what startup means. It's true that the failure rate of small businesses is lower because many are selling staples (food, clothes, home services) or are franchises.
I find that a lot of people who make this argument don't really care about other peoples quality of life/time/money/etc
They just don't want that other person to try, as if somebody else gets VC funding or launches a successful product, then it's less likely that you will be able to successfully do so, especially if you are in a similar space.
Talking somebody out of trying by convincing them that there is no chance of success is a lot easier than actually competing with them.
> I find that a lot of people who make this argument don't really care about other peoples quality of life/time/money/etc
My own anecdata disagrees -- the people I know who give this advice are older people who have built a few companies and, likely, failed a few times.
That's also where I'm coming from. I lost $50k before I ever succeeded at anything, and it was punishing on my family, personal life, and long-term finances.
It's alarming to me when I meet people who idolize entrepreneurship and have no idea how risky and expensive it is. I meet people like this all the time, and I see them on HN from time to time, although I think HN is dominated more by people like me, who know that starting a company is gambling.
If you don't believe it's gambling, read about how good VCs are at picking winners (hint: not good). If even VCs can't pick a winner, how do you think an individual can objectively assess her own likelihood of success?
Venture capital is one of the highest-risk, highest-reward classes of mainstream investment. If you're starting a company, you are your own venture capitalist, at least at the beginning.
Nothing I've said is controversial or difficult to back up with facts, but it seems there are lots of rich/privileged people who think it's no big deal to lose tens of thousands of dollars and advise everyone to do the same, even though it's not feasible for most people.
My tip would be that if you squint and view your own time as unsalaried (to a defined point within bizdev, eg. raising external financing) and your initial capital as equivalent expense versus another option (eg. doing an MBA) then you can psychologically hack yourself to justify a larger commitment than you would otherwise. This also works for skipping college, but with time as the key resource. In the end, so much is subjective!
Even still, the point about sanity after being rejected "all over the show" is very much relevant.
I couldn't agree more that keeping your head in the game when nay sayers and sometimes downright jealous or mischievous characters get you doubting yourself. It is soul crushing.
The psychology of living in startup purgatory is where it's at.
The funding race is soul sucking, but there are many people who like to play the startup+funding churn game. Lots of $ involved, and some people like the nature of it
Not seeking funding can also be soul sucking especially when it comes to hiring and you don't have enough resources to hire. Of course, if you're self funding, the ideal scenario would be to build something that doesn't require a lot of human resources and maintenance and cost, and run it as a lifestyle instead of an actual job.
Since the article goes into this, a couple things about selling into large companies:
- The amount that they will try to squeeze you and give you the runaround is highly dependent on the personalities and the resources of the team that you’re selling to; it’s not generally consistent across the entire company, unless you’re dealing with a central purchasing department (hopefully you’re not, except for processing your PO). Of course, it also depends on the amount of value that your product provides compared to their current or potential internal solutions, as well as your competitors.
- Getting paid promptly is much easier if you write your contract with milestones and require receipt of payment for a previous milestone before work on the next milestone begins. Invoice in advance so the “net 30” expires on the day you want to be paid, or demand “due upon receipt” terms.
I also use that billing strategy happily. There's another detail that helps with 'training' new clients on good payment behaviour - give them a small % discount on the next milestone if they pay early on the first.
> Open source is great, because potential customers will get a chance to try out your work without spending a dime or ever talking to you. This boosts your credibility. On the flip side, if you give away too much, you are basically competing against yourself when you attempt to monetize your work as a product.
> Your open source release should be a demo of the product, and no more. Give things away with the goal of eventually converting the users of the free software into paying customers.
Eh, I get it, but I also kind of dislike when people use open source solely as an advertisement. Either open source something useful or don't bother open sourcing it at all. A lot of smaller open source work I've seen is done by people who put a lot of work into making a cool tool who then want to share it with other people that may find it useful and use it for new and interesting purposes.
Unfortunately, this is where we are in 2017. For many companies and people, contributing to open source has nothing to do with the Stallman concept of "freedom" - it has everything to do with PR.
"If you buy some X number of seats of our software, then you get a copy of the source-code to modify and do with as you will (today as well as when we, the vendor, die, as vendors are wont to do), but this does not grant a license to more seats (unless we, the vendor, are dead), nor the right to redistribute the source-code.
N.B. We do not support your changes. Unless you pay us a goodly sum in advance. And even then, we really can't put SLAs behind outcomes."
Great list. The only thing that I might take issue with is #5: "5. Every decision must be made extremely carefully. Bad decisions cost money."
Taking too much time on decisions is a good way to kill a new company. Many, if not most wrong decisions you can recover from, and it's very difficult to know what the right decision is beforehand. So a lot of the time the "right" decision is just to do _something_ to learn what the real right decision is and then do that.
Generally don't comment that much, but have to agree with your point 200%. Trial and error is the backbone of building a successful stat-up, going from 0 to 1.
Taking the right amount of time on the right decisions is key - gathering experience in turn ultimately provides it if you have it, or in hindsight.
As much as making quick decisions is valuable, its painful/permanent impacts to the group are high if they aren't flexible decisions, or aren't revisited.
> 22. If you're at a company with deep pockets and you want to really have influence, offer the potential of a very large license fee for key software middleware. It works.
What is number #22 (sorry, English is not my native language)? Is he talking about clients that offered him a large licensing fee and gained huge influence over him for doing so?
The opposite. To a company with lots of money to spend (deep pockets) the author offered the client a large license fee for middleware that was important (to the client).
This is a bit of a mind game. Confirmation bias[0] and the sunk-cost fallacy[1] being what they are, after a client makes what she sees as a large investment in you and your product, she has tied her success to your success.
Does anyone know of similar articles to this that they like and wouldn't mind sharing?
I always find these perspectives and retrospectives useful and interesting. Different people always point out different things, because everyone's business is at least slightly different in one respect or another. (be it funding, customer base, product scale, product type, employee count, number of concurrent projects, how successful they were, etc.)
For example, the book "The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers" by Ben Horowitz provided good insight into managing larger tech companies and was enjoyable to read.
In general I'd keep an eye on the articles and interviews on indiehackers.com.
Specifically, I recommend checking out these articles: How Seth Godin Would Launch a Business With a $1,000 Budget[1], A Guide to Running a Minimalist Startup[2], How to Launch a Product With No Money and No Customers[3], How to Ship Side Projects[4].
For something a little more comprehensive, check out GrowthLab’s Ultimate Guide to Starting an Online Business[5].
Chockablock is a nautical term (see:double blocked) meaning that two blocks (pulley systems used in ship rigging) are fast against each other and can't get closer. Basically it's a synonym for "full" or "can't move."
Clearly, the term "block" has nothing to do with the word, "blocked."
Great read. They do direct sales with each contract individually negotiated and high prices. More common approach for small companies is to avoid such negotiations and sell packaged software at fixed and lower prices but aim for higher volume.
I'm unclear about what he means by "Don't blindly sign NDAs". What are the risks, and what items to watch out for would be on the checklist my lawyer would ideally provide?
Most NDAs have two parts: non-disclosure and non-use. That means that parties won't disclose the confidential info that is shared, and they won't use that information except for the express purpose of the agreement (usually assessing a partnership or customer relationship).
One Silicon Valley company that is well-known for not having a non-use clause is Intel. This means that they can use any confidential information in their own business, in any way they desire.
It's not problematic to sign an agreement like this with another startup because they are unlikely to have the time/money to start competing with you on your home turf. But big companies can squash you like a bug if they so desire.
Other reasons to carefully review an NDA:
Make sure it's bilateral, not unilateral
Check to see how long it's in effect for — usually the parties are permitted to disclose / use the info after 2-5 years
Make sure the above clause has an exception for trade secrets that are still secret (which they should not be allowed to disclose even after the expiration)
As an example, about a decade ago I was running an eLearning startup.
A more established eLearning company approached us to discuss potential partnering opportunities, and sent over their NDA. Note - I actually read NDA's and other legal docs before signing, to make sure nothing untoward or unexpected is included.
In the above case, they included non-compete clauses (without any limits) specifically so we couldn't compete with them.
Upon asking their (from memory) CEO "WTF?" he was rude/abrasive and that was the last we heard from them.
At a guess, they were just trying a cheap tactic to get leverage over us in some way.
Mike Monteiro has an excellent talk[1] on contract negotiation and where to get lawyers involved. The pertinent point for me was the following:
Contract negotiation makes them fair. If you just sign whatever people put in front of you, you give up your rights to have a fair contract.
Also:
The contract given to you probably represents the opposing lawyers wish list of all the things they wish they could have. Most/some of these things will be extremely disadvantageous to you. Just signing anything they give you means you submit to their wish list, not your own.
NDAs aren't standard at all. They range from simple back of the napkin agreements to "we get your first born child".
Blindly signing subjects you to potentially nasty term, and obligated you not to talk about certain things. This in turn can be used as leverage by the other side if things go badly.
Really, it's just don't blindly sign any agreement. Unfortunately agreements are so ponderous (clickwrap) that most people are used to doing that
As funny as it sounds the "we get your first born child" clauses in the NDAs are not a rare occurrence. One NDA I was required to sign explicitly stated that every idea or functionality I developed on other projects for up to twelve months after delivery of their project was subject to review by the issuer of the NDA (not even a 3rd party) and that if anything even remotely similar to functionality I will be creating within the new project they're rightful owners of it or that they are able to sue me.
> One NDA I was required to sign explicitly stated that every idea or functionality I developed on other projects for up to twelve months after delivery of their project was subject to review by the issuer of the NDA
Saying 'required' makes it sound like you didn't have a choice -- out of curiosity, did they have other leverage over you above getting your help on their project, and did you attempt to negotiate on this clause?
I don't doubt that non-compete clauses happen in NDAs; other people in this thread to mention seeing them. But I think they're not that common either. I've seen my share of NDAs and never seen a non-compete clause. I do get non-compete clauses in employment contracts that also include NDAs as well as invention assignments and more, but I haven't personally seen a non-compete clause in a pure non-disclosure contract, that seems abnormal. But I agree completely that one should always read their contracts carefully before signing.
One common fact pattern:
1) small co is going to sell some partially-customized product to big co;
2) small co signs big co's NDA that leaves the definition of "confidential info" and other rights vague/favorable to big co;
3) big co floods small co with low grade confidential info relevant to customization of the product for a trial;
4) then (often through incompetence, some times through malice) big co becomes convinced that small co is misusing confidential info to sell to big co's competitors and sues for breach/trade-secret misappropriation, etc.
Effectively, the NDA gives big co the option to force small co to, at the very least, pay lawyers $50k a month until dead or the suit is resolved in two-plus years because the NDA and facts, at the very least, left a lot of issues to dispute.
Self-cite: http://www.commondraft.org/#ConfInfo — this is a pretty-comprehensive set of NDA provisions with extensive commentary and annotations. (It needs some formatting work when I can get to it.) Usual disclaimer: YMMV; IAAL but not your lawyer; don't rely on those materials as a substitute for legal advice about your specific situation; etc.
> 7. If you have a product that a very large company really wants, they'll still do everything they can to delay purchasing it for the market price. They'll try to hire you or your partner(s) away individually, or they'll wait as long as possible to see if you encounter hard financial times and go under. They won't come and just offer to license your product or buy you out until they've exhausted all other possibilities.
This is the opposite of normal enterprise sales in my experience (we do HR software). If you are talking to the right person, and you have a solution to their business problem at a suitable price (not too high, not too low) then the very last thing they want to do is to kill the deal with these kinds of shenanigans.
Selling to programmers though is the opposite, and frankly is to be avoided at all costs.
Which is sort of interesting - while I have very little experience - I've dealt with this on QA side of things for automotive industry tooling a bit and getting the right texture format for what ever vendor and their product was always a problematic depending on variety of factors.
I self funded two startups and the point about targeting small companies is a good idea.
I would also add using a subscription based service (even for development) is the way to go. You can charge a monthly fee for a group of services to smaller clients while development is ongoing with a list of milestones and achievements to keep the project on track while ensuring you have recurring revenue coming in.
If you get multiple clients, you can really set yourself up for success. Having 3-4K coming in every month on a regular basis can keep you afloat and reduce the anxiety of having to send out bill and then waiting to get paid.
Are the references to contracts in the article "contract work" i.e contract employee work for someone else in order to help subsidize your startup? If so that's an interesting approach to getting your startup of the ground and maintaining some income. Have people had success with this? I have found lining up contract work to be almost as time consuming as doing a regular FT job. Or am I reading these references wrong and it's your startup doing various short term and tangentially related contracts?
I think it's the idea that if you price your software too low then it's value will be perceived as low. You then have customers paying a low price for a low (perceived) value product and you're into a death spiral.
Is this the same as "hidden costs" ? That is a cost not showing up on the bill. For instance the time spent to get the thing working and keep it working.
I've heard it used as argument against linux and free software.
No, it’s about the initial price you list influencing the value perceived by potential customers. If you set it too low they won’t think your product is worth their time or money
@Rich Geldreich, you might want to link from your blog to your company website http://www.binomial.info/. I only say that because I didn't find a link and I had to google for it.
Trying to get funding is described as "soul sucking" even by Paul Graham and in our experience this is a startup killing move. Very few people talk about mental health for entrepreneurs and for us the most challenging times was talking to investors. If a constant stream of people told you, your business was not worth spending time or money, after how many rejections will you start doubting your company and even yourself?
Investors asking for a stream of documents, asking us to drive down for partner meetings, arriving late at meetings, un-responsive to emails: They all take a toll on the startup and more importantly on entrepreneurs.
Getting funded is a rat race. You get the money and then clock starts ticking for sales, series A,B,C , 10x the returns etc.
The startup newsletter are full of wins, and VC fundings and "we are killing it bro" mentality but how often do we stop to talk about those that failed?