Thursday, January 21, 2016

Advice from Founders

Recently I made the decision to start my own company.  That followed a couple of months of customer discovery to make sure that a) we were solving a real problem and b) we were solving it in the right way.

I'm positive there will be other turns, adjustments, or full pivots on the product before the startup journey ends, but I'm now confident enough to invest our money into building it out.

In addition to interviewing lots of potential customers, I've also been interviewing other founders in my network to understand their experiences - the good, the bad, and the ugly of their startup experiences.

Interview 1: the well funded startup

The well funded startup founder is unique among the group for a couple of reasons:
1)  She was a sole founder.
2)  She immediately went for funding with only a presentation of her vision

Her comments:
- Taking on funding is good because there's now accountability to the board and investors
- Taking on funding is bad because there's now accountability to the board and investors, and there's inherently a lot of overhead in communications and addressing their needs
- Her technical co-founder can be difficult to work with.  She needed someone though.
- It isn't brave to say you're starting a company.  It's brave when you're 6 months into it and you haven't gotten any funding yet, and your family is starting to doubt you, and you still persevere

Interview 2: the side project

Another founder partnered with a colleague from our former company in the last 6 months while he was working there.  while they incorporated their company and have started looking into partnerships, he's since taken a leadership position at another company.

His advice was to incorporate quickly so it's very clear how the founder's equity split will work.

He intends to continue to cultivate this idea in his spare time as he works for pay.

Interview 3: the serial entrepreneur

This founder has started 3 or 4 companies.  Due to this, she and her partners were able to secure funding quickly to get their business started.  They found a tech company to work with who have a set % of equity.  This is good because it means they're not nickeled and dimed for changes or fixes to the website - all incentives are aligned to grow the company.

Many focus groups and asking experts early on help to curate their vision into a product.

Interview 4: the dreamer

This founder is thinking big, very big.  They are attempting to disrupt an industry that unfortunately is in already crowded space of startups.  Due to the magnitude of what they're trying to pull off, their path is to secure funding as soon as possible.  They have 3 original co-founders who are ready to quit their jobs, and they just hired their CTO for a large equity share.  They incorporated using an online service.

They put together a click through prototype and will be seeking funding soon, as well as partnerships with local stores.

She recommended the book "Venture Deals" to get smarter on structuring your company for funding later.

In early VC feedback, she was asked to get a user acquisition specialist on her board as early as possible.

Interview 5: the pivoter

This founder, with one partner, saw a niche and thought they'd have a product up in 3 months.  12+ months later, with very little funding and no revenue, they're approaching a launch date.  The initial product would have been fine for some clients, but wrecked their reputation in the industry.  They decided to pivot, and eventually got to a product they believe in.

- Take funding anywhere.  Don't pay attention too much to the advice that you need to find a well connected person or someone with a certain skillset.  Sometimes, capital is the thing you need most.
- Talk to everyone you can.  Her experience was that every meeting either led to new knowledge or to new people who would prove valuable
- Don't get too excited about good events, nor too down on bad events.  The good things don't seem to last very long, and the bad things never end up as bad as they initially seem.
- Weekly or monthly updates for friends and family keep people in the loop efficiently, rather than telling people on a one-off basis.
- Legal expenses were the biggest early cost - surprising how much they had to spend there.

Interview 6:  the hustler

The founder was a former product executive, and teamed up with a former colleague to create something they thought would be useful, and capitalized on their expertise and connections in the city.

- don't worry about setting up a company early.  Focus on building a thing.  Without the thing, there's no need to set up a company.  They started an LLC with legalzoom, then went back and created a corporation later
- lawyers are expensive, but it's good to get a good one.  Pay the premium.
- ask for favors.  In the beginning they just asked people for their help in designing and developing, with a handshake saying that they'll take care of them with equity if the company becomes something.  Later, they formalized the handshakes
- they did not set up a vesting schedule for shares, however, they did set it up such that they can buy back the shares of anyone who had worked with the company less than a year.  They haven't had a need to do so yet.

The one question that I asked most of them that was most interesting, is "if you could do it over again, would you choose to go down the path of founding a startup?"  Their answers:
- yes, if they didn't spend 9 months having to pivot
- yes, but it's been personally hard on his family, and could not describe the year as 'fun'
- yes, but felt like she lost much of her freedoms by taking investment money and having to report to the investors to make her rosy pitch deck a reality.

Considering they were the only ones besides the serial entrepreneur who have actually started working as a company, it doesn't seem like a super fun path.

Inteview 7: the failed startup

This founder was the only one who had worked on a startup for some time, with real customers and revenue, and eventually called it quits.  Apparently, there was only one competitor in the space when they started, but they then found themselves with 5 other competitors (who were better funded) in the space 6 months later.  As they had decided to bootstrap, they found themselves in a position where customer churn was high, and the ability to attract new customers was limited due to the increased competition.

- your emotional rollercoaster will be magnified by your spouse.  When something good happens, and you tell your spouse, they will be very excited.  When something bad happens, and you tell your spouse, they will be extremely let down.  Meanwhile, because you have all the facts about the business, you're more level headed.  Try to keep emotions down by moderating the response
- Don't innovate in legal or finance.  Hire the right people, even at a premium.  It will save headaches later.
- That said, don't give all legal work to the high priced firm.  Contracts, Ts&Cs, NDAs, can all be handled by much less expensive individual lawyers at a third of the rate.
- Partnership Charter book.  Setting a solid foundation with a co-founder is very important.  Sit down with them and lay out all aspects of the partnership - titles, roles, and where you want to be in the next year or two.

I'm hoping that we can avoid taking funding, I can keep some flexibility in my life, and do enough due diligence up front to avoid 'start over' type pivots.  In any case, there's a common theme of perseverance if we're to move past the obstacles that are certain to come up.

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