Claim: These are the key references about How to do startup. For the original reference, please look at the end of the page.
1. You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.
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?
