Greg McAdoo

Elements of a sustainable company

• Clarity of purpose
  • How concise are you? Know your business. Define Problem and solution. Know the problem Get out early and interate. Don’t expect a perfect product with initial release. Get feedback. Know your competition. Exploit a hole in your competition. Do something they they’re afraid to do. Understand the market
• Spectacular market
• Alleviate customer pain
  
  • “Look for someone whose hair is on fire and sell them a firehose.”
    • They won’t care about the details
    • It’s ok to cut corners if necessary
• Incredible Product Focus
• Real Operating Margins
• Frugality
• Inferno with a single match
• Know demographics, statistics, etc.
• Know yourself – functional contributor, go the distance, be honest.

If you’re going into a gray area with your business idea, Show the current trajectory of law when presenting to a VC.

Mark Zuckerberg

Importance of being technical

• Instead of answer questions – build tools

Give power to the people on the organization who can do the things they need to do. Technical people for marketing roles, support, etc.

Joel Lehrer

Do’s and Don’ts of Patents for Micro-statups Patents encourage innovation

• Must not have been disclosed public for one year.
• You need to be the inventor
• Takes about a year and can cost a lot of money
• Does not guarantee you can practice the invention.
• Exclude others from using your idea/invention.

Why does anyone care?

• Wall out competitors
• Defense
• Potential income – licensing
• Value on exit
• Credibility to investors – makes you think about what you’re doing that’s different
• Articulated description of market differentiation.

Joel on Patents

• Work on your own time and equipment
• Understand your current obligations
• Document code provence
• Get assignments
• File something before you launch
• Do some (but not too much) searching.
  • Google Patents
• Focus on the product, not patents
• do not worry about the big boys (for patent infringement that is)

Patents on $500/year

• Monitor blogs and bulletin boards ($0)
• Monitor newly issued patents and publications ($0)
• Hire a search firm (NERAC, INREA) ($500 or less)
• Learn how to write a provisional ($0)
• Draft and file your own provisional ($100)

Hadi and Ali Partovi

Is my Idea a Winner?

• Can you explain customer need in 1 or 2 sentences?
• Does the idea/business scale?
• Are you creating added value? What would’ve people lost without you?
• If you’re dependent on 1 supplier or customer, they have you by the balls.
• Will users recruit other users?
  • Viral marketing.
• Will value increase when customer’s increase?
  • Social networking
• Are you passionate about the idea?
  • Can you hang on when things go downhill?

Do’s

• Listen to your customers and and identify with them.
  • Do it personally.
  • Have everyone do customer support at one point.
• Rank top problems and your top people.
  • Assign these problems to the right people.
  • Use effective delegation.
• Cut spending where you can. Make frugality and profitablity a part of the culture.
  • For example, don’t buy paper clips and paper cups. Reuse ones on incoming documents and have people bring in their own cups.
• Move quickly and make decisions fast.
  • Avoid committees.
  • Avoid 12-month development projects and delegate decision making.
• Have a strong CEO.
  • This person should be a salesperson and a good speaker.
• Focus. Have 1 main idea. Do this 1 idea well.
• Hiring great people is critical. Put this at the top of your list.

Don’ts

• Don’t be distracted by the press. Don’t make decisions to get press.
  • Goals of PR – recruiting and strategic partnerships.
• Don’t take the company culture for granted. Don’t let politics set in. Keep and set the culture while you’re small.
  • As the company grow, there will be a tendency to introduce politics into the culture.
• Don’t be greedy in negotiations. Don’t go for the perfect deal. A deal is better than no deal.
• Don’t ignore your gut feeling about an employee or candidate.
  • Recommendations and resume aren’t the only judgment factors. Fire people if they’re not in the right position.

Rahoul Seth

Financing for Start-ups

• Funding – Bring business partner(s).
• Finding the right business partner will bring professional advice from experience.

• Potential investors known people and can advise you.
• “Smart money” wants you to succeed. This is why you should get VC funding. If you make money, they make money.

Financing comes in stages

• Seed – Need to first figure out strategy, cash requirement, and market requirements
• First – Get a beta product, “go to market” plan.
• Second – Road map to growth and profit.
• Third – Expand business. Risk taken out.
• Mezzanine – Working capital needed for liquidity event
• IPO – Have liquidity for investors

Type of Investment

• Debt – Borrow $, pay back with Internet.
• Equity – Sell share of company. Investors make money from liquidity
  • Common stock – founders (stock), employees (options)
  • Preferred stock – Investors (stock and warrants). Preference over common at liquidity events. Don’t give this out early on.
  • Goal for founders should be to retain 5-10% shares of the company.



• Dilution

Liquidity Events

• acquisition – most likely outcome
• IPO – high risk in today’s legal environment

Debt Financing

• Fixed assets – hardware/software
• security deposits
• working capital – only after company is profitable

Mitch Kapor

“It doesn’t matter where you start, it’s that you started.”

• People Culture
  • More inviting work places. People feel there contributions are respected and will make a change.
  • Not always true – startups have more inappropriate conduct.

Common Dynamics

• Valuing face-time more than productivity.
• People have trouble getting information to do their job.
• Reliance on rumor mill as best source of information.

Meritocracy

• Talent vs. “People like us”
• Research shows diverse teams are more innovative.

What can you do?

• Take culture seriously. Every action/inaction sends a message.
• Walk the walk yourself. Do as you say and set an example.
• Hold people accountable for their actions. If you don’t, it may harm company morale.

Entrepreneurs and Investors

• Experienced investor knows more than young entrepreneur.

Alignments of Interests

• Investors can be great partners.
• Interests can and do diverge.
• Issues
  • Who is CEO?
  • Unanticipated events? – Investors may decide their interests differ from yours.
  • Stay private, sell, merge or go public?

Trust matters a lot with the person you’re taking money from.

Chris Anderson

• As more content/choices come out, the demand is distributed among the population.
• Most of your market will be in the middle of a bell curve. Niche markets on the other hand are away from the middle and thus smaller.
• In our current market, 20% of the products account for 80% of the sales.
  • Caused by networks and word of mouth.
  • “Word of mouth travels at the speed of light.”
• The other 80% of the products are now coming to market and become popular due to sites like youtube. This is content that would not normally be seen on television.
• Online stores, such as Amazon or Netflix, offer products retail markets don’t have. These products account for a large slice of overall sales.
  • Offer a variety of products for people of diverse taste.
  • “Instead of focusing on dozens of markets of millions, focus on millions of markets of dozens.”
  • The Long Tail

Paul Graham

• 0% of the people who do startups would not want to trade their job for a cubicle.
• Why don’t people do it?
  1. Too Young
     • Some people are 19 when they first get funded.
     • Age isn’t important, maturity is.
     • Difference between a kid and adult:
       • Kid – “I can’t do it, will you do it?
       • Adult – Doesn’t flake.
       • Kid – Submission when given a different opinion or criticism.
       • Adult – Asks why when given criticism.
  2. Too inexperienced
     • Do it anyways and learn from your mistakes.
  3. Not determined enough.
     • This is a problem because determination is one of the largest factors of success.
  4. Not smart enough.
     • People who worry whether or not they are smart enough are probably smart enough. Don’t underestimate your intelligence.
  5. Don’t understand business.
     • Business should not be the hard aspect. Instead concentrate on building something great. You’ll learn the business aspect along the way.
     • Businesses buy startups for their ideas anyways.
  6. No co-founders
     • People prefer to invest in a startup with a co-founder. If you can’t find a co-founder, then change your idea. This problem should be one of the most important when starting out.
  7. No idea
     • No problem. Ideas are a dime-a-dozen. People will give you ideas along the way.
  8. No room for more startups.
     • There is always room for valuable ideas to evolve.
  9. Family to support.
     • This is a problem. Instead think about starting a consulting firm.
  10. Independently Wealthy
      • “Why the fuck would I do that again?”
  11. Need for structure
      • Some people just need someone to tell them what to do. If this is the case, then don’t do a startup. People in startups don’t tell other people what to do.
  12. Fear of uncertainty
      • Who knows what will happen? You will probably fail. However, it will be interesting and you’ll learn something along the way.
  13. Some people don’t realize what they’re avoiding
      • Real Work.
      • Startups work from real pressure.
  14. Parents have aspirations for you, such as being a Doctor.
      • They want you to be rich.
  15. A job is the default.
      • What is normal is awful

Michael Mandel

• Innovation makes big companies skin crawl due to the uncertainty of the success.
• In an economics 101 class, it does not mention innovation.
• Innovation on the other hand is the reason for growth in the economy.
• Faster innovation = more start ups.
• Governments can’t innovate, but they cant prevent it.

Max Levchin

Product Management

• Most start ups fail.
  • Why? Engineers suck at details.
• Most of product management is the UI.
  • If you have a good idea, but a bad UI, you will fail.
• Think like the person you are designing for.
  • Become the user. Out of body experience.
  • Observe the user.
  • Study group (Expensive alternative)
• Measure everything about a product.
  • Look at Google analytics and find trends and patterns.
  • Develop your own program to do this.
• Don’t use Red/Green contrast (color blind people).
  • Use blue instead.
• Overcommitment (forms) drops most users. Use 1-click systems.

On Saturday, March 24, 20007, I had the pleasure of attending Startup School at Stanford University. Here I saw many presenters including Paul Buchheit (Creator of Gmail), Paul Graham (Founder of YCombinator), Mitch Kapor (Founder of Lotus and Co-Founder of the EFF), and many more.

It was inspiring to say the least. It opened my eyes and I saw that working for someone else is not the only route to take in life. Not only that, but but bringing your idea to life and working for yourself is closer than one might expect. I wish to share what I learned by posting my notes taken, followed by a list of themes I noticed and my own thoughts on everything. Anyways, let’s start from the beginning with notes from Mark Macenka and Paul Buchheit.

Mark Macenka

Patterns of startups

• Understand your market and your customers.
• Known your competition. Do not underestimate them.
• Stay focused.
  • “Eat, sleep, fornicate with the business.”
• Don’t pay attention to how much of the business you own; This will distract you from the business.
• Listen to people in industry.

Capital Structure:

• Keep it simple.
• Choice of Entity – Corporation, partnership, etc.
  • Decide this early on.
  • Choice is tax driven.
  • Some choices make it difficult to allow people to invest in you.
  • Think of the long-term consequences when making this choice.

Intellectual Property Problem – Do past employers actually own your intellectual property?

• Look at agreements with past employers.
• Did you use company equipment when working on your idea?
• Avoid Joint ownership of Intellectual Property.
• Own your IT department. If you use consultants for some of your code, have them sign that you own the code or that you can license it.
• Usage of open source or 3^rd party code can cause licensing conflicts.
• Protect trade secrets such as source code and algorithms.
  • Use NDAs with employees and friends.
  • Be consistent with protecting your IP.
  • If you don’t, you may lose them.

Founder Issues:

• Who owns what? Figure this out early on and get it in writing while the company is worthless.
• Who is on the board? Choose people who understand the business like the founder.

Paul Buchheit

Advice on advice

• Helpful advice opens your eyes.
• Everyone has a piece of a puzzle. Use their piece to understand the full picture.
• Weigh the advice that people give you. Remember, Advice = Limited Life Experiences + Over-generalization.
• Ignore the people who say something is impossible. Impossible = “According to my very limited experience and narrow understanding of reality, that’s very unlikely.”
• No one has it all figured out.

Quit your job.

• Especially if you’re doing a startup.
• You can’t follow your goals working for someone else.

The secret to success is to Redefine Success

• Remember: startups do fail.
• Old definition of success: Making a lot of money
• New definition of success: You learned a lot.
• Seek out information that no one knows.
• Invest in yourself and your future.
• A startup is like school, but you actually learn something.

Attempt things with uncertain outcome

• You will learn from this

Startups are a great place to learn

• Things will happen fast.
• You’ll do things you’re unqualified for. Paul was unqualified for writing Gmail, but he was successful anyways.

Build something different

• When Apple released the iPod, they weren’t releasing an mp3 player. Instead they released a high capacity device that holds all of your music, fits in your pocket and syncs with your computer.

Look how people using an existing product and build upon that.

• Add the words “that actually works.”
  • Search that actually works – Google
  • Email that actually works – Gmail

Make changes of great magnitude

• When email providers were giving people 10-20 MB of storage, Gmail gave people 1 Gigabyte of storage.

Scaling Web Services

• No matter how large your disk is, disk seek time remains the same.
• There are two types of data:
  • Big – Photos, video, music. This type of data should be hosted on Amazon S3.
  • Small – Tags, text. This should be stored in DRAM.