Can You Sign an NDA Before We Talk?

Dear Lucas…

I’m self-funding a startup right now, it’s my first company and I would like to get all the advice and help I can!

I’ve read a lot of conflicting advice on pitching style, but it seems that while most of them advocate the use of well chosen analogies some of them put more emphasis on differentiating and boiling the idea down to the essence (i.e. a one-sentence or elevator pitch).

I doubt either of these viewpoints is entirely correct and there’s probably no reason they couldn’t both be effective if executed well. I personally find analogies to be a bit cliché and unimpressive compared to a well phrased, simple and direct explanation.

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A Surefire Way to Make Millions as a Founder

If you are looking for a secret, this post is going to disappoint you greatly. Go watch a cat video. There are no big secrets. There are no shortcuts. The trick is to fall in love with being a founder and dedicate yourself to the craft for 20-30 years. If I haven’t scared you off yet, keep reading.

Every year, a select few startup founders turn into something more. To see this happen is a rare and beautiful thing. These people fall deeply and madly in love with their craft. To them it is not just a career, it is a calling. And their craft is startups.

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The Secret to Platform Building for Startups

A.K.A. Book Notes for Your First 1000 Copies by Tim Grahl

UPDATE #2: The contest closed with a surprise ending. Due to overwhelming response from newsletter subscribers, Tim agreed to send 10 signed free copies of his book instead of just 3. Huge thanks to Tim and his company Out:think for his generosity and thank you to newsletter subscribers for your interest.

UPDATE: This Thursday (the 13th), Tim Grahl has agreed to give away 3 free signed paperback copies of Your First 1000 Copies to mailing list members of this blog. Sign up at the top or bottom of this page and you will receive instructions on Thursday for how you can get a free signed copy of this book.

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30 Things to Stop Doing As A Startup Founder

Being a startup founder is hard enough, but making common mistakes can often lead to total disaster. Here are some common things to look out for:

  1. Stop drinking your own kool-aid. – If you are not brutally honest with yourself, you can’t make informed decisions that will truly improve your company. You will hide behind excuses and spin stories to yourself explaining away why you have to keep doing the rest of the things on the list. You can’t believe all the stories you tell. You need a healthy dose of skepticism (not the same as self-doubt or lack of self-belief) to make real forward progress.
  2. Stop being so busy all the time. – Does an early stage startup founder really need to spend time evaluating every HR alternative instead of focusing on customers and product? Some people think that being the CEO means being involved with everything. But what they are really doing is getting in the way and usually just slowing down progress. Surround yourself with smart people and delegate delegate delegate. There are only a few things you should not delegate in the early stages of a business like customer engagements, raising capital and finding product-market fit.
  3. Stop working yourself to death. – As the founder, you often feel like the world is on your shoulders and you have to be working 100 hour weeks to set an example for your employees. Startups are a marathon, not a race. The average successful exit takes 7-10 years. If you don’t take time for yourself and take care of yourself, nobody else will. Relax, take breaks, take walks, take days off, get massages, pamper yourself. You can’t take care of others if you do not take care of yourself first.
  4. Stop half-assing it. – On the other hand, I have tried countless times to build a startup idea as side projects, and it doesn’t work. I am not saying that it is impossible to start a startup on the side. I am saying that to make a real play at doing something investable, you are going to have to make the leap and do it full time sooner than you will feel comfortable doing so. It always works this way. Nobody will invest in you if this is not what you do all the time, no matter how good the idea is.
  5. Stop hiding behind fake traction. – Founders often highlight what looks good and hide what looks bad. This is fake traction. Like: “All of my users love my product!” Sounds great, but if you only have 12 users, your sample size is two orders of magnitude too small. If you find 1000 people who can’t stop talking about your product, you are on to something big. Or another is “I have 300 people on my waiting list to buy my product!” Awesome, how many of them are willing to pay you for it up front? None? Haven’t even asked yet?
  6. Stop counting your eggs before they hatch. – An investor who expressed interest in investing but hasn’t called back in a few weeks isn’t money in the bank. Close close close. Convertible notes aren’t perfect, but at least you can do a rolling close cheaply. A potential customer who says he may pay if your product did such-and-such is not money in the bank. Close close close. What will he pay for today?
  7. Stop trying to get around paying lawyers. – You are running a complicated legal entity that may take funding from individuals and VCs, and could eventually IPO or be acquired. This is not a mom-and-pop business, LegalZoom and RocketLawyer are not good enough. Do it right. Don’t even try to out-smart yourself here. Expensive in the short term? Yes. Worth it in the long term? ALWAYS. Your future self will hate you if you try to save too much money here.
  8. Stop trying to serve two kinds of customers. – You can’t do two things great. You don’t have the time, money, or resources to figure out the product-market fit for more than one product doing one thing. It is always so enticing to try to follow new opportunities that come up, but don’t fool yourself. You can’t be great executing two go-to-market strategies at once. The split focus will mean you will be at best mediocre, but probably terrible at both. If you really think the new opportunity is better, pivot the company and go all in.
  9. Stop believing that your product is your company. – Your company is the value your provide to your customers, not your product. Often your customers couldn’t care less if what happens behind the scenes was done by the best Scala code in the universe or a thousands monkeys… as long as it works reliably and timely. Your customer value and your team is your company, not your product. Focus on making your team happy and your customers happy and all else will follow.
  10. Stop avoiding your customers. – How long has it been since you last talked with a customer? On the phone or in person? Not to sell them stuff. Not to offer support. To listen. To build your relationship with them. To ask questions. Please don’t tell me it has been more than a week or two. A founder, and especially a CEO, has no excuse not to be in continuous communication with customers. Don’t have customers yet? Call your prospects.
  11. Stop avoiding your team. – There are often times you want to curl up and cry, but a leader can not hide behind his desk no matter how much he might want to. A leader must be visible in good times and in bad. Especially in bad times. When a child is scared and hurt he needs his parents the most. Your team is your company, keeping them happy is one of your top priorities.
  12. Stop pretending to be superman. – A leader doesn’t need to be perfect. Don’t pretend that everything is always fine and that you never make mistakes. You might think it makes you look strong and brave, or makes people look up to you. In reality, it comes off fake and inauthentic. You don’t have to flaunt your failures, but hiding them is unnecessary too. Just talk about them honestly and ask people how they think you could improve.
  13. Stop being so secretive about your idea. – You may be scared someone will steal your idea. Don’t. Just don’t. Such a beginner mistake, not even an amateur mistake, it is just a total rookie mistake. You will never find product-market fit by keeping your idea secret until it is perfect. You need to talk about your idea. A lot. To a lot of people. Because honestly, your idea probably sucks just as much as you are secretly afraid it might. One of the reasons many founders are so secretive about their ideas is because they don’t want to be told it is a stupid idea. This is just denial. Don’t be in denial. Anyhow, the people you are so afraid will steal your idea are too busy working on their own big ideas to steal yours.
  14. Stop falling in love with your idea before product-market fit. – “The counterfeit innovator is wildly self-confident. The real one is scared to death.” —Steven Pressfield. The more confident an early stage startup founder is, the more concerned I am for them. Of course they can’t just go around telling people they are scared to death all the time. But when you are an early stage founder and really in love with what you built, you will never seek the changes necessary to really make your product great. Read the Instagram Story to get a great example of a team who wouldn’t stop until they really found product-market fit. If their love of Burbn (predecessor to Instagram) had held them back, they would probably be out of business by now.
  15. Stop ignoring marketing. – Even before you launch your product, you should be marketing. By marketing, I don’t mean press releases and media attention. The best marketing is word-of-mouth. Getting people to talk about you. You only get word-of-mouth by creating real fans. You create fans by adding real value to people’s lives. You can add value to people’s lives in many ways besides your product or service. You can write tutorials and provide useful blogging content that isn’t directly related to your startup at all, but related to your industry. Some excellent examples of this include Signal v. Noise from 37signals, DigitalOcean Tutorials and The Buffer Blog. Create fans, not just users. Most startups don’t even try.
  16. Stop comparing yourself to other startups. – Startup envy isn’t a good enough motivator to get you through the tough times. Thinking that such-and-such startup was just acquired for hundreds of millions of dollars and you are so much smarter than them is not a productive thought. I have written about how to cope with startup envy before but it is better if you just prevent yourself from getting envious in the first place. In fact, it is probably a fantastic idea to stop reading Hacker News and Techcrunch altogether until after you don’t work for your startup any more.
  17. Stop ignoring history. – Trying to raise venture capital for the first time? You are not the first person to do this, read as much as you can and surround yourself with people who have raised money recently (not 10+ years ago, within the last 2-3 years). Trying to build a payment company but never built a payment company before? Don’t try to rediscover everything that worked and didn’t work for others, surround yourself with advisors who have done it before.  Get introduced to Peter Thiel and Max Levchin. Read their biographies before you meet them. Pick their brains. Offer them stock in your new venture. Hustle smarter, not harder.
  18. Stop procrastinating the launch of your company. – Procrastination is just giving into your inner demons. You don’t want to know if it will succeed or fail, but all you are doing is shooting your own feet and cutting of your legs and arms. Go read The War of Art, now. I’m serious. Steven Pressfield calls procrastination a form of your own personal “Resistance”. The closer to launching your startup, the stronger the Resistance feels. You will make up excuses, you will do anything to put it off another week, another month. You can’t find product-market fit unless you have a product to try to fit with.
  19. Stop launching too early. – Launching a “Minimal Viable Product” or MVP does not mean building the crappiest proof of concept and launch it as quickly as you can. Though “Lean” startups are a hot trend right now, many founders misunderstand what a MVP is. Build a product worth using, not a proof-of-concept. If an MVP was a proof-of-concept, it would be called POC instead. Build something that someone would pay for. This means making the product look professional and polished. This means finishing enough details that it doesn’t look like a fly-by-night endeavor.
  20. Stop avoiding thinking about revenue. – Stop comparing yourself to Twitter and Facebook that didn’t worry about revenue until many years after being founded. Stop saying you are the next Instagram. I’ll believe you about as much as I would believe you told me you are holding a winning mega-lottery ticket. Growth is great, and great growth can be wonderful to experience, but cash-flow is king for almost all startups. Don’t tell yourself that you are an exception, you are risking too much if you are wrong.
  21. Stop using your lack of funding as an excuse. – With today’s technology, you do not need to spend millions of dollars to validate most startup ideas. You can usually validate that people want to your product in some form or another, or even pay for it, with just a few thousand dollars. Haven’t built your product yet because you think you need funding first? Build another product that won’t cost so much. Haven’t started selling your product because you think you need funding first? Richard Branson built a billion dollar business without venture capital. You are making up excuses, go find solutions.
  22. Stop just following your passion. – Passion is an energy that can power and motivate you, but easily blind you too. Passion can blind you to truth; it can deceive you. I have seen many founders blind with passion. Passion can blind you to know when you need to pivot or change your product. If the Burbn founders had been overly passionate about their first app, they would have never created Instragram. The trick is to get passionate about product-market fit, not about the product as it is today. Keep tweaking until you find the fit. You will know when you found it, there won’t be any doubt. “When I was a commercial loan officer for a large bank, my boss taught us that you should never make a loan to someone who is following his passion.” –Scott Adams
  23. Stop asking people to sign NDAs before discussing your startup. – Early stage startup ideas are not worth protecting because they almost all suck. Yes, your baby is ugly. Sorry, but it is the truth. After you raise a few million in venture capital and you are setting up a meeting with a large public company, then you can ask to put an NDA in place. However even then, you will have to sign their NDA (they don’t do special NDAs for every startup they talk to) and thus you won’t likely get much protection.
  24. Stop lying to yourself when things are not right. – How long have you been telling yourself that the employee (you know which one I mean) is not pulling his weight and is causing more harm than good? How many times have you turned the other way hoping it will go away? STOP IT. DEAL WITH IT. TODAY. NOW. REALLY. You can’t afford to put problems off to the side at a startup. There is no time. Deal with your problems today, stop putting them off. Stop hoping they will resolve themselves. This is business, do your job. Deal with your mess.
  25. Stop trying to get away without knowing your unit cost. – Unit cost is how much your service costs you to run per customer. “But I’m a SaaS, Lucas!” Stop it, you are a business, right? You have customers? You have service bills? Take out the fixed costs, then divide the rest of your service bills by the number of customers you have. Find out how much it costs you to support one more customer on average. Make sure you are charging your customer a lot more than their unit cost, otherwise you are a charity, not an investible business. You can’t start calculating unit cost too early. It is key to understanding cash-flow and profitability.
  26. Stop believing that hiring sales people will cure your revenue problems. – Reality check: sales people don’t figure out how to sell your product. You do. The only reason you should hire a sales person should be because you don’t scale and you have been doing more sales meetings than you can handle lately. A founder/CEO doing sales calls? YES. Never done a sales call before? Doesn’t matter. Start now. It is your job to figure out how to sell your product. You need to perfect your sales pitch. You need to create a great deck that works. Once you know it works, you let a sales person shadow you until they can say the same things you do.
  27. Stop postponing the calculation of your cost of user acquisition. – Cost to Acquire a Customer (aka CAC) is one of the most important metrics an online business has. If you watch Shark Tank, you know they always ask entrepreneurs for the number up front. It has been extremely well studied by top tier investors like Bessemer who have published great resources on learning about CAC. To calculate CAC, you will need to know your business numbers inside and out, which you should already know. If you don’t, then figuring out how to calculate CAC will get you asking the right questions. Hire an accountant to help you double check your work and assumptions. Like lawyers, don’t try to skimp here, you future self will thank you. Like unit cost, you can’t start calculating CAC too early.
  28. Stop hiring contractors instead of employing great engineers. – It is so so so tempting to just say: “fuck it, I’ll just hire a part-time contractor to build out my prototype.” Don’t do it. don’t give in to the temptation. Hiring full time employees takes longer and is harder and can cost more, but the long-term benefits will always outweigh the short-term gains. A startup is not about the product, it is about the team. A great team will always out-do a great product. Hiring full time employees is about building a team. Hiring contractors is a band-aid full of dirt and bacteria. Startups are a marathon, not a sprint. It is more important to slowly build an excellent team, a motivated team, the right team… than it is to get your product out of the door faster.
  29. Stop ignoring your Ideal Customer. – “All novels are really letters aimed at one person.” –Stephen King, On Writing. That person is called the Ideal Reader. Novels are subjective, not everyone will like any given novel, so you don’t even try to please everyone. You try to please your Ideal Reader. Stephen King’s Ideal Reader is his wife. Whenever he gets stuck, he thinks of his wife and asks himself: what would make her laugh/cry/pee her pants? When you get stuck, always ask yourself: Who is your Ideal Customer? Who are you trying to make pee their pants?
  30. Stop picking such small problems to solve. – Will someone pay for your app that increases Twitter followers? Yes. Can you grow that into a $100M/year business? No. It is a small idea. It is a small market. There is nothing wrong if your goal is to create a small business that augments your income or might even support your whole lifestyle. But that kind of business will never get venture capital, nor should it, so don’t even try. You are wasting investors time and your time. A real startup’s goal should be to change the world for the better. If increasing Twitter followers is a temporary revenue-generating bootstrapping step to a next-gen marketing platform that improves the connection between brands and customers… that is a big problem to solve. That is an investible idea.
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How do I lay people off?

Dear Lucas…

My startup has been growing steadily for three years now. I bootstrapped it and we are making over five million dollars a year now. I know we could be doing so much better with some extra marketing budget and I believe that if we continue to invest ahead of our revenues, it will pay off big for everyone.

Nine months ago, we landed our largest customer ever. That deal alone was two million a year in revenue, but we needed to staff up quite a bit to serve the customer. It’s a crazy story (and not our fault) but after two months, the customer changed their mind. But because I knew I could get a few more customers to fill up the slack in no time, I kept the new hires on even though it meant we were losing money every month.

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How do I manage my anger after pitching VCs?

Dear Lucas…

I have never raised money before and I don’t know how anybody remains sane after pitching venture capitalists. I just finished my first round of bay area pitches… and it sucked. I had to tell the same story a half dozen times a day and I never knew how well I was doing. Sometimes the person I was with seemed engaged and asked a lot of questions, other times they would check their blackberry midway through my pitch.You would think that the engaged VCs were interested, but afterwards what they said was a total crapshoot. Some told me “It’s too early, but we’re very interested and we should stay in touch.” A couple told me flat out that they were not interested. One wasn’t sure about the market and needed to do more research to get comfortable.

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How Do I Cope With Startup Envy?

Dear Lucas…

My startup recently failed. I was the CEO, and it was in a super-hot space with three other competitors. Two of the competitors were acquired and the founders in both companies became super-wealthy. I checked out their LinkedIn profiles and for most of the founders, it was their first startup.With only two startups left, our other competitor’s growth stalled while ours went through the roof. We were way in the lead until we tried to raise our next round of funding. The VCs did not want to invest any more money. We tried laying people off, but in our frenzy to grow quickly, we ran out of money and had to shut down.

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Do I Need Venture Capital?

Dear Lucas…

I want to get your opinion on my product, and some strategic advice if possible. Reading the lean start-up and watching countless videos, entrepreneurs always say it is easier to raise money before launching and I wanted your thoughts on that.

I think raising money is a huge factor for whether I have a chance or not. What I’m trying to create here is huge and not a simple task, I certainly believe I need a team and it’s extremely difficult and challenging to go at this alone. There are companies I look at which have attempted to do something in the space and they received funding for a very poor product and strategy. Another company just raised another $60 million also had a seed investment prior to being on the market.

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4 Transcendent Startup Tips From Penn and Teller

Three years ago, I was just a programmer. I had made a name for myself as a programmer, having written a 900 page book on Ruby, a few popular Ruby gems, and built several successful startups like Mog.com from the ground up. Then something changed in me. I transformed into a startup founder, creating AppFog.com which was acquired by CenturyLink this year. But sometimes I still wonder if I should have been a magician.

My hacker handle is cardmagic. In 1996, I was 13 years old and in love with magic. I practiced every day for hours and would show my friends every new trick I learned. Middle school kids are super impressed by this kind of thing, I felt special and appreciated whenever I showed them something amazing.

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When Should I Launch My Product?

Dear Lucas…

My product automates a task that is currently manual and labor intensive for most companies. I started the company almost a year ago and I am putting the finishing touches on the product right now. We are about two weeks from launching. My technical co-founder is building it out and we have hired a designer to make it pretty.

Do you think it is a good idea to wait on the launch until the design is incorporated or to launch it in a couple weeks and iterate?

—Product-Loving CEO

Hi Product-Loving CEO,

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