POSTS FOR 2011

Lessons I've learned from running a startup

Tech Industry2547 words12 minutes to read

In July 2006, I co-founded a startup along with three of the smartest guys I’ve ever met. Four and a half years later, the company has just recently launched something that I’d consider pre-alpha.

Although I’m no longer with the company, I truly wish the remaining team the absolute best. We had some groundbreaking and innovative ideas, and I hope that a real, viable product will emerge soon. Thomas Edison — inventor of the lightbulb — once said “I’ve never failed. I’ve simply found 10,000 ways that don’t work.” Up until today, WarpShare has been — by nearly all definitions — a business failure.

That doesn’t mean that it will continue to be a business failure, only that the team hasn’t yet gotten to where we/they need to be, even after four-someodd years. Starting and running an early-stage company has been simultaneously the greatest and worst experience of my entire life, besides raising my children, of course. Here are some lessons that I’ve learned along the way.

Your business plan doesn’t matter.

It doesn’t. At all. It doesn’t matter because it’s all going to change. Tomorrow you’ll realize that somebody else is doing a better version of your idea.

On the other hand, you might realize that this teeny-tiny idea you have is actually much bigger than you’d originally thought, and you’ll need to adjust everything to take the modified idea into account. Perhaps you expect it to change. Perhaps you know it’s not perfect. Great, because at least your either honest or smart enough to know that. Having a business plan written down isn’t bad; just make sure that you treat it as a rough draft at all times. It’s not final, and it never will be. If it is final, then you’re either the very smartest or very dumbest entrepreneur in the entire world.

If you’re planning to go for a venture capital (“VC”) round, know that VCs don’t care about the plan — they care about your team. Rather, they need to believe in your team’s ability to execute a great idea. If you don’t believe in either your team or the idea, VCs will sniff that out and you’ll get nowhere with them. If a VC firm has never heard of you before, you’re less likely to get funded. That’s the long and the short of it.

It’s also important to understand the culture of the area where you’re trying to get funded. In San Francisco it’s all about what you’ve done; in Los Angeles it’s all about who you know. Of course, if you can start a business around selling a product or service that people will pay for, you’re already ahead of the VC-funded crowd. Do that instead, if you can.

Choose your business partners like you would choose your spouse.

You wouldn’t just marry anybody, would you? Well, those of us with brains in our skulls wouldn’t. Some people treat marriage like a revolving door. Don’t select people like that to be your business partners.

First of all, you want to find people who’s personalities and skill sets complement yours. They should be strong in areas where you’re weak. You should be strong in areas where they’re weak. If there’s a critical gap somewhere, find another business partner that fills the gap. Remember, there’s nothing wrong with having multiple business partners.

Secondly, know that your business partners will become like spouses to you. You’re going to spend a lot of time with them as you work together toward a common goal. That also means that if there’s friction, there are two ways to handle it — lock yourselves together in a room and hash it out until you’ve resolved your differences, or you can separate and get divorced. Trust me, the latter is much harder to go through than the former.

Fortunately for our team, there were a few things that helped us work through our issues.

  1. We had a rule: If you’re going to crap on the table, bring a shovel. What that meant was that if you didn’t like the idea that was currently on the table, bring a better idea.

  2. We were all interested in finding the best idea, not simply trying to get the others to accept our own idea.

  3. We were all willing to fight for what we believed was the best idea. There was nobody on the team who would just roll over. We all had personalities who were willing to engage, discuss, argue, fight, throw chairs, and anything else that needed to happen in order to find the best idea in the room.

  4. We all valued the friendships that we had with each other. Even though I’m no longer with the company and live 1,000 miles away from them, those guys are my family. We’ve been through the fire together, and we’ll be bonded for life.

A good investor meeting means nothing if they don’t write a check.

During the years that I was with WarpShare, we had lots of good meetings, but very few checks were actually written. We had people tell us that they loved our ideas. They said that we could be the next Facebook or Google! But when it came time to sit down and write a check, they hemmed and hawed and floundered around. They would be busy with family stuff. They would be traveling that week, so they’d get back to us next week. They would “forget”.

To be fair, we were also trying to fund-raise during the real estate crash of 2008. Some of the people who would have written checks had just lost a lot of money in the crash. I learned the hard way that a good investor meeting means nothing if you can’t feed your family. If it were only me, I would have no problem sleeping on the couch in the office, coding 20 hours a day, eating nothing but 19 cent ramen noodles all day, every day. I believed in what we were doing that much. But I couldn’t drag my family through that. That sort of lifestyle was not what my family signed up for.

Don’t get starry eyes just yet.

“This could be a multi-billion dollar opportunity!” It was difficult to avoid daydreaming about what it would be like to own 10–20% of a company that big. We could’ve been the next Apple, Google, Facebook, Twitter, or [insert awe-inspiring startup here].

My wife started making plans based on what we thought would happen in the next 6–12 months. She was a loan officer for Washington Mutual Bank and was suddenly having a tough time closing deals (Washington Mutual ended up getting eaten alive during the real estate crash, and its assets were handed over to J.P. Morgan Chase). Since our startup was sure to be wildly successful in the next few months, she decided to go back to school.

Instead the opposite happened. The housing market tanked and took the investment community down with it. Thousands of companies started shedding employees by the ton. My wife was laid-off and pretty much all of our investment deals fell through — all at the same time. It was the perfect storm.

We went from making $150,000 a year to having no income at all, within only a few months. We liquidated all of our assets and maxed out all of our credit cards to try and stay afloat just a little longer. “We did have that good investor meeting, after all. Maybe they’ll write us a check next week.” While work ethic, determination and perseverance are valuable traits for a startup founder, starry eyes will only deceive you. If you’re successful, you could end up being an accidental billionaire. If not, you could end up being financially ruined.

It will take a toll on your family.

While we started out with four co-founders, one of them was only there to help us get started and offer his network of connections to us. There’s absolutely nothing wrong with that, but in the end, there were three of us who were fully invested in making this thing go.

They say that startup founders experience really high “highs” and really low “lows.” This is the truest statement I’ve ever heard with regard to startup life. But when you found a new startup immediately before the whole country goes into a massive recession, you encounter far more lows than you do highs. Of the three of us, two of us ended up divorced. The one who didn’t was the bachelor of the group.

Now, I’m not saying that every startup founder will go through this, and in our cases the startup was not the only factor in the equation, but it will definitely take a toll on you and your family. Plan on it. While I was going through a complete financial, marital and business meltdown in 2008, I would occasionally tweet obscure references to how I was feeling and what I was going through. I had several of my followers ping me asking if everything was okay. I think they were genuinely worried about me. I will never cease to be amazed by the kindness of strangers.

Shipping is your most valuable feature.

It doesn’t matter how awesome your idea is or how great those investor talks are going. If you don’t ship, you have nothing. Let me say that again: If you don’t ship, you have nothing. Rands once said “shipping a 1.0 won’t kill you, but it will sure try.” Shipping a product is tough. By the time you’ve reached the point where you’re shipping, you’ve:

  1. Gotten together your initial team.
  2. Burned through some cash.
  3. Done a ton of planning.
  4. Done a ton of coding.
  5. Argued with your team about the right thing to build.
  6. A ton of other stuff.

You want to know the funny thing? Shipping a 1.0 is only step 1. After that, you have users, customer service, feature requests, bug reports, scalability issues, and a ton of other stuff to worry about.

So how do you get to a shipping product? You start coding. We encountered some issues with our business a few months after we incorporated that caused us to have to reset. We spent nearly a year trying to recover and get back on-track with an idea that made sense. After we figured out the big idea, we then had to translate that big idea into an actual product. Once we figured out what the product would be, we tried to figure out what it looked like, how it would work, etc.

By this point, we were long-since out of cash. I’d taken on another daytime job to pay the bills. All-in-all, we burned a lot of time and a lot of cash just trying to figure out what the heck we were going to do. All along the way, we’d been trying to get VC funding so that we could feed our families and hire some people to help us make progress in narrowing our focus so that we could build something.

Unfortunately, none of the VCs had ever heard of us before, and we didn’t have a product to show them yet. Finally, in May 2009 we restarted development in earnest. Over the next 10 months until I left to join Amazon Web Services, we were able to accomplish a lot considering how abysmally resource-constrained we were. The next time around, I plan to do a few things very differently.

  1. I won’t quit my daytime job until I believe that the idea is going to go somewhere.

  2. Focus on building the minimum viable product. In our case, we had to significantly narrow our scope so that we could figure out what to build first. We were all so excited about the future that we couldn’t figure out where to start.

  3. Your customers are not venture capitalists, so don’t make the mistake of trying to build something that you think VCs will fund. Instead, build something that users will love. VC money will follow the users. In our case, we didn’t have the resources to build something awesome for users, so we tried to build for VCs to get the money to build for our users. This strategy never worked for us, not even once, and in retrospect it was one of the worst ideas we ever had.

  4. Demo, don’t pitch. Again, VCs don’t care about pitches. If you’ve never done a successful startup before, then they’re not going to fund you anyway. If you don’t have something working that you can show them, don’t even bother setting up the meeting. Realistically, you need a working demo to pitch to angel investors. You need a live product with real users to pitch to VCs. If all that you show up with is a tie and a piece of paper talking about what your business plan is, you’ve just wasted the time of everybody in the room — including your own.

Perseverance is paramount.

Once you go all-in on your startup, you need to be truly all-in. If you want to succeed, you need to treat this project like a life-or-death situation. You need to believe that you will live or die by the success of what you’re working on. If you hedge your bet and leave yourself an out, you won’t make it. Paul Graham, a VC from YCombinator, once said:

When startups die, the official cause of death is always either running out of money or a critical founder bailing. Often the two occur simultaneously. But I think the underlying cause is usually that they’ve become demoralized. You rarely hear of a startup that’s working around the clock doing deals and pumping out new features, and dies because they can’t pay their bills and their ISP unplugs their server. Startups rarely die in mid keystroke. So keep typing!

This is the one piece of advice that got me through so many of those dark, demoralizing days. Just keep typing.

Conclusion.

While my own experience as a startup founder has thus far led to a business that hasn’t yet succeeded, it doesn’t mean that yours will end up the same way. Whether you’re trying to do an Internet startup like me, or simply trying to start a consulting business out of your home, all of the aforementioned points apply.

  1. Your business plan doesn’t matter. Doing something is what matters.

  2. Choose your business partners like you would choose your spouse.

  3. If you’re looking for funding, only the check matters.

  4. Focus on what you can do here and now — not at some arbitrary point in the future.

  5. It can take a toll on your family. Families can’t go on autopilot. Take time away from work to spend with the people you love.

  6. If you don’t ship, you have nothing. Or (if you’re providing a service instead of a product) if you’re not currently providing the service, you have nothing.

  7. The only person who can make this thing go is you. It will be hard. It will be frustrating. Make it go anyway.

Finally, while this is by no means an exhaustive list, I would recommend spending some quality time digesting the writing from the following authors:

Ryan Parman

Ryan Parman is an experienced Software/DevOps/Security engineer, currently living in Seattle. He is the creator of and , patented multifactor-authentication-as-a-service at , and came up with the idea of “serverless, event-driven, responsive functions in the cloud” while at AWS in 2010. Ryan's aptly-named blog, , is where he writes about ideas longer than . Ambivert. Curious. Not a coffee drinker.