- Poor leadership (me). Inability to align team on a common goal (!), inability to communicate clearly about plans, etc.
I learned that I'm not the leader I thought I was.
- Canadian business. Means US B2B enterprise checks get stopped at the border for 3 weeks while they 'investigate'. Makes your last mile enterprise sale that much harder. Investors are conservative. Wanted $5-10k MRR before considering angel-level investment, no go until then. Harder to compete against Valley companies.
I learned get the revenue first anyway, the days of bootstrap a free service until funding are harder and harder to come by. Revenue first.
- Problem we were solving was harder than expected (barometer data to weather forecasts). Main product was going to be a weather model but we never made it that far. Data quantity, quality control and user retention were bigger problems preventing us from executing to success. This leads to running out of money.
I learned that hard problems are hard. Your startup doesn't have as many advantages as it thinks it does if the incumbents can copy/do better than you with your "hard problem" solution or if you take too long to build your real MVP.
- Team skills were not right to solve our problems. After company founding and initial pivots we were not left with founders and staff that could solve the problems we now had to solve.
I learned to be careful starting a company with your friends. And that pivoting can have risks like a lack of skill required to complete the pivot.
- Probably the final item would be despair. When things get bad there is almost no way to come back because you've lost the trust of the people who were holding up your fragile startup to begin with.
I learned to know when to quit before driving things into the ground and taking your team with you.
- One more item: If you can catch it before you start a startup, it's a good idea to really make sure your hobby project shouldn't just stay a hobby project. Maybe it has some organic growth and media attention - but that doesn't mean it should be a startup.
I learned to keep my job and my hobby separate. I'm employed with a day job now and I can do phone weather experiments in my free time with a hobby [1], not trying to shoehorn some idea of a startup into an otherwise neat and successful hobby.
My own startup about five years ago (I've worked at several others, all different types of failures):
Running out of money. We were bootstrapped, and the style of work we were doing had some decent capital costs. We failed for a "bargain" (less than 7K), but we had cut to the bone and deeper while trying that. Side jobs to make rent just increased stress and distracted from the business.
Why did we run out of money?
Focused on engineering instead of sales and marketing. Manually spinning up servers would've been the right thing to do--since we instead were both technical we solved technical problems and kinda missed the people side of things. It was real and hard work, but it was not work that was relevant to making sales.
After we ran out of money, why didn't we keep at it?
Stress blocked further work. Too much stress led to neither founder being able to even think about the company and its business without severe anxiety. Times were dark and bad.
~
I learned that you want to prioritize the money funnel over literally every other thing that you as an engineer think matters. Coffee is for closers.
I learned to try out only with other people's money. Don't put your rent and basic living on the line for an idea if you aren't comfortable with what that can entail.
Probably most importantly, I learned that the glorification of the startup lifestyle is a lie perpetuated by people seeking to make money from it at all levels. Nowadays, even the glorification of failure and celebration of mental health seems to be by people looking to advertise their businesses, cure-alls, or just get internet famous.
It's rotten to its bloody core, and unlike finance doesn't even pay well.
"Probably most importantly, I learned that the glorification of the startup lifestyle is a lie perpetuated by people seeking to make money from it at all levels."
This I would say is my main learning point. My first startup failed because of inexperience and team implosion following incapability of generating revenue fast enough on one side, and attract favorable investment on the other. Failure could have been lighter on both me and the other members of the team, was it not for a self-immolation mindset probably driven by glorification of "startup lifestyle". Things fail. Most of the time. Assume failure. Optimize for resiliency. Never expect success as the natural outcome, but rather consider it will come collaterally to continuous reaction to ugly realities, and damn slowly. You can stumble upon a rocket ship, but it is not how businesses usually get to come to life.
I chased and successfully won a huge customer for my small and fledgling startup. I chased and successfully won a sole service contract for a key part of their business process. I allowed a credit situation with them to grow over the course of 3 months while I allowed them to have 60 day terms. And then, they went out of business and left me holding the bag with $150,000 in unpaid AR after I spent $90,000 generating that AR with them.
The lesson is never trust the size of a company as sufficient reasoning that they can and will pay their bills.
I’ve been through something very similar, and I know how much that bad to hurt. Hope you’ve had time to rebound and recover, and thanks for sharing your story!
^ this is real talk. Big companies love to be behind on AP for a variety of reasons, among them:
- Their own 'highly matrixed' organizational structure makes it near impossible to find 'the correct person' to talk to about accounting issues, let alone get a straight answer out of them - so chasing these issues down becomes a huge drag on your time and energy and you may very well just give up after a while
- Past-due invoices are typically penalized with tiny interest percentages [in the <2% range], so even if they do intend to pay eventually, they can gleefully treat you as a bank with really low interest on short-term loans.
- They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. They have a bench full of experienced attorneys, you might have a single one, and they know exactly how to extend and complicate a legal process such that the litigation itself costs you far more than the outstanding AR.
A lot of this is probably true, but it's really to your benefit to understand, as a businessperson, that this is generally how large clients expect to conduct business. You can fight it and even establish better payment terms, but it isn't always worth it. It's usually cheaper just to build a business that is resilient to late payments.
Over the last 15 years or so, a lot of my best customers have been super-late payers. You take the good with the bad.
No doubt about it. An effect of the behavior set I describe above [and I was only describing them -- I've been on both ends of that phone call over the years] is that in these relationships, the established payment terms are kind of irrelevant to the way things actually play out.
I have tackled this issue (late payers) in two ways:
1. My cashflow from other investments ensure I did not run out of money. This is a bad design where I am effectively extending a 0% APR loan to the client with a term of their choosing
2. When I have ARs large enough to entice "parties that handle payments", I choose to let them handle the invoices on my behalf for a cut. A pretty large cut but 80% is better than 0%.
I am effectively looking for a way to optimize the later but happy to hear alternative solutions, specially when the ARs are not large enough to outsource.
For a bootstrapped business, this cashflow can be critical.
I mean, if you're careful about who you work with, 0% isn't really a meaningful risk. Bank of America (or, for that matter, Airbnb) isn't going to default on you; the pain the ass you could generate if they did would cost more than the invoice.
Agreed with a caveat. Having actually worked with BofA, the amount of overhead for a contract could have put me out of business if I was not a BIG5 employee.
The big boys are not even going to consider me unless I am a safe choice (they really don't care if I am a kickass programmer who can solve their problems - they want to do business only if I am a known quantity so that they don't get fired if a deal with me go sideways).
I am really lucky to have positive cashflow because I can be picky about clients but a lot of friends ask me how to get started and my experience with cashflow is that a fantastic business with client set A can absolutely fail compared to the exact same business with client set B just because of cashflow issues.
Maybe I am too old and jaded but now I always ask people to include and test for cashflow in addition to the efficacy of their business ideas vis. market fit.
Honestly though, this becomes too demanding of entrepreneurs who are already overworked with lead gen, product design and development as is.
You should definitely write a few articles about cashflow. People don't write about it enough.
Entrepreneurs should absolutely be thinking about cash flow because it’s essential for survival. Demanding yes but necessary to become a successful startup.
Too many startups riding high on how much revenue they bring in without controlling the costs. If you spend to get revenue, it really isn’t a business (or at least a solid one anyway)
I used to think that offering a 10% discount on invoice to clients for payments within NET30 would motivate them to pay early, but very few clients, specially those complaining about expenses ever made good use of that.
Has this been your experience as well?
... and do you "outsource" your AR for a % of your invoices?
I really don't think we even think about it that much. We have terms in our contract, and we send emails when payment is due, but it's not like we'd ever flip out if someone was late.
You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely.
At Matasano, I remember one of our anchor customers taking something close to a year to pay an invoice.
Late payment penalties are nice, in my experience, because it gives you an extra drum to beat when you are chasing down payment. But they are never actually paid.
I just try to identify anyone who has an accounting (+20%) or purchasing (+50%) department and automatically add to my quoted fees. That premium, the imaginary late payment fee, and occasionally stopping work until the client gets caught up generally makes the situation manageable.
As a consultant I state that I will charge a 10% late fee for every week a payment is late. I’ve never had a late payment. I’d say offering a discount does the exact opposite.
That just gave me a flashback to my college accounting courses. So many examples where a discount was offered for on time payment. Must be a reason that technique has been around long enough to be a fixture in accounting textbooks.
From big co perspective, absolutely true. Tons of other priorities to get out of the door than paying on time. Our invoice process was dreadful. Thinking back, if a vendor made it easy for us, we might always pay on-time!
How big is your average client and how heavily utilized are you? Your experience is very different from mine, but I may be working with larger companies (or you might be working with an idiosyncratic subset --- I don't think I am, though).
I work with companies 1-50mil in revenue typically. I don’t know what the law is when it comes to late fees, the language is mostly there as deterrent. That being said I am VERY picky about who I work with so I’ve never had a late payment or nonpayment, I suspect that’s more due to the screening process than the language in contract. If I ever had to actually charge a 10, 20 or 30% late fee, I would not pursue it and choke it up to a business loss and forget about it, move on. Cost of doing business.
I’m pretty sure that violates most State usury laws.
Note that I’m not referring to charging interest for late payment as being illegal. I’m specifically referring to charging 10% compounded weekly, which comes out about 14200% annualized.
Probably not. Even in states that don't exclude fees unrelated to an actual loan of money, it looks like contracted late fees between businesses are excluded from usury definitions (that's the case in NY, for instance).
I'm curious if there's any examples of this ever happening. Some company keeps ignoring a contractor's requests for a couple of years and ends up owing ~$20 million on a thousand dollar debt.
But like you, I'm pretty skeptical. Probably wouldn't hold up in court.
The outcome would be entirely random - dependent on the inclination of the judges.
A sensible business would settle out of court with a very low offer. A sensible contractor would accept the offer.
But generally this is another example of corporate privilege.
In reality, late payments kill many small businesses. In a political system that was genuinely friendly to the small guy, fines for late payment would be mandatory.
You can get credit specifically to solve for that issue, usually at reasonable rates. Short-term small business loan facilities exist. Another decent option if you're reasonably sure you'll receive payment NET30 are credit cards + an online bill-pay service like Plastiq.
> receive payment NET30 are credit cards + an online bill-pay service like Plastiq
I personally have helped out a few businesses with a 2% CB CC (which helps offset the Plastiq fees) that offers a 6-mo 0% APR term but the CL is the limit of the loan which limits the extent of the loan.
Most CCs don't have such gracious terms in which case you could be paying a hefty fee to gain that cashflow.
Having done this a few times, my conclusion is that this is a very bad practise and exposes a business with cashflow issues if this is a regular occurence.
A healthy AR is better than no AR but you know what's even better?
To double down on this it's worth finding out how the customer within the large company pays for things. Sometimes it was easier to get an annual or quarterly contract because that's how a company's accountants dealt with that employee/department's business expenses.
We service Fortune 50 customers in a similar business to what Matasano did. This side of the business is definitely harder than the hacking / technical work. It can be tough to deal with and structuring bigger deals is important. Fast payment is not only important to not being at risk, but a short cash conversion cycle is basically more capital available at lower revenue. Kind of like velocity in the Agile dev world, only for money. There are diminishing returns (edit: in attempting to lower CCC) and large customers will throw you into the meet grinder that is their AP.
I have excellent clients who could not afford to pay for a consultation because they themselves were waiting on the client they were farming out jobs from.
They still work with me because they know I understand their cashflow issues.
That's a self-created problem. It is possible to remain in business while self-creating problem. It is, however, not recommended.
We once were jerked around by a reasonably well known customer. Their accounting people decided they did not need to perform under the payment terms the customer signed off on. First time they did it, I sent an email to the EVP that signed the order. We got an apology and a payment. The next month the same thing happened again - we redirected all their traffic to "We are unable to process your request - please contact your account coordinator to restore access" message and did not remove it until the wire hit our account ( 5pm-8:02am ). We received a letter with apologies from the customer's CEO, customer was saved and they never missed a payment again. I heard, via the grapevine, that three people at the customer's AP group were shown the door as the result of our message.
This really irks me. Are you my customer or are you some kind of onerous business partner so that I have to share the consequences of your business decisions? Sorry, get a bank loan and pay me, then solve the rest of your problems with your client and the bank (i.e. without me).
That's been my experience, just the threat of turning it off has a way of unblocking the system. I usually start with the users of the system who are often as frustrated with the system as we are.
Having said that I mostly don't offer credit terms anymore, my average order value is about £500 which means it isn't worth the time spent chasing late payments. In 99% of cases the customer will find a way of paying upfront.
My previous employer was asking money upfront, the late payment problem was still here and kicked down the road until renewal, but at least the first year was payed in advance which allowed to bootstrap the business.
Also large organisations tend to be horribly bureaucratic, with multiple layers of authorizations and people who happily sit on everything for weeks before they even consider lifting a finger or responding to an email.
they can gleefully treat you as a bank with really low interest on short-term loans
Exactly. On MBA finance courses (and I guess CPAs too) you're taught about working capital - and one half of that is basically stretching supplier payments as far as you can.
> They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes.
If they are well known enough surely a well placed social media post is all that's needed to oil the wheels.
A single company I had a long term business relationship had a similar issue with me. Thankfully I had moved to a developing country and was able to bring costs way down as a result. If I had stayed put, back to work in a cubicle for a time I guess...
I’ve seen similar situations in the past. My experience has been that small business will get excited about “hitting it big” and allow a massive customer to suck up all their resources to the point where sales and marketing are put on hold or altogether stopped, leaving them totally dependent on that one customer for cash.
I’m curious if your experience in this case was similar.
Had the same situation and thankfully had a lawyer that was able to get back 90% of what was owed in about 90 days. Big companies dont recognize that there are people at the end of their invoices sometimes. Sucks.
(NB not criticising you here, but pointing out a cultural problem).
This is a classic cash flow problem in business. Any very simple (usually free) “start a business” course from local government in the UK will cover this. I went on such a course and they explicitly talked, in detail, about this issue. They flagged it as a major cause of business failure.
Point being not to criticise the parent but to emphasise that startups are not different from any other businesses when it comes the basics like cash flow. Something that really stands out in the startup world is how little regard is given to the simple everyday business issues that business advisors the world over teach about every day. Anyone starting a tech business should do a simple course on business basics, in this example it could literally have saved the startup for an investment of a few hours.
There's another overarching term that needs put in here:
Cash Flow: the balancing of AP and AR so that you can stay afloat.
Say your startup needs $10k a week to meet payroll. You have $20k in the bank and Accounts Receivable of $100k. "On paper" you have $120k. Cash flow wise you have 2 weeks of money left on hand.
This situation is in constant tension as:
- Large companies stall regularly on paying or require terms like "Net60", aka you complete the work, then send them an invoice, then they can take 60 days to pay that.
- Public companies have to report their financials and will often manipulate their AP schedules to help "massage" their numbers. I was once told bluntly: "our CFO said we aren't paying any more invoices this quarter"
- The reason large companies do this is they are also trying to balance their cash flow (just at a larger scale).
The two general things to do to help with this situation:
1. Keep invoicing tight, bill as often and in as small as increments as possible. Better to ask for $20k every 2 weeks than $40k at the end of the month.
2. Offer discount terms where they pay less if they pay earlier.
I was an early engineer at a startup that failed for a somewhat unique reason with an important overarching learning.
We built a software platform that intended to automate the job of market researchers. Those researchers we hoped to replace ended up finding the tool itself useful. Since the platform didn't replace the employees, our pricing model fell short. In the end, we found success by hiring our own market researchers and effectively pivoting into a software-driven consultancy. Profitability came slow and steady.
After months of profitable growth, things changed on a dime. Our lead investor effectively unseated the CEO one day, and made the statement that we were doubling down on the original SaaS vision. Within a month our 100 person company had been reduced to around 60. The now-unneeded consulting staff were recipients of strategic layoffs. Revenue dropped overnight.
The morale of the company also fell off a cliff. The C's lost their ability to cheer up the team and the senior staff saw the holes in the boat and promptly abandoned ship. The company folded about 1.5 years later for a fraction of the initial investment.
My learning in all of this: the tales you hear about the "bad VC"s are occasionally very real. Make sure when bringing on investors that they align philosophically with your founders' vision. Make sure that philosophy is deeper than "we want to make that cash". Great investors i've worked with since can be an immeasurable resource in so many ways. It is absolutely critical that founders be excellent in their courting of valued investors. Similarly, they must be ruthless in their rejection of the bad ones, however sweet the check may appear.
VCs run funds and need a decent return consulting biz generally does not fit the ticket for them. If you intend to run a consulting shop you def. do not want VC money. (Unless you can spin and market like Palantir than you can easily position a consulting outfit as high grow tech company)
Choose cofounders carefully, understand the platform dynamics of your industry, don't discount models that experts and the in-crowd look down upon (solo founder, bootstrapping, etc.)
I’ve heard “understand the platform dynamics of your industry” a lot in various forms but it’s always seemed so vague to me. How do you know when you do? What does that look like?
Lack of leadership, we had a general idea of what we wanted but it was never defined. We wanted Shopify, years before they came along, 2001. But we never defined the product because no one took leadership of the product and business.
Bad programming, (me) had just finished college and thought I could lead a team of programmers because I had done an ok prototype that was actually working at a small scale. Given that specs were being defined on the fly then the programming was a mess. To scale it, we brought in programmers hoping it would help but they mostly sat around because we didn't know what we were building. Also, we got subpar programmers because they were cheap. One guy managed to BS his way into a paycheck for 5 months without ever programming a line of code. After he was fired, I found out that that was his specialty, getting hired and getting fired a few months later.
We could not meet deadlines, we could not meet self-defined deadlines so the investor's money stopped.
A lot of useless infighting due to egos, we could not figure out the business but we sure found ways to fight and argue.
I wish we would have been more willing to learn as opposed to being so arrogant by thinking we knew everything. I use it as a warning every time I think I know everything and it brings me back to reality. We lasted 2.5 years. We should have closed shop at 3 months.
I've had two startups "fail" for unusually clear reasons:
Startup #1: too hard to believe it could be big. Widely loved consumer website we tried to fund with angel/VC money, and it was too implausible it could ever be a $1b+ company. We needed a non-VC strategy to fund that business but didn't realize that - ran out of gas.
Startup #2: found PMF, business-model fit, high-growth, and had an amazing team. Blown up by a nightmare original founder (I was part of re-founding an existing business) and poor corporate governance. The original founder blew up a Series A and re-cap after the team new team made the company actually work.
What I learned from both is how finicky startups are and why conventional wisdom exists. The more you try to re-invent things that aren't core to the business or fit a square peg into a round hole, the more chances to fail you create.
Don't try to get 1000 things right. Try to get 1 thing right and rely on the wisdom of others to get the other things "close enough" to right to attract talent, capital, time, and attention to the 1 thing you did get right.
I'm in the position of believing I have "1 thing right." I worked in an industry (banking) with a serious software problem and one particular vertical that I'm confident I could build a good product for. I was in a position to evaluate all of the major vendors that would be my competitors, and I'm confident that I could get one particular thing very right. Ths problem is that I have pretty much no idea where to go from there. I've never started a company, I didn't even study business in school. In my career so far I've pretty much done two things: I got very good at that particular aspect of banking, and I taught myself to code and now do it professionally. But I'm so aware of the gap between my own knowledge and the skills required to run a business that I wouldn't really feel confident trying to go get investment money (and wouldn't know how to begin even if I thought I could use it responsibly). I guess what I'm trying to get at is: once you have the one thing, where do you go for help with the thousand?
What is YCombinator's take for their 100k investment? Also, it seems like YCombinator sells businesses as a product, not product as a business. Like their marketing on the website is all geared to investing in a business, not investing in a product that leads to a business. That seems to be the 21st century trend. Can you explain this dichotomy in today's market? It seems kinda fake.
I’m the CEO of alloy.co and know banking software about as well as anyone, I’d be happy to help assuming youre not trying to solve identity verification for the industry. tommy @ domain
The main thing is you have to start, get a team to follow you somehow, and get a reference client live and on the record using your software to solve a huge problem. Consider YC or techstars for your first $$$ investors. Some may tell you the negative of working w them but they’re deeply wrong
You generally don't get investment money day 1. If you are able to pull that, it's because you've had success being a founder before (or have rich friends/family). But as a first-time founder? I think you'd be wasting your time without having something real to show. Generally, that's an MVP with some degree of traction.
To get to that point, you have to do a lot of the things bigger companies have to do. Those things just tend to be less complex and you have fewer people to do them. Accounting, sales, engineering, marketing, etc., etc. all exist, to some degree, in a two-person company. At first, you learn to do them yourself. You'll probably suck at them. It's okay. They all have some degree of a feedback loop. If you're open, you'll figure it out.
Eventually, with success, you'll hire other people to do them.
From there, you can get access to a great network by doing an incubator as someone else mentioned, or by just getting out there and talking to users (do this day 1). But you're worried about years 2-4 when you haven't even started year 1 yet.
If you want to discuss in more detail, I'm a founder with a product in banking that's been moderately successful. Email's in my profile. Feel free to reach out.
If your business's revenue is based on B2B service sales with an extensive client educational sales process with regular renewals and varying client contacts, assume you will need built-in re-education salesperson time costs of renewals factored into the price set for your services. Don't assume clients will recognize the purpose and value of your on going services and renew automatically without proof and convincing all over again. Otherwise, your client re-education sales overhead will kill your profit margins.
This is the most important lesson, and one I wish I had learned at my last start up. It drifted along and eventually failed for a variety of uninteresting reasons. But really we should have killed it much earlier when it was obvious that it wasn't going anywhere. (Unfortunately at that time it also was making just enough money to keep things turning over)
The startup failed because so much time was spent consulting to bring in revenue to pay meager wages, and not enough time was spent on building product.
If you're going to fund your company with consulting, make sure you have a very strict rule about how much time you spend consulting. At the end of the day, you need to build product.
No a different startup. I internalized the lesson from that startup and made sure that after I did the one consulting job for MinOps that we didn't do any more consulting, unless the job can be completed in less than a day.
I worked on two that failed, one because of Napster-Induced Hysteria ("nobody will ever make money with online music!") and the other because we were myopic enough to think Orkut might bury us. Those were days, right?
From the first one I learned two things that are probably still applicable today, and from the second I learned one big thing. In order:
1. If people from outside the tech world end up controlling your software startup, that indicates you are doomed. Pretending otherwise will just make it worse.
2. Great teams are incredibly rare, and if you have the good fortune to be part of one you should really try to keep it together for the next challenge. (We dissipated so hard it was ridiculous... one went into motorcycles, one got a PhD, two floated back to Europe, one became a bartender...)
3. If the founders can not convincingly dogfood their own product, you are doubly doomed. I remember sitting at a table with founders while they tried to think of things they could maybe do with The Product we'd just spent months building, and feeling the rats of doom nibbling at my toes. It had not occurred to me that this was a possibility. Engineers: vet your founders!
I was a co-founder at a SaaS health startup that ultimately failed because our team imploded. I learned a variety of very useful lessons from our failure.
#1 If you do not have strong domain expertise in your target market, your co-founder must. If none of your co-founders have strong domain expertise, you are in for a world of pain. It's possible to succeed without someone from the industry onboard (and we almost did) by figuring stuff out for yourself through talking with customers, but not having that person makes things 1000 times harder. Apart from having to spend a lot of time learning the domain, you also miss out on low hanging fruit initial customers / advisors who an industry cofounder would be able to acquire through their network.
#2 This is related to the first point above, but if you can, try to get angel funding from someone from the industry. Our angel was able to put us in touch with several industry players and regulators who were incredibly helpful.
#3 Before you start any venture, you need to sit down with your co-founders and explicitly agree on what the mission of the company is, what everyone's expectations and desires are, and what everyone's responsibilities will be. Take a decent amount of time to do this, put it in writing, and have everyone sign it. In my company we had three people with the title co-founder, all of whom had different ideas about what being a co-founder meant. One co-founder really wanted to be an advisor and never did any work, another co-founder really wanted to just be CTO and didn't really want to deal with non-technical matters, and I was left doing most of the day to day work. We also had 3 different opinions on risk tolerance and persistence. If you can map things out beforehand then you can hold people to your agreement when they aren't pulling their weight.
#4 Be flexible with your team. We had an initial product idea that didn't work out and we needed to pivot. Unfortunately the team that was a decent fit for the first space was not the right team for the second space. Don't be afraid to be honest about what the new requirements are and to let people go if you are still in the early stages and some people can no longer add value.
#5 If a vendor, advisor, or other entity says they will do something for free for you, it means they won't do it. We had 3 entities offer us free services because we were early stage and none of them actually did real work when push came to shove. Demand solid contracts from your vendors and demand to pay them.
#6 Hold off on incorporating until you have to. I spent an inordinate amount of time dealing with incorporation bullshit, tax bullshit, and compliance bullshit when we didn't even have a product and were still doing early stage work. Don't do this. Wait until you are at least ready to start development before you incorporate.
#7 Very few ideas are truly unique. A bunch of people probably failed at what you are about to try to do in the past. Do your research and figure out why they failed. Perhaps even try to reach out to them. I would gladly talk to anyone that asked me for advice or information on the state of the industry / product space.
#8 Get an accountant. There is SO MUCH TAX BULLSHIT and you don't want to be dealing with it yourself.
Ultimately we got unlucky in that our primary venture was in a space that was undergoing tremendous regulatory upheaval which made our product irrelevant, but given the nature of our team and circumstances, I'm not sure we would have had success even had the space not changed rapidly.
Will an agreement in writing really get partners to do it the way you want? I feel like that's some other issue who's solution I don't know but just writing it down won't actually make the difference when it comes to actual behavior.
I've been in a similar situation where co-founders had different goals. I used to think talking before hand and getting things in writing would have helped. I'm pretty confident now that writing would not have helped. Talking might have except that people hear what they want to hear so they all think they agreed but they all think they agreed to something different
- I didn't have any previous success or experience.
- I was starting it in a second language I didn't speak well enough.
- I was on my own and had no one to turn to for emotional support.
It's all too easy to read the startup blogs and think "Gee, I should be doing that!" but when the rubber hits the road it's much more difficult than I ever imagined. Lesson learned.
My first startup failed because I had no idea what I was doing. I started an online vacation rental site, similar to vacationrentals.com vrbo, homeaway etc... I was getting traction and had people list their rentals on my site but I failed to collect any revenue. The thought was, build it, offer it for free to grow it and then charge. Well, I built it (wasting way too much money on an original solution when existing solutions could have done just fine), people came (after I bent over backwards trying to onboard them), but time sucked me dry and I was not able to sustain the "business" any longer. Looking back, I did just about everything wrong.
>The thought was, build it, offer it for free to grow it and then charge.
I feel like this is an incredibly common software developer turned entrepreneur mistake. Lack of confidence in asking for money leads to a reluctance to put a price tag on the thing you have built.
With vacation rentals, you have to have people who actually rent stuff and that's the part of the chicken/egg problem I haven't solved yet. While I was able to bootstrap the site, the traffic to it was non-existent thus I felt guilty if I charged people to list. The premise was that they would list for free first, their listings would attract traffic, then I would charge people to list. Meanwhile people are booking and more are listing - that was the idea.
The simple way out of that conundrum is to make it free to list (perhaps with an option to upgrade to a "premium" listing for a recurring fee), and charge for the actual bookings made through your site (you'd need to experiment to figure out whether flat fees or a percentage worked better for you).
I took a year doing something I had planned would take 6 months. I was inexperienced, I shipped a product that had a very niche market. I got on the PS4 appstore and the algorithm just took me down, way down. Pricing was also screwed up in 60 odd countries for the first month with no control of mine. RIP.
- Co-founders didn't have enough domain expertise
- Poor execution on our mission which allowed peoples personal side interests to pull tech and development in every which way
- Many other reasons
What did I learn: Strong leadership = Strong execution
If you can't communicate you can't create.
Our founder went off the rails and developed a substance habit.
It got so bad that he was taking money from company account paying for drugs. Eventually arrested, lawsuits followed and now he's sitting in jail. Just a genius that couldn't control himself...
CEO would disappear for months at a time, with the promise of returning with capital. We never really knew where he went, and he wouldn’t let anyone else talk to investors (including me, who was CTO). Eventually he stopped paying us, but promised that the money was just tied up in the parent company set up in the caymans.
After 2 months of not paying myself or any other employees, the COO and I drainked the remainder of the US account and paid out as much of what was owed as we could to the employees before helping them find jobs elsewhere. I didn’t get any of the money I was owed and was facing pretty bad debt, but the experience was enough of a resume boost that I didn’t have a problem making it up in my signing bonus.
What I learned is that a title doesn’t grant you any control, and that if someone can’t be transparent with their inner circle of friends and colleagues (in this case cofounders), then they have no business leading a company.
Armored cars and armed security are nice and all, but being in a situation that necessitates riding in an armored car and armed security detail is not really fun.
Oh come on, you can’t leave us hanging like that! This is the beginning of the best story in the thread. How did the cartel connection form? Was your contact named Estefan? Did he have a mild accent and project an aura of power?
Luckily, nothing too exciting happened. We were operating in the financial tech space in Mexico, trying to make lending less comically predatory (a standard small business loan in Mexico can have close to the same interest rate as a payday loan in the US).
With that goal in mind, we were targeting areas in Mexico that needed the most help. Cities with a decent small business sector, looking to grow, and having difficulty doing so. Juarez was a perfect fit, especially given that a lot of citizens have been across the border and can see how much better things can be. My parents were not amused. Then the movie Sicario came out soon after, and they were somehow less amused. But I got to ride around in armored vehicles with a security detail, so that was fun.
Really my "learned not to fuck with the cartels" lesson came from our market research. This may surprise you, but the banks in Mexico are... sketchy. Well, not all of them, but definitely a few. In particular, we were in a competing market as Banco Azteca. It appears to have since been removed, but at the time, the Banco Azteca wikipedia page described it as having "a uniquely effective debt collection system" or something like that.
Yeah, what they actually have is a motorcycle gang. They give you a loan with massive, often times impossible to pay off interest rates, and if you don't pay them back, motorcycle dudes with bats show up to collect, or take enough of your property to make up the difference.
Shouldn't that be a common knowledge in the area and work out as their competitive disadvantage? Provided that there are at least some competitors that are better for the customer?
This is Juarez we are talking about. Maybe this motorcycle gang was scary enough for the competitors, maybe they have cops/politicians in their pockets... There could be any number of reasons for the gang to flourish, starting with violence
The bigger issue with lending in Mexico is a bit deeper than the sketchiness of some of the big banks. In particular, there is no reliable credit score system, so determining credit worthiness is a crap shoot. There is actually a credit reporting agency, but nobody reports to it, so nobody is really sure why they're there.
A lot of citizens also (understandably) don't trust the banks and keep most of their money at home. As a result, there's very little data available to make credit determinations on, since you can't even use most people's record of good standing with their bank accounts, so the process for getting a loan is generally sit in a room with a group of bankers and try to convince them you're a swell guy/gal and won't lose their money. This results in extremely high default rates, because people are good at misrepresenting themselves and lying about their intentions [citation needed].
With such high default rates you only really have two options; improve your credit worthiness determination process somehow, or increase interest rates and have an effective (if unethical) collections process. With some data protection laws making the creditworthiness determination route a legal minefield, most banks in Mexico opted for the latter. Our entire business strategy was to take the other route.
I myself live in a country with a not so effective rule of law and whatnot. That's why I find it odd that banks are so concerned with possibly doing an illegal data collection, while employing unquestionably criminal techniques of extortion...
I don't get why this comment is so down voted. Do you guys all find the idea that collaborating with the mafia may be a bad idea so hard to figure out?
In general it's true for all positions. A CEO should be fire-able for the board to keep them accountable. We never got to the size where we had a board tho, so we didn't have anyone to appeal to apart from the investors directly, and as I mentioned, the CEO kept us isolated from them.
The bigger problem I had with lack of control was when things started to go south. The CEO was never around, so I was the "boss" in the office every day, being the technical and cultural leader of the dev team, who came to be close friends. Once the money stopped coming in, it was really hard emotionally to be the person who needed to convey that to the rest of the company, but without having any real control needed to get them money or real answers.
The CEO came from a very wealthy family, and never had to worry about money. Myself, and most of the employees weren't so lucky, and were pretty new out of college, so didn't have a pile of savings to fall back on. I am not even that upset about never seeing that pay I was owed, it was more just emotionally draining to be seen as an authority figure, but to have absolutely no ability to exact change or get answers when they mattered most.
Our uninsured CEO/cofounder developed a chronic illness and embezzled cash from us to pay his massive medical bills.
Killed our runway, which we only found out after we hired an accountant to look into our books and find wenhad an empty gas tank. Since this was still at the f&f funding stage, none of us had the heart to go after him for it.
Wow. That's a great reason to advocate for universal health care in the US, because it lets people work for a more risky startup without having to worry about that particular risk!
Partially I agree. On the other hand there are alot of cases of smaller companies not paying social security and health insurz for there employees in Germany despite having universal health care.
That sounds... kind of weird, especially the "a lot of cases" part.
If you have an official company with official employees (and if either is not true, then well, everything's illegal anyway and your employees are not really employees) the health insurance will be on your toes quite quickly to pay your stuff (as I've experienced firsthand).
The only thing I can think about is having all your staff as unpaid/underpaid interns, but then they're not employees and your exploiting them anyway.
Just from the top of my head. A lot was, obviously an exaggeration, sorry for any confusion. Still, there are more than one might think.
Skipping on social security seema to be easier and more common than health care. Health care usually are insurance companies, so any missing payments are likely to be flagged. But atill it is possible to skip for a couple of months.
Social security is wired by the company to the authorities, and they usually take lknger to catch up. Ultimately these cases are found out amd prosecuted.
The main point being, even with universal health care cash stripped or just companies still find ways to not pay up.
I would have to dig a little deeper for some concrete examples and details. Just let me know if it is of any interest.
Thanks for the clarification, no need to dig deeper. I don't usually feel the need to defend anything going on this country, but this broad statement just went contrary to my experience in a) being an employee b) running a business c) talking to people doing both ;)
I wrote a great software library for specific web development problems back in the dotcom boom.
I learned a few things, much of you hear already but is worth repeating :
* The MVP thing is real. I had a competitor that regularly released simple things that barely worked - while I continued to polished my project. By the time I'd finished the competitors stuff was all over the internet few a year or two and no one was really interested in my product. Plus by then the dotcom boom was pretty much starting to bust - I was way too late.
* Developing software is the easy part. I figured when I was done people would be lining up which is of course naive. Selling and support is harder and takes more time and effort than writing code.
* Writing software for developers sucks. No one wants to pay for anything as there is usually a cheaper way of doing it. The exceptions being big firms that really don't like small independents. Its better to write software to solve real problems - not software problems.
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[ 6.0 ms ] story [ 287 ms ] threadI learned that I'm not the leader I thought I was.
- Canadian business. Means US B2B enterprise checks get stopped at the border for 3 weeks while they 'investigate'. Makes your last mile enterprise sale that much harder. Investors are conservative. Wanted $5-10k MRR before considering angel-level investment, no go until then. Harder to compete against Valley companies.
I learned get the revenue first anyway, the days of bootstrap a free service until funding are harder and harder to come by. Revenue first.
- Problem we were solving was harder than expected (barometer data to weather forecasts). Main product was going to be a weather model but we never made it that far. Data quantity, quality control and user retention were bigger problems preventing us from executing to success. This leads to running out of money.
I learned that hard problems are hard. Your startup doesn't have as many advantages as it thinks it does if the incumbents can copy/do better than you with your "hard problem" solution or if you take too long to build your real MVP.
- Team skills were not right to solve our problems. After company founding and initial pivots we were not left with founders and staff that could solve the problems we now had to solve.
I learned to be careful starting a company with your friends. And that pivoting can have risks like a lack of skill required to complete the pivot.
- Probably the final item would be despair. When things get bad there is almost no way to come back because you've lost the trust of the people who were holding up your fragile startup to begin with.
I learned to know when to quit before driving things into the ground and taking your team with you.
- One more item: If you can catch it before you start a startup, it's a good idea to really make sure your hobby project shouldn't just stay a hobby project. Maybe it has some organic growth and media attention - but that doesn't mean it should be a startup.
I learned to keep my job and my hobby separate. I'm employed with a day job now and I can do phone weather experiments in my free time with a hobby [1], not trying to shoehorn some idea of a startup into an otherwise neat and successful hobby.
[1] Labelling photos of the sky as a training dataset into machine learning classifiers for auto-labelling of weather data in photos is a hobby - not a startup: https://play.google.com/store/apps/details?id=com.allclearwe...
Running out of money. We were bootstrapped, and the style of work we were doing had some decent capital costs. We failed for a "bargain" (less than 7K), but we had cut to the bone and deeper while trying that. Side jobs to make rent just increased stress and distracted from the business.
Why did we run out of money?
Focused on engineering instead of sales and marketing. Manually spinning up servers would've been the right thing to do--since we instead were both technical we solved technical problems and kinda missed the people side of things. It was real and hard work, but it was not work that was relevant to making sales.
After we ran out of money, why didn't we keep at it?
Stress blocked further work. Too much stress led to neither founder being able to even think about the company and its business without severe anxiety. Times were dark and bad.
~
I learned that you want to prioritize the money funnel over literally every other thing that you as an engineer think matters. Coffee is for closers.
I learned to try out only with other people's money. Don't put your rent and basic living on the line for an idea if you aren't comfortable with what that can entail.
Probably most importantly, I learned that the glorification of the startup lifestyle is a lie perpetuated by people seeking to make money from it at all levels. Nowadays, even the glorification of failure and celebration of mental health seems to be by people looking to advertise their businesses, cure-alls, or just get internet famous.
It's rotten to its bloody core, and unlike finance doesn't even pay well.
This I would say is my main learning point. My first startup failed because of inexperience and team implosion following incapability of generating revenue fast enough on one side, and attract favorable investment on the other. Failure could have been lighter on both me and the other members of the team, was it not for a self-immolation mindset probably driven by glorification of "startup lifestyle". Things fail. Most of the time. Assume failure. Optimize for resiliency. Never expect success as the natural outcome, but rather consider it will come collaterally to continuous reaction to ugly realities, and damn slowly. You can stumble upon a rocket ship, but it is not how businesses usually get to come to life.
Printed and stuck on my desk. Thank you very much for this well-said wisdom.
The lesson is never trust the size of a company as sufficient reasoning that they can and will pay their bills.
- Their own 'highly matrixed' organizational structure makes it near impossible to find 'the correct person' to talk to about accounting issues, let alone get a straight answer out of them - so chasing these issues down becomes a huge drag on your time and energy and you may very well just give up after a while
- Past-due invoices are typically penalized with tiny interest percentages [in the <2% range], so even if they do intend to pay eventually, they can gleefully treat you as a bank with really low interest on short-term loans.
- They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. They have a bench full of experienced attorneys, you might have a single one, and they know exactly how to extend and complicate a legal process such that the litigation itself costs you far more than the outstanding AR.
Over the last 15 years or so, a lot of my best customers have been super-late payers. You take the good with the bad.
I have tackled this issue (late payers) in two ways:
1. My cashflow from other investments ensure I did not run out of money. This is a bad design where I am effectively extending a 0% APR loan to the client with a term of their choosing
2. When I have ARs large enough to entice "parties that handle payments", I choose to let them handle the invoices on my behalf for a cut. A pretty large cut but 80% is better than 0%.
I am effectively looking for a way to optimize the later but happy to hear alternative solutions, specially when the ARs are not large enough to outsource.
For a bootstrapped business, this cashflow can be critical.
The big boys are not even going to consider me unless I am a safe choice (they really don't care if I am a kickass programmer who can solve their problems - they want to do business only if I am a known quantity so that they don't get fired if a deal with me go sideways).
I am really lucky to have positive cashflow because I can be picky about clients but a lot of friends ask me how to get started and my experience with cashflow is that a fantastic business with client set A can absolutely fail compared to the exact same business with client set B just because of cashflow issues.
Maybe I am too old and jaded but now I always ask people to include and test for cashflow in addition to the efficacy of their business ideas vis. market fit.
Honestly though, this becomes too demanding of entrepreneurs who are already overworked with lead gen, product design and development as is.
You should definitely write a few articles about cashflow. People don't write about it enough.
Too many startups riding high on how much revenue they bring in without controlling the costs. If you spend to get revenue, it really isn’t a business (or at least a solid one anyway)
I size the prices with the retainers. Bigger the retainer, higher their priority and less the per project prices.
Has this been your experience as well?
... and do you "outsource" your AR for a % of your invoices?
You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely.
At Matasano, I remember one of our anchor customers taking something close to a year to pay an invoice.
That at best. others just "forget" about the late payment penalties in my experience.
The sibling comment from @mrhappyunhappy is interesting but when I tried it, clients would rarely pay the premium.
I just try to identify anyone who has an accounting (+20%) or purchasing (+50%) department and automatically add to my quoted fees. That premium, the imaginary late payment fee, and occasionally stopping work until the client gets caught up generally makes the situation manageable.
I tried both methods and clients would rarely pay the premium compared to those who would avail of the "on time" payment discount.
I have less happier clients when I make them pay a fee than when I take away a discount although mathematically they are the same number.
Note that I’m not referring to charging interest for late payment as being illegal. I’m specifically referring to charging 10% compounded weekly, which comes out about 14200% annualized.
But like you, I'm pretty skeptical. Probably wouldn't hold up in court.
A sensible business would settle out of court with a very low offer. A sensible contractor would accept the offer.
But generally this is another example of corporate privilege.
In reality, late payments kill many small businesses. In a political system that was genuinely friendly to the small guy, fines for late payment would be mandatory.
I personally have helped out a few businesses with a 2% CB CC (which helps offset the Plastiq fees) that offers a 6-mo 0% APR term but the CL is the limit of the loan which limits the extent of the loan.
Most CCs don't have such gracious terms in which case you could be paying a hefty fee to gain that cashflow.
Having done this a few times, my conclusion is that this is a very bad practise and exposes a business with cashflow issues if this is a regular occurence.
A healthy AR is better than no AR but you know what's even better?
A healthy cashflow.
I have excellent clients who could not afford to pay for a consultation because they themselves were waiting on the client they were farming out jobs from.
They still work with me because they know I understand their cashflow issues.
We once were jerked around by a reasonably well known customer. Their accounting people decided they did not need to perform under the payment terms the customer signed off on. First time they did it, I sent an email to the EVP that signed the order. We got an apology and a payment. The next month the same thing happened again - we redirected all their traffic to "We are unable to process your request - please contact your account coordinator to restore access" message and did not remove it until the wire hit our account ( 5pm-8:02am ). We received a letter with apologies from the customer's CEO, customer was saved and they never missed a payment again. I heard, via the grapevine, that three people at the customer's AP group were shown the door as the result of our message.
Having said that I mostly don't offer credit terms anymore, my average order value is about £500 which means it isn't worth the time spent chasing late payments. In 99% of cases the customer will find a way of paying upfront.
Exactly. On MBA finance courses (and I guess CPAs too) you're taught about working capital - and one half of that is basically stretching supplier payments as far as you can.
If they are well known enough surely a well placed social media post is all that's needed to oil the wheels.
That 2% is usually monthly, so the APR is more like CC debt, not bank loans.
And because you sell your invoices, the factor now takes the payment default risk.
Does cost a penny though.
I’m curious if your experience in this case was similar.
This is a classic cash flow problem in business. Any very simple (usually free) “start a business” course from local government in the UK will cover this. I went on such a course and they explicitly talked, in detail, about this issue. They flagged it as a major cause of business failure.
Point being not to criticise the parent but to emphasise that startups are not different from any other businesses when it comes the basics like cash flow. Something that really stands out in the startup world is how little regard is given to the simple everyday business issues that business advisors the world over teach about every day. Anyone starting a tech business should do a simple course on business basics, in this example it could literally have saved the startup for an investment of a few hours.
APR: https://en.wikipedia.org/wiki/Annual_percentage_rate
Retainer: https://www.investopedia.com/terms/r/retainer-fee.asp
AP: Accounts Payable (money you owe)
APR: Annual percentage rate (usually converted from a different timeframe so you have a consistent timeframe to compare with other metrics)
Retainer: A fee that you pay to get priority from a consultant, which may or may not come with services included.
Cash Flow: the balancing of AP and AR so that you can stay afloat.
Say your startup needs $10k a week to meet payroll. You have $20k in the bank and Accounts Receivable of $100k. "On paper" you have $120k. Cash flow wise you have 2 weeks of money left on hand.
This situation is in constant tension as:
- Large companies stall regularly on paying or require terms like "Net60", aka you complete the work, then send them an invoice, then they can take 60 days to pay that.
- Public companies have to report their financials and will often manipulate their AP schedules to help "massage" their numbers. I was once told bluntly: "our CFO said we aren't paying any more invoices this quarter"
- The reason large companies do this is they are also trying to balance their cash flow (just at a larger scale).
The two general things to do to help with this situation:
1. Keep invoicing tight, bill as often and in as small as increments as possible. Better to ask for $20k every 2 weeks than $40k at the end of the month.
2. Offer discount terms where they pay less if they pay earlier.
Great article on this topic by Tomasz Tunguz of Redpoint Capital: http://tomtunguz.com/timing-sales-cashflows/
https://en.wikipedia.org/wiki/Factoring_(finance)
It's worth it.
Even more surprising is that it happens pretty frequently.
Companies (small to medium) aren't some machine with automatic parts; it's just people, and sometimes people don't pay their bills.
We built a software platform that intended to automate the job of market researchers. Those researchers we hoped to replace ended up finding the tool itself useful. Since the platform didn't replace the employees, our pricing model fell short. In the end, we found success by hiring our own market researchers and effectively pivoting into a software-driven consultancy. Profitability came slow and steady.
After months of profitable growth, things changed on a dime. Our lead investor effectively unseated the CEO one day, and made the statement that we were doubling down on the original SaaS vision. Within a month our 100 person company had been reduced to around 60. The now-unneeded consulting staff were recipients of strategic layoffs. Revenue dropped overnight.
The morale of the company also fell off a cliff. The C's lost their ability to cheer up the team and the senior staff saw the holes in the boat and promptly abandoned ship. The company folded about 1.5 years later for a fraction of the initial investment.
My learning in all of this: the tales you hear about the "bad VC"s are occasionally very real. Make sure when bringing on investors that they align philosophically with your founders' vision. Make sure that philosophy is deeper than "we want to make that cash". Great investors i've worked with since can be an immeasurable resource in so many ways. It is absolutely critical that founders be excellent in their courting of valued investors. Similarly, they must be ruthless in their rejection of the bad ones, however sweet the check may appear.
"Interviews With Startup Owners, Learn From Their Failures"
The main guy, a PhD in Physics from a top university in europe (but a retard IRL), will be cleaning sewers until death comes.
True story.
edit: i was the founder and they were clients in a bootstrapping program involving a top 10 tech giant and a hospital
What does this mean? Is this a prison punishment?
good thing the laws against unpaid interns, hiring discrimination, and interview homework all have toothless penalties
Bad programming, (me) had just finished college and thought I could lead a team of programmers because I had done an ok prototype that was actually working at a small scale. Given that specs were being defined on the fly then the programming was a mess. To scale it, we brought in programmers hoping it would help but they mostly sat around because we didn't know what we were building. Also, we got subpar programmers because they were cheap. One guy managed to BS his way into a paycheck for 5 months without ever programming a line of code. After he was fired, I found out that that was his specialty, getting hired and getting fired a few months later.
We could not meet deadlines, we could not meet self-defined deadlines so the investor's money stopped.
A lot of useless infighting due to egos, we could not figure out the business but we sure found ways to fight and argue.
I wish we would have been more willing to learn as opposed to being so arrogant by thinking we knew everything. I use it as a warning every time I think I know everything and it brings me back to reality. We lasted 2.5 years. We should have closed shop at 3 months.
Startup #1: too hard to believe it could be big. Widely loved consumer website we tried to fund with angel/VC money, and it was too implausible it could ever be a $1b+ company. We needed a non-VC strategy to fund that business but didn't realize that - ran out of gas.
Startup #2: found PMF, business-model fit, high-growth, and had an amazing team. Blown up by a nightmare original founder (I was part of re-founding an existing business) and poor corporate governance. The original founder blew up a Series A and re-cap after the team new team made the company actually work.
What I learned from both is how finicky startups are and why conventional wisdom exists. The more you try to re-invent things that aren't core to the business or fit a square peg into a round hole, the more chances to fail you create.
Don't try to get 1000 things right. Try to get 1 thing right and rely on the wisdom of others to get the other things "close enough" to right to attract talent, capital, time, and attention to the 1 thing you did get right.
I'm in the position of believing I have "1 thing right." I worked in an industry (banking) with a serious software problem and one particular vertical that I'm confident I could build a good product for. I was in a position to evaluate all of the major vendors that would be my competitors, and I'm confident that I could get one particular thing very right. Ths problem is that I have pretty much no idea where to go from there. I've never started a company, I didn't even study business in school. In my career so far I've pretty much done two things: I got very good at that particular aspect of banking, and I taught myself to code and now do it professionally. But I'm so aware of the gap between my own knowledge and the skills required to run a business that I wouldn't really feel confident trying to go get investment money (and wouldn't know how to begin even if I thought I could use it responsibly). I guess what I'm trying to get at is: once you have the one thing, where do you go for help with the thousand?
I don't know what you're asking with the rest of your question.
The main thing is you have to start, get a team to follow you somehow, and get a reference client live and on the record using your software to solve a huge problem. Consider YC or techstars for your first $$$ investors. Some may tell you the negative of working w them but they’re deeply wrong
To get to that point, you have to do a lot of the things bigger companies have to do. Those things just tend to be less complex and you have fewer people to do them. Accounting, sales, engineering, marketing, etc., etc. all exist, to some degree, in a two-person company. At first, you learn to do them yourself. You'll probably suck at them. It's okay. They all have some degree of a feedback loop. If you're open, you'll figure it out. Eventually, with success, you'll hire other people to do them.
From there, you can get access to a great network by doing an incubator as someone else mentioned, or by just getting out there and talking to users (do this day 1). But you're worried about years 2-4 when you haven't even started year 1 yet.
If you want to discuss in more detail, I'm a founder with a product in banking that's been moderately successful. Email's in my profile. Feel free to reach out.
If you're going to fund your company with consulting, make sure you have a very strict rule about how much time you spend consulting. At the end of the day, you need to build product.
From the first one I learned two things that are probably still applicable today, and from the second I learned one big thing. In order:
1. If people from outside the tech world end up controlling your software startup, that indicates you are doomed. Pretending otherwise will just make it worse.
2. Great teams are incredibly rare, and if you have the good fortune to be part of one you should really try to keep it together for the next challenge. (We dissipated so hard it was ridiculous... one went into motorcycles, one got a PhD, two floated back to Europe, one became a bartender...)
3. If the founders can not convincingly dogfood their own product, you are doubly doomed. I remember sitting at a table with founders while they tried to think of things they could maybe do with The Product we'd just spent months building, and feeling the rats of doom nibbling at my toes. It had not occurred to me that this was a possibility. Engineers: vet your founders!
#1 If you do not have strong domain expertise in your target market, your co-founder must. If none of your co-founders have strong domain expertise, you are in for a world of pain. It's possible to succeed without someone from the industry onboard (and we almost did) by figuring stuff out for yourself through talking with customers, but not having that person makes things 1000 times harder. Apart from having to spend a lot of time learning the domain, you also miss out on low hanging fruit initial customers / advisors who an industry cofounder would be able to acquire through their network.
#2 This is related to the first point above, but if you can, try to get angel funding from someone from the industry. Our angel was able to put us in touch with several industry players and regulators who were incredibly helpful.
#3 Before you start any venture, you need to sit down with your co-founders and explicitly agree on what the mission of the company is, what everyone's expectations and desires are, and what everyone's responsibilities will be. Take a decent amount of time to do this, put it in writing, and have everyone sign it. In my company we had three people with the title co-founder, all of whom had different ideas about what being a co-founder meant. One co-founder really wanted to be an advisor and never did any work, another co-founder really wanted to just be CTO and didn't really want to deal with non-technical matters, and I was left doing most of the day to day work. We also had 3 different opinions on risk tolerance and persistence. If you can map things out beforehand then you can hold people to your agreement when they aren't pulling their weight.
#4 Be flexible with your team. We had an initial product idea that didn't work out and we needed to pivot. Unfortunately the team that was a decent fit for the first space was not the right team for the second space. Don't be afraid to be honest about what the new requirements are and to let people go if you are still in the early stages and some people can no longer add value.
#5 If a vendor, advisor, or other entity says they will do something for free for you, it means they won't do it. We had 3 entities offer us free services because we were early stage and none of them actually did real work when push came to shove. Demand solid contracts from your vendors and demand to pay them.
#6 Hold off on incorporating until you have to. I spent an inordinate amount of time dealing with incorporation bullshit, tax bullshit, and compliance bullshit when we didn't even have a product and were still doing early stage work. Don't do this. Wait until you are at least ready to start development before you incorporate.
#7 Very few ideas are truly unique. A bunch of people probably failed at what you are about to try to do in the past. Do your research and figure out why they failed. Perhaps even try to reach out to them. I would gladly talk to anyone that asked me for advice or information on the state of the industry / product space.
#8 Get an accountant. There is SO MUCH TAX BULLSHIT and you don't want to be dealing with it yourself.
Ultimately we got unlucky in that our primary venture was in a space that was undergoing tremendous regulatory upheaval which made our product irrelevant, but given the nature of our team and circumstances, I'm not sure we would have had success even had the space not changed rapidly.
I've been in a similar situation where co-founders had different goals. I used to think talking before hand and getting things in writing would have helped. I'm pretty confident now that writing would not have helped. Talking might have except that people hear what they want to hear so they all think they agreed but they all think they agreed to something different
- I didn't work hard enough.
- I didn't have any previous success or experience.
- I was starting it in a second language I didn't speak well enough.
- I was on my own and had no one to turn to for emotional support.
It's all too easy to read the startup blogs and think "Gee, I should be doing that!" but when the rubber hits the road it's much more difficult than I ever imagined. Lesson learned.
I feel like this is an incredibly common software developer turned entrepreneur mistake. Lack of confidence in asking for money leads to a reluctance to put a price tag on the thing you have built.
What did I learn: Strong leadership = Strong execution If you can't communicate you can't create.
It got so bad that he was taking money from company account paying for drugs. Eventually arrested, lawsuits followed and now he's sitting in jail. Just a genius that couldn't control himself...
This and mental issues are some of the darker sides of startups that are not discussed a lot.
After 2 months of not paying myself or any other employees, the COO and I drainked the remainder of the US account and paid out as much of what was owed as we could to the employees before helping them find jobs elsewhere. I didn’t get any of the money I was owed and was facing pretty bad debt, but the experience was enough of a resume boost that I didn’t have a problem making it up in my signing bonus.
What I learned is that a title doesn’t grant you any control, and that if someone can’t be transparent with their inner circle of friends and colleagues (in this case cofounders), then they have no business leading a company.
Also leaned to not fuck with the cartels.
Armored cars and armed security are nice and all, but being in a situation that necessitates riding in an armored car and armed security detail is not really fun.
Oh come on, you can’t leave us hanging like that! This is the beginning of the best story in the thread. How did the cartel connection form? Was your contact named Estefan? Did he have a mild accent and project an aura of power?
“Bad decisions make good stories!”
With that goal in mind, we were targeting areas in Mexico that needed the most help. Cities with a decent small business sector, looking to grow, and having difficulty doing so. Juarez was a perfect fit, especially given that a lot of citizens have been across the border and can see how much better things can be. My parents were not amused. Then the movie Sicario came out soon after, and they were somehow less amused. But I got to ride around in armored vehicles with a security detail, so that was fun.
Really my "learned not to fuck with the cartels" lesson came from our market research. This may surprise you, but the banks in Mexico are... sketchy. Well, not all of them, but definitely a few. In particular, we were in a competing market as Banco Azteca. It appears to have since been removed, but at the time, the Banco Azteca wikipedia page described it as having "a uniquely effective debt collection system" or something like that.
Yeah, what they actually have is a motorcycle gang. They give you a loan with massive, often times impossible to pay off interest rates, and if you don't pay them back, motorcycle dudes with bats show up to collect, or take enough of your property to make up the difference.
A lot of citizens also (understandably) don't trust the banks and keep most of their money at home. As a result, there's very little data available to make credit determinations on, since you can't even use most people's record of good standing with their bank accounts, so the process for getting a loan is generally sit in a room with a group of bankers and try to convince them you're a swell guy/gal and won't lose their money. This results in extremely high default rates, because people are good at misrepresenting themselves and lying about their intentions [citation needed].
With such high default rates you only really have two options; improve your credit worthiness determination process somehow, or increase interest rates and have an effective (if unethical) collections process. With some data protection laws making the creditworthiness determination route a legal minefield, most banks in Mexico opted for the latter. Our entire business strategy was to take the other route.
Is this just for anything other than CEO? Or are they always held to the board/investors.
The bigger problem I had with lack of control was when things started to go south. The CEO was never around, so I was the "boss" in the office every day, being the technical and cultural leader of the dev team, who came to be close friends. Once the money stopped coming in, it was really hard emotionally to be the person who needed to convey that to the rest of the company, but without having any real control needed to get them money or real answers.
The CEO came from a very wealthy family, and never had to worry about money. Myself, and most of the employees weren't so lucky, and were pretty new out of college, so didn't have a pile of savings to fall back on. I am not even that upset about never seeing that pay I was owed, it was more just emotionally draining to be seen as an authority figure, but to have absolutely no ability to exact change or get answers when they mattered most.
Killed our runway, which we only found out after we hired an accountant to look into our books and find wenhad an empty gas tank. Since this was still at the f&f funding stage, none of us had the heart to go after him for it.
If you have an official company with official employees (and if either is not true, then well, everything's illegal anyway and your employees are not really employees) the health insurance will be on your toes quite quickly to pay your stuff (as I've experienced firsthand).
The only thing I can think about is having all your staff as unpaid/underpaid interns, but then they're not employees and your exploiting them anyway.
Would love to have some details on this.
Skipping on social security seema to be easier and more common than health care. Health care usually are insurance companies, so any missing payments are likely to be flagged. But atill it is possible to skip for a couple of months.
Social security is wired by the company to the authorities, and they usually take lknger to catch up. Ultimately these cases are found out amd prosecuted.
The main point being, even with universal health care cash stripped or just companies still find ways to not pay up.
I would have to dig a little deeper for some concrete examples and details. Just let me know if it is of any interest.
I learned a few things, much of you hear already but is worth repeating :
* The MVP thing is real. I had a competitor that regularly released simple things that barely worked - while I continued to polished my project. By the time I'd finished the competitors stuff was all over the internet few a year or two and no one was really interested in my product. Plus by then the dotcom boom was pretty much starting to bust - I was way too late.
* Developing software is the easy part. I figured when I was done people would be lining up which is of course naive. Selling and support is harder and takes more time and effort than writing code.
* Writing software for developers sucks. No one wants to pay for anything as there is usually a cheaper way of doing it. The exceptions being big firms that really don't like small independents. Its better to write software to solve real problems - not software problems.
Quoteworthy.
So is this.