Knowledge Sharing:
1. so if you own 51% of a company, you are said to own a controlling interest. You’re the boss
2. A Board has a legal obligation to act in its shareholders’ best interest, even if that interest is in conflict with their personal interest.
3. The CEO, in turn, operates the business at the pleasure of the Board; the Board appoints, compensates, reviews, and fires the CEO. If you own a share in a business, you’re the CEO’s boss’s boss.
4. A Board has a Chairman whose business it is to direct the meetings of the Board, but in
practice in smaller Silicon Valley companies this title is often given to the principal founder of a
company and is intended to signal to outsiders that this person sets the overall tone and direction
of the company rather than getting any special privileges.
5. A Board is usually composed of a small but odd number of members, to avoid a “tie” in votes.
6. It’s common for the lead investor in a round of financing to ask to have a seat on the Board, so a
typical configuration for a company that has raised two major rounds of financing from different
firms would be to have two seats appointed by Common Stock (usually the CEO and a founder
or someone loyal to a founder), one seat from the first round (Series A), one from the second
(Series B), and an “outside director” that has been agreed on by both the founding team and
investors.
7. A Board may also have any number of people who have the right to sit in on (but not vote in)
meetings: these people are called Board observers. Some investors, particularly those investors
who are not leading a round, may ask for observer rights, i.e. the right to appoint a person who
has the right to be notified about and optionally attend Board meetings.
8. While some portions of a Board meeting may be open to a larger audience (e.g. entertaining
reports from department heads about company progress), the Board may choose to enter into a
closed session and exclude all non-members other than formal observers and Board members.
This can be helpful for candid discussions of the company’s performance or legal issues.
9. Board members of Silicon Valley companies are almost never compensated with cash for their
service, since the Common representatives are often employees who are already paid a salary, and
the investor representatives are already paid by their firms.
10. In most cases the outside Board
member will be given a stock option grant, such as for ~0.5% of the company.
11. the spreadsheet that spells out exactly who has exactly what kind of ownership (or
capital) in the company is called a Capitalization Table, or cap table.It’s generally considered
extremely private / sensitive information, so if you’re working for a company and are curious
about the ownership structure, asking to see the cap table will probably be met with a groan and
a roll of the eyeballs, even by a relatively transparent company.
12. Ownership in a company is often called equity.
14. With a Board’s permission, the company can issue new stock, which is a lot like printing money:
it makes everyone else’s shares smaller as a percentage of the company. This reduction in
ownership is called dilution.
15. Shares that grant special rights are called Preferred Stock, although
what exactly those rights are can vary dramatically from one investment round to the next.
16. The first major negotiated sale of Preferred Stock is usually called a Series A, which typically
raises between $2,000,000 and $8,000,000 of funds, though there are smaller and larger
exceptions all the time and there’s no real legal definition for what a Series A round is or means.
17. Sometimes a very small first round of preferred (such as a round for $1,000,000 or less) will be
called a seed round or Series Seed, to save the Series A name for a later, larger round.
18. This is called a
liquidity event and it’s what all of your investors and employees are counting on.It’s the way
most people in Silicon Valley become very rich.
19. It may be worth noting that it’s common for key
staff in an acquisition (particularly the product and engineering personnel) to be given large
financial incentives to continue to work for the acquiring company for a certain “golden
handcuff ” period, often around two years. This is why you shouldn’t be surprised to read about
many founders leaving their acquiring company almost exactly two years after a sale.
20. The other common way for a shareholder to get liquidity is if the company gets permission from
the Securities and Exchange Commission (the SEC) to publicly sell its stock.
21. The SEC has a lot of
regulations to make sure that unsophisticated members of the general public don’t get defrauded
by companies selling ownership, so this is a long and difficult process and generally doesn’t make
a lot of sense in the U.S. unless your company has revenues of at least $50m/year and is growing
quickly.
22. When the company “goes public” and has an “Initial Public Offering” (IPO), it creates
some new Common stock that it sells to investment banks called underwriters that in turn sell
the stock to members of the general public or other investors
23. Interestingly enough,
it’s very difficult for a founder to completely cash out after an IPO as investors will see it as a bad
sign if the management team is uninterested in holding onto the stock in the long run.
24. Furthermore, it needs to be done in a very controlled way to avoid allegations that you’re timing
the sale of your stock based on things you know about the company that the general public
doesn’t. That’s called “insider trading” and is a good way to end up in jail.
25. Even
though this stock is technically liquid, if Bill tried to sell all of his stock tomorrow, the value of
Microsoft stock would plummet precipitously.
26. While an IPO or a buyout are the most common ways for founders and employees to gain
liquidity, there are several other ways starting to become more popular. Most of these “alternate
paths to liquidity” require the company to be doing very well ($10m+/year revenues, neardoubling
year-over-year, etc).
27. different people get paid in a different order when a company is sold; the order in which
people are paid is called seniority.
28. The total dollars of liquidity preference that
need repayment are called the company’s overhang.
29. For this reason, most deals in the Valley are
done at a 1x preference (except vastly smaller convertible notes, see below).
30. Generally speaking, investors in startups come in four flavors: angels, angel groups, accelerators,
and VC firms.
31. Angels are mostly rich people (legally, an accredited investor is a person with $1m
+ in the bank, making $200k+/year themselves, or $300k+/year including their spouse) investing
their own money, directly
32. Most angels in Silicon Valley are entrepreneurs who
have built their own companies and who double as excellent mentors.
33. Angels usually have a full time job elsewhere, such as running their own companies,
though some “fulltime professional angels” do exist. Most of the best angels need to be
approached through someone they know instead of directly; this is principally because the very
most famous (e.g. Ron Conway) get thousands upon thousands of business pitches -- they have
basically given up on trying to filter all of these direct pitches themselves: you need to get
someone they know and trust excited, like a team they’ve invested in previously.
34. Angel groups try to act like professional venture firms but can often involve more paperwork for
less equity.
35. it can be excruciatingly difficult to eject an
overbearing or incompetent Board member.
36. That said, a great Board member can be an
invaluable asset: making introductions, closing deals, lining up more financing, discovering
potential acquirers, and dispensing crucial advice.
37. The most famous accelerator is probably Y Combinator, which
specializes in investing in young, technical founding teams
38. Recently, DST General Partner Yuri
Milner and Ron Conway announced they would invest $150,000 in every Y Combinator startup.
This was significant because it was in the form of a convertible note and had very favorable
terms such as no conversion “cap”, no discount, a 1x liquidation preference, and no demands of
a board seat or other involvement.
39. Venture capital (VC) firms are staffed by paid professionals whose full time job it is to invest
money into promising startups and help those startups quickly become worth a lot of money.
40. VC firms generally raise their money from enormous financial institutions like pension funds,
sovereign wealth management funds, university endowments, and very large corporations.
41. The entities that invest in a VC firm are called Limited Partners (LPs) because while they provide the
capital, they don’t actually get to decide what companies get investment.
41. That’s left to the General Partners (GPs or just “partners”), the full-time investment professionals at the firm.
42. GPs get paid an annual management fee of 1-2% (of the total fund size) plus about 20% of
any of the profits reaped from their investments (called a carry). The remaining 80% is paid
back to the LPs.
43. While the carry is distributed by seniority within the firm, it’s usually the case
that the partner who is managing the deal gets the lion’s share, so there’s a lot potentially on the
line for the partner who’s sitting on a Board.
44. When dealing with VC firms, it’s very important to know if you’re dealing with a partner
(someone who can actually make decisions) or an associate (also sometimes dubbed an
“analyst”).
45. If an associate calls you, keep in mind that part of their job is to sound really excited about your
company and that it is full of promise. But if there’s no partner involved in the deal, there is a 0%
chance of anything happening. Get a partner involved or don’t waste your time.
46. There are two common ways that a Silicon Valley company can raise money from investors: a
convertible note (debt) and a priced investment round (sale of stock) like a Series A Preferred.
47. Convertible notes tend to be smaller ($50k - $500k) and raised from angels or angel groups;
priced rounds tend to be larger ($500k - $5m+) and raised from VCs. As of early 2012, some
convertible rounds have expanded up to the $2m+ range, provoking some discussion of a
“bubble” in early-stage financing.
48. Convertible note investors are counting on you to build the company up with the cash they’ve
loaned and for you to grow to the point you need a Serious Institutional Financing, aka a Series
A round.
49. When such a financing happens, the debt (principal plus interest) “converts” to the
Preferred Shares of that round at a specified discount (usually 20-25%), meaning that it’s
exactly the same as if the company had paid the debt-investors back the cash owed and then the
debt-investors had immediately turned around and given the company that cash back to invest it
in the Series A financing round on the same terms as other investors, except paying 20-25% less
per share.
50. To avoid this risk, most convertible note investors will require a “cap” on how highly a company can be valued, typically
in the $4m to $8m range.
51. If the next financing round values the company at more than this cap,
then the debt converts as if the company was valued at this cap. This allows early investors to get
a fair share of the company in exchange for investing at an early stage of the company’s
development.
52. The astute reader will notice that neither the company nor the investor has to figure out how
much a company is worth to raise a convertible note round - the investor simply has to have
confidence that the company is likely to either sell or raise a round of financing in a reasonably
well-defined period of time. One of the hardest parts about raising financing is usually debating
how much the company is worth, so this can be a handy way around such infighting...but there’s
a catch.
53. So if the company proves unable to either sell or raise a
round of financing in the allotted time and does not have the cash to pay back the loan, the
courts could give ownership of the company to the creditors or allow the company’s assets to be
seized and liquidated to repay the balance owed. Yikes.
54. Convertible debt holders will also want semi-regular assurance that progress is being made
towards a financing round or a sale; the main point is to “bridge” you to a transaction, which is
why convertible notes are often also called bridge loans. But without bridging you to a
transaction it becomes a “pier”: a pejorative term used when noteholders are concerned that the
debt is going to come due without a financing or a liquidity event.
55. This also means that the legal expenses with
closing a convertible debt round tends to be low ($5k-$10k) vs a priced equity financing, where
costs can be as much as $50k for even a small $350k round.
56. This round would be described in industry parlance as “$100 on a $900 pre”.
57. Gomez.com sold for several hundred million dollars and the founder made a few thousand dollars. He had left before the company had
undergone a recap.
58. So while you can’t know the future,
you should have a lot of confidence that by the time you’re going to need more money, your
company will be worth a lot more than it is in this round.
59. I wish someone had told me that the term sheet is meant to be a
discussion. You don’t sign the sheet without talking it through. In the process you can often get
very substantial concessions on things that are important to you. Once you’ve signed the term
sheet, it’s going to be very difficult to undo what you’ve agreed to, so that’s absolutely the right
time to fight for what you want
60. One entity almost always has the responsibility to negotiate these terms with you - the lead
investor.
61. Actually, there’s a long (4-10 week) closing process of finalizing the exact terms of
the deal and the VC firm has the right to do some research on the company to ensure that you
haven’t just been lying to them the whole time.
62. The closing process involves a great deal of backand-
forth between your company’s lawyers and your investor’s lawyers about exactly what terms
the sale will be made on.
63. the deal’s not done until the cash is in the bank.
64. And let me tell you, it is a really incredible rush to see the number in your checking
account go from $14,213.87 to $2,114,213.87, especially if you grew up like me and thought
$14k was a lot of money. (We actually printed out our daily balance, circled it, and had it on our
Controller’s door for a few months after we closed.)
65. A maxim for financing is that it’s best to raise money when you don’t need it.
66. The story you need to tell when raising money is a delicate balance
between clarity on how new funds could be very effectively put to work and the company doing
just fine without that money. But if your company is a rocket ship and/or money printing
machine, you will have firms bending over backwards to give you money on any terms. (
67. (Google recently raised $3bn of debt even though they had $37bn of cash in the bank. Why? You guessed
it: they didn’t need it, so the markets bought their ten year bonds at a rate most governments
would envy.)
68. And before you waltz into a financing, make sure you have a mentor, Board
member, and law firm lined up to vet the term sheet in the requisite time period!
69. When you’re starting a company, you don’t have huge piles of cash. Even if you’ve closed a Series
A or Series B, you generally don’t have enough money to be able to pay people really generous
salaries. To give your employees compensation competitive with what they can get paid at a large
company, you’ll need to throw a sweetener into the mix...the same reason why you’re working
your tail off for pennies: equity.
70. Since the company wants the employee to stick
around for a while instead of quitting after a week, what’s commonly done is to have the
employee earn out (or vest) their stock purchase rights over a four year period
71. So companies set up a one year cliff, meaning
the employee will not earn the right to purchase any stock at all until their one year anniversary,
on which day the employee vests a quarter of their options, with further vesting of 1/48 of their
options every month thereafter until their four year anniversary
72. To keep employees from
waltzing out the door on their four year anniversary, companies usually provide supplementary
option grants (also four-year but usually with no cliff) that start a few years in. That way, an
employee is always earning more options. Supplementary grants have the advantage of taking
into account the employee’s actual performance at the firm.
73. One more piece of advice: doing an “early exercise” of an incentive stock option (ISO) is
riskier than if you exercise a nonstatutory stock option (NSO).
74. So in the old days, Boards classically priced Common at about a tenth of Preferred
75. If a company is found offering underpriced options to employees, both
the company and the employee could find themselves facing 20% fines -- and poor pricing could
also complicate later funding or acquisition diligence
76. The company should get shareholder approval to set aside a pool of options for future employees
to avoid having to ask shareholders to create new shares every time someone new is hired.
77. Only the Board of a company may cause new shares to be created; they are given this permission
by shareholders.
78. fully diluted basis. It’s a “guaranteed pessimistic” interpretation of
ownership because it includes unvested options, unallocated options in the pool, and Restricted
Stock
79. This means that one’s control as a shareholder is generally significantly
higher than the fully diluted ownership percentage would indicate
80. Once you’re playing on someone
else’s dime, it’s not your business anymore and it’s nearly impossible to unwind the investment if
things turn hostile. You’re pretty much in with them for the life of the company
81. It can be extraordinarily helpful for a company to have advice and mentorship from those who
have been down the startup road before.
82. so advisory shares usually vest over one or two years, often with a sixmonth
cliff. Since these are being given to non-employees, they’re not qualified for the special tax
treatment given to employee ISOs, so most advisors are given NSOs.
83. I’d suggest granting advisors 0.1% to 2% of your
company, depending on your stage and how critical the advisor is likely to be to the success of
your company.
84. This means that if your company gets acquired, all of the options you granted to
the advisor will be completely vested, as if time had skipped ahead, or accelerated, to the end
of the vesting period.
85. People earlier on and taking
a bigger risk (e.g. without a salary) should get much larger grants. Splitting ownership evenly five
ways or more is asking for trouble. People with relevant connections, insight, skills, and
experience should see that reflected in their grant size.
Sunday, December 28, 2014
Thursday, December 4, 2014
How to maintain Customer Relationship
Knowledge Sharing:
1. Successful companies know that a well-implemented, referenceable customer is vastly more valuable than the money from a single contract.
2. Further, it's easier to keep a customer than to get one! We go to all the trouble and expense of acquiring a customer and then make little effort to maintain the customer. Unfortunately, dissatisfied customers don't complain; they just disappear!
3. Most marketing departments take on the role of customer relations, since the relationship benefits the entire sales channel or channels as well as others in the company.
4. The primary role of customer relations is to create and maintain customer profile information.
5. Customer Relationship is one of the critical function in the business. Customer Relationship can grow your business or kill your business.
6. Never underestimate the value and reach of a loyal, repeat customer. Keep customers coming back for more--and bringing their friends with them--with these smart tips.
7. You develop relationships with people who don't just understand your particular expertise, product or service, but who are excited and buzzing about what you do. You stay connected with them and give them value, and they'll touch other people who can benefit your business.
8. Relationships have a short shelf life. No matter how charming, enthusiastic or persuasive you are, no one will likely remember you from a business card or a one-time meeting. One of the biggest mistakes people make is that they come home from networking events and fail to follow up. Make the connection immediately. Send a "nice to meet you" e-mail or let these new contacts know you've added them to your newsletter list and then send them the latest copy. Immediately reinforce who you are, what you do and the connection you've made.
9. E-mail marketing keeps relationships strong on a shoestring budget.
10. Just remember: If you don't keep in touch with your customers, your competitors will.
11. If real estate is all about location, location, location, then small business is all about relationships, relationships, relationships. Find them, nurture them, and watch your sales soar.
12. Creating and nurturing a strong relationship with a customer is key to the ongoing success of a business. A strong customer relationship not only means that the client is likely to keep doing business with a provider over the long-term, it also means that the chances of that customer recommending the company and its products to others are greatly enhanced.
14. if the customer is operating under a false assumption or incomplete information, own the customer's perceptions and acknowledge that you understand what the client is conveying. Repeat the key points and ask if you have grasped the particulars properly. Then set a specific date and time to get back to the client with answers. This makes it possible for the client to feel that he or she has been heard and helps to set reasonable expectations for some type of resolution to take place.
15. Attempts to earn trust by making commitments that cannot be kept will only hurt the customer relationship. As the client grows to trust your honesty and integrity, the relationship will deepen over the years, and be of great value to everyone concerned.
16. Loyal customers are at the core of every business’ success—businesses have a 60 to 70% chance of selling to an existing customer, while the probability of selling to a new prospect is only 5 to 20 percent. Maintaining customer relationships is no easy task, but if done right, it can help set your company apart from your competitors.
17. Listening to your customers is an easy way to maintain customer relationships. One way social media can help is by providing a space for businesses and customers to connect. By creating a company Twitter handle, Facebook page, and Instagram account, your company can help customers reach out if they have any concerns, issues, or feedback. Listening to them on these social networks will allow you to respond quickly.
18. For example, if your customers are having issues with your product, provide an honest answer and don’t make promises you can’t keep. The worst thing you can do as a business is make false promises instead of an effective customer solution.
19. For new start-ups, growing a community is the first step in marketing efforts, and that often includes building a community of brand ambassadors. At Hootsuite, we treasure our brand ambassadors, because without them we wouldn’t be where we are today. During our early years we spent our marketing efforts in growing a community, as opposed to investing in advertisements. Through engaging Hootups, Google Hangouts, and conversations on social media, we were able to grow our community of local social enthusiasts into a global community of brand ambassadors.
20. Customer success is a pivotal focus point for businesses. If you provide support to your customers, they will, in turn, reward you with loyalty and valuable feedback.
21. Just like maintaining friendships, in order to maintain customer relationships you need to keep in touch. For businesses this can come in the form of holiday cards, birthday greeting Tweets, or a quarterly email reminding your customers that you’re there for them if they need you. By keeping in touch with your customers, you’ll stay “top of mind”—this is key to making sure your customers don’t leave you for someone else, or forget about you altogether.
Tips:
1. Build your network--it's your sales lifeline
2. Communication is a contact sport, so do it early and often
3. Reward loyal customers, and they'll reward you
4. Reward loyal customers, and they'll reward you.
5. Loyal customers are your best salespeople
6. Listen to your customers
7. Be genuine to your customers
8. Create and engage with your brand ambassadors
9. Put emphasis on customer success
10. Keep in touch
Success Example:
In one case, a company had over 1000 customers yet only a few references. They hired a former telemarketer and gave her a telephone headset, a customer database, and an office with a door. She called the entire customer database every 90 days. She talked to both buyers of the product as well as the daily users of the product.
Who are the buyer contacts and user contacts?
What is their referenceability?
How well are they implemented?
What product features are they using?
After only 90 days, the company had an accurate customer database, providing a broad set of profiled customers for references. In addition, the company had the basis to understand which product features were used in production. Moreover, the company had a reference customer list for user success stories as well as references on-demand for sales.
References:
http://www.pragmaticmarketing.com/resources/Maintaining-Customer-Relationships
1. Successful companies know that a well-implemented, referenceable customer is vastly more valuable than the money from a single contract.
2. Further, it's easier to keep a customer than to get one! We go to all the trouble and expense of acquiring a customer and then make little effort to maintain the customer. Unfortunately, dissatisfied customers don't complain; they just disappear!
3. Most marketing departments take on the role of customer relations, since the relationship benefits the entire sales channel or channels as well as others in the company.
4. The primary role of customer relations is to create and maintain customer profile information.
5. Customer Relationship is one of the critical function in the business. Customer Relationship can grow your business or kill your business.
6. Never underestimate the value and reach of a loyal, repeat customer. Keep customers coming back for more--and bringing their friends with them--with these smart tips.
7. You develop relationships with people who don't just understand your particular expertise, product or service, but who are excited and buzzing about what you do. You stay connected with them and give them value, and they'll touch other people who can benefit your business.
8. Relationships have a short shelf life. No matter how charming, enthusiastic or persuasive you are, no one will likely remember you from a business card or a one-time meeting. One of the biggest mistakes people make is that they come home from networking events and fail to follow up. Make the connection immediately. Send a "nice to meet you" e-mail or let these new contacts know you've added them to your newsletter list and then send them the latest copy. Immediately reinforce who you are, what you do and the connection you've made.
9. E-mail marketing keeps relationships strong on a shoestring budget.
10. Just remember: If you don't keep in touch with your customers, your competitors will.
11. If real estate is all about location, location, location, then small business is all about relationships, relationships, relationships. Find them, nurture them, and watch your sales soar.
12. Creating and nurturing a strong relationship with a customer is key to the ongoing success of a business. A strong customer relationship not only means that the client is likely to keep doing business with a provider over the long-term, it also means that the chances of that customer recommending the company and its products to others are greatly enhanced.
14. if the customer is operating under a false assumption or incomplete information, own the customer's perceptions and acknowledge that you understand what the client is conveying. Repeat the key points and ask if you have grasped the particulars properly. Then set a specific date and time to get back to the client with answers. This makes it possible for the client to feel that he or she has been heard and helps to set reasonable expectations for some type of resolution to take place.
15. Attempts to earn trust by making commitments that cannot be kept will only hurt the customer relationship. As the client grows to trust your honesty and integrity, the relationship will deepen over the years, and be of great value to everyone concerned.
16. Loyal customers are at the core of every business’ success—businesses have a 60 to 70% chance of selling to an existing customer, while the probability of selling to a new prospect is only 5 to 20 percent. Maintaining customer relationships is no easy task, but if done right, it can help set your company apart from your competitors.
17. Listening to your customers is an easy way to maintain customer relationships. One way social media can help is by providing a space for businesses and customers to connect. By creating a company Twitter handle, Facebook page, and Instagram account, your company can help customers reach out if they have any concerns, issues, or feedback. Listening to them on these social networks will allow you to respond quickly.
18. For example, if your customers are having issues with your product, provide an honest answer and don’t make promises you can’t keep. The worst thing you can do as a business is make false promises instead of an effective customer solution.
19. For new start-ups, growing a community is the first step in marketing efforts, and that often includes building a community of brand ambassadors. At Hootsuite, we treasure our brand ambassadors, because without them we wouldn’t be where we are today. During our early years we spent our marketing efforts in growing a community, as opposed to investing in advertisements. Through engaging Hootups, Google Hangouts, and conversations on social media, we were able to grow our community of local social enthusiasts into a global community of brand ambassadors.
20. Customer success is a pivotal focus point for businesses. If you provide support to your customers, they will, in turn, reward you with loyalty and valuable feedback.
21. Just like maintaining friendships, in order to maintain customer relationships you need to keep in touch. For businesses this can come in the form of holiday cards, birthday greeting Tweets, or a quarterly email reminding your customers that you’re there for them if they need you. By keeping in touch with your customers, you’ll stay “top of mind”—this is key to making sure your customers don’t leave you for someone else, or forget about you altogether.
Tips:
1. Build your network--it's your sales lifeline
2. Communication is a contact sport, so do it early and often
3. Reward loyal customers, and they'll reward you
4. Reward loyal customers, and they'll reward you.
5. Loyal customers are your best salespeople
6. Listen to your customers
7. Be genuine to your customers
8. Create and engage with your brand ambassadors
9. Put emphasis on customer success
10. Keep in touch
Success Example:
In one case, a company had over 1000 customers yet only a few references. They hired a former telemarketer and gave her a telephone headset, a customer database, and an office with a door. She called the entire customer database every 90 days. She talked to both buyers of the product as well as the daily users of the product.
Who are the buyer contacts and user contacts?
What is their referenceability?
How well are they implemented?
What product features are they using?
After only 90 days, the company had an accurate customer database, providing a broad set of profiled customers for references. In addition, the company had the basis to understand which product features were used in production. Moreover, the company had a reference customer list for user success stories as well as references on-demand for sales.
References:
http://www.pragmaticmarketing.com/resources/Maintaining-Customer-Relationships
Sunday, November 23, 2014
Understand Revenue Stream
Knowledge Sharing:
1. The publisher makes money because he or she is being paid a commission for any work that coincides with the affiliate program. Advertisers make money because they keep the majority of the sale, or get new leads and only pay the publisher if they help the advertiser.
2. Marketplaces are difficult businesses to get off the ground. A marketplace without buyers cannot attract sellers and vice versa.
3. In fact, the infamy of this proverbial chicken and egg problem detracts entrepreneurs from the challenges that a marketplace presents after it has successfully gained adoption and is successfully matching buyers with sellers. After all, marketplaces for products, like Ebay and Etsy seem to have it all working for them once they gain adoption.
4. Services marketplaces, however, present a unique challenge. Most services marketplaces cannot facilitate a transaction before the buyer and seller agree on the terms of the service. Also, actual exchange of money often follows the delivery of the service and the delivery of the service requires the buyer and seller to directly interact with each other. Connecting buyers and sellers directly before facilitating the transaction cut weakens a marketplace’s ability to capture value. The party that is charged is naturally motivated to abandon the platform and conduct the transaction off-platform.
5. Marketplaces that fail to capture the transaction often resort to a lead generation, paid placement or subscription-based revenue model. The classifieds model has traditionally worked on paid placement. Dating websites and B2B marketplaces work on a subscription-based model while several financial comparison engines work on a lead generation model. However, lead generation models are attractive only at very high levels of activity and subscription-based revenue models make the chicken and egg problem worse than it already is. If your monetization model involves extracting a cut from the buyer-seller transaction, you need to figure out a way to own the transaction.
6. Services marketplaces like Fiverr, Groupon and Airbnb try to solve this problem by preventing the users from directly connecting before the actual transaction. These marketplaces typically try to provide all the information that a buyer needs to make a transaction decision. Groupon features services from sellers that are largely standardized. While less standardized, Airbnb and Fiverr try to provide enough information for the buyers to make a decision without having to contact the seller.
7. Additionally, some marketplaces charge the buyer ahead of the transaction and remit money to the service provider after the provision of services, thus providing some insurance to the buyer, encouraging her to transact.
8. Unfortunately, the above strategies fail with professional services marketplaces for two reasons.
First, it is much easier to take the transaction off-platform in the case of marketplaces connecting professionals. Freelancer marketplaces like Elance or expert marketplaces like Clarity are particularly prone to off-platform transactions for two reasons:
a) Clients need to know information about service providers before making a transaction decision
b) Once the end users know each other, they can potentially connect directly on LinkedIn or other networks, thus avoiding the platform cut
Second, professional services marketplaces require discussions, exchanges and workflow management during the provision of services before the actual charge can be levied. As a result, charging the buyer ahead of the transaction is all the more complicated.
9. This may sound counter-intuitive. After all, a marketplace’s goal is to connect the two sides, complete the transaction and get out of the way, isn’t it?
10. Clarity provides additional call management and invoicing capabilities that serve to capture the transaction on the platform. Since the call management software manages per-minute billing, advice seekers have the option to opt out of a call that isn’t proving too useful. For the experts, the integrated payments and invoicing provides additional value. There is enough value for both sides to prevent them from leaving the platform to avoid the cut.
11. Clarity is one of many examples of platforms which are using workflow management solutions to capture the transaction. Services marketplaces like Elance focus on providing work-tracking and billing solutions that provide value to both sides and capture the transaction on-platform.
12. Secondly, a marketplace is only as good as the liquidity of available suppliers. As a result, there is no real need for a buyer to stick to a particular marketplace, transaction after transaction, especially if two or more competing marketplaces have similar liquidity and choice. Workflow management solutions help create stickiness because the requirement of on boarding on and learning new workflow management tools acts as a greater barrier to switch and can potentially keep users loyal to a particular marketplace.
14. In recent times, we have been seeing the model flipped. Businesses are now building SAAS workflow solutions first to get entrenched among the demand side and then opening out the marketplace, to get suppliers in. An invoicing service spreads out to become a B2B order management platform. A payroll software provider expands to append a marketplace that can bring in freelancers which are then managed using the same payroll software. This also solves the chicken and egg problem by staging the launch of the marketplace.
15. In general, if you run a marketplace that requires services to be exchanged remotely, provisioning workflow management solutions to facilitate this exchange is a great way to own the transaction and create greater engagement and stickiness for users.
16. Software as a service (SaaS; pronounced /sæs/ or /sɑːs/[1]) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.[2][3] It is sometimes referred to as "on-demand software".[4] SaaS is typically accessed by users using a thin client via a web browser. SaaS has become a common delivery model for many business applications,
17. In marketing, lead generation is the generation of consumer interest or inquiry into products or services of a business
18.
Types:
1. Commerce and Retail(Selling physical and digital goods, Service Sold per unit, Service with fixed price, Sale of service for future use, Daily Deals and Flash sales)
2. Subscription and Usage Fee (Rental)
3. License (Patents)
4. Auction and Bids (Dynamic Pricing)
5. Advertisement (Promoted Content, Sponsorship, )
6. Data (Database)
7. Transaction and Intermediation (Brokerage, Transaction Enabler, Affliate Program, Create a platform and marketplace)
8. Freemium (Paid Version without Advertisement, Without Restriction and With additional Features)
9. Common in the financial industry (Interest Revenue, Asset Mgt Fee)
10. Affiliate model
About Transaction Revenue Model
1. Transaction Processing is not a "net native" business model. There have been businesses built up around processing transactions for a long time. But the Internet and Mobile present some challenges in processing transactions and therefore there are opportunities to build substantial businesses around helping companies process transactions.
2. The thing that all of these forms of transaction processing have in common is the processor handles a transaction that was generated by another product or service and provides some form of completion service and charges a fee for doing so. That could be processing a credit card transaction, handling a banking transaction, shipping something to someone, completing a call originated on another network, or distributing a third party app on an internet or mobile platform.
3. Platform distribution fees are the outlier as they are often very significant, Apple charges a 30% cut in its app store.
4. PayPal processed $145bn of transactions in 2012 and generated $5.6bn in revenue. Out of that $5.6bn, PayPal has to cover all its costs including processing fees to other transaction processors, customer service, fraud prevention, fraud losses, technology and development, and several others. I am certain that PayPal makes a very nice profit off of that $5.6bn of revenue but it is probably on the order of $1-2bn, which is in the range of 1% of the total transaction volume.
5. Business needs scalability.
6. One of the challenges of this business model is that the fixed costs required to process transcations can be significant and you will operate a loss until you can get to scale. You can see that by looking at how much capital Square has raised to date. Crunchbase has it at $341mm.
7. It is better to do business in painkiller than vitamin.
About Subscription Model:
1. Gone are the days of simple one-time transactions with customers as the subscription business model goes mainstream with companies like Dropbox, Netflix, Adobe and Zipcar because it offers a predictable, recurring revenue stream.
2. Subscription models used by companies like Salesforce offer customers different levels of functionality for a variety of prices per seat, per month. That, in and of itself, might not be too complicated to calculate and bill. But what happens when a customer upgrades or downgrades in the middle of the billing period and prorated billing must occur? Or the credit card “on file” expires and renewal billings fail? How do you bill customers for actual usage? What’s the tax rate on your product? Can you track each product’s churn rate?
3. To settle just one lawsuit for non-compliance in April 2013, Symantec offered $10 refunds or free subscription extensions to 3,900,000 customers
4. 1. Revenue recognition
2. Taxation
3. Credit card expiration/payment method changes
4. Compliance
5. Analytics
6. Lifecycle management
5. Great subscription businesses are built first by steadily booking new business and then by consistently retaining those customers. The ability to achieve each of these goals will be greatly affected by the systems and processes the company puts in place from the start.
6. Building a recurring business means processing a (hopefully growing) stream of subscription orders.
Each of those orders will need to kick off a process to set up a subscription period, provision the
service offering, generate one or more invoices and recognize revenue. Ultimately, it should also
remind you to terminate that subscription at the end of the period—or better yet, help you renew
it. That process is significantly more complex than the one order = one shipment = one bill = one
revenue posting world of the one-off model.
7. recurring revenue businesses create more complexity in the process and more
demand for data than traditional businesses. They require sophisticated, integrated systems for
handling the throughput, capturing the data and facilitating the analysis. It’s important to set up
an infrastructure in the beginning that can manage the complexity and evolve with your company,
allowing you to react competitively and expand into new areas as you grow. Below are a few
practical recommendations for establishing a recurring revenue business that can grow and adapt
for years to come.
8.
References:
http://en.wikipedia.org/wiki/Revenue_stream
http://en.wikipedia.org/wiki/Subscription_business_model
http://en.wikipedia.org/wiki/Advertising
http://www.wisegeek.com/what-is-an-affiliate-model.htm
http://www.bridgepointconsulting.com/wp-content/uploads/2013/02/Recurring-Revenue-Model-Best-Practices.pdf
1. The publisher makes money because he or she is being paid a commission for any work that coincides with the affiliate program. Advertisers make money because they keep the majority of the sale, or get new leads and only pay the publisher if they help the advertiser.
2. Marketplaces are difficult businesses to get off the ground. A marketplace without buyers cannot attract sellers and vice versa.
3. In fact, the infamy of this proverbial chicken and egg problem detracts entrepreneurs from the challenges that a marketplace presents after it has successfully gained adoption and is successfully matching buyers with sellers. After all, marketplaces for products, like Ebay and Etsy seem to have it all working for them once they gain adoption.
4. Services marketplaces, however, present a unique challenge. Most services marketplaces cannot facilitate a transaction before the buyer and seller agree on the terms of the service. Also, actual exchange of money often follows the delivery of the service and the delivery of the service requires the buyer and seller to directly interact with each other. Connecting buyers and sellers directly before facilitating the transaction cut weakens a marketplace’s ability to capture value. The party that is charged is naturally motivated to abandon the platform and conduct the transaction off-platform.
5. Marketplaces that fail to capture the transaction often resort to a lead generation, paid placement or subscription-based revenue model. The classifieds model has traditionally worked on paid placement. Dating websites and B2B marketplaces work on a subscription-based model while several financial comparison engines work on a lead generation model. However, lead generation models are attractive only at very high levels of activity and subscription-based revenue models make the chicken and egg problem worse than it already is. If your monetization model involves extracting a cut from the buyer-seller transaction, you need to figure out a way to own the transaction.
6. Services marketplaces like Fiverr, Groupon and Airbnb try to solve this problem by preventing the users from directly connecting before the actual transaction. These marketplaces typically try to provide all the information that a buyer needs to make a transaction decision. Groupon features services from sellers that are largely standardized. While less standardized, Airbnb and Fiverr try to provide enough information for the buyers to make a decision without having to contact the seller.
7. Additionally, some marketplaces charge the buyer ahead of the transaction and remit money to the service provider after the provision of services, thus providing some insurance to the buyer, encouraging her to transact.
8. Unfortunately, the above strategies fail with professional services marketplaces for two reasons.
First, it is much easier to take the transaction off-platform in the case of marketplaces connecting professionals. Freelancer marketplaces like Elance or expert marketplaces like Clarity are particularly prone to off-platform transactions for two reasons:
a) Clients need to know information about service providers before making a transaction decision
b) Once the end users know each other, they can potentially connect directly on LinkedIn or other networks, thus avoiding the platform cut
Second, professional services marketplaces require discussions, exchanges and workflow management during the provision of services before the actual charge can be levied. As a result, charging the buyer ahead of the transaction is all the more complicated.
9. This may sound counter-intuitive. After all, a marketplace’s goal is to connect the two sides, complete the transaction and get out of the way, isn’t it?
10. Clarity provides additional call management and invoicing capabilities that serve to capture the transaction on the platform. Since the call management software manages per-minute billing, advice seekers have the option to opt out of a call that isn’t proving too useful. For the experts, the integrated payments and invoicing provides additional value. There is enough value for both sides to prevent them from leaving the platform to avoid the cut.
11. Clarity is one of many examples of platforms which are using workflow management solutions to capture the transaction. Services marketplaces like Elance focus on providing work-tracking and billing solutions that provide value to both sides and capture the transaction on-platform.
12. Secondly, a marketplace is only as good as the liquidity of available suppliers. As a result, there is no real need for a buyer to stick to a particular marketplace, transaction after transaction, especially if two or more competing marketplaces have similar liquidity and choice. Workflow management solutions help create stickiness because the requirement of on boarding on and learning new workflow management tools acts as a greater barrier to switch and can potentially keep users loyal to a particular marketplace.
14. In recent times, we have been seeing the model flipped. Businesses are now building SAAS workflow solutions first to get entrenched among the demand side and then opening out the marketplace, to get suppliers in. An invoicing service spreads out to become a B2B order management platform. A payroll software provider expands to append a marketplace that can bring in freelancers which are then managed using the same payroll software. This also solves the chicken and egg problem by staging the launch of the marketplace.
15. In general, if you run a marketplace that requires services to be exchanged remotely, provisioning workflow management solutions to facilitate this exchange is a great way to own the transaction and create greater engagement and stickiness for users.
16. Software as a service (SaaS; pronounced /sæs/ or /sɑːs/[1]) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.[2][3] It is sometimes referred to as "on-demand software".[4] SaaS is typically accessed by users using a thin client via a web browser. SaaS has become a common delivery model for many business applications,
17. In marketing, lead generation is the generation of consumer interest or inquiry into products or services of a business
18.
Types:
1. Commerce and Retail(Selling physical and digital goods, Service Sold per unit, Service with fixed price, Sale of service for future use, Daily Deals and Flash sales)
2. Subscription and Usage Fee (Rental)
3. License (Patents)
4. Auction and Bids (Dynamic Pricing)
5. Advertisement (Promoted Content, Sponsorship, )
6. Data (Database)
7. Transaction and Intermediation (Brokerage, Transaction Enabler, Affliate Program, Create a platform and marketplace)
8. Freemium (Paid Version without Advertisement, Without Restriction and With additional Features)
9. Common in the financial industry (Interest Revenue, Asset Mgt Fee)
10. Affiliate model
About Transaction Revenue Model
1. Transaction Processing is not a "net native" business model. There have been businesses built up around processing transactions for a long time. But the Internet and Mobile present some challenges in processing transactions and therefore there are opportunities to build substantial businesses around helping companies process transactions.
2. The thing that all of these forms of transaction processing have in common is the processor handles a transaction that was generated by another product or service and provides some form of completion service and charges a fee for doing so. That could be processing a credit card transaction, handling a banking transaction, shipping something to someone, completing a call originated on another network, or distributing a third party app on an internet or mobile platform.
3. Platform distribution fees are the outlier as they are often very significant, Apple charges a 30% cut in its app store.
4. PayPal processed $145bn of transactions in 2012 and generated $5.6bn in revenue. Out of that $5.6bn, PayPal has to cover all its costs including processing fees to other transaction processors, customer service, fraud prevention, fraud losses, technology and development, and several others. I am certain that PayPal makes a very nice profit off of that $5.6bn of revenue but it is probably on the order of $1-2bn, which is in the range of 1% of the total transaction volume.
5. Business needs scalability.
6. One of the challenges of this business model is that the fixed costs required to process transcations can be significant and you will operate a loss until you can get to scale. You can see that by looking at how much capital Square has raised to date. Crunchbase has it at $341mm.
7. It is better to do business in painkiller than vitamin.
About Subscription Model:
1. Gone are the days of simple one-time transactions with customers as the subscription business model goes mainstream with companies like Dropbox, Netflix, Adobe and Zipcar because it offers a predictable, recurring revenue stream.
2. Subscription models used by companies like Salesforce offer customers different levels of functionality for a variety of prices per seat, per month. That, in and of itself, might not be too complicated to calculate and bill. But what happens when a customer upgrades or downgrades in the middle of the billing period and prorated billing must occur? Or the credit card “on file” expires and renewal billings fail? How do you bill customers for actual usage? What’s the tax rate on your product? Can you track each product’s churn rate?
3. To settle just one lawsuit for non-compliance in April 2013, Symantec offered $10 refunds or free subscription extensions to 3,900,000 customers
4. 1. Revenue recognition
2. Taxation
3. Credit card expiration/payment method changes
4. Compliance
5. Analytics
6. Lifecycle management
5. Great subscription businesses are built first by steadily booking new business and then by consistently retaining those customers. The ability to achieve each of these goals will be greatly affected by the systems and processes the company puts in place from the start.
6. Building a recurring business means processing a (hopefully growing) stream of subscription orders.
Each of those orders will need to kick off a process to set up a subscription period, provision the
service offering, generate one or more invoices and recognize revenue. Ultimately, it should also
remind you to terminate that subscription at the end of the period—or better yet, help you renew
it. That process is significantly more complex than the one order = one shipment = one bill = one
revenue posting world of the one-off model.
7. recurring revenue businesses create more complexity in the process and more
demand for data than traditional businesses. They require sophisticated, integrated systems for
handling the throughput, capturing the data and facilitating the analysis. It’s important to set up
an infrastructure in the beginning that can manage the complexity and evolve with your company,
allowing you to react competitively and expand into new areas as you grow. Below are a few
practical recommendations for establishing a recurring revenue business that can grow and adapt
for years to come.
8.
References:
http://en.wikipedia.org/wiki/Revenue_stream
http://en.wikipedia.org/wiki/Subscription_business_model
http://en.wikipedia.org/wiki/Advertising
http://www.wisegeek.com/what-is-an-affiliate-model.htm
http://www.bridgepointconsulting.com/wp-content/uploads/2013/02/Recurring-Revenue-Model-Best-Practices.pdf
Sunday, November 16, 2014
How to interview Customers
Knowledge Sharing:
1. Focus groups are a group-think, distraction-filled mess. Avoid them and only talk to one person at a time. If desired, you can bring someone with you to take notes — some UX designers like this approach.
2. Personally, I tend to do one-on-one interviews because I think people loosen up and thus open up a bit more, but it can be nice to have a note-taker, which allows you to focus entirely on the conversation and body language.
3. Have your assumptions and thus learning goals prioritized ahead of time. Decide who you want to talk to (age, gender, location, profession/industry, affluence, etc), and target interviewees accordingly. Prep your basic flow and list of questions. You might veer off the plan to follow your nose, which is great, but go in prepared.
4. Decide up front if your focus is going to be on learning a user’s behavior and mindset, and/or getting direct feedback or usability insights on a product or mockup. Do not mix the two in the discussion flow or things will get distorted.
5. Put “behavior and mindset” first in your discussion flow. During this part, don’t let the interviewee go too deep in terms of suggesting features, but keep them focused on if they have a problem, how they think about the problem space, and if and how they have tried to solve it in past.
6. If you want to get feedback on a product, whether on paper or digital, do this after digging into behavior and mindset.
7. If you don’t do this, you might find yourself selling or convincing, or even hearing what you want to hear. This is called “confirmation bias” and we are all very susceptible to it. Your initial goal should be learning.
8. People are trained not to call your baby ugly. You need to make them feel safe to do this. Ask them up-front to be brutally honest, and that this is the very best way they can help you. If they seem confused, explain that the worst thing that could happen is to build something people didn’t care about.
9. Sometimes it is hard not to ask a yes/no question, but always follow up with an open-ended question like “why?” or “tell me more about that experience.”
10. people are not very good at predicting their actions, knowing what they want, or knowing their true goals. Your job is not to ask the person for the solution. It is *your* job to figure out the best solution, and then validate that your solution is actually right.
11. People *love* to talk about features and solutions. When you are in learning mode, don’t let that dominate the conversation. Try to keep things factual. Get them to tell you stories about how they previously experienced a problem, if they tried to solve it (or why not), and what happened. Get them to tell you stories about using other products that are in the same domain space. You do want to dive into their emotions, but you can trust a discussion of historical emotions much more than one speculating “what ifs”.
12. Anytime something tweaks your antenna, drill down with follow up questions. Don’t be afraid to ask for clarifications and the “why” behind the “what”. You can even try drilling into multiple layers of “why” (see “Five Whys”), as long as the interviewee doesn’t start getting annoyed.
14. If it is not obvious to everyone by now, let me just be clear that you want to avoid doing these interviews with friends and family. There are lots of creative ways to recruit interviewees (the tactics vary depending on who you need to get to), but getting referrals will make the process a lot easier
15. You need to use your judgement to read between the lines, to read body language, to try to understand context and agendas, and to filter out biases based on the types of people in your pool of interviewees. But it is exactly the ability to use human judgement based on human connections that make interviews so much more useful than surveys.
16. Each has its place in the Customer Development process, but without live Customer Development Conversations, you are likely compromising your ability to learn your way to Product-Market fit or startup scaling. What you seek to learn evolves over time, as do the tactics you employ, but every step of the way should be grounded in real time conversations.
17.
References:
http://giffconstable.com/2012/12/12-tips-for-early-customer-development-interviews-revision-3/
http://jasonevanish.com/2012/01/18/how-to-structure-and-get-the-most-out-of-customer-development-interviews/
1. Focus groups are a group-think, distraction-filled mess. Avoid them and only talk to one person at a time. If desired, you can bring someone with you to take notes — some UX designers like this approach.
2. Personally, I tend to do one-on-one interviews because I think people loosen up and thus open up a bit more, but it can be nice to have a note-taker, which allows you to focus entirely on the conversation and body language.
3. Have your assumptions and thus learning goals prioritized ahead of time. Decide who you want to talk to (age, gender, location, profession/industry, affluence, etc), and target interviewees accordingly. Prep your basic flow and list of questions. You might veer off the plan to follow your nose, which is great, but go in prepared.
4. Decide up front if your focus is going to be on learning a user’s behavior and mindset, and/or getting direct feedback or usability insights on a product or mockup. Do not mix the two in the discussion flow or things will get distorted.
5. Put “behavior and mindset” first in your discussion flow. During this part, don’t let the interviewee go too deep in terms of suggesting features, but keep them focused on if they have a problem, how they think about the problem space, and if and how they have tried to solve it in past.
6. If you want to get feedback on a product, whether on paper or digital, do this after digging into behavior and mindset.
7. If you don’t do this, you might find yourself selling or convincing, or even hearing what you want to hear. This is called “confirmation bias” and we are all very susceptible to it. Your initial goal should be learning.
8. People are trained not to call your baby ugly. You need to make them feel safe to do this. Ask them up-front to be brutally honest, and that this is the very best way they can help you. If they seem confused, explain that the worst thing that could happen is to build something people didn’t care about.
9. Sometimes it is hard not to ask a yes/no question, but always follow up with an open-ended question like “why?” or “tell me more about that experience.”
10. people are not very good at predicting their actions, knowing what they want, or knowing their true goals. Your job is not to ask the person for the solution. It is *your* job to figure out the best solution, and then validate that your solution is actually right.
11. People *love* to talk about features and solutions. When you are in learning mode, don’t let that dominate the conversation. Try to keep things factual. Get them to tell you stories about how they previously experienced a problem, if they tried to solve it (or why not), and what happened. Get them to tell you stories about using other products that are in the same domain space. You do want to dive into their emotions, but you can trust a discussion of historical emotions much more than one speculating “what ifs”.
12. Anytime something tweaks your antenna, drill down with follow up questions. Don’t be afraid to ask for clarifications and the “why” behind the “what”. You can even try drilling into multiple layers of “why” (see “Five Whys”), as long as the interviewee doesn’t start getting annoyed.
14. If it is not obvious to everyone by now, let me just be clear that you want to avoid doing these interviews with friends and family. There are lots of creative ways to recruit interviewees (the tactics vary depending on who you need to get to), but getting referrals will make the process a lot easier
15. You need to use your judgement to read between the lines, to read body language, to try to understand context and agendas, and to filter out biases based on the types of people in your pool of interviewees. But it is exactly the ability to use human judgement based on human connections that make interviews so much more useful than surveys.
16. Each has its place in the Customer Development process, but without live Customer Development Conversations, you are likely compromising your ability to learn your way to Product-Market fit or startup scaling. What you seek to learn evolves over time, as do the tactics you employ, but every step of the way should be grounded in real time conversations.
17.
References:
http://giffconstable.com/2012/12/12-tips-for-early-customer-development-interviews-revision-3/
http://jasonevanish.com/2012/01/18/how-to-structure-and-get-the-most-out-of-customer-development-interviews/
Saturday, November 15, 2014
Do things don't scale
Knowledge Sharing:
1. More diffident founders ask "Will you try our beta?" and if the answer is yes, they say "Great, we'll send you a link." But the Collison brothers weren't going to wait. When anyone agreed to try Stripe they'd say "Right then, give me your laptop" and set them up on the spot.
2. There are two reasons founders resist going out and recruiting users individually. One is a combination of shyness and laziness. They'd rather sit at home writing code than go out and talk to a bunch of strangers and probably be rejected by most of them. But for a startup to succeed, at least one founder (usually the CEO) will have to spend a lot of time on sales and marketing.
3. The other reason founders ignore this path is that the absolute numbers seem so small at first. This can't be how the big, famous startups got started, they think. The mistake they make is to underestimate the power of compound growth. We encourage every startup to measure their progress by weekly growth rate. If you have 100 users, you need to get 10 more next week to grow 10% a week. And while 110 may not seem much better than 100, if you keep growing at 10% a week you'll be surprised how big the numbers get. After a year you'll have 14,000 users, and after 2 years you'll have 2 million.
4. You'll be doing different things when you're acquiring users a thousand at a time, and growth has to slow down eventually. But if the market exists you can usually start by recruiting users manually and then gradually switch to less manual methods.
5. Airbnb is a classic example of this technique. Marketplaces are so hard to get rolling that you should expect to take heroic measures at first. In Airbnb's case, these consisted of going door to door in New York, recruiting new users and helping existing ones improve their listings. When I remember the Airbnbs during YC, I picture them with rolly bags, because when they showed up for tuesday dinners they'd always just flown back from somewhere.
6. Airbnb now seems like an unstoppable juggernaut, but early on it was so fragile that about 30 days of going out and engaging in person with users made the difference between success and failure.
7. That initial fragility was not a unique feature of Airbnb. Almost all startups are fragile initially. And that's one of the biggest things inexperienced founders and investors (and reporters and know-it-alls on forums) get wrong about them. They unconsciously judge larval startups by the standards of established ones. They're like someone looking at a newborn baby and concluding "there's no way this tiny creature could ever accomplish anything."
8. It's harmless if reporters and know-it-alls dismiss your startup. They always get things wrong. It's even ok if investors dismiss your startup; they'll change their minds when they see growth. The big danger is that you'll dismiss your startup yourself. I've seen it happen. I often have to encourage founders who don't see the full potential of what they're building. Even Bill Gates made that mistake. He returned to Harvard for the fall semester after starting Microsoft. He didn't stay long, but he wouldn't have returned at all if he'd realized Microsoft was going to be even a fraction of the size it turned out to be
9. he question to ask about an early stage startup is not "is this company taking over the world?" but "how big could this company get if the founders did the right things?" And the right things often seem both laborious and inconsequential at the time.
10. How do you find users to recruit manually? If you build something to solve your own problems, then you only have to find your peers, which is usually straightforward. Otherwise you'll have to make a more deliberate effort to locate the most promising vein of users. The usual way to do that is to get some initial set of users by doing a comparatively untargeted launch, and then to observe which kind seem most enthusiastic, and seek out more like them. For example, Ben Silbermann noticed that a lot of the earliest Pinterest users were interested in design, so he went to a conference of design bloggers to recruit users, and that worked well.
11. You should take extraordinary measures not just to acquire users, but also to make them happy. For as long as they could (which turned out to be surprisingly long), Wufoo sent each new user a hand-written thank you note. Your first users should feel that signing up with you was one of the best choices they ever made. And you in turn should be racking your brains to think of new ways to delight them.
12. Sometimes the right unscalable trick is to focus on a deliberately narrow market. It's like keeping a fire contained at first to get it really hot before adding more logs.
14. When I interviewed Mark Zuckerberg at Startup School, he said that while it was a lot of work creating course lists for each school, doing that made students feel the site was their natural home.
15. It's always worth asking if there's a subset of the market in which you can get a critical mass of users quickly.
16. Most startups that use the contained fire strategy do it unconsciously. They build something for themselves and their friends, who happen to be the early adopters, and only realize later that they could offer it to a broader market. The strategy works just as well if you do it unconsciously. The biggest danger of not being consciously aware of this pattern is for those who naively discard part of it. E.g. if you don't build something for yourself and your friends, or even if you do, but you come from the corporate world and your friends are not early adopters, you'll no longer have a perfect initial market handed to you on a platter.
17. Among companies, the best early adopters are usually other startups. They're more open to new things both by nature and because, having just been started, they haven't made all their choices yet. Plus when they succeed they grow fast, and you with them. It was one of many unforeseen advantages of the YC model (and specifically of making YC big) that B2B startups now have an instant market of hundreds of other startups ready at hand.
18. without a product you can't generate the growth you need to raise the money to manufacture your product.
19. Sometimes we advise founders of B2B startups to take over-engagement to an extreme, and to pick a single user and act as if they were consultants building something just for that one user. The initial user serves as the form for your mold; keep tweaking till you fit their needs perfectly, and you'll usually find you've made something other users want too
20. Even if there aren't many of them, there are probably adjacent territories that have more. As long as you can find just one user who really needs something and can act on that need, you've got a toehold in making something people want, and that's as much as any startup needs initially.
21. So long as you're a product company that's merely being extra attentive to a customer, they're very grateful even if you don't solve all their problems. But when they start paying you specifically for that attentiveness—when they start paying you by the hour—they expect you to do everything.
22. Another consulting-like technique for recruiting initially lukewarm users is to use your software yourselves on their behalf. We did that at Viaweb. When we approached merchants asking if they wanted to use our software to make online stores, some said no, but they'd let us make one for them.
23. Since we would do anything to get users, we did. We felt pretty lame at the time. Instead of organizing big strategic e-commerce partnerships, we were trying to sell luggage and pens and men's shirts. But in retrospect it was exactly the right thing to do, because it taught us how it would feel to merchants to use our software. Sometimes the feedback loop was near instantaneous: in the middle of building some merchant's site I'd find I needed a feature we didn't have, so I'd spend a couple hours implementing it and then resume building the site.
24. There's a more extreme variant where you don't just use your software, but are your software. When you only have a small number of users, you can sometimes get away with doing by hand things that you plan to automate later. This lets you launch faster, and when you do finally automate yourself out of the loop, you'll know exactly what to build because you'll have muscle memory from doing it yourself.
25. For example, the way Stripe delivered "instant" merchant accounts to its first users was that the founders manually signed them up for traditional merchant accounts behind the scenes.
26. Some startups could be entirely manual at first. If you can find someone with a problem that needs solving and you can solve it manually, go ahead and do that for as long as you can, and then gradually automate the bottlenecks. It would be a little frightening to be solving users' problems in a way that wasn't yet automatic, but less frightening than the far more common case of having something automatic that doesn't yet solve anyone's problems.
27. I should mention one sort of initial tactic that usually doesn't work: the Big Launch. I occasionally meet founders who seem to believe startups are projectiles rather than powered aircraft, and that they'll make it big if and only if they're launched with sufficient initial velocity. They want to launch simultaneously in 8 different publications, with embargoes. And on a tuesday, of course, since they read somewhere that's the optimum day to launch something.
28. How many of their launches do you remember? All you need from a launch is some initial core of users. How well you're doing a few months later will depend more on how happy you made those users than how many there were of them.
29. But even if what you're building really is great, getting users will always be a gradual process—partly because great things are usually also novel, but mainly because users have other things to think about.
30. It's not enough just to do something extraordinary initially. You have to make an extraordinary effort initially. Any strategy that omits the effort—whether it's expecting a big launch to get you users, or a big partner—is ipso facto suspect.
31. The need to do something unscalably laborious to get started is so nearly universal that it might be a good idea to stop thinking of startup ideas as scalars. Instead we should try thinking of them as pairs of what you're going to build, plus the unscalable thing(s) you're going to do initially to get the company going.
32. But in most cases the second component will be what it usually is—recruit users manually and give them an overwhelmingly good experience—and the main benefit of treating startups as vectors will be to remind founders they need to work hard in two dimensions.
33. In the best case, both components of the vector contribute to your company's DNA: the unscalable things you have to do to get started are not merely a necessary evil, but change the company permanently for the better. If you have to be aggressive about user acquisition when you're small, you'll probably still be aggressive when you're big. If you have to manufacture your own hardware, or use your software on users's behalf, you'll learn things you couldn't have learned otherwise. And most importantly, if you have to work hard to delight users when you only have a handful of them, you'll keep doing it when you have a lot.
Why Engineers aren't good founders?
1. One is that a lot of of startup founders are trained as engineers, and customer service is not part of the training of engineers.
2. Another reason founders don't focus enough on individual customers is that they worry it won't scale.
3. Partly because you can usually find ways to make anything scale more than you would have predicted, and partly because delighting customers will by then have permeated your culture.
4. Tim Cook doesn't send you a hand-written note after you buy a laptop. He can't. But you can. That's one advantage of being small: you can provide a level of service no big company can.
5. Once you realize that existing conventions are not the upper bound on user experience, it's interesting in a very pleasant way to think about how far you could go to delight your users.
6. What founders have a hard time grasping (and Steve himself might have had a hard time grasping) is what insanely great morphs into as you roll the time slider back to the first couple months of a startup's life.
7. But you can and should give users an insanely great experience with an early, incomplete, buggy product, if you make up the difference with attentiveness.
8. The feedback you get from engaging directly with your earliest users will be the best you ever get.
9. When you're so big you have to resort to focus groups, you'll wish you could go over to your users' homes and offices and watch them use your stuff like you did when there were only a handful of them.
References:
http://paulgraham.com/ds.html
Wednesday, October 29, 2014
How to introduce yourself as Entrepreneur
Knowledge Sharing:
1. Today's economic environment has turned job fairs, trade shows, networking events and even sidewalk sales into buyers' markets where only those with quick, compelling pitches survive.
2. Zentainment isn't trying to be all things to all people
3. As an entrepreneur, you need to become the brand.
4.
Tips:
1. Become an expert on something that relates to your business
2. Establish a website or blog under your full name.
3. Learn how to be a good source.
4. You should be connecting with other entrepreneurs in your industry using social networks, such as Sprouter.com, and commenting on their blogs. Networking is one of the best ways to become known in your industry. By forming relationships with people in your audience you can grow your business and your brand long-term.
5. These days, branding your company isn't enough. The world wants to hear what you have to say, If you aren't building your own brand, your company will suffer. If you want your company to succeed, become an expert in your field, claim a website under your own domain name, connect with the media, and build relationships with your audience.
The four rules of networking that you should keep in mind are mutualism, giving, targeting and reconnecting.
1. Today's economic environment has turned job fairs, trade shows, networking events and even sidewalk sales into buyers' markets where only those with quick, compelling pitches survive.
2. Zentainment isn't trying to be all things to all people
3. As an entrepreneur, you need to become the brand.
4.
Tips:
1. Become an expert on something that relates to your business
2. Establish a website or blog under your full name.
3. Learn how to be a good source.
4. You should be connecting with other entrepreneurs in your industry using social networks, such as Sprouter.com, and commenting on their blogs. Networking is one of the best ways to become known in your industry. By forming relationships with people in your audience you can grow your business and your brand long-term.
5. These days, branding your company isn't enough. The world wants to hear what you have to say, If you aren't building your own brand, your company will suffer. If you want your company to succeed, become an expert in your field, claim a website under your own domain name, connect with the media, and build relationships with your audience.
The four rules of networking that you should keep in mind are mutualism, giving, targeting and reconnecting.
- Mutualism: You have to create win-win relationships in business, making sure that you don't benefit more than the other party.
- Giving: Help someone out, before asking for anything in return. This makes people want to support you.
- Targeting: You want to be very specific with the types of people you network with, in order to save time and to attract the right people to your brand.
- Reconnecting: Never lose touch, that way networking contacts remember you when new opportunities surface
- Describe yourself in five words or less. Use a distinctive title or phrase that makes people think, "This sounds interesting" or "This is what I'm looking for." Consider the difference between "I'm a copywriter" and "I turn browsers into buyers." Or, in Newman's case, between "social media entrepreneur" and "actrepreneur."
- Explain what you do in one sentence. After introducing yourself, introduce your offerings. "Our name combines the words Zen and entertainment, which stakes out our media space," Newman says. "We're a media company that focuses on socially conscious content. That definition tells what Zentainment is and rules out what it isn't." Work on a similarly specific description for your business.
- Define your target audience. "Our market is comprised of 30- to 49-year-olds who care about socially conscious living," Newman says. "By defining our market in that way, people immediately know whether our business is for them." In other words, Zentainment isn't trying to be all things to all people. It's focused on a specific target audience, which is a key to success in today's crowded business environment.
- Communicate your vision. "We're committed to growing brands that encourage you to dream big and live a sustainable life, whether they're our own brands or ones for which we consult and serve as producers," Newman says. "Our vision is clear enough to keep us focused and broad enough to make us adaptive to the opportunities of a changing market and media world." It's also compelling enough to attract a growing contingent of Zentainment consumers and business clients. What does your business stand for? What attracts your customers and their loyalty? Your answers can serve as a magnet for growth.
- Practice, practice, practice. Create a script that conveys who you are, what you offer, your market, and the distinctive benefits you provide. Edit until you can introduce yourself and your business in less than a minute, which is how long most prospects will give you to win their interest.
- Shrink your introduction even further so you can tell your story in 20 words or less. That's how much space you have in most marketing materials and online presentations, whether on your own site, on social media sites, or on sites that link to your home page. If you're thinking, "Twenty words? You've got to be kidding," scroll back to the start of this column. That's exactly what Brad Newman used to get my interest.
References:
http://www.entrepreneur.com/article/204566
Tuesday, October 28, 2014
How to pick cofounder
Overall Guidance:
1. The best place to find cofounder is to attend social events where other potential cofounders will meet with each other.
2.
Knowledge Sharing:
1. Picking a co-founder is your most important decision. It’s more important than your product, market, and investors.
2. Two is the right number — avoid the three-body problem.
3.
Criteria:
References:
http://venturehacks.com/articles/pick-cofounder
1. The best place to find cofounder is to attend social events where other potential cofounders will meet with each other.
2.
Knowledge Sharing:
1. Picking a co-founder is your most important decision. It’s more important than your product, market, and investors.
2. Two is the right number — avoid the three-body problem.
3.
Criteria:
- The power of two
- Someone you have history with
- One builds, one sells
- Aligned motives required
- Criteria: Intelligence, energy, and integrity
- Don’t settle
- Pick “nice” guys
- What you don’t know
References:
http://venturehacks.com/articles/pick-cofounder
Monday, October 27, 2014
How to do startup
Claim: These are the key references about How to do startup. For the original reference, please look at the end of the page.
2. The way a startup makes money is to offer people better technology than they have now. But what people have now is often so bad that it doesn't take brilliance to do better.
3. I can think of several heuristics for generating ideas for startups, but most reduce to this: look at something people are trying to do, and figure out how to do it in a way that doesn't suck.
4. What matters is not ideas, but the people who have them. Good people can fix bad ideas, but good ideas can't save bad people.
5. It means someone who takes their work a little too seriously; someone who does what they do so well that they pass right through professional and cross over into obsessive.
6. What it means specifically depends on the job: a salesperson who just won't take no for an answer; a hacker who will stay up till 4:00 AM rather than go to bed leaving code with a bug in it; a PR person who will cold-call New York Times reporters on their cell phones; a graphic designer who feels physical pain when something is two millimeters out of place.
7. For programmers we had three additional tests. Was the person genuinely smart? If so, could they actually get things done? And finally, since a few good hackers have unbearable personalities, could we stand to have them around? That last test filters out surprisingly few people. We could bear any amount of nerdiness if someone was truly smart. What we couldn't stand were people with a lot of attitude. But most of those weren't truly smart, so our third test was largely a restatement of the first.
8. Like most startups, ours began with a group of friends, and it was through personal contacts that we got most of the people we hired. This is a crucial difference between startups and big companies. Being friends with someone for even a couple days will tell you more than companies could ever learn in interviews.
9. What you should do in college is work on your own projects. Hackers should do this even if they don't plan to start startups, because it's the only real way to learn how to program.
10. I wouldn't aim too directly at either target. Don't force things; just work on stuff you like with people you like.
11. Ideally you want between two and four founders. It would be hard to start with just one. One person would find the moral weight of starting a company hard to bear.
12. Partly because you don't need a lot of people at first, but mainly because the more founders you have, the worse disagreements you'll have.
14. In a technology startup, which most startups are, the founders should include technical people. During the Internet Bubble there were a number of startups founded by business people who then went looking for hackers to create their product for them. This doesn't work well. Business people are bad at deciding what to do with technology, because they don't know what the options are, or which kinds of problems are hard and which are easy. And when business people try to hire hackers, they can't tell which ones are good. Even other hackers have a hard time doing that. For business people it's roulette.
15. Do the founders of a startup have to include business people? That depends. And what I discovered was that business was no great mystery. It's not something like physics or medicine that requires extensive study. You just try to get people to pay you for stuff.
16. The rulers of the technology business tend to come from technology, not business. So if you want to invest two years in something that will help you succeed in business, the evidence suggests you'd do better to learn how to hack than get an MBA.
17. If you can't understand users, however, you should either learn how or find a co-founder who can. That is the single most important issue for technology startups, and the rock that sinks more of them than anything else.
18. The only way to make something customers want is to get a prototype in front of them and refine it based on their reactions.
19. The other approach is what I call the "Hail Mary" strategy. You make elaborate plans for a product, hire a team of engineers to develop it (people who do this tend to use the term "engineer" for hackers), and then find after a year that you've spent two million dollars to develop something no one wants. This was not uncommon during the Bubble, especially in companies run by business types, who thought of software development as something terrifying that therefore had to be carefully planned.
20. n a startup, your initial plans are almost certain to be wrong in some way, and your first priority should be to figure out where. The only way to do that is to try implementing them.
21. The goal is to learn to be a hacker, instead of MBA.
22. A 10% improvement in ease of use doesn't just increase your sales 10%. It's more likely to double your sales.
23. How do you figure out what customers want? Watch them. One of the best places to do this was at trade shows. Trade shows didn't pay as a way of getting new customers, but they were worth it as market research. We didn't just give canned presentations at trade shows. We used to show people how to build real, working stores. Which meant we got to watch as they used our software, and talk to them about what they needed.
24. No matter what kind of startup you start, it will probably be a stretch for you, the founders, to understand what users want. The only kind of software you can build without studying users is the sort for which you are the typical user. But this is just the kind that tends to be open source: operating systems, programming languages, editors, and so on. So if you're developing technology for money, you're probably not going to be developing it for people like you. Indeed, you can use this as a way to generate ideas for startups: what do people who are not like you want from technology?
25. The best odds are in niche markets. Since startups make money by offering people something better than they had before, the best opportunities are where things suck most.
26. If you want ideas for startups, one of the most valuable things you could do is find a middle-sized non-technology company and spend a couple weeks just watching what they do with computers. Most good hackers have no more idea of the horrors perpetrated in these places than rich Americans do of what goes on in Brazilian slums.
27. So if you want to win through better technology, aim at smaller customers.
28. In technology, the low end always eats the high end. It's easier to make an inexpensive product more powerful than to make a powerful product cheaper. So the products that start as cheap, simple options tend to gradually grow more powerful till, like water rising in a room, they squash the "high-end" products against the ceiling.
29. If you build the simple, inexpensive option, you'll not only find it easier to sell at first, but you'll also be in the best position to conquer the rest of the market.
30. It's very dangerous to let anyone fly under you. If you have the cheapest, easiest product, you'll own the low end. And if you don't, you're in the crosshairs of whoever does.
31. To be self-funding, you have to start as a consulting company, and it's hard to switch from that to a product company.
32. Financially, a startup is like a pass/fail course. The way to get rich from a startup is to maximize the company's chances of succeeding, not to maximize the amount of stock you retain. So if you can trade stock for something that improves your odds, it's probably a smart move.
33. The first thing you'll need is a few tens of thousands of dollars to pay your expenses while you develop a prototype.
34. We started Viaweb with $10,000 of seed money from our friend Julian. But he gave us a lot more than money. He's a former CEO and also a corporate lawyer, so he gave us a lot of valuable advice about business, and also did all the legal work of getting us set up as a company. Plus he introduced us to one of the two angel investors who supplied our next round of funding.
35. Our angels asked for one, and looking back, I'm amazed how much worry it caused me. "Business plan" has that word "business" in it, so I figured it had to be something I'd have to read a book about business plans to write. Well, it doesn't. At this stage, all most investors expect is a brief description of what you plan to do and how you're going to make money from it, and the resumes of the founders. If you just sit down and write out what you've been saying to one another, that should be fine. It shouldn't take more than a couple hours, and you'll probably find that writing it all down gives you more ideas about what to do.
36. There is more to setting up a company than incorporating it, of course: insurance, business license, unemployment compensation, various things with the IRS. I'm not even sure what the list is, because we, ah, skipped all that. When we got real funding near the end of 1996, we hired a great CFO, who fixed everything retroactively. It turns out that no one comes and arrests you if you don't do everything you're supposed to when starting a company. And a good thing too, or a lot of startups would never get started
37. It can be dangerous to delay turning yourself into a company, because one or more of the founders might decide to split off and start another company doing the same thing. This does happen. So when you set up the company, as well as as apportioning the stock, you should get all the founders to sign something agreeing that everyone's ideas belong to this company, and that this company is going to be everyone's only job.
38. As we were in the middle of getting bought, we discovered that one of our people had, early on, been bound by an agreement that said all his ideas belonged to the giant company that was paying for him to go to grad school. In theory, that could have meant someone else owned big chunks of our software. So the acquisition came to a screeching halt while we tried to sort this out. The problem was, since we'd been about to be acquired, we'd allowed ourselves to run low on cash. Now we needed to raise more to keep going. But it's hard to raise money with an IP cloud over your head, because investors can't judge how serious it is.
39. The founders thereupon proposed to walk away from the company, after giving the investors a brief tutorial on how to administer the servers themselves. And while this was happening, the acquirers used the delay as an excuse to welch on the deal.
40. Don't do what we did. Before you consummate a startup, ask everyone about their previous IP history.
41. Once you've got a company set up, it may seem presumptuous to go knocking on the doors of rich people and asking them to invest tens of thousands of dollars in something that is really just a bunch of guys with some ideas. But when you look at it from the rich people's point of view, the picture is more encouraging. Most rich people are looking for good investments. If you really think you have a chance of succeeding, you're doing them a favor by letting them invest. Mixed with any annoyance they might feel about being approached will be the thought: are these guys the next Google?
42. Usually angels are financially equivalent to founders. They get the same kind of stock and get diluted the same amount in future rounds.
43. How do you decide what the value of the company should be? There is no rational way. At this stage the company is just a bet. I didn't realize that when we were raising money. Julian thought we ought to value the company at several million dollars. I thought it was preposterous to claim that a couple thousand lines of code, which was all we had at the time, were worth several million dollars. Eventually we settled on one millon, because Julian said no one would invest in a company with a valuation any lower.
44. What I didn't grasp at the time was that the valuation wasn't just the value of the code we'd written so far. It was also the value of our ideas, which turned out to be right, and of all the future work we'd do, which turned out to be a lot.
45. The next round of funding is the one in which you might deal with actual venture capital firms. But don't wait till you've burned through your last round of funding to start approaching them. VCs are slow to make up their minds. They can take months. You don't want to be running out of money while you're trying to negotiate with them.
46. Getting money from an actual VC firm is a bigger deal than getting money from angels. The amounts of money involved are larger, millions usually. So the deals take longer, dilute you more, and impose more onerous conditions.
47. So I think people who are mature and experienced, with a business background, may be overrated. We used to call these guys "newscasters," because they had neat hair and spoke in deep, confident voices, and generally didn't know much more than they read on the teleprompter.
48. That would have led to disaster, because our software was so complex. We were a company whose whole m.o. was to win through better technology. The strategic decisions were mostly decisions about technology, and we didn't need any help with those.
49. You have more leverage negotiating with VCs than you realize. The reason is other VCs. I know a number of VCs now, and when you talk to them you realize that it's a seller's market. Even now there is too much money chasing too few good deals.
50. Basically, a VC is a source of money. I'd be inclined to go with whoever offered the most money the soonest with the least strings attached.
51. After all, as most VCs say, they're more interested in the people than the ideas. The main reason they want to talk about your idea is to judge you, not the idea. So as long as you seem like you know what you're doing, you can probably keep a few things back from them.
52. Talk to as many VCs as you can, even if you don't want their money, because a) they may be on the board of someone who will buy you, and b) if you seem impressive, they'll be discouraged from investing in your competitors. The most efficient way to reach VCs, especially if you only want them to know about you and don't want their money, is at the conferences that are occasionally organized for startups to present to them.
53. The competitors Google buried would have done better to spend those millions improving their software. Future startups should learn from that mistake. Unless you're in a market where products are as undifferentiated as cigarettes or vodka or laundry detergent, spending a lot on brand advertising is a sign of breakage.
54. My message to potential customers was: you'd be stupid not to sell online, and if you sell online you'd be stupid to use anyone else's software. Both statements were true, but that's not the way to convince people.
55. Doing startup is like several "stupid people" try to change the world. ;)
56. There is nothing more valuable, in the early stages of a startup, than smart users. If you listen to them, they'll tell you exactly how to make a winning product. And not only will they give you this advice for free, they'll pay you.
57. Once you get big (in users or employees) it gets hard to change your product. That year was effectively a laboratory for improving our software.
58. And since all the hackers had spent many hours talking to users, we understood online commerce way better than anyone else.
59. I know because I once tried to convince the powers that be that we had to make search better, and I got in reply what was then the party line about it: that Yahoo was no longer a mere "search engine." Search was now only a small percentage of our page views, less than one month's growth, and now that we were established as a "media company," or "portal," or whatever we were, search could safely be allowed to wither and drop off, like an umbilical cord.
60. Google understands a few other things most Web companies still don't. The most important is that you should put users before advertisers, even though the advertisers are paying and users aren't. One of my favorite bumper stickers reads "if the people lead, the leaders will follow." Paraphrased for the Web, this becomes "get all the users, and the advertisers will follow."
61. More generally, design your product to please users first, and then think about how to make money from it. If you don't put users first, you leave a gap for competitors who do.
62. To make something users love, you have to understand them. And the bigger you are, the harder that is. So I say "get big slow." The slower you burn through your funding, the more time you have to learn.
63. When you get a couple million dollars from a VC firm, you tend to feel rich. It's important to realize you're not. A rich company is one with large revenues. This money isn't revenue. It's money investors have given you in the hope you'll be able to generate revenues. So despite those millions in the bank, you're still poor.
64. For most startups the model should be grad student, not law firm. Aim for cool and cheap, not expensive and impressive.
65. We felt like our role was to be impudent underdogs instead of corporate stuffed shirts, and that is exactly the spirit you want.
66. Ever notice how much easier it is to hack at home than at work? So why not make work more like home?
67. When you're looking for space for a startup, don't feel that it has to look professional. Professional means doing good work, not elevators and glass walls. I'd advise most startups to avoid corporate space at first and just rent an apartment. You want to live at the office in a startup, so why not have a place designed to be lived in as your office?
68. Those hours after the phone stops ringing are by far the best for getting work done. Great things happen when a group of employees go out to dinner together, talk over ideas, and then come back to their offices to implement them.
69. So you want to be in a place where there are a lot of restaurants around, not some dreary office park that's a wasteland after 6:00 PM. Once a company shifts over into the model where everyone drives home to the suburbs for dinner, however late, you've lost something extraordinarily valuable. God help you if you actually start in that mode.
70. If I were going to start a startup today, there are only three places I'd consider doing it: on the Red Line near Central, Harvard, or Davis Squares (Kendall is too sterile); in Palo Alto on University or California Aves; and in Berkeley immediately north or south of campus. These are the only places I know that have the right kind of vibe.
71. The most important way to not spend money is by not hiring people. I may be an extremist, but I think hiring people is the worst thing a company can do. To start with, people are a recurring expense, which is the worst kind. They also tend to cause you to grow out of your space, and perhaps even move to the sort of uncool office building that will make your software worse. But worst of all, they slow you down: instead of sticking your head in someone's office and checking out an idea with them, eight people have to have a meeting about it. So the fewer people you can hire, the better.
72. That's big company thinking. Don't hire people to fill the gaps in some a priori org chart. The only reason to hire someone is to do something you'd like to do but can't.
73. This is ridiculous, really. If two companies have the same revenues, it's the one with fewer employees that's more impressive. When people used to ask me how many people our startup had, and I answered "twenty," I could see them thinking that we didn't count for much. I used to want to add "but our main competitor, whose ass we regularly kick, has a hundred and forty, so can we have credit for the larger of the two numbers?"
74. As with office space, the number of your employees is a choice between seeming impressive, and being impressive.
75. And if the idea of starting a startup frightened me so much that I only did it out of necessity, there must be a lot of people who would be good at it but who are too intimidated to try.
76. So who should start a startup? Someone who is a good hacker, between about 23 and 38, and who wants to solve the money problem in one shot instead of getting paid gradually over a conventional working life.
77. What drives people to start startups is (or should be) looking at existing technology and thinking, don't these guys realize they should be doing x, y, and z? And that's also a sign that one is a good hacker.
78. In this case they were mostly negative lessons: don't have a lot of meetings; don't have chunks of code that multiple people own; don't have a sales guy running the company; don't make a high-end product; don't let your code get too big; don't leave finding bugs to QA people; don't go too long between releases; don't isolate developers from users; don't move from Cambridge to Route 128; and so on.
79. But negative lessons are just as valuable as positive ones. Perhaps even more valuable: it's hard to repeat a brilliant performance, but it's straightforward to avoid errors.
80. The other cutoff, 38, has a lot more play in it. One reason I put it there is that I don't think many people have the physical stamina much past that age. I used to work till 2:00 or 3:00 AM every night, seven days a week. I don't know if I could do that now.
81. During this time you'll do little but work, because when you're not working, your competitors will be. My only leisure activities were running, which I needed to do to keep working anyway, and about fifteen minutes of reading a night. I had a girlfriend for a total of two months during that three year period. Every couple weeks I would take a few hours off to visit a used bookshop or go to a friend's house for dinner. I went to visit my family twice. Otherwise I just worked.
82. So mainly what a startup buys you is time. That's the way to think about it if you're trying to decide whether to start one. If you're the sort of person who would like to solve the money problem once and for all instead of working for a salary for 40 years, then a startup makes sense.
83. Build something users love, and spend less than you make. How hard is that?
How to make Wealth
Claim: These are the key references about How to Make wealth. For the original reference, please look at the end of the page.
- If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. That's been a reliable way to get rich for hundreds of years.
- 由于草根阶层在创业知识、能力和资源上的不足，草根创业通常是非常困难的事情，会伴随着大量的新生意的失败。As 草根, we lack 创业知识, Money富二代 and Resources(官二代)
- Startups usually involve technology, so much so that the phrase "high-tech startup" is almost redundant. A startup is a small company that takes on a hard technical problem.
- Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast.
- If a fairly good hacker is worth $80,000 a year at a big company, then a smart hacker working very hard without any corporate bullshit to slow him down should be able to do work worth about $3 million a year.
- There is a conservation law at work here: if you want to make a million dollars, you have to endure a million dollars' worth of pain.
- It's not a good idea to use famous rich people as examples, because the press only write about the very richest, and these tend to be outliers. Bill Gates is a smart, determined, and hardworking man, but you need more than that to make as much money as he has. You also need to be very lucky.
- This essay is about how to make money by creating wealth and getting paid for it. There are plenty of other ways to get money, including chance, speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft, lobbying, counterfeiting, and prospecting. Most of the greatest fortunes have probably involved several of these.
- You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn't need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn't matter how much money you had.
- Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money?
- How do you get the person who grows the potatoes to give you some? By giving him something he wants in return. But you can't get very far by trading things directly with the people who need them. If you make violins, and none of the local farmers wants one, how will you eat?
- The solution societies find, as they get more specialized, is to make the trade into a two-step process. Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The intermediate stuff-- the medium of exchange-- can be anything that's rare and portable.
- The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means. People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want.
- If you plan to start a startup, then whether you realize it or not, you're planning to disprove the Pie Fallacy.
- But with the rise of industrialization there are fewer and fewer craftsmen. One of the biggest remaining groups is computer programmers.
- A programmer can sit down in front of a computer and create wealth. A good piece of software is, in itself, a valuable thing. There is no manufacturing to confuse the issue. Those characters you type are a complete, finished product. If someone sat down and wrote a web browser that didn't suck (a fine idea, by the way), the world would be that much richer
- A great programmer, on a roll, could create a million dollars worth of wealth in a couple weeks. A mediocre programmer over the same period will generate zero or even negative wealth (e.g. by introducing bugs).
- hear that the richest 5% of the people have half the total wealth, they tend to think injustice! An experienced programmer would be more likely to think is that all? The top 5% of programmers probably write 99% of the good software.
- If wealth means what people want, companies that move things also create wealth. Ditto for many other kinds of companies that don't make anything physical. Nearly all companies exist to do something people want.
- A more direct way to put it would be: you need to start doing something people want. You don't need to join a company to do that. All a company is is a group of people working together to do something people want. It's doing something people want that matters, not joining the group.
- You're expected not to be obviously incompetent or lazy, but you're not expected to devote your whole life to your work.
- Salesmen are an exception. It's easy to measure how much revenue they generate, and they're usually paid a percentage of it. If a salesman wants to work harder, he can just start doing it, and he will automatically get paid proportionally more.
- The CEO of a company that tanks cannot plead that he put in a solid effort. If the company does badly, he's done badly.
- In a large group, your performance is not separately measurable-- and the rest of the group slows you down.
- To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect.
- The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three.
- An example of a job with both measurement and leverage would be lead actor in a movie. Your performance can be measured in the gross of the movie. And you have leverage in the sense that your performance can make or break it.
- CEOs also have both measurement and leverage. They're measured, in that the performance of the company is their performance. And they have leverage in that their decisions set the whole company moving in one direction or another.
- I think everyone who gets rich by their own efforts will be found to be in a situation with measurement and leverage. Everyone I can think of does: CEOs, movie stars, hedge fund managers, professional athletes. A good hint to the presence of leverage is the possibility of failure. Upside must be balanced by downside, so if there is big potential for gain there must also be a terrifying possibility of loss. CEOs, stars, fund managers, and athletes all live with the sword hanging over their heads; the moment they start to suck, they're out. If you're in a job that feels safe, you are not going to get rich, because if there is no danger there is almost certainly no leverage.
- But you don't have to become a CEO or a movie star to be in a situation with measurement and leverage. All you need to do is be part of a small group working on a hard problem.
- Starting or joining a startup is thus as close as most people can get to saying to one's boss, I want to work ten times as hard, so please pay me ten times as much. There are two differences: you're not saying it to your boss, but directly to the customers (for whom your boss is only a proxy after all), and you're not doing it individually, but along with a small group of other ambitious people.
- It will, ordinarily, be a group. Except in a few unusual kinds of work, like acting or writing books, you can't be a company of one person. And the people you work with had better be good, because it's their work that yours is going to be averaged with.
- A startup is not merely ten people, but ten people like you.
- You don't want small in the sense of a village, but small in the sense of an all-star team.
- But a very able person who does care about money will ordinarily do better to go off and work with a small group of peers.
- Smallness = Measurement
- Technology = Leverage
- Startups offer anyone a way to be in a situation with measurement and leverage. They allow measurement because they're small, and they offer leverage because they make money by inventing new technology.
- What is technology? It's technique. It's the way we all do things. And when you discover a new way to do things, its value is multiplied by all the people who use it. It is the proverbial fishing rod, rather than the fish. That's the difference between a startup and a restaurant or a barber shop. You fry eggs or cut hair one customer at a time. Whereas if you solve a technical problem that a lot of people care about, you help everyone who uses your solution. That's leverage.
- If you look at history, it seems that most people who got rich by creating wealth did it by developing new technology.
- What made the Florentines rich in 1200 was the discovery of new techniques for making the high-tech product of the time, fine woven cloth. What made the Dutch rich in 1600 was the discovery of shipbuilding and navigation techniques that enabled them to dominate the seas of the Far East.
- Fortunately there is a natural fit between smallness and solving hard problems. The leading edge of technology moves fast. Technology that's valuable today could be worthless in a couple years. Small companies are more at home in this world, because they don't have layers of bureaucracy to slow them down. Also, technical advances tend to come from unorthodox approaches, and small companies are less constrained by convention.
- Big companies can develop technology. They just can't do it quickly. Their size makes them slow and prevents them from rewarding employees for the extraordinary effort required. So in practice big companies only get to develop technology in fields where large capital requirements prevent startups from competing with them, like microprocessors, power plants, or passenger aircraft. And even in those fields they depend heavily on startups for components and ideas.
- A McDonald's franchise is controlled by rules so precise that it is practically a piece of software. Write once, run everywhere. Ditto for Wal-Mart. Sam Walton got rich not by being a retailer, but by designing a new kind of store.
- Use difficulty as a guide not just in selecting the overall aim of your company, but also at decision points along the way.
- And I'd be delighted, because something that was hard for us would be impossible for our competitors.
- Venture capitalists know about this and have a phrase for it: barriers to entry.
- That is, how much difficult ground have you put between yourself and potential pursuers? [7] And you had better have a convincing explanation of why your technology would be hard to duplicate. Otherwise as soon as some big company becomes aware of it, they'll make their own, and with their brand name, capital, and distribution clout, they'll take away your market overnight. You'd be like guerillas caught in the open field by regular army forces.
- A big company is not afraid to be sued; it's an everyday thing for them. They'll make sure that suing them is expensive and takes a long time.
- the best defense is a good offense. If you can develop technology that's simply too hard for competitors to duplicate, you don't need to rely on other defenses. Start by picking a hard problem, and then at every decision point, take the harder choice.
- When you're running a startup, your competitors decide how hard you work. And they pretty much all make the same decision: as hard as you possibly can.
- A startup is like a mosquito.
- We would have much preferred a 100% chance of $1 million to a 20% chance of $10 million,
- The closest you can get is by selling your startup in the early stages, giving up upside (and risk) for a smaller but guaranteed payoff.
- So it is easier to sell an established startup, even at a large premium, than an early-stage one.
- t is just as well to let a big company take over once you reach cruising altitude. It's also financially wiser, because selling allows you to diversify.
- The hard part about getting bought is getting them to act. For most people, the most powerful motivator is not the hope of gain, but the fear of loss. For potential acquirers, the most powerful motivator is the prospect that one of their competitors will buy you. This, as we found, causes CEOs to take red-eyes. The second biggest is the worry that, if they don't buy you now, you'll continue to grow rapidly and will cost more to acquire later, or even become a competitor.
- What they go by is the number of users you have.
- Users are the only real proof that you've created wealth. Wealth is what people want, and if people aren't using your software, maybe it's not just because you're bad at marketing. Maybe it's because you haven't made what they want.
- In a startup, you're not just trying to solve problems. You're trying to solve problems that users care about.
- So I think you should make users the test, just as acquirers do. Treat a startup as an optimization problem in which performance is measured by number of users.
- Among other things, treating a startup as an optimization problem will help you avoid another pitfall that VCs worry about, and rightly-- taking a long time to develop a product
- Get a version 1.0 out there as soon as you can. Until you have some users to measure, you're optimizing based on guesses.
- The ball you need to keep your eye on here is the underlying principle that wealth is what people want. If you plan to get rich by creating wealth, you have to know what people want. So few businesses really pay attention to making customers happy.
- You please or annoy customers wholesale. The closer you can get to what they want, the more wealth you generate.
- Making wealth is not the only way to get rich. For most of human history it has not even been the most common. Until a few centuries ago, the main sources of wealth were mines, slaves and serfs, land, and cattle, and the only ways to acquire these rapidly were by inheritance, marriage, conquest, or confiscation. Naturally wealth had a bad reputation.
- Two things changed. The first was the rule of law.
- The answer (or at least the proximate cause) may be that the Europeans rode on the crest of a powerful new idea: allowing those who made a lot of money to keep it.
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