Tag Archives: quora.com

Pervasive Startup Myth: Don’t Work for Free

Startup myth: The one about founders having to work for free to impress angel investors. This supposedly shows passion. Don’t believe it. Investors want people committed to working their startups, and that usually takes getting them paid. I’ve been getting a lot of upvotes on my answer to this question in Quora:

How do entrepreneurs live without a salary to sustain their families and pay bills?

My Answer

That startup founders are supposed to work for free, and that investors want them to work for free, even as there is capital to work with. That’s just a myth. IMO.

As an entrepreneur, I built a business and supported my family at the same time by continuing to consult in the same field I was developing software for. That’s not unusual. I did not have the luxury of not making an income. When I started Palo Alto Software, we already had four kids and a mortgage. Not making money was not an option.

So that was a lot of work. It was hard. But it’s what really happens most of the time … entrepreneurs do a lot of work on the side, in between, to build their business without the luxury of working full time for free.

As an angel investor, I expect founders to work without formal compensation only during the very earliest phases, because they have to. I expect that to be temporary. And when I invest in them, I want there to be enough money to pay them. I don’t believe startup founders working for free is a sustainable idea as they grow a business. People have lives. They need money.

I don’t like it when founders promise to work for free over any extended period. It doesn’t work. They burn out. They need jobs and income so they quit.

(Click here for the original on Quora.com)

7 Things Wanna-be Entrepreneurs Need to Know

What do entrepreneurs need to know as they get started? Of course there’s need to know, absolutely; and there’s ought to know.  I was asked to come up with a list, and here is my best guess.

  1. Know the difference between cash and profits. You Think in Profits, but You Live on Cash. Things like sales on credit, inventory, and waiting to get paid can make a huge difference. Profits are accounting. It takes cash to pay bills.
  2. Know that business owners have legal constraints related to dealing with employees, employees vs. contractors, copyright and intellectual property, and dealing with tax authorities and investors. You can’t just say “I don’t know” later on. You are supposed to know.
  3. Know that getting outside investment is the exception, not the rule. Be familiar with the pros and cons of bootstrapping. Read this: 10 Good Reasons Not to Seek Startup Investors.
  4. Know that bad behavior and selfishness, which seems to correlate with other people’s success sometimes, doesn’t often work out on the long term. Things like integrity and fairness matter.
  5. Know that good decisions sometimes have bad outcomes. Not every bad thing that happens is your fault. Bad things will happen. And you have to live with that.
  6. Know that you will make mistakes. We all make mistakes. You have to live with them. If you can’t deal with mistakes, don’t start a business. You Will Make Mistakes. Deal With ItMistakes About Mistakes.
  7. Know how to live with uncertainty. Understanding Uncertainty is Vital to an Entrepreneur.

Note: This post is based on my answer to What should first-time entrepreneurs know that can help them on the road to success, a question posted on Quora.

Finding Dumb Investors is a Dumb Idea

Are you looking for dumb investors?

investor money
investor money

“How can I find investors who don’t take much equity?”

“How can I find investors who don’t interfere with my running the business?

I first posted my objections to this kind of thinking nine years ago in Dumb Investors Dumb Idea, one of the earliest posts on this blog. That was before I joined an angel investment group and became one of those investors. My objections then are a lot stronger now. And I still see a stream of this kind of thinking in blogs and at my favorite question and answer site, Quora.com.

Valuation determines equity

The equity share from investment is simple math. If your investors put in $100,000, that’s 10% of a startup valued at $1 million, and 50% of a startup valued at $200,000. So what’s the underlying valuation? Read up on that with 5 things entrepreneurs need to know about valuation and understand startup valuation. So with normal angel investment, the startup founders want a higher valuation and the angel investors want lower. It’s a lot like negotiating to buy a house or a used car. Ultimately, both sides have to agree, or there is no deal.

Angel investors normally care and add value

Angel investors are overwhelmingly amateur investors, investing their own money, investing in industries they know or local startups. They are successful entrepreneurs giving back. They believe in their ability to select startups well, study them well (it’s called due diligence) before deciding on a deal, and to offer valuable advice and experience. I’ve seen dozens of pitches that ended with investors not interested in startups whose founders knew everything and wanted no advice. People who don’t want interference with their business are not going to do well with angel investors.

Normal angels choose angel investment instead of leaving their money with an investment advisor, bank, or some other institution. They know that investing in startups is risky, but they trust themselves and expect to be able to help.

 

 

 

I Want to be An Entrepreneur. What Steps do I Take?

What Steps to be a Tech Entrepreneur?

I’m 18 years old and want to be a successful tech entrepreneur. What steps should I take?

That one, specifically, popped up in my email today from Quora, the excellent questions-and-answers site that I frequent often. But that’s just today. I saw a very similar question from a different person yesterday, and another on Monday. So that question, in various versions, has become one of those questions that pop up everywhere.

Here is My Answer:

Get Your Degree

Steps to EntrepreneurshipThere is only one obvious answer that will be generally true for anybody your age that asks this question: focus on completing your education. Get yourself a college or university degree, the classic BA or BS.

Choose your course of study as if you knew you were going to die when you graduate. Whether it’s computer science, engineering, math, pure science, liberal arts, fine arts, or business, if it is what interests you and what you want to study, then that’s the right step to take. You’re young and the world is full of options. If you study what you want, you discover who you are. You are quite likely to change your mind once or twice after you start – most students do – but that’s also fine, it’s part of the normal course of education, you’re in a discovery phase.

Education is About Clear Thinking and Communication, Not Specific Knowledge

Your education isn’t about specific business knowledge. It’s about clear thinking and communication. It’s about skills and understanding that apply to whatever else you do for the rest of your life. It is not easily measured by direct correlations to what entrepreneurs need to know or do. Yes, it is true that there are many parts of entrepreneurship that can’t be taught in a classroom. And it’s true that you can pick those up elsewhere. But it is also true that what you do learn as you get that degree is extremely important for your long-term career, and happiness; and will be directly applicable to what you have to do to be successful as an entrepreneur.

Entrepreneurship, business, and tech startups require a lot of common sense, a lot of clear thinking, a lot of hard work, and usually a significant dose of experience too. Studying some business topics can accelerate learning. Cash flow, for example, is a body of knowledge worth learning in a classroom. But all of these can be learned outside of the classroom too.

If you like data to go along with this, check out the Kauffmann Index of Entrepreneurial Activity. What you’ll find is that success seems to correlate mostly with having education and experience both. Successful entrepreneurs tend, on average, to be in their 40s and holders of one and often more than one advanced degrees. But dig deeper into degrees and you’ll find very little correlation between what they actually studied and their success. Look around you and you’ll find that the liberal arts people are as likely to be successful as the tech and science people. What matters most is the ability to bear down and do the work, and clear thinking, and sticking to goals.

Don’t Measure Education in Earnings

Don’t get distracted by those studies that relate degrees or areas of study to future earning power.  There’s no direct connection between what you study and what you earn for your lifetime. What happens in real life is that getting a higher education degree only happens for people who can stick to a goal for several years, get work done when they have to, follow through on assignments in time and as needed, and accomplish something. Of course what happens is that people who can do that end up being more successful because of what they learned how to do and the simple fact that they stuck to it long enough to finish with a degree; but it isn’t they they know something special that made them worth more money. It is that they worked more, smarter, and better.

You Aren’t Jobs, Gates, or Zuckerberg

Those amazing billionaires who dropped out of Harvard and Reed College, Bill Gates, Mark Zuckerberg, and Steve Jobs, are about one in ten million. You aren’t them. In each case they were seriously engaged in getting an education when the big idea changed their lives, made them obsessive, and became the business history we now all know. Two facts are very important: 1.) there are ten million or so of the rest of us for every one of them; and 2.) they weren’t skipping steps or avoiding anything, they dove towards something. First they fell in love with the idea and the possibility of a specific business, then they dropped out. (Steve Jobs doesn’t quite fit that description, but then he didn’t quite drop out either; he hung around Reed College, auditing courses, and got his education before he started Apple. He just didn’t pay tuition so he didn’t get the formal certification of his education.)

Give the Big Idea a Chance to Reach You

I think there’s an interesting similarity between successful entrepreneurship and successful marriages. The people I know who end up as successful couples, married for decades, generally fell in love with each other first, then got married, and then continued learning and evolving over decades as they grew together and changed together. Similarly, with the great tech startup successes that I’m aware of, there was a spark as the key people fell in love with the idea, the mission, the way they were going to change the world. They had that burst of passion first, and then followed it for years with learning, evolution, and course corrections.

If your question were about how to develop and pursue this amazing thing you want to do that is going to change the world, I might give you a different answer. But face it, you’re like me, like most of us, you’re trying to figure out not how to get to some specific destination, but rather what direction to travel in, generally. You aren’t blessed with the actual spark of the entrepreneurial idea. Don’t worry, though, very few of us are.

So you get your education now because that gives you future options, skills, and experience sticking to something. You advance your possibilities and give your career a chance to develop.

For the record, my own career shows that I practiced exactly what I’m suggesting here. My advice is based on what I’ve seen work, in the real world, and is what I did myself.

Required Reading on Business Owners Making Critical Mistakes

For a good time take a look at the answers to this question on Quora: What are some classic examples of a founder letting his or her ego get in the way of making the right decision for a company? 

owner mistakes business mistakes

Now yes, that’s one stellar example of a loaded question. But — loaded or not — it’s attracted some very interesting answers. It makes for good business reading, for sure.  

One particularly-well-written answer (this one) narrates a painful story of a successful pivot turned to failure by a stubborn founder insisting on doing things the old way 

We tried this before … We failed. Miserably. … our sales staff, followed by myself, along with the other partner all advised against the move … Then, all of the sudden, two months later, he made some executive vote to change everything overnight.  … Our revenue streams dropped immediately. 
I stressed for months on end, … but he didn’t listen. 
He just made the move, and everyone eventually lost their jobs. 

That’s a small piece of a long answer, and I’ve clipped it significantly. It makes a good story and good reading. That answer goes on with some other examples too, which makes me wonder. Maybe its biased and just sour grapes. 

Another interesting quote from another answer:

The thing with egos is they cause a distortion of reality which means they’re either too fragile to accept the truth (self-esteem) or they’re so starved for attention that their bullying gets in the way of real progress (narcissism). … Jobs was so broken inside and so desperate for recognition that he worked his staff mercilessly hard and caused rifts between the Macintosh and Apple II (I think) teams. His narcissism caused him to bully and press on others. He damaged morale in the company and hurt sales.  

Maybe these are twisted answers from people bitter about things having gone wrong. Maybe they are exaggerated. But regardless of historical accuracy, every business owner should read through these. And I write that as a business owner.  

The Best-Kept Secrets of Startups

I’m amazed at the quality of questions and answers on Quora. Do you know Quora? If not, you’re missing a really intriguing resource. 

Best kept secrets of startups quora.com

Recently I found this question on Quora: 

What are the best-kept secrets about startups? What are some things that people could benefit from knowing that is largely secret – in the sense that very few people know about it?

There are some great answers there. Furthermore, the voting on answers puts them in exactly the same order I’d put them. The most popular answer has more than 800 votes:

The startup CEOs who get asked to tell their stories have survivorship bias. They get to tell their stories looking backwards and fit a narrative that makes it all make sense and where every move was part of a master plan. I think a much more realistic but less flattering version that most could tell: Our hair was on fire the whole time. We thought we were going out of business until the day we sold. There’s a lot of luck involved. Told anonymously because if you ask me publicly, I’ll tell you the exact opposite of this story.

That’s the best possible answer. And please note the last sentence, which doubles its value. 

And the next highest answers, in order:  

  1. You don’t have to re-invent the wheel to be successful.
  2.  It’s often about choosing a hard enough problem — though not too hard a problem! — and being the “last one standing” when opportunity comes a-knocking.
  3. You don’t have to move to the Bay Area to be successful.

And it goes on from there, with answers very much worth reading.