Neha Palacherla | November 20th, 2013
This FounderTalk guest post is written by Scott Kleper, founder of Context Optional, which is now part of Adobe. He has started two companies, and has advised and invested in several more.
“You are making a major mistake,” said the prominent startup exec who was trying to convince us to give up on Context Optional and be “acqui-hired” by his well funded and highly praised startup. To be fair, it was something that we approached them with, when we were basically out of money and looking for a mercy killing. However, as our talks continued, our business started taking off. We had become experts in the then-burgeoning field of Social Marketing, and our services were highly sought after. Looking at our new revenue stream compared to their offer, we turned them down.
Prominent Startup Guy then proceeded to trash our business for its initial focus on revenue instead of building a product. The ultimate insult was thrown down. We had a nice “lifestyle business” but it would never be interesting to VCs. He told me that if I didn’t join a well-known startup by the time I was 30, I would never be successful. I was 31 at the time. Ouch.
A few days later, I had coffee with a friend – at the time, an up-and-coming VC. “That guy’s a jerk.” he said, “So what if you have a lifestyle business? That’s not a bad thing.” Now even my friends were trashing my business!
The Worst Possible Insult
As I drove home, I thought about why this label bothered me so much. At its surface, “lifestyle” makes it sound like you’ve got things pretty well figured out. But clearly, Prominent Startup Guy didn’t mean it as a compliment.
And why were we being labeled this way anyway? Was it because we weren’t taking a big enough risk? Because we weren’t following the Valley model of raising a bunch of money and getting huge before making money? Because we did work-for-hire? Was it simply because we had revenue?
None of those things have anything to do with a lifestyle, though. Those are characteristics of a consulting business. Though I denied it at the time (“We’re just doing consulting to figure out market needs before we build a product!”), we were a consulting business.
I didn’t feel like I had a particularly attractive lifestyle. At the time, I was spending all day answering emails, meeting with customers, and establishing our relationship with Facebook. I was spending all night coding, and occasionally taking a break to try to get my newborn son back to sleep. We oscillated between being flush with cash, and nearly out of business.
When people say “lifestyle business,” they have a certain picture in their mind. They probably picture you in a small back office tallying up sales and expenses by hand in a ledger. You pay yourself a modest salary and have modest children playing with modest toys in a modest house. You’re modestly happy, because you don’t have a boss but you still have enough money to get by. You’ll never be rich because nobody could sell such a business, but you’ll be content. And for a modest guy like you, that’s enough.
And that’s why it’s insulting. The implications of telling someone they run a lifestyle business are:
1) You won’t have a big win, and that’s okay, because you’re not the type of person who needs that sort of thing.
2) You won’t be working hard, and that’s okay, because you’re sustaining a life that works for you.
3) You’ll be happy all the time and spend quality time with your children, and that’s great because family is important.
“Lifestyle Businesses” Threaten the Silicon Valley Model
Entrepreneurship is about risk, and the perception is that if you’re building a business based on revenue, you aren’t taking a big enough risk. Startups are hit-driven. The notion of a small team building something new and crazy, making it huge, and changing the world is the norm. If there’s no clear path for that to happen, people don’t know what to do with you.
For a place that exists to “disrupt” entire industries, Silicon Valley can be a tough place to be “different.”
As our business developed, we eventually made good on our promise to use consulting as a way to learn about our customers and develop a product. Our competitors also got to pretty much the same place, but through a different (more capital intensive) path. We sold Context Optional to Efficient Frontier in 2011, and EF was soon acquired by Adobe.
The stigma still stuck with us, though. Potential investors always wanted to “better understand” all this revenue we had. And even long after we had sold the business, friends would still ask “How’s that consulting lifestyle business going?” Sigh.
Neha Palacherla | November 14th, 2013
This FounderTalk guest post is written by Yee Lee, VP Engineering at TaskRabbit. He is a 3-time founder, angel investor in over 20 companies, and a limited partner in 500 Startups.
The tech press and entrepreneurship blogs project a heroic image of startup founders — driven visionaries, technical geniuses, and sublime designers all cranking away with maximal efficiency to ship the right products, extracting brilliant market learnings and customer insights along the way. If you’re smart enough to read the market, hard-working and scrappy enough to outpace the competition, and execute flawlessly, then you’ll disrupt industries and change the world! Fame and riches await!
The “epic hero” vs. “village idiot” are pretty commonly-held extreme views of startup founders. Just about any self-aware person who’s been through the experience of founding a venture backed tech company will attest to feeling much more like a chihuahua in a tumble dryer than a captain of industry. At the highest level of the startup game — when you’ve got a great founding team, backing from experienced and helpful investors, and are executing like all get out — even when you’re playing the game at that level, luck and it’s close cousin, timing become the overriding determinants of success.
Dirty Little Secret
Let’s define “luck” for startups as: any events or actions that occur outside of the company’s control that have materially beneficial or harmful effects on the company. With that definition in mind, even if you bring your A-game and masterfully execute on all the things under your control, all that earns you is a lottery ticket.
An example of just how fickle luck can be:
At Katango in 2011, we were definitely bringing our A-game. Our founding team had three CS PhDs on it, including a full-tenured Stanford professor who lead the Stanford AI Lab — all of whom were true experts in graph analysis, pattern recognition, data clustering, and machine learning. We were backed by Facebook and Kleiner Perkins’ new S-Fund. And we had built a new social app that our initial beta users loved. They described our app as: “It’s magic!” and “It feels like the computer really knows me!”
Our tests were going great and we were fleshing out the service in anticipation of public launch. All of a sudden, we caught wind of Google’s new social network, Google+. It had a feature called “Circles” which sounded pretty much exactly like what Katango offered. We feared that Google were going to apply their vast datastores and incredible algorithmic power to building the best Circles of friends for everyone. Crap. Our new startup was being relegated to “feature of a bigger platform” status before we even had a chance to launch!
Google announced Google+ to huge national fanfare and it turns out the “Circles” feature was resoundingly panned by journalists for the excessive amount of dragging-and-dropping it took to create a Circle. Some of those same journalists tried out Katango the week after Google+ launched and gave our app rave reviews — they loved how quickly and easily Katango made perfect sets of friends for them. “Katango is what Google+ Circles should have been” was a quote we heard more than a few times.
Google’s announcement had started out looking like a looming disaster for us, but their announcement wound up focusing a lot of attention on the problem that Katango was working on. And that generated a lot more traffic for Katango than we could have garnered on our own. Ultimately, the company was acquired by Google at the end of 2011. Since then, team members from Katango have contributed to a wide range of Google products, ranging from G+ Circles (naturally), to Search, Hangouts, and Android.
What’s luck got to do with it?
Katango benefited from unpredictable events in the market but luck isn’t always so friendly…
I co-founded TipMobile in 2007, just a couple quarters before the real estate bubble burst. We cranked away on user acquisition and engagement, and were able to build a userbase of over 3 million monthly active users for our social communication apps. In the immediate aftermath of the housing collapse in early 2008, turns out VCs weren’t interested in propping up free services with lots of users and high burn rates. The advice we got was: “No one knows how long it will take for financial markets to recover, so you should focus on becoming profitable. Investors are looking at their reserve funds right now and they’re triaging their portfolios. The only companies getting further investment are the ones operating in the black.” Yikes.
We fought to control burn and generate revenue, but ultimately decided to dissolve the company after the founding team worked for more than quarter without any salary at all. We just didn’t have the personal funds to continue operating our servers. It was sad to see all the customer support emails asking “Hey, what happened to your app?” in the weeks after we turned off our AWS account.
In hindsight, we can only shake our heads. If we had just gotten started 6 months earlier, we probably would have been able to raise a round of financing before the market catastrophe struck and would have been able to survive through 2008. And if we had gotten started 6 months later, we also probably would have been fine because our seed round would have enabled us to keep the servers up until VC investments started to flow again after the US government enacted the financial bailout plan in Oct 2008. We saw lots of examples of SMS-related companies that were founded before and after us who made it through 2008, but we were just “unlucky” enough to have run out of runway right during the lowest point of 2008.
Marc Andreessen, an investor in TipMobile, summed up our situation this way: “There’s very little difference between being early, late, or just plain wrong.” While that may sound harsh, I think there is some wisdom encoded into that view of the world. Markets can be fickle, after all, and so if a market shifts on you and leaves your current product out of fit, then it’s your responsibility as an entrepreneur to adapt to the new conditions and tailor your company to survive in whatever environment you find yourself in.
In this view of entrepreneurship, you’re forever behind the ball, always looking over your shoulder, continuously re-examining market assumptions that you thought you could take for granted. “Only the paranoid survive”, right? It’s a heck of a way to live!
Make your own luck
If we’re going to play a game of chance as entrepreneurs, then we owe it to ourselves to constantly up our level of play.
After the bad-luck experience with TipMobile, I spent a lot of time becoming a better coder by building projects with friends in Ruby-on-Rails and Python & Django/Pylons. And I worked for Skype during their year of transition from an eBay-subsidiary to a private company. I learned a ton there about how to accelerate a product & engineering organization by helping to implement agile software development practices at a thousand-person organization.
I think that good-luck experiences create opportunities to double-down on investing in yourself. After Katango was acquired by Google, I spent a year there trying to meet every smart person who would take lunch with me. I jumped at the opportunity to travel to other Google offices and meet bright folks halfway around the world. And as I was expanding my network, I started angel investing more systematically in companies started by people in my 1st and 2nd-degree networks. I really cherish the connections I’ve been able to make with other entrepreneurs through investing. Getting a chance to talk with the founders as an investor and learn how they think through challenges has taught me a lot and given me many entrepreneurial role models to emulate in my own ventures.
“Ganbatte” and good luck!
Neha Palacherla | October 29th, 2013
This guest post was written by Rick Marini, a serial entrepreneur in Silicon Valley for the past 14 years. He is currently the Founder and CEO of BranchOut and Talk.co. He is also an active advisor/investor in 25 private companies.
It’s a harder question than you might think. I speak with a lot of people who think they have the next big idea. They see guys like Kevin Systrom and his 12 employees at Instagram sell for $1 billion to Facebook. Seems easy, right? They see “overnight” successes like Twitter, Dropbox, Pinterest, Evernote and LinkedIn but often don’t realize that all those services took several years to gain traction. Those companies all fulfilled basic human needs (centered around communication and sharing) and leveraged technology to scale the hell out of it. So just identify a basic human need, add some cool technology and wait for the billion dollar offers to roll in, right? Not even close. The reality is start-ups are hard. Plain and simple. Caveat emptor.
But I have a good idea, right? And I can be first to market, right? This could be huge, right? I hear these questions (spoken more as definitive statements) a lot as I talk to young entrepreneurs that I may mentor, advise or invest in. I like to tell them “if you think you have an incredible, innovative idea, you should assume that 5 other entrepreneurs are already pursuing the same idea”. I realize that is not always the case but it’s probably more right than wrong. It helps to frame the bigger question that I pose to them next, “In the face of that potential competition, can you out-execute them and win the market?” This is when the conversation gets serious and I ask five hard questions.
1. Are you willing to quit your day job and do this full-time? Younger entrepreneurs have an easier time saying yes due to a lower personal cost structure (no house or kids) and lower compensation to walk away from. They’re more able to take risks and rebound quickly.
2. Can you recruit a team? You may be willing to leave your full-time job but you have to convince others to do the same and that is hard. Most start-ups have a co-founder pair or small team on day one. If you can’t convince at least a co-founding team of your vision and your ability to execute, then do not pass go, you can’t collect $200 yet.
3. Can you raise money? There are several potential funding sources including your own bank account (risky unless you have a nice cushion), friends & family (major pressure to preserve their capital and your relationships), angel investors (can you convince people who you don’t know to give you their personal money?) and VC’s (can you convince savvy professional investors that hear dozens of pitches a week that you deserve a big chunk of money?).
4. Can you execute? Even after you answer the first three questions, running a start-up is really hard. You need to coordinate a team to successfully work together. You need to have a product vision that fits a market need. You have to build a product that fulfills that need. Your product has to work – good design, UI, feature set, technology, etc. And then you get to launch it.
5. Can you get traction? Oh man, if you thought the first four items were hard (and they are!), this is the hardest one. There are countless examples of good products that never reached a point of meaningful traction. There are tons of reasons for that failure – bad market timing, highly competitive landscape, too small of a market, no PR, no virality, no funds for marketing, etc. Some of these reasons should have been identified before you got this far while others are out of your control. That sucks. You take huge risks to get this far, you raise money, you hire a team, you build a decent product… and then it just doesn’t take off. As most seasoned entrepreneurs and investors already know, that story plays out everyday.
After this point, it’s a matter of next steps. Do you stick with it and try to address the issues blocking your success? Do you pivot? Do you raise more money to keep going? Do you try to exit (or shut down)?
When I talk to (potential) entrepreneurs and walk them through this line of thinking, usually 2 things happen – 1) they get inspired or 2) they get nervous. I think both are 100% legitimate responses. I would never want to discourage someone from following their dream – I have huge respect for that. But the path to achieve that dream is often tougher than expected. I think every entrepreneur should do an honest assessment of this list and have a high level of comfort that then can make it. If the confidence level is not high, then take the time to assess if this is the right move. Entrepreneurs should be optimistic but realistic too.
Thousands of new business ideas are tossed around Silicon Valley and beyond every year. VC’s and angels know that most of these ideas won’t work or are not fundable. Yet every year, there is a new crop of hot start-ups pursuing big ideas that could change the world, and that is why I live and work in Silicon Valley. Despite the tough odds, we continue to follow the dream. It’s worth pursuing, both as an entrepreneur and an investor. I love building companies, advising start-ups and bettering the start-up ecosystem. This shit is hard, but there is nothing I’d rather do!
Neha Palacherla | October 22nd, 2013
This guest post was written by Dan Grover. Previously, he founded the music software startup Etude. He has also built products for Nike and Udacity. Currently, he’s working with partners iterating on concepts for his next venture at Brown Bag Labs.
When I was asked to contribute to the “FounderTalk” series on this blog, I thought I’d talk about my first startup, Etude. It was an early iPad app for downloading sheet music for songs and learning how to play them in an interactive way. I sold the company to Steinway & Sons in 2010, where I led a music technology team.
I started to recount that experience — about how I moved to Palo Alto, lived in a “hacker house”, grew the business, nearly got sued, got acquired, moved to New York — then realized that each re-telling of the story grates at me more and more. It’s because the events happened three years ago and all I’ve done since are few stillborn attempts at a next big project, some traveling, some consulting, a couple jobs. Altogether, the time I’ve spent wandering adds up to be more than the time I spent on the one small, phyric success I’ve had.
So I decided to write about that instead. Wandering is important and deserves as much coverage as all the war stories and “hero’s journey” type material we hear so often. But I’ve begun to suspect that there’s a right and a wrong way to go about it. It can be a stepping stone to better things or a time-wasting detour. How do you know? Here’s what I think is worth considering:
If you’ve been devoting every waking hour to your startup, you might think a lot about the difference in work/life balance you’ll experience by working at someone else’s company.
If you’re worn out, the idea of being able to “go home” and be able to spend your now-copious free time on hobbies, on side-projects, and with your significant other is alluring. But from my experiences with both, it seems like, regardless of how we allocate our time, we have a finite amount of “brain real estate.” When you take a job, you’re really renting out a chunk of your brain. It’s still being rented even when you’re not on the job (in the same way that you’re still paying for your apartment even when you’re not in it).
A couple times of I’ve taken a full-time job that seemed interesting to me with the idea of “coasting for a while and getting time to think” only to find myself obsessed with my duties at the job every waking moment. And I can’t say there haven’t been weeks while working on a startup where I’ve slacked. Your mileage may vary, but I’ve come to the conclusion that work/life balance is not something an employer can bestow upon you. It’s an attitude choice to make every day. I’ve begun to think there’s some credence to 37signals’ claim of “40 hours is plenty.”
THE FINANCIAL IMPACT
The most straightforward reason to take a job is because you’re feeling poor. If you have debt or you’re in actual danger of privation, I won’t try to dissuade you. But I’ve been surprised, when talking candidly with friends, about where their personal barometer for this is. It’s often far lower or far higher than my own. It’s worth thinking hard about it and seeing if it really makes sense.
When I fell into my first software business (the one that would become the startup), I had little understanding of just how different finance in companies is from personal finance. I’d compare the business’s cashflow to my own at various hypothetical jobs, which is more apples-and-oranges than I realized at the time. If you haven’t already, I’d highly recommend taking one of the free online courses on financial accounting or startup finance so that you have a better mental framework to view the money aspect against. I lived with an incomplete understanding for years and it definitely harmed me.
THE STARTLING DISECONOMIES OF GENERALISM
Another difference you’ll find yourself pondering is which skills you’ll be applying and building in the job versus what you’re doing now. The duties you accept in a job have real power to shape the type of person you become. Always remember that people want to hire you for a role that’s going to be good for them at the time, not necessarily good for you.
If you join a company (particularly if you’re going to be just an engineer and not even a PM), you may be divorced from the rest of the process in an uncomfortable way. Companies have silos. They have meetings. It feels inefficient and finicky and can make you crazy.
The insight I had after working at a couple big companies was that the inefficiencies I saw at the ground level weren’t a big deal. It didn’t matter that it took five people to do what, in a startup, could be one person’s job. I realized that the “many hats” mode of working I had fallen into while starting up could be startlingly inefficient. There was a switching cost that I had been making up for by working longer hours. This became especially apparent to me after the acquisition when I had the chance to hire help, as well as in a product-management role I later took. I became the bottleneck in many situations. I didn’t delegate as much as I could because, in my mind, there simply was no separating the idea for something from its design to its implementation.
I’ve learned, through some pain, to change that. I spend more time wireframing, prototyping without code, and getting input from people before building something. It used to seem like a dumb thing to do if you actually were capable of building something fast, but it actually is much better that way.
There’s a memorable bit in the opening to The Scarlet Letter that claims that the first allotments of land the Puritans made in every new town were for 1) the cemetery and 2) the prison, regardless of how utopian they envisioned their future settlement to be.
For modern pioneers in the digital realm, the first two things brought to every funded startup’s office, after the lease is signed, are 1) a massive shipping palette containing every snack food carried by Costco, 2) a foosball table, 3) a high-end espresso machine. Later on they worry about pesky things like business models.
Startup offices these days just seem so gosh darned happy, especially if your day-to-day is hacking out of a cramped studio or coffee shop. It seems like a dumb point to address — to suggest that such a frivolous thing would affect our decision-making — and yet companies spend money on it because it always does. If you’ve been working out of coffee-shops and apartments and it’s bumming you out, just find a way to pony up for office space.
DISTANCE FROM THE MAGIC
You may be taken in by the success a company has had in its field, or the amazing press it’s received. “Surely,” you might think in one of your more dour moods, “I’d rather have a chunk of that than the pissant thing I’m working on now.”
I’ve always been charmed by the stories of early Apple employees on Folklore.org, or Jamie Zawinski’s accounts of Netscape, or even Feynman at Los Alamos. These people were all in the right place at the right time. There was something remarkable and historic happening, and they got to be close to it. I’ve always wanted to find my own version of that somewhere. But the only reason those stories are so romantic is because Netscape, Apple, and the Manhattan Project succeeded in their ambitions. Plenty of other undertakings don’t.
It’s sort of like that scene in that excorable movie The Campaign, where the grassroots campaign Zach Galifianakis’ character is running suddenly gets major funding and the DC politicos swoop in. For many startups, once they raise their series A, the VCs start recommending people. After hiring an office manager, an HR person, and a PR firm, the founders get flooded with emails from someone who knows a guy that knows a guy who would be great for some ancillary role or another. And before the company’s vision has even had time to mature, they’ve got 20 people working for them. Soon enough, they’re moving to a new office five miles down El Camino that’s big enough to fit all the people, the foosball tables, the espresso machine, and the four-ton bag of Kirkland Signature brand trail mix.
If the company’s in a rush to get you on board, know for sure whether you’re going to be another warm body or if there’s actually something you’re pre-eminently qualified to do there. If you’re going to be expected to be a team player, are you really going to be part of “the team”, or are you going to be an accessory to “the team”? Ignore what they say — the equity they offer will speak volumes.
WHAT IS THIS THING ABOUT?
If the financial impact, the lifestyle, the peers, and the role all make sense, you’re still left with the hardest piece of the decision.
Steven Pressfield’s book The War of Art is full of advice for artists on facing resistance and overcoming creative battles. His central piece of advice is to always be asking the question “What is this thing about?” and developing an increasingly pointed answer throughout the course of the project. That, he says, makes facing tough decisions easier. For a novelist or playwright, that question should strike at the essential theme of the work, which helps them edit out parts of the story.
It’s good to be constantly developing an answer to this while building a company. You could frame the question a few different ways. You could frame it as “what is this company about?”, or “who is this product for?” or even, “why am I doing this?”, or “what is worth doing at all?” Write it down in a text file, come up with some answers, and open it again every week to try to chisel more. Try to refine your answer until it is as broadly-applicable as possible.
If you can evaluate the job against the same criteria you have for everything else in your life, you’ll be more likely to make the right call. In the long term, you’ll end up in a situation that is a heightening of your efforts and not a detour you’ll come to regret— in the greater spiritual sense, if not a financial one.
If this is helpful for you, or you have any crazy stories about jobs that have worked out differently than you thought, I’d love to hear them! Drop me a line on Twitter at @dangrover.
Neha Palacherla | October 15th, 2013
This guest post was written by Roy Bahat. He is the head of Bloomberg Beta, a new investment fund. He is also chairman of OUYA. Previously, he was president of IGN Entertainment and worked in the office of New York City mayor Michael Bloomberg.
A long time ago, careers looked like this:
When I was in school, I knew the world had changed since then. But I still thought careers were supposed to look like this:
But then I noticed something. Some of the people I most respect didn’t have jobs, really. At least not in the way I once thought of it — a single paycheck from a single employer to which they devoted all their time. One friend was a management consultant, but building an apartment building (an apartment building!) in his spare time. My brother was drawing cartoons while working as a teacher at a museum. I took a board seat in a company that wasn’t the one I was working at. My boss started a non-profit which eventually became his full-time job.
I found myself juggling one thing that was being born, another that was dying, sometimes with a full time job, sometimes without one. There were a couple of bouts of what I called unemployment (what my then-girlfriend-now-wife called “consulting”) during which I wrote a business plan to help someone raise money, couldn’t figure out my own startup, and had 100 interviews (literally, I kept a list) before I got a job. Then once I had a job, many of those projects lived and evolved.
Instead of having a linear succession of jobs, many people now have a portfolio of activities.
Sure, sometimes it happens to take the form of concentrating your work on one thing. There are many people who focus on one thing to the exclusion of all else for years on end — and I admire that. But often, it isn’t like that. Focus isn’t a requirement, it’s a choice. Sometimes it’s gigs, and helping out, and side projects, and consulting and… we have no idea how to talk about this. Try to describe that path on your LinkedIn profile — good luck. Try to tell someone what you do without endless “ands” — good luck. So maybe careers look like this poor guy (an amalgam of a few people I know):
Ultimately, our professional story should be about the skills and experiences we accumulate that matter to us, not about the titles we held. The jobs, the organizations, are all just shorthand for what’s important — what we know, what we can do, who we know (and who knows us), and what we believe.
Sure, many people happen to have a full-time job that is their focus — I do, now, and it happens to be great. But that is only one form, not the norm.
This is particularly relevant for entrepreneurs, because new ventures seldom unfold in a predictable “ready for LinkedIn update” way. Sometimes they are side projects that gradually become more (Github). Sometimes they are full-time unpaid obsessions of a founder’s for a long time, with no corporation to show for it until unexpectedly late (Facebook). My affiliation with OUYA, where I’m chairman, started modestly and became much more.
At Bloomberg Beta, we have backed founders who we know have jobs other than the startup we are investing in — and that’s fine. So long as we share an understanding of how much time they are devoting, and have transparency into all their other roles so we know there are no conflicts, we think having multiple interests is healthy. Focus and exploration live in balance with each other, you can’t have one without the other.
Over time, taking the “career as portfolio” view also means we’ll need to grow our muscles for identifying and avoiding conflicts. Some companies let their employees angel invest or advise startups, which I think is wonderful — it puts the employee into the flow of ideas, helps them see things differently, introduces them to new people. But if it’s secret, then all kinds of issues can come up — did you advise a company that just did a deal with your employer? Did you invest in a company that decided six months later to compete with your employer? Did your employer just create a copycat product of a startup where you are on the board? The antidote is just to admit it: disclose all your affiliations, and then the risk of running into trouble goes down dramatically, and you can seek the advice of others.
Put differently, our careers are now a mess – and maybe that’s OK.
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