Joe Kraus: Confessions of a Startup Addict at www.brendonwils...

How is 2006 different from 1996?

• It’s easier than ever to start a company: Hardware is cheaper, Open Source software is free to use, there’s plentiful offshore labor, and search advertising allows you to cheaply reach audience
• It’s no easier to start a business: It’s still difficult to get loyal customers
• Funding is more available than ever
• There’s a new funding model: As it’s a lot cheaper to start a company, it takes a lot less money. When you raise less money, it means that there are more successful exits than ever, especially with people who want to buy your company. Counterintuitively, taking more money may mean less opportunities for success. Considered two scenarios: Let’s say that you need/take $250K, selling 1/3 of the company to raise that amount and resulting in a post-money valuation of $750K; to generate a 5X return means that the company must be sold for $3.75M - lots of companies that can afford to buy you for that! Compare that to a case where you need/take $5M, sell 1/3 of the company to raise that amount and resulting in a post-money valuation of $15M; to generate a 5X return means that the company must be sold for $75M - not many companies can afford to buy you for that.

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Lesson #2: It’s all about hiring

Joe’s core hiring philosophy: no false positives. Bad hires really screw up your company. A players hire A players; B players hire C players; and C players hire Losers. Although it’s hard to resist the urge to hire for the short term - but don’t give in. Hire slowly and carefully - it will make the difference between success and failure

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Lesson #3: You make what you measure

Only measure the goals you want to achieve.

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Lesson #4: Better to be a trend-spotter than a trendsetter

It’s better to be an early trend-spotter, than to create something entirely new and educate the market. No startup has enough money to move the market. For example, Jotspot is positioned as wiki - but why? Because it would take too much work to position as collaborative website. By leveraging the existing focus on wikis, they can use that coverage to gain awareness, and then branch out from there later. Being early is the same as being wrong - so many companies are great, but ahead of their time.

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Lesson #5: Opportunities create opportunities

When you’re looking at deals, you can never predict where a given deal will take you. It’s hard to make rational decision. As Joe’s grandmother used to say, when someone offers you a cookie, take the cookie! You never pass up a cookie that’s put in front of you.

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Lesson #6: Put your business model into beta when you put your product into beta

Jotspot screwed this up, by putting their product into beta without testing business model. The problem with this is that it resulted in skewed feedback. How you make your money is equally relevant in how people perceive your product.

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Lesson #7: Celebrate your successes

Startups are a lot like the Olympic trials - a series of progressive milestones. As you cross the finish line in each stage, you think to yourself, “Wow, I made it!” And half a day later, you think to yourself, “Oh my God. I made it.” You’ve finished in first, but all that does is qualify you for the next heat, where you’re competing against similar companies who made it through the last round. No milestone is the finish line. As a result it makes it very important to celebrate every success you have.

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How is 2006 different from 1996?

• It’s easier than ever to start a company: Hardware is cheaper, Open Source software is free to use, there’s plentiful offshore labor, and search advertising allows you to cheaply reach audience
• It’s no easier to start a business: It’s still difficult to get loyal customers
• Funding is more available than ever
• There’s a new funding model: As it’s a lot cheaper to start a company, it takes a lot less money. When you raise less money, it means that there are more successful exits than ever, especially with people who want to buy your company. Counterintuitively, taking more money may mean less opportunities for success. Considered two scenarios: Let’s say that you need/take $250K, selling 1/3 of the company to raise that amount and resulting in a post-money valuation of $750K; to generate a 5X return means that the company must be sold for $3.75M - lots of companies that can afford to buy you for that! Compare that to a case where you need/take $5M, sell 1/3 of the company to raise that amount and resulting in a post-money valuation of $15M; to generate a 5X return means that the company must be sold for $75M - not many companies can afford to buy you for that.

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