I love love love Frank Chimero’s work

Check out his ideas page. Very inspiring!

If there’s an ecosystem where things are free (such as, say, the internet) your currency becomes enthusiasm. Quality is important because it gives people a legitimate reason to become excited. Sincerity is what creates the line between real enthusiasm and empty hype.

This sounds like a lame-brain observation, but things are better if creative people produce work that incites excitement in both the creative and the audience. Don’t be shocked if something fails because it lacks fervor and passion. Build those in, if you can. If you can’t, consider starting over.

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Gilt Principles:

  • Deals once a day that go away quickly
  • Membership is free and invite only -> Viral Growth
  • Members come back because it’s “new” every day – there are a lot of options to choose from but not paralyzing and overwhelming
  • Gilt is not about search. It’s about discovery. It’s a private shopping experience.
  • Driven by beautiful imagery not category – very different from other e-commerce sites
  • Don’t be too complex and keep it fun
  • Customer insights = customer intelligence. Wealth of information and increasingly important tool to get partners. Most partners are wholesellers.
  • Gilt can tell velocity (what products sold fastest, etc). Can show them what brings customers in. What customers buy. Unmet demand. Waitlist. These often number in the thousands and hugely valuable to brand partners. Give them insight into what young women are going after.
  • In the long term, Gilt rebuilding platform where they can serve dynamically, every member based on preferences, buying history, behavior, etc.
  • Noticed that there were a lot of “shoppers” on the site who weren’t making the purchase. When they dug deeper, they discovered that most of their users still thought that the items are too expensive or that this was just not their lifestyle. So they consciously introduced lower priced items to appeal to this group.
  • Susan has 10 key metrics to eye on. Make everyone at company conscious on these 10 metrics. Should constantly review these metrics as important measurement of company’s health.
  • Always experiment with different sale concepts. But always offer a value proposition to your customers. Eg. Selected 20 items and did a promo on Gilt.com at full price. If the customer spent more than $250, they got a credit as well as additional gift. So this is more incentive to customers to shop online vs in store. Goes to show that a lot of customers also buy items at full price since they have come to trust Gilt as a high quality site referral for fashion. That is why branding is so important.

1) Defining Risk

The best definition: The Chinese symbol for “risk” is a combination of Danger + Opportunity. If you want one you’ve got to live with the other. Where there is upside, there’ll always be a downside.

Distraction – Spin a big story to counter the previous one
Paradigm Shift – arguing that the rules have changed

2) Arbitrage – what is means and how it is misused in practise

  • True arbitrage is extremely rare.
  • There is no arbitrage.
  • The essence of arbitrage is that you take no risks, invest no money and walk away with a profit. In practise, what passes for arbitrage can be categorized into either pseudo or fake arbitrage. Pseudo arbitrage is categorized based on option and future pricing models. The arbitrage is dependent on both the model’s assumptions and transaction costs. Fake arbitrage categorizes everything else – merger arbitrage, paird trading arbitrage, etc. These are all speculative strategies with some or substantial risk associated with them.
  • The danger in mislabeling strategies is not only that you mislead others but that you may fall for your own hype and “finance” those strategies as if they were riskless (The Long Term Capital Curse…)
  • We have access to more data (and in a more timely form) than ever before. But our mistakes could get bigger, not smaller. The complexity of the models cannot keep up with the complexity of the assets that they are valuing. Complex model require more data inputs (with more errors) than simpler models. Complex models create output that is far more difficult to understand than simple models.

3) There is no risk in the past, it is all in the future…

  • The greatest conumdrum in finance is how we model risk based on the past because that’s where the data lies. When you use historical data, consider the error in your estimates…
  • But everything that we care about is in the future
  • Recognize that things can change in a flash

4) Risk management is everybody’s responsibility

  • Risk affects value on every dimension.
  • Valuation – Value today can be higher as a result of risk taking.
  • First thing to do – sit down and list out all possible risks. Then decide which risks you want to avoid and which to pass on to your investors.

5) Successful organizations

What risks to seek out: Those in which you have a competitive advantage on

(i) The Information Edge – Having a superior and more timely information is a clear advantage in a “risky” world 
(ii) The Speed Edge – Being able to act decisively and appropriately, once presented with the information, can help both the up and down side
(iii) The Experience/Knowledge Risk – Having been through similar risks in the past can help
(iv) The Resource Edge – Having more resources (cash, people, technology) than your competition can help

6) Secret message

Be lucky…

There is so much noise in this process that the dominant variable explaining success in any given period is luck and not skill.

Proposition 1: Today’s hero will be tomorrow’s goal – there are no experts. Let your common sense guide you.
Proposition 2: Don’t mistake luck for skill – do not over react either to success or failure. Chill.
Proposition 3: Life is not fair – you can do everything right and go bankrupt. You can do everything wrong and make millions.

Why the Focus on Women Entrepreneur in High Tech?

  • Women has huge buying power (women control 2/3 of discretionary spending in US households)
  • A market discountinuity exist between women’s capabilities and the opportunities that they are not taking advantage of
  • Expanding presence of women at officer level of IPOs (in 2009, 17 of 19 high-tech IPOs with a woman officer)
  • Women in tech entrepreneurship now represents 16% of all applying for angel capital
  • Women founders outperform – launch companies with 30-50% less capital than the norm. Achieve comparable or higher revenues in earlier years. Are slightly less likely to fail.
  • Cornell research proved that gender diversity increased innovation
  • Women historically start a company 10 years later than men (women at 35-45 years  vs men at 25-35). But that is now changing with Women 2.0 in California.
  • Why so few women in StartUps and VCs? 30% of women with right education and exposure are in high tech workforce.
  • How Women Fund their Companies – self financing, bank debt, angel investment
  • Sand Hill Rd: Venture-backed companies outperform all others due to functional and financial expertise, knowledgeable service providers, best rates on debt, customers and partner introductions, and credibility – staff, customers, partners
  • Why the Gap? (i) Pattern Recognition/Homophily + Self Selection. 93% of the people on “Sand Hill Rd” are white males and have attended Harvard or Stanford. Women also more likely to seek women investors but there are a lot less out there. (ii) Lack of Access + Lack of Visibility. There is no critical mass (70% of IT startups have 0 women founders, 26% have 1 woman partner and 6% have 2 women partners).  
  • Overcoming the barriers: The road for women has been mapped by Indian entrepreneurs.
  • Recommendations: READY – Encourage young women to gain the right educations and fund research to better understand the barriers. SET – Consolidate movements for more focused impact. GO – Build visitbility.
  • Illuminate’s Approach: 4 investments so far (2 have women CEOs, 2 have women co-founders in high tech). It’s all about performance – Illuminate believes that startups with women founders generate higher revenues per dollar of invested capital and lower failure rates than those led by men

Story of Alexa Von Tobel of LearnVest

Working on the side while at Morgan Stanley. Prototype with a few thousand dollars. Enrolled in HBS. Worked on for a year. Astia backed company. Dropped out of HBS but with support of 4 professors. Moved to NYC. Didn’t want to take money from friends and family. 85% women make decisions in household but no one is marketing to them. No one wants to read a book on personal finance. Janet Hanson and Circle Financial Group were Angel Investors. Got oversubscribed. $1.5 M committed. Prototype more refined. Selected by TechCrunch. Alexa only women presenting at TechCrunch conference. Nov 2009 opened website to women. Online for free to educate women to make personal finance (content, tools and community). Accel Venture Investors (who invested in facebook) just backed LearnVest.

On Fundraising: One of the hardest things to do – dark and scary moments. Learned from people who’ve done this before. Go after Goldman Sachs partners who were passionate about finance. Daily Candy partnership on personal finance 5 days a week (former CEO). Former CEO of Huffington Post worked with LearnVest. TD Ameritrade partnership to build out personal finance tools. Key – Find one source person or company who is an expert in a field and beg them to get behind you.

Spend nothing on marketing. The internet is free – use it.

On networking and knocking on the right doors: Your passion shines through – show it. Use your networks – alumni, 85 Broads, workplace, etc. Preservere. Never take no for an answer. 10 calls end up in 1 meeting. 10 meetings end up in a connection. Keep all contacts. It’s not an easy process. Everything’s a chaos. You will see progress at the end of the day. Everything’s a commitment. Make time for people who want to talk to you – people will remember that.

Revenue stream of LearnVest: Cliffnotes for personal finance. #1 Advertising (work with only brands we believe in). #2: Lead generation – Once someone learns about an IRA, you need to open an account somewhere – get users a better deal via partners.  Working on premium services offering, financial advisor, and personalized phone services to help women around the country make financial decisions, etc. 

Who to Trust? Forget about NDAs. Share the idea with people – you will get ideas from people and it will help you formulate your business around customer needs.

Legal fees: Lawyers are so expensive but make sure you get a good one. Convince them to work pro bono until the company gains traction or meets certain milestones.

On partnership: Did it alone as well. Started out with help from first cousin working at a Hedge Fund although not technically a co-founder.

Story of Claire Chambers of Journell

Biggest challenge in retail – it already exists. But it could be better. Angel investment the only way to go because no capital or revenues. Find people who believes in concept and invest in the long run. Started with colleagues network and friends in business world in NYC. When first started writing bplan, reached out to hundreds of people who may be interested in retail, finance, VC, etc. Shared why she was crazy about the idea and asked for their insight. Was introduced to other networks and worked her way through building relationships. Look forward to people with similar risk profiles and passion as investors.

Social media: Find people who have similar problems and want to share with others their problems and solutions.

On attorneys: Trademark work with logo and branding. Biggest cost is financing – to draft up legal agreements and negotiations. Third round financing now (paperwork almost the same so can leverage previous document). Impossible to operate without a good lawyer.

On partnership: Wished she had one. Difficult unless you meet the right person at the right time. Network to reach out to people with similar passions, goals, etc. At this stage, making senior hires out of necessity rather than partners.

Story of Wendy Tsai of Cellona Therapeutics

Focuses on cancer and neurology markets. Company is a research-stage company developing best-in-class targeted cancer drugs. Wendy is responsible for company and capital formation and strategic partnerships; and leverages a versatile background in corporate planning, sales, marketing and health policy.

Topics for today:

(i) How to form a great management team – really important for a start up. (ii) How to raise financing.

On financing: Approach advisors. How to market company prior to raising financing. Use of social networking tools. 99 Designs to design corporate logo – if you reach out to IR firms, it costs 1/10 now. It’s now much cheaper to hire someone to build branding and design of website.

On partnership: Find the right balance in terms of skills. Discuss equity and how you split the pie. Makes best sent to make value to divy up titles and roles early on. Reach out to Angel Investors such as AngelSoft and GoldenSeeds – something that was not available 10 years ago.

Danielle is going to be our first speaker in Spring. I’ve been following her blog and am fired up by her passion, bold yet beautiful voice and raw business advice. The first two advice relates to my lean start up ideals so I can highly relate.

best business advice i’ve ever received. part 1

This is excerpted from the prelude of THE FIRE STARTER SESSIONS digital book. The full book launches May 12! Pre-order now and get the “True Strengths & The Metrics of Ease” session immediately!

Don’t spend it before you have it.

– Melody Biringer, self-proclaimed start up junkie, founder of over twenty businesses, most currently: The CRAVE Company

This is such a difficult course to stay when the money finally starts coming in, or you get some serious interest from your biggie client on your biggie proposal, or you finally convince the loan officer at the bank that you’re a worthy human being. Hard fact: before you earn it, you don’t have it. Projections and ideals do not equal money in the bank.

Don’t spend it when you get it.

– Robert Kent, wildly successful photographer and philanthropist

My last business partner and I were expecting mid-six figures for a book advance. Dreams were ballooning. Family was swooning. Our ship was coming in! The deal wasn’t even sealed and we had picked out a new house and the custom-made sofa to go with it.

“That wave of money is going to come in,” Rob said to me over Souvlaki, “and it’s going to take you right out with it.” My dreams of a Dwell pre-fab house started to crumble.

“Listen,” Rob continued. “You need to feel the power of sitting on it, of letting it actually feed your creativity. If you spend it when you get it, you’ll have to catch up with it, and that will sap your energy.”

We didn’t listen. We sank most of our advance money into the book and needless company growth. We didn’t need to expand. We needed to deepen, to stay lean and focused. Not long after, we were developing bigger projects to keep up with ourselves. I should have listened to this…

Grow organically.

Rikia Saddy, marketing strategist

Rikia declined to invest in one of my companies because she thought it was the kind of business that should “grow organically…one step leading to the next. Your work needs to build on itself.” Those words would echo in my mind when it all fell apart. And when I started my solo, biggest venture ever.

Fuck your so-called principles.

– Mr. A., lawyer

Some young TV producers and I were very tangled in a very good-for-them but bad-for-me contract. “It’s not about the money grab they’re going for,” I ranted to my lawyer. “I don’t care about the money. It’s about the principle of the matter. What they’re doing is so wrong and they bloody well know it.”

“So you want to drag this out for months because of your principles?” he said. “You want to sink a few more grand into this because of your principles? I’ve had a lot of clients over the years that have made themselves sick, wrecked their marriages, or drained their finances to protect their so-called principles.

Of course the Producer Girls are wrong. They’re greedy twits. You could counter sue and probably crush them. But fuck your principles and get on with your life.”

And so I did.

Only do it if it’s fun. If it’s not fun, make it fun. If you can’t make it fun, don’t do it.

Peter Russell, physicist/philosopher

Ah, sweet Peter. If only I took this jesterly sagacity to heart way back when, I’d have avoided so much agony. This has become my most impassioned mantra. I do only what I want to now, and that’s crazy fun.

Don’t burn bridges.

John Petersen, Futurist

At the time I thought this was staid and stodgy convention. Yawn – heard it a hundred times. And how could I possibly stomach being nice to General So & So for being such a such n’ such – I was outta there, wasn’t gonna look back. But John went on to philosophize a bit, and it touched me. “The world is a small town, and you never know when you’re going to circle back and need someone. Besides, it’s rarely worth telling someone off, there’s always something better to do with your time.”

Of course, I have burned some bridges. TNT kaboom and obliterated. In fact, I said to one client who accused me of shopping out his proprietary slogans to another client, “You best consider this bridge burned. To a crisp.” But generally, bridge preservation in work relationships is about basic kindness and dignity to all parties. And that’s always a good thing.

TUNE IN TOMORROW FOR PART 2.

Love,

Check out 85 Broads E.Forum New Spring Calendar @ http://bit.ly/EForumSpringCalendar! A lot of amazing speakers coming up – join us!

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E.Forum Spring Calendar

May 2010

May 6 – “Unlock the Potential of Your Ideas” Jam Session with the outspoken creator of the WhiteHotTruth Entrepreneur Danielle LaPorte.  From start-ups to established CEO’s who want to up their game, it’s a jam session-meets-lecture-meets tribal pow wow. Check out Danielle’s latest video & spark your genius: http://vimeo.com/10543371

Where: Global Webex
When: 12 – 1pm EST
Cost: FREE
Register: http://bit.ly/LaPorte

May 11 – “Bootstrapping to Success” Jam Session with Rick Smith, author, innovator, serial entrepreneur and a Guy Who Rocks! As Rick launches another venture, he’ll discuss how to launch a business with limited resources.

Where: Global Webex
When: 12 – 1pm EST
Cost: FREE
Register: http://bit.ly/ricksmith

May 25 – “Social Ventures. Celebrate Businesses That Give Back” Join New York Leadership members Diana Sonis and Susan McPherson as 85 Broads E.Forum brings together socially focused entrepreneurs in the network with members of Collective-E. We will be featuring two outstanding 85 Broads members on an interactive panel: Michele Kotler of Community-Word Project and NY Chapter Leader Susan McPherson, DIRECTOR of Bpeace, as well as publicly recognizing a list of members whose businesses give back to the community.

Where: Met Life 1095 Avenue of the Americas 23rd floor New York, NY 10036
When: 6 – 8pm
Cost: FREE for Members with code: 85Broads; $45 for guests
Register: http://bit.ly/bGf00Z

June 2010

June 22 – Crush It! Join NY Chapter Leader Diana Sonis and 85 Broads E.Forum for a high octane evening of entrepreneurial drive, business ideas, wine, social media, passion and hustle with Gary Vaynerchuk, author, entrepreneur, & wine expert.

Where: New York City Venue TBD
When: 6:30 – 8:30pm
Cost: $45 for Members; $75 for Non-Members; $80 for Member + Guest
Register: https://www.regonline.com/crush_it

85 Broads E. Forum Update

As we round out the first half of the year, we’d like to THANK you all for the great support 85 Broads E.Forum has received. We have a number of great events on the drawing board for the Fall of 2010. Stay tuned & stay up-to-date with 85 Broads E.Forum by visiting our dedicated Spotlight Page and LinkedIn 85 Broads SubGroup

About 85 Broads

http://www.85broads.com

85 Broads is an exclusive global women’s network whose mission is to generate exceptional professional and social value for its members. Through our regional events and online, password-protected community, our members engage in a rapid, high-powered exchange of ideas and information which is what makes 85 Broads so unique.

The women in 85 Broads are investment bankers, lawyers, educators, venture capitalists, hedge fund managers, philanthropists, athletes, scientists, doctors, engineers, artists, and entrepreneurs. 85 Broads was originally founded in 1997 as an exclusive network for women who worked for Goldman Sachs at 85 Broad Street, the investment bank’s NYC headquarters. In 2000, the network was expanded to include a more diverse group of women from a variety of fields and backgrounds, including the non-profit sector. Today, over 20,000 women who are alumnae and students of the world’s leading colleges, universities, graduate business schools, law schools, medical schools, and other graduate programs belong to 85 Broads. Learn more about our exclusive network and apply for membership.

More posts about our speakers coming up!! Stay tuned…

For any aspiring entrepreneurs thinking about starting a company, I would highly recommend reading Paul Graham’s Essays, which can be found here: [paulgraham.com]

This is a must-read for any startup founder. Here’s an essay that gives you a flavor of what good stuff you can learn from Paul – a real look into what to expect in a startup!


October 2009(This essay is derived from a talk at the 2009 Startup School.)

I wasn’t sure what to talk about at Startup School, so I decided to ask the founders of the startups we’d funded. What hadn’t I written about yet?

I’m in the unusual position of being able to test the essays I write about startups. I hope the ones on other topics are right, but I have no way to test them. The ones on startups get tested by about 70 people every 6 months.

So I sent all the founders an email asking what surprised them about starting a startup. This amounts to asking what I got wrong, because if I’d explained things well enough, nothing should have surprised them.

I’m proud to report I got one response saying:

What surprised me the most is that everything was actually fairly predictable!

The bad news is that I got over 100 other responses listing the surprises they encountered.

There were very clear patterns in the responses; it was remarkable how often several people had been surprised by exactly the same thing. These were the biggest:

1. Be Careful with Cofounders

This was the surprise mentioned by the most founders. There were two types of responses: that you have to be careful who you pick as a cofounder, and that you have to work hard to maintain your relationship.

What people wished they’d paid more attention to when choosing cofounders was character and commitment, not ability. This was particularly true with startups that failed. The lesson: don’t pick cofounders who will flake.

Here’s a typical reponse:

You haven’t seen someone’s true colors unless you’ve worked with them on a startup.

The reason character is so important is that it’s tested more severely than in most other situations. One founder said explicitly that the relationship between founders was more important than ability:

I would rather cofound a startup with a friend than a stranger with higher output. Startups are so hard and emotional that the bonds and emotional and social support that come with friendship outweigh the extra output lost.

We learned this lesson a long time ago. If you look at the YC application, there are more questions about the commitment and relationship of the founders than their ability.

Founders of successful startups talked less about choosing cofounders and more about how hard they worked to maintain their relationship.

One thing that surprised me is how the relationship of startup founders goes from a friendship to a marriage. My relationship with my cofounder went from just being friends to seeing each other all the time, fretting over the finances and cleaning up shit. And the startup was our baby. I summed it up once like this: “It’s like we’re married, but we’re not fucking.”

Several people used that word “married.” It’s a far more intense relationship than you usually see between coworkers—partly because the stresses are so much greater, and partly because at first the founders are the whole company. So this relationship has to be built of top quality materials and carefully maintained. It’s the basis of everything.

2. Startups Take Over Your Life

Just as the relationship between cofounders is more intense than it usually is between coworkers, so is the relationship between the founders and the company. Running a startup is not like having a job or being a student, because it never stops. This is so foreign to most people’s experience that they don’t get it till it happens. 1

I didn’t realize I would spend almost every waking moment either working or thinking about our startup. You enter a whole different way of life when it’s your company vs. working for someone else’s company.

It’s exacerbated by the fast pace of startups, which makes it seem like time slows down:

I think the thing that’s been most surprising to me is how one’s perspective on time shifts. Working on our startup, I remember time seeming to stretch out, so that a month was a huge interval.

In the best case, total immersion can be exciting:

It’s surprising how much you become consumed by your startup, in that you think about it day and night, but never once does it feel like “work.”

Though I have to say, that quote is from someone we funded this summer. In a couple years he may not sound so chipper.

3. It’s an Emotional Roller-coaster

This was another one lots of people were surprised about. The ups and downs were more extreme than they were prepared for.

In a startup, things seem great one moment and hopeless the next. And by next, I mean a couple hours later.

The emotional ups and downs were the biggest surprise for me. One day, we’d think of ourselves as the next Google and dream of buying islands; the next, we’d be pondering how to let our loved ones know of our utter failure; and on and on.

The hard part, obviously, is the lows. For a lot of founders that was the big surprise:

How hard it is to keep everyone motivated during rough days or weeks, i.e. how low the lows can be.

After a while, if you don’t have significant success to cheer you up, it wears you out:

Your most basic advice to founders is “just don’t die,” but the energy to keep a company going in lieu of unburdening success isn’t free; it is siphoned from the founders themselves.

There’s a limit to how much you can take. If you get to the point where you can’t keep working anymore, it’s not the end of the world. Plenty of famous founders have had some failures along the way.

4. It Can Be Fun

The good news is, the highs are also very high. Several founders said what surprised them most about doing a startup was how fun it was:

I think you’ve left out just how fun it is to do a startup. I am more fulfilled in my work than pretty much any of my friends who did not start companies.

What they like most is the freedom:

I’m surprised by how much better it feels to be working on something that is challenging and creative, something I believe in, as opposed to the hired-gun stuff I was doing before. I knew it would feel better; what’s surprising is how much better.

Frankly, though, if I’ve misled people here, I’m not eager to fix that. I’d rather have everyone think starting a startup is grim and hard than have founders go into it expecting it to be fun, and a few months later saying “This is supposed to be fun? Are you kidding?”

The truth is, it wouldn’t be fun for most people. A lot of what we try to do in the application process is to weed out the people who wouldn’t like it, both for our sake and theirs.

The best way to put it might be that starting a startup is fun the way a survivalist training course would be fun, if you’re into that sort of thing. Which is to say, not at all, if you’re not.

5. Persistence Is the Key

A lot of founders were surprised how important persistence was in startups. It was both a negative and a positive surprise: they were surprised both by the degree of persistence required

Everyone said how determined and resilient you must be, but going through it made me realize that the determination required was still understated.

and also by the degree to which persistence alone was able to dissolve obstacles:

If you are persistent, even problems that seem out of your control (i.e. immigration) seem to work themselves out.

Several founders mentioned specifically how much more important persistence was than intelligence.

I’ve been surprised again and again by just how much more important persistence is than raw intelligence.

This applies not just to intelligence but to ability in general, and that’s why so many people said character was more important in choosing cofounders.

6. Think Long-Term

You need persistence because everything takes longer than you expect. A lot of people were surprised by that.

I’m continually surprised by how long everything can take. Assuming your product doesn’t experience the explosive growth that very few products do, everything from development to dealmaking (especially dealmaking) seems to take 2-3x longer than I always imagine.

One reason founders are surprised is that because they work fast, they expect everyone else to. There’s a shocking amount of shear stress at every point where a startup touches a more bureaucratic organization, like a big company or a VC fund. That’s why fundraising and the enterprise market kill and maim so many startups. 2

But I think the reason most founders are surprised by how long it takes is that they’re overconfident. They think they’re going to be an instant success, like YouTube or Facebook. You tell them only 1 out of 100 successful startups has a trajectory like that, and they all think “we’re going to be that 1.”

Maybe they’ll listen to one of the more successful founders:

The top thing I didn’t understand before going into it is that persistence is the name of the game. For the vast majority of startups that become successful, it’s going to be a really long journey, at least 3 years and probably 5+.

There is a positive side to thinking longer-term. It’s not just that you have to resign yourself to everything taking longer than it should. If you work patiently it’s less stressful, and you can do better work:

Because we’re relaxed, it’s so much easier to have fun doing what we do. Gone is the awkward nervous energy fueled by the desperate need to not fail guiding our actions. We can concentrate on doing what’s best for our company, product, employees and customers.

That’s why things get so much better when you hit ramen profitability. You can shift into a different mode of working.

7. Lots of Little Things

We often emphasize how rarely startups win simply because they hit on some magic idea. I think founders have now gotten that into their heads. But a lot were surprised to find this also applies within startups. You have to do lots of different things:

It’s much more of a grind than glamorous. A timeslice selected at random would more likely find me tracking down a weird DLL loading bug on Swedish Windows, or tracking down a bug in the financial model Excel spreadsheet the night before a board meeting, rather than having brilliant flashes of strategic insight.

Most hacker-founders would like to spend all their time programming. You won’t get to, unless you fail. Which can be transformed into: If you spend all your time programming, you will fail.

The principle extends even into programming. There is rarely a single brilliant hack that ensures success:

I learnt never to bet on any one feature or deal or anything to bring you success. It is never a single thing. Everything is just incremental and you just have to keep doing lots of those things until you strike something.

Even in the rare cases where a clever hack makes your fortune, you probably won’t know till later:

There is no such thing as a killer feature. Or at least you won’t know what it is.

So the best strategy is to try lots of different things. The reason not to put all your eggs in one basket is not the usual one, which applies even when you know which basket is best. In a startup you don’t even know that.

8. Start with Something Minimal

Lots of founders mentioned how important it was to launch with the simplest possible thing. By this point everyone knows you should release fast and iterate. It’s practically a mantra at YC. But even so a lot of people seem to have been burned by not doing it:

Build the absolute smallest thing that can be considered a complete application and ship it.

Why do people take too long on the first version? Pride, mostly. They hate to release something that could be better. They worry what people will say about them. But you have to overcome this:

Doing something “simple” at first glance does not mean you aren’t doing something meaningful, defensible, or valuable.

Don’t worry what people will say. If your first version is so impressive that trolls don’t make fun of it, you waited too long to launch. 3

One founder said this should be your approach to all programming, not just startups, and I tend to agree.

Now, when coding, I try to think “How can I write this such that if people saw my code, they’d be amazed at how little there is and how little it does?”

Over-engineering is poison. It’s not like doing extra work for extra credit. It’s more like telling a lie that you then have to remember so you don’t contradict it.

9. Engage Users

Product development is a conversation with the user that doesn’t really start till you launch. Before you launch, you’re like a police artist before he’s shown the first version of his sketch to the witness.

It’s so important to launch fast that it may be better to think of your initial version not as a product, but as a trick for getting users to start talking to you.

I learned to think about the initial stages of a startup as a giant experiment. All products should be considered experiments, and those that have a market show promising results extremely quickly.

Once you start talking to users, I guarantee you’ll be surprised by what they tell you.

When you let customers tell you what they’re after, they will often reveal amazing details about what they find valuable as well what they’re willing to pay for.

The surprise is generally positive as well as negative. They won’t like what you’ve built, but there will be other things they would like that would be trivially easy to implement. It’s not till you start the conversation by launching the wrong thing that they can express (or perhaps even realize) what they’re looking for.

10. Change Your Idea

To benefit from engaging with users you have to be willing to change your idea. We’ve always encouraged founders to see a startup idea as a hypothesis rather than a blueprint. And yet they’re still surprised how well it works to change the idea.

Normally if you complain about something being hard, the general advice is to work harder. With a startup, I think you should find a problem that’s easy for you to solve. Optimizing in solution-space is familiar and straightforward, but you can make enormous gains playing around in problem-space.

Whereas mere determination, without flexibility, is a greedy algorithm that may get you nothing more than a mediocre local maximum:

When someone is determined, there’s still a danger that they’ll follow a long, hard path that ultimately leads nowhere.

You want to push forward, but at the same time twist and turn to find the most promising path. One founder put it very succinctly:

Fast iteration is the key to success.

One reason this advice is so hard to follow is that people don’t realize how hard it is to judge startup ideas, particularly their own. Experienced founders learn to keep an open mind:

Now I don’t laugh at ideas anymore, because I realized how terrible I was at knowing if they were good or not.

You can never tell what will work. You just have to do whatever seems best at each point. We do this with YC itself. We still don’t know if it will work, but it seems like a decent hypothesis.

11. Don’t Worry about Competitors

When you think you’ve got a great idea, it’s sort of like having a guilty conscience about something. All someone has to do is look at you funny, and you think “Oh my God, they know.”

These alarms are almost always false:

Companies that seemed like competitors and threats at first glance usually never were when you really looked at it. Even if they were operating in the same area, they had a different goal.

One reason people overreact to competitors is that they overvalue ideas. If ideas really were the key, a competitor with the same idea would be a real threat. But it’s usually execution that matters:

All the scares induced by seeing a new competitor pop up are forgotten weeks later. It always comes down to your own product and approach to the market.

This is generally true even if competitors get lots of attention.

Competitors riding on lots of good blogger perception aren’t really the winners and can disappear from the map quickly. You need consumers after all.

Hype doesn’t make satisfied users, at least not for something as complicated as technology.

12. It’s Hard to Get Users

A lot of founders complained about how hard it was to get users, though.

I had no idea how much time and effort needed to go into attaining users.

This is a complicated topic. When you can’t get users, it’s hard to say whether the problem is lack of exposure, or whether the product’s simply bad. Even good products can be blocked by switching or integration costs:

Getting people to use a new service is incredibly difficult. This is especially true for a service that other companies can use, because it requires their developers to do work. If you’re small, they don’t think it is urgent. 4

The sharpest criticism of YC came from a founder who said we didn’t focus enough on customer acquisition:

YC preaches “make something people want” as an engineering task, a never ending stream of feature after feature until enough people are happy and the application takes off. There’s very little focus on the cost of customer acquisition.

This may be true; this may be something we need to fix, especially for applications like games. If you make something where the challenges are mostly technical, you can rely on word of mouth, like Google did. One founder was surprised by how well that worked for him:

There is an irrational fear that no one will buy your product. But if you work hard and incrementally make it better, there is no need to worry.

But with other types of startups you may win less by features and more by deals and marketing.

13. Expect the Worst with Deals

Deals fall through. That’s a constant of the startup world. Startups are powerless, and good startup ideas generally seem wrong. So everyone is nervous about closing deals with you, and you have no way to make them.

This is particularly true with investors:

In retrospect, it would have been much better if we had operated under the assumption that we would never get any additional outside investment. That would have focused us on finding revenue streams early.

My advice is generally pessimistic. Assume you won’t get money, and if someone does offer you any, assume you’ll never get any more.

If someone offers you money, take it. You say it a lot, but I think it needs even more emphasizing. We had the opportunity to raise a lot more money than we did last year and I wish we had.

Why do founders ignore me? Mostly because they’re optimistic by nature. The mistake is to be optimistic about things you can’t control. By all means be optimistic about your ability to make something great. But you’re asking for trouble if you’re optimistic about big companies or investors.

14. Investors Are Clueless

A lot of founders mentioned how surprised they were by the cluelessness of investors:

They don’t even know about the stuff they’ve invested in. I met some investors that had invested in a hardware device and when I asked them to demo the device they had difficulty switching it on.

Angels are a bit better than VCs, because they usually have startup experience themselves:

VC investors don’t know half the time what they are talking about and are years behind in their thinking. A few were great, but 95% of the investors we dealt with were unprofessional, didn’t seem to be very good at business or have any kind of creative vision. Angels were generally much better to talk to.

Why are founders surprised that VCs are clueless? I think it’s because they seem so formidable.

The reason VCs seem formidable is that it’s their profession to. You get to be a VC by convincing asset managers to trust you with hundreds of millions of dollars. How do you do that? You have to seem confident, and you have to seem like you understand technology. 5

15. You May Have to Play Games

Because investors are so bad at judging you, you have to work harder than you should at selling yourself. One founder said the thing that surprised him most was

The degree to which feigning certitude impressed investors.

This is the thing that has surprised me most about YC founders’ experiences. This summer we invited some of the alumni to talk to the new startups about fundraising, and pretty much 100% of their advice was about investor psychology. I thought I was cynical about VCs, but the founders were much more cynical.

A lot of what startup founders do is just posturing. It works.

VCs themselves have no idea of the extent to which the startups they like are the ones that are best at selling themselves to VCs. 6 It’s exactly the same phenomenon we saw a step earlier. VCs get money by seeming confident to LPs, and founders get money by seeming confident to VCs.

16. Luck Is a Big Factor

With two such random linkages in the path between startups and money, it shouldn’t be surprising that luck is a big factor in deals. And yet a lot of founders are surprised by it.

I didn’t realize how much of a role luck plays and how much is outside of our control.

If you think about famous startups, it’s pretty clear how big a role luck plays. Where would Microsoft be if IBM insisted on an exclusive license for DOS?

Why are founders fooled by this? Business guys probably aren’t, but hackers are used to a world where skill is paramount, and you get what you deserve.

When we started our startup, I had bought the hype of the startup founder dream: that this is a game of skill. It is, in some ways. Having skill is valuable. So is being determined as all hell. But being lucky is the critical ingredient.

Actually the best model would be to say that the outcome is the product of skill, determination, and luck. No matter how much skill and determination you have, if you roll a zero for luck, the outcome is zero.

These quotes about luck are not from founders whose startups failed. Founders who fail quickly tend to blame themselves. Founders who succeed quickly don’t usually realize how lucky they were. It’s the ones in the middle who see how important luck is.

17. The Value of Community

A surprising number of founders said what surprised them most about starting a startup was the value of community. Some meant the micro-community of YC founders:

The immense value of the peer group of YC companies, and facing similar obstacles at similar times.

which shouldn’t be that surprising, because that’s why it’s structured that way. Others were surprised at the value of the startup community in the larger sense:

How advantageous it is to live in Silicon Valley, where you can’t help but hear all the cutting-edge tech and startup news, and run into useful people constantly.

The specific thing that surprised them most was the general spirit of benevolence:

One of the most surprising things I saw was the willingness of people to help us. Even people who had nothing to gain went out of their way to help our startup succeed.

and particularly how it extended all the way to the top:

The surprise for me was how accessible important and interesting people are. It’s amazing how easily you can reach out to people and get immediate feedback.

This is one of the reasons I like being part of this world. Creating wealth is not a zero-sum game, so you don’t have to stab people in the back to win.

18. You Get No Respect

There was one surprise founders mentioned that I’d forgotten about: that outside the startup world, startup founders get no respect.

In social settings, I found that I got a lot more respect when I said, “I worked on Microsoft Office” instead of “I work at a small startup you’ve never heard of called x.”

Partly this is because the rest of the world just doesn’t get startups, and partly it’s yet another consequence of the fact that most good startup ideas seem bad:

If you pitch your idea to a random person, 95% of the time you’ll find the person instinctively thinks the idea will be a flop and you’re wasting your time (although they probably won’t say this directly).

Unfortunately this extends even to dating:

It surprised me that being a startup founder does not get you more admiration from women.

I did know about that, but I’d forgotten.

19. Things Change as You Grow

The last big surprise founders mentioned is how much things changed as they grew. The biggest change was that you got to program even less:

Your job description as technical founder/CEO is completely rewritten every 6-12 months. Less coding, more managing/planning/company building, hiring, cleaning up messes, and generally getting things in place for what needs to happen a few months from now.

In particular, you now have to deal with employees, who often have different motivations:

I knew the founder equation and had been focused on it since I knew I wanted to start a startup as a 19 year old. The employee equation is quite different so it took me a while to get it down.

Fortunately, it can become a lot less stressful once you reach cruising altitude:

I’d say 75% of the stress is gone now from when we first started. Running a business is so much more enjoyable now. We’re more confident. We’re more patient. We fight less. We sleep more.

I wish I could say it was this way for every startup that succeeded, but 75% is probably on the high side.

The Super-Pattern

There were a few other patterns, but these were the biggest. One’s first thought when looking at them all is to ask if there’s a super-pattern, a pattern to the patterns.

I saw it immediately, and so did a YC founder I read the list to. These are supposed to be the surprises, the things I didn’t tell people. What do they all have in common? They’re all things I tell people. If I wrote a new essay with the same outline as this that wasn’t summarizing the founders’ responses, everyone would say I’d run out of ideas and was just repeating myself.

What is going on here?

When I look at the responses, the common theme is that starting a startup was like I said, but way more so. People just don’t seem to get how different it is till they do it. Why? The key to that mystery is to ask, how different from what? Once you phrase it that way, the answer is obvious: from a job. Everyone’s model of work is a job. It’s completely pervasive. Even if you’ve never had a job, your parents probably did, along with practically every other adult you’ve met.

Unconsciously, everyone expects a startup to be like a job, and that explains most of the surprises. It explains why people are surprised how carefully you have to choose cofounders and how hard you have to work to maintain your relationship. You don’t have to do that with coworkers. It explains why the ups and downs are surprisingly extreme. In a job there is much more damping. But it also explains why the good times are surprisingly good: most people can’t imagine such freedom. As you go down the list, almost all the surprises are surprising in how much a startup differs from a job.

You probably can’t overcome anything so pervasive as the model of work you grew up with. So the best solution is to be consciously aware of that. As you go into a startup, you’ll be thinking “everyone says it’s really extreme.” Your next thought will probably be “but I can’t believe it will be that bad.” If you want to avoid being surprised, the next thought after that should be: “and the reason I can’t believe it will be that bad is that my model of work is a job.”

Notes

1 Graduate students might understand it. In grad school you always feel you should be working on your thesis. It doesn’t end every semester like classes do.

2 The best way for a startup to engage with slow-moving organizations is to fork off separate processes to deal with them. It’s when they’re on the critical path that they kill you—when you depend on closing a deal to move forward. It’s worth taking extreme measures to avoid that.

3 This is a variant of Reid Hoffman’s principle that if you aren’t embarrassed by what you launch with, you waited too long to launch.

4 The question to ask about what you’ve built is not whether it’s good, but whether it’s good enough to supply the activation energy required.

5 Some VCs seem to understand technology because they actually do, but that’s overkill; the defining test is whether you can talk about it well enough to convince limited partners.

6 This is the same phenomenon you see with defense contractors or fashion brands. The dumber the customers, the more effort you expend on the process of selling things to them rather than making the things you sell.

Thanks: to Jessica Livingston for reading drafts of this, and to all the founders who responded to my email.

A great post by Chris Dixon:

A frequent question entrepreneurs have when they are just starting their company is:  how secretive should I be about my idea?  My answer:  you should talk about it to almost anyone who will listen.  This includes investors, entrepreneurs, people who work in similar areas, friends, people on the street, the bartender, etc.

There are lots of benefits to talking to people.  You’ll get suggestions for improvements.  You’ll discover flaws and hopefully correct them.   You’ll learn a lot more about the sector/industry.  You’ll learn about competitive products that exist or are being built.  You’ll gauge people’s excitement level for the product and for various features.  You’ll refine your sales and investor pitch.  You might even discover your idea is a bad idea and save yourself years of hitting your head against the wall.

In terms of the risk of someone stealing your idea, there are at best a handful of people in the world who might actually drop everything and copy your idea.

First of all, most people will probably think your idea is stupid.  This does not mean your idea is stupid.  In fact, if everyone loves your idea, I might be worried that it’s not forward thinking enough.

People at large related companies almost always think they have already built or are in the process of building all the good ideas – so your idea is either something they are already building (which is a good thing to discover early) or else they will dismiss it as a bad idea.  (I have a personal diligence rule that when speaking to people at large companies, the facts that they tell you are very useful but their opinions about startup ideas no more valuable than any other smart person’s opinions).

In terms of speaking to other entrepreneurs, the vast majority are already working on something and are highly unlikely to drop everything and copy you.  Even if they are in the idea generation phase, high integrity entrepreneurs wouldn’t copy your idea anyways.

VC’s will either not like your idea, or else like it and possibly want to fund you.  They vastly prefer funding an existing team than taking an idea and building a team.  The one risk is if they have entrepreneurs they are working with in a similar area (see next paragraph).  Most VCs have enough integrity to disclose this and let you decide how much detail to go into.

The handful of people in the world who might copy your idea are entrepreneurs just starting up with a very similar idea.  You can probably just explicitly avoid these people, although by talking to lots of people your ideas will likely seep through to them.

Even if your idea gets in the wrong hands, they will probably just get the high level “elevator pitch” which isn’t worth much anyways. Hopefully by that time you’ve developed the idea much further and in much greater detail – by talking to as many people as possible.

A note about NDAs:  1) almost no experienced entrepreneurs/VCs will sign them (in fact, you asking them too is widely considered a sign of inexperience), 2) It’s not clear they have any real value – are you really going to spend years suing someone who signed an NDA?  I’ve personally never heard of it happening.

(i)  Founding with Friends or Founding with Strangers?

(ii) Do You Have These 5 Traits to Do Your Own Thing?

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