thegoodfellas/blogset-br huggingface dataset:
enough to be involved in and exposed to a broad range of other startups -- maybe 40 or 50 in enough detail to know what I'm talking about -- since arriving in Silicon Valley in 1994: as a board member, as an angel investor, as an advisor, as a friend of various founders, and as a participant in various venture capital funds.This series will focus on lessons learned from this entire cross-section of Silicon Valley startups -- so don't think that anything I am talking about is referring to one of my own companies: most likely when I talk about a scenario I have seen or something I have experienced, it is from some other startup that I am not naming but was involved with some other way than as a founder.Finally, much of my perspective is based on Silicon Valley and the environment that we have here -- the culture, the people, the venture capital base, and so on. Some of it will travel well to other regions and countries, some probably will not. Caveat emptor.With all that out of the way, let's start at the beginning: why not to do a startup.Startups, even in the wake of the crash of 2000, have become imbued with a real mystique -- you read a lot about how great it is to do a startup, how much fun it is, what with the getting to invent the future, all the free meals, foosball tables, and all the rest.Now, it is true that there are a lot of great things about doing a startup. They include, in my experience:Most fundamentally, the opportunity to be in control of your own destiny -- you get to succeed or fail on your own, and you don't have some bozo telling you what to do. For a certain kind of personality, this alone is reason enough to do a startup.The opportunity to create something new -- the proverbial blank sheet of paper. You have the ability -- actually, the obligation -- to imagine a product that does not yet exist and bring it into existence, without any of the constraints normally faced by larger companies.The opportunity to have an impact on the world -- to give people a new way to communicate, a new way to share information, a new way to work together, or anything else you can think of that would make the world a better place. Think it should be easier for low-income people to borrow money? Start Prosper. Think television should be opened up to an infinite number of channels? Start Joost. Think that computers should be based on Unix and open standards and not proprietary technology? Start Sun.The ability to create your ideal culture and work with a dream team of people you get to assemble yourself. Want your culture to be based on people who have fun every day and enjoy working together? Or, are hyper-competitive both in work and play? Or, are super-focused on creating innovative new rocket science technologies? Or, are global in perspective from day one? You get to
choose, and to build your culture and team to suit.And finally, money -- startups done right can of course be highly lucrative. This is not just an issue of personal greed -- when things go right, your team and employees will themselves do very well and will be able to support their families, send their kids to college, and realize their dreams, and that's really cool. And if you're really lucky, you as the entrepreneur can ultimately make profound philanthropic gifts that change society for the better.However, there are many more reasons to not do a startup.First, and most importantly, realize that a startup puts you on an emotional rollercoaster unlike anything you have ever experienced.You will flip rapidly from a day in which you are euphorically convinced you are going to own the world, to a day in which doom seems only weeks away and you feel completely ruined, and back again.Over and over and over.And I'm talking about what happens to stable entrepreneurs.There is so much uncertainty and so much risk around practically everything you are doing. Will the product ship on time? Will it be fast enough? Will it have too many bugs? Will it be easy to use? Will anyone use it? Will your competitor beat you to market? Will you get any press coverage? Will anyone invest in the company? Will that key new engineer join? Will your key user interface designer quit and go to Google? And on and on and on...Some days things will go really well and some things will go really poorly. And the level of stress that you're under generally will magnify those transient data points into incredible highs and unbelievable lows at whiplash speed and huge magnitude.Sound like fun?Second, in a startup, absolutely nothing happens unless you make it happen.This one throws both founders and employees new to startups.In an established company -- no matter how poorly run or demoralized -- things happen. They just happen. People come in to work. Code gets written. User interfaces get designed. Servers get provisioned. Markets get analyzed. Pricing gets studied and determined. Sales calls get made. The wastebaskets get emptied. And so on.A startup has none of the established systems, rhythms, infrastructure that any established company has.In a startup it is very easy for the code to not get written, for the user interfaces to not get designed... for people to not come into work... and for the wastebaskets to not get emptied.You as the founder have to put all of these systems and routines and habits in place and get everyone actually rowing -- forget even about rowing in the right direction: just rowing at all is hard enough at the start.And until you do, absolutely nothing happens.Unless, of course, you do it yourself.Have fun emptying those wastebaskets.Third, you get told no -- a lot.Unless you've spent time in sales, you are probably not familiar with being told no a lot.It's not so much fun.Go watch Death of a Salesman and then Glengarry Glen Ross.That's roughly what it's like.You're going to get told
no by potential employees, potential investors, potential customers, potential partners, reporters, analysts...Over and over and over.And when you do get a "yes", half the time you'll get a call two days later and it'll turn out the answer has morphed into "no".Better start working on your fake smile.Fourth, hiring is a huge pain in the ass.You will be amazed how many windowshoppers you'll deal with.A lot of people think they want to be part of a startup, but when the time comes to leave their cushy job at HP or Apple, they flinch -- and stay.Going through the recruiting process and being seduced by a startup is heady stuff for your typical engineer or midlevel manager at a big company -- you get to participate vicariously in the thrill of a startup without actually having to join or do any of the hard work.As a founder of a startup trying to hire your team, you'll run into this again and again.When Jim Clark decided to start a new company in 1994, I was one of about a dozen people at various Silicon Valley companies he was talking to about joining him in what became Netscape.I was the only one who went all the way to saying "yes" (largely because I was 22 and had no reason not to do it).The rest flinched and didn't do it.And this was Jim Clark, a legend in the industry who was coming off of the most successful company in Silicon Valley in 1994 -- Silicon Graphics Inc.How easy do you think it's going to be for you?Then, once you do get through the windowshoppers and actually hire some people, your success rate on hiring is probably not going to be higher than 50%, and that's if you're good at it.By that I mean that half or more of the people you hire aren't going to work out. They're going to be too lazy, too slow, easily rattled, political, bipolar, or psychotic.And then you have to either live with them, or fire them.Which ones of those sounds like fun?Fifth, God help you, at some point you're going to have to hire executives.You think hiring employees is hard and risky -- wait until you start hiring for VP Engineering, VP Marketing, VP Sales, VP HR, General Counsel, and CFO.Sixth, the hours.There's been a lot of talk in Silicon Valley lately about work/life balance -- about how you should be able to do a startup and simultaneously live a full and fulfilling outside life.Now, personally, I have a lot of sympathy for that point of view.And I try hard in my companies (well, at least my last two companies) to do whatever I can to help make sure that people aren't ground down to little tiny spots on the floor by the workload and the hours.But, it's really difficult.The fact is that startups are incredibly intense experiences and take a lot out of people in the best of circumstances.And just because you want people to have work/life balance, it's not so easy when you're close to running out of
cash, your product hasn't shipped yet, your VC is mad at you, and your Kleiner Perkins-backed competitor in Menlo Park -- you know, the one whose employees' average age seems to be about 19 -- is kicking your butt.Which is what it's going to be like most of the time.And even if you can help your employees have proper work/life balance, as a founder you certainly won't.(In case you were wondering, by the way, the hours do compound the stress.)Seventh, it's really easy for the culture of a startup to go sideways.This combines the first and second items above.This is the emotional rollercoaster wreaking havoc on not just you but your whole company.It takes time for the culture of any company to become "set" -- for the team of people who have come together for the first time to decide collectively what they're all about, what they value -- and how they look at challenge and adversity.In the best case, you get an amazing dynamic of people really pulling together, supporting one another, and working their collective tails off in pursuit of a dream.In the worst case, you end up with widespread, self-reinforcing bitterness, disillusionment, cynicism, bad morale, contempt for management, and depression.And you as the founder have much less influence over this than you'll think you do.Guess which way it usually goes.Eighth, there are lots of X factors that can come along and whup you right upside the head, and there's absolutely nothing you can do about them.Stock market crashes.Terrorist attacks.Natural disasters.A better funded startup with a more experienced team that's been hard at work longer than you have, in stealth mode, that unexpectedly releases a product that swiftly comes to dominate your market, completely closing off your opportunity, and you had no idea they were even working on it.At best, any given X factor might slam shut the fundraising window, cause customers to delay or cancel purchases -- or, at worst, shut down your whole company.Russian mobsters laundering millions of dollars of dirty money through your service, resulting in the credit card companies closing you down.You think I'm joking about that one?OK, now here's the best part:I haven't even talked about figuring out what product to build, building it, taking it to market, and standing out from the crowd.All the risks in the core activities of what your company actually does are yet to come, and to be discussed in future posts in this series.Closing metaphor:The Pmarca Guide to Startups, part 2: When the VCs say "no" Jun 20, 2007This post is about what to do between when the VCs say "no" to funding your startup, and when you either change their minds or find some other path.I'm going to assume that you've done all the basics: developed a plan and a pitch, decided that venture financing is right for you and you are right for venture financing, lined up meetings with properly qualified VCs, and made your pitch.And the answer has come back and it's "no".One "no" doesn't mean anything -- the VC could just be having a bad
day, or she had a bad experience with another company in your category, or she had a bad experience with another company with a similar name, or she had a bad experience with another founder who kind of looks like you, or her Mercedes SLR McLaren's engine could have blown up on the freeway that morning -- it could be anything. Go meet with more VCs.If you meet with three VCs and they all say "no", it could just be a big coincidence. Go meet with more VCs.If you meet with five, or six, or eight VCs and they all say no, it's not a coincidence.There is something wrong with your plan.Or, even if there isn't, there might as well be, because you're still not getting funded.Meeting with more VCs after a bunch have said no is probably a waste of time. Instead, retool your plan -- which is what this post is about.But first, lay the groundwork to go back in later.It's an old -- and true -- cliche that VCs rarely actually say "no" -- more often they say "maybe", or "not right now", or "my partners aren't sure", or "that's interesting, let me think about it".They do that because they don't want to invest in your company given the current facts, but they want to keep the door open in case the facts change.And that's exactly what you want -- you want to be able to go back to them with a new set of facts, and change their minds, and get to "yes".So be sure to take "no" gracefully -- politely ask them for feedback (which they probably won't give you, at least not completely honestly -- nobody likes calling someone else's baby ugly -- believe me, I've done it), thank them for their time, and ask if you can call them again if things change.Trust me -- they'd much rather be saying "yes" than "no" -- they need all the good investments they can get.Second, consider the environment.Being told "no" by VCs in 1999 is a lot different than being told "no" in 2002.If you were told "no" in 1999, I'm sure you're a wonderful person and you have huge potential and your mother loves you very much, but your plan really was seriously flawed.If you were told "no" in 2002, you probably actually were the next Google, but most of the VCs were hiding under their desks and they just missed it.In my opinion, we're now in a much more rational environment than either of those extremes -- a lot of good plans are being funded, along with some bad ones, but not all the bad ones.I'll proceed under the assumption that we're in normal times. But if things get truly euphoric or truly funereal again, the rest of this post will probably not be very helpful -- in either case.Third, retool your plan.This is the hard part -- changing the facts of your plan and what you are trying to do, to make your company more fundable.To describe the dimensions that you should consider as
you contemplate retooling your plan, let me introduce the onion theory of risk.If you're an investor, you look at the risk around an investment as if it's an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away -- reduced -- one by one.Your challenge as an entrepreneur trying to raise venture capital is to keep peeling layers of risk off of your particular onion until the VCs say "yes" -- until the risk in your startup is reduced to the point where investing in your startup doesn't look terrifying and merely looks risky.What are the layers of risk for a high-tech startup?It depends on the startup, but here are some of the common ones:Founder risk -- does the startup have the right founding team? A common founding team might include a great technologist, plus someone who can run the company, at least to start. Is the technologist really all that? Is the business person capable of running the company? Is the business person missing from the team altogether? Is it a business person or business people with no technologist, and therefore virtually unfundable?Market risk -- is there a market for the product (using the term product and service interchangeably)? Will anyone want it? Will they pay for it? How much will they pay? How do we know?Competition risk -- are there too many other startups already doing this? Is this startup sufficiently differentiated from the other startups, and also differentiated from any large incumbents?Timing risk -- is it too early? Is it too late?Financing risk -- after we invest in this round, how many additional rounds of financing will be required for the company to become profitable, and what will the dollar total be? How certain are we about these estimates? How do we know?Marketing risk -- will this startup be able to cut through the noise? How much will marketing cost? Do the economics of customer acquisition -- the cost to acquire a customer, and the revenue that customer will generate -- work?Distribution risk -- does this startup need certain distribution partners to succeed? Will it be able to get them? How? (For example, this is a common problem with mobile startups that need deals with major mobile carriers to succeed.)Technology risk -- can the product be built? Does it involve rocket science -- or an equivalent, like artificial intelligence or natural language processing? Are there fundamental breakthroughs that need to happen? If so, how certain are we that they will happen, or that this team will be able to make them?Product risk -- even assuming the product can in theory be built, can this team build it?Hiring risk -- what positions does the startup need to hire for in order to execute its plan? E.g. a startup planning to build a high-scale web service will need a VP of Operations -- will the founding team be able to hire a good one?Location risk -- where is the startup located? Can it hire the right
talent in that location? And will I as the VC need to drive more than 20 minutes in my Mercedes SLR McLaren to get there?You know, when you stack up all these layers and look at the full onion, you realize it's amazing that any venture investments ever get made.What you need to do is take a hard-headed look at each of these risks -- and any others that are specific to your startup and its category -- and put yourself in the VC's shoes: what could this startup do to minimize or eliminate enough of these risks to make the company fundable?Then do those things.This isn't very much fun, since it will probably involve making significant changes to your plan, but look on the bright side: it's excellent practice for when your company ultimately goes public and has to file an S1 registration statement with the SEC, in which you have to itemize in huge detail every conceivable risk and bad thing that could ever possibly happen to you, up to and including global warming.Some ideas on reducing risk:Founder risk -- the tough one. If you're the technologist on a founding team with a business person, you have to consider the possibility that the VCs don't think the business person is strong enough to be the founding CEO. Or vice versa, maybe they think the technologist isn't strong enough to build the product. You may have to swap out one or more founders, and/or add one or more founders.I put this one right up front because it can be a huge issue and the odds of someone being honest with you about it in the specific are not that high.Market risk -- you probably need to validate the market, at a practical level. Sometimes more detailed and analytical market research will solve the problem, but more often you actually need to go get some customers to demonstrate that the market exists. Preferably, paying customers. Or at least credible prospects who will talk to VCs to validate the market hypothesis.Competition risk -- is your differentiation really sharp enough? Rethink this one from the ground up. Lots of startups do not have strong enough differentiation out of the gate, even after they get funded. If you don't have a really solid idea as to how you're dramatically different from or advantaged over known and unknown competitors, you might not want to start a company in the first place.Two additional points on competition risk that founders routinely screw up in VC pitches:Never, ever say that you have no competitors. That signals naivete. Great markets draw competitors, and so if you really have no competition, you must not be in a great market. Even if you really believe you have no competitors, create a competitive landscape slide with adjacent companies in related market segments and be ready to talk crisply about how you are like and unlike those adjacent companies.And never, ever say your market projections indicate you're going to be hugely successful if you get only 2% of your (extremely large) market. That also
signals naivete. If you're going after 2% of a large market, that means the presumably larger companies that are going to take the other 98% are going to kill you. You have to have a theory for how you're going to get a significantly higher market share than 2%. (I pick 2% because that's the cliche, but if you're a VC, you've probably heard someone use it.)Timing risk -- the only thing to do here is to make more progress, and demonstrate that you're not too early or too late. Getting customers in the bag is the most valuable thing you can do on this one.Financing risk -- rethink very carefully how much money you will need to raise after this round of financing, and try to change the plan in plausible ways to require less money. For example, only serve Cristal at your launch party, and not Remy Martin "Black Pearl" Louis XIII cognac.Marketing risk -- first, make sure your differentiation is super-sharp, because without that, you probably won't be able to stand out from the noise.Then, model out your customer acquisition economics in detail and make sure that you can show how you'll get more revenue from a customer than it will cost in sales and marketing expense to acquire that customer. This is a common problem for startups pursuing the small business market, for example.If it turns out you need a lot of money in absolute terms for marketing, look for alternate approaches -- perhaps guerilla marketing, or some form of virality.Distribution risk -- this is a very tough one -- if your plan has distribution risk, which is to say you need a key distribution partner to make it work, personally I'd recommend shelving the plan and doing something else. Otherwise, you may need to go get the distribution deal before you can raise money, which is almost impossible.Technology risk -- there's only one way around this, which is to build the product, or at least get it to beta, and then raise money.Product risk -- same answer -- build it.Hiring risk -- the best way to address this is to figure out which position/positions the VCs are worried about, and add it/them to the founding team. This will mean additional dilution for you, but it's probably the only way to solve the problem.Location risk -- this is the one you're really not going to like. If you're not in a major center of entrepreneurialism and you're having trouble raising money, you probably need to move. There's a reason why most films get made in Los Angeles, and there's a reason most venture-backed US tech startups happen in Silicon Valley and handful of other places -- that's where the money is. You can start a company wherever you want, but you may not be able to get it funded there.You'll notice that a lot of what you may need to do is kick the ball further down the road -- make more progress against your plan before you raise venture capital.This obviously raises the issue of how you're