Planning, Startups, Stories

An Interesting Edit Change

The context was starting a business. The line read originally:

"Do you want a simple business where you can work on your own terms without having to manage others or have a boss looking over your shoulder?"

The editor changed it to:

"Do you want a simple business where you can work on your own terms without having a boss looking over your shoulder?"

Notice what was taken out: "having to manage others." Why would an editor -- who did an excellent job on the whole book, by the way -- strike that phrase in that context?

I think because she didn't understand that some people start businesses because they don't want to manage others. Not everybody wants to be a manager. There's a lot of responsibility, and the need to do negative as well as positive feedback, and a lot of potential baggage.

Managing isn't necessarily what everybody aspires too. We do, however, think of the manager as having taken another step up some hierarchical ladder. That doesn't mean the manager is really doing better, or that people don't start businesses sometimes because they don't want to be the manager.

It also gets us back to what I think was the original Peter Principle, related to the common phenomenon when the best programmer, engineer, accountant, researcher, attorney, or whatever is not the best manager of the other programmers, engineers, etc.

Surprising Findings About Tech Entrepreneurs

Here's an interesting  surprise, from Education and Tech Entrepreneurship, a Kauffmann Center research paper published yesterday:

Twice as many U.S.-born tech entrepreneurs start ventures in their fifties as do those in their early twenties.

I think it's ironic that this should be a surprise; a generation ago it would have been a common assumption. Then came the successes of industry icons Bill Gates and Steve Jobs, both young college dropouts. And a lot of people like them. Or so it seemed. The young techies ruled the PC industry boom in the 1980s, and again, the dot-com boom in the 1990s, and the Web 2.0 boom right now.

And there is truth in that stereotype, of course. Where there's smoke, there's fire. But this latest research puts in a word for classic wisdom, experience, and education as well.

I picked this up from David Miller on Campus Entrepreneurship, who cites Ben Worthen's Tech Entrepreneurs Mostly Aren't Youngsters After All in the Wall Street Journal. He summarizes:

Instead, the average tech entrepreneur was 39-years old when the company was founded, says a survey released Thursday by the Kauffman Foundation. The survey asked questions of 652 U.S.-born execs at tech companies started between 1995 and 2005 and with revenues of at least $1 million. Not only was the average founder pushing middle age, but also nearly five times as many founders were over 45 (24%) as were younger than 25 (5%) when their companies got off the ground.

Only 8% of founders hadn’t completed a college degree, contrary to the image of the Bill-Gates-like college dropout. Forty percent had a masters degree or a PhD.

Some other interesting findings (quoting the study):

• Tech-company founders were four times as likely to have attended an Ivy League school than the public at large, 8% compared with 2%.
• The most common universities from which U.S.-born tech founders received their highest degrees in our sample are Harvard, MIT, Pennsylvania State
  University, Stanford, University of California-Berkeley, University of Missouri, University of Pennsylvania, University of Southern California, University of Texas, and University of Virginia.
• U.S.-born tech founders with Ivy League degrees tend to establish startups that produce higher revenue and employ more workers than the average.
• Startups founded by those with only high school education significantly underperform all others.
• Nearly half (45%) of the startups were established in the same state where U.S.-born tech founders received their education. Of the U.S.-born tech founders in our sample receiving degrees from California, 69% later created a startup in the state; Michigan, 58%; Texas, 53%; and Ohio, 52%. In contrast, Maryland retained only 15%; Indiana, 18%; and New York, 21%.
• And while they were more likely to have received a techical degree than the general population – they founded tech companies, after all – only 37% graduated from computer-science or engineering programs. (Only 3% received liberal arts degrees.)

And this last point, included in the summary of the study, is actually citing a different Kauffman Center study.  It looks like it was included because this study looked only at U.S.-born entrepreneurs. 

• From 1995 through 2005, skilled immigrant founders established 25.6% of all the startups nationwide, and 52.3% of those in Silicon Valley. This group tended to be highly educated in science-, technology-, and engineering-related disciplines. The majority came to the United States to study and decided to stay.

Is any of this really surprising? That successful startups tended to correlate with experience and good education? I'm very happy to see research confirming some of the points that ought to be obvious but get disputed. I am surprised to see that fully 50% of successful Silicon Valley startups are established by immigrants, but, as I look around, maybe not so much. That one didn't come from this study, but it's a good reminder that our immigrant stereotypes are out of date as well.

Can You Really Start a Business in Three Weeks?

Yes, you can. Maybe not all businesses. Maybe not any business. Some businesses, though, can start in three weeks. My first business started the day a former client called and asked my to do a market study in Venezuela. That changed things from one day to the next.

That's a true story. If you're curious, I posted that one a few months ago on this blog as The First Day of a New Business.  That's one example. There are millions.

There are 21 million companies in the United States without employees. I wonder how many of them started up in 3 weeks or less.

A 2006 study sponsored by Wells Fargo and Conducted by Gallup found that the average startup cost was about $10,000. I wonder how many of those started in three weeks or less.

It would be easier to count the businesses that can't start in three weeks, because there are a lot fewer of them.

• You can't do it in three weeks if you have to raise significant money to start with. I have indications that angel investors financed about 60,000 new businesses in the United States last year, and venture capital investors are doing about 2,500 deals per year. That's a very fine stratum at the top of the new business picture, a small percentage of the 800,000 or so new businesses started in an average year.
• You can't do it if you have to wait longer than three weeks for a bank loan. Some bank loans can take less than three weeks. That's more likely if you're borrowing off an established and solid asset, like your house equity (if it is solid and established, and not a victim of the sub-prime mess).
• You can't do it in three weeks if you have to establish a location, build a team from scratch, manage prototypes, prove your viability. All those are among other reasons.

Even in those cases, however, you can play with the definitions. You can call it starting in three weeks if you get the team together, the basic idea settled, the first legal steps taken, and you start the search for the location and start the search for funding.

Why do I care? That's a reasonable question. Yesterday Sabrina Parsons and I finished our compete draft of a book called "Start Your Business in Three Weeks," to be published by Entrepreneur Press next fall.

That was the second book draft I've sent to Entrepreneur in two months, and the last for a long time. Of course I/we didn't write them that fast, they were both a long time coming. That's what happens, I guess, when you name a new CEO for a company and task its long-time president with blogging writing, teaching, and speaking.

Remembering Fundamentals: Who Owns What

I was talking with somebody yesterday, a man I respect, who was disappointed with his management (not my company, by the way) because he'd been told he was taking "too much ownership."

I laughed. I thought that was a joke. How can too much ownership be bad?

"No, really," he said. "I make decisions on my own. I give people freebies." His upper management doesn't like that. I don't get it. In seminars I talk about how good planning process generates ownership. To me, having managers "own" their areas is the only way to grow a company.

What?! Do you want to have every micromanaged manager in the company coming to you all the time, asking you to validate every decision? That's just plain crazy.

My experience was that Palo Alto Software grew by having other people take over and own parts of the business that I had done originally. Product development, documentation, and (what a relief!) marketing, and accounting, tech support; one by one we found people to own these areas.

I assume as you read this you're thinking something like "well yes, of course, and everybody knows that ... why waste my time with it?" However, this story I heard yesterday was a reminder. People forget those fundamentals that "everybody knows." Do they get jealous of good managers.

The person accused of "too much ownership" had more than doubled his group's revenue in two years. But, apparently, he wasn't checking in often enough with his superiors. What ever happened to "just do it?"  I also liked the image of a bunch of mice, each finding a place to eat on the cheese.

Am I wrong on this? Is it possible for a manager to have "too much ownership?"

Save Me From the 4-Hour Work Week Nightmare

Paul Brown listed some good time management tips for entrepreneurs yesterday in the New York Times. His list includes a discussion of Timothy Ferriss' hugely successful book, the 4-Hour Work Week.

The 4-Hour Workweek by Timothy Ferriss Read more about this book...

It's a good list, worth reading. But it leads me in a related direction.

I'm just a single data point, but I'm pretty sure I'd hate a 4-hour work week. I had the privilege of hearing Timothy Ferriss at a conference last year. He's impressive. He's a very good presenter. When he explained it himself, with good slides and sharp humor, his basic idea seemed to make a lot of sense. Farm out the small stuff. Hire somebody else to answer your emails. Work on the big stuff.

I'd hate the 4-hour work week because I love my work. And I think that thought is related to the core of at least one branch of entrepreneurship: the escape from boredom.

My older brother has accused me of a "one-size-life-fits-all" philosophy, but I feel that it's useful to share that the "escape from boredom" school of entrepreneurship has worked for me. Palo Alto Software was built on the foundation of doing something (business planning) that I like to do. Sure, there were lots of bad days (when cash flow was scary, every day was a bad day) but over the long term it was about doing what I wanted to do.  And, as it grew, surrounding myself with people who liked doing what they were doing.   

Not all entrepreneurs subscribe to this philosophy. It's really hard to classify entrepreneurs. Some pursue nothing but money, more often it's following a dream, proving something, doing your own thing; sometimes it's simply about working alone.

So not to assume that one size fits all, maybe I'm just lucky. My work is about writing, and starting companies, and business planning, and entrepreneurship. Sometimes it's teaching a university class, which I'm doing this Spring quarter twice a week. Sometimes it's doing a seminar, or webinar, and lots of times it's keeping up with things on this blog. Today it's the first day of the Starting a Business class I teach every Spring quarter at the University of Oregon. Tonight I'll be helping with the Eugene Oregon Smart-ups conference, reviewing four new businesses over dinner. Tomorrow I'm off to Houston to be one of the judges at the Rice University Business Plan Competition. Next week I'll be a judge at the University of Oregon intercollegiate New Venture Championship.

And I wouldn't miss it for the world.   

And this idea isn't being fair to the good time management tips this post started with, or the good sense in Timothy Ferriss' book. Still, I face a fresh new class today, and one of the most important things in starting a business is matching up what you have to do with what you like to do. 

Startup Culture Shock: Is Startup Life Life?

So I think somebody struck a nerve. So what do you think of this tip to save money:

Fire people who are not workaholics. Come on folks, this is startup life, it's not a game. Don't work at a startup if you're not into it. Go work at the post office or Starbucks if you want balance in your life.

That's from Mahalo founder Jason Calcanis, late last week, on his blog. He titled his post How to save money running a startup (17 really good tips). So he's the one calling his tips "really good," not me. Some of them are pretty good tips, but I think they got lost in the storm.

Responses came fast and furious. 111 comments by Sunday morning. Other blogs reacted too: one of the best of them was from 37 Signals, titled Fire the Workaholics, which concluded:

If your start-up can only succeed by being a sweatshop, your idea is simply not good enough. Go back to the drawing board and come up with something better that can be implemented by whole people, not cogs.

That one has 90 comments on it. Two posts about it -- one by Michael Arrington agreeing and another disagreeing --  have about 350 comments between them.

Jason, meanwhile, got hit hard, with some strong words. He quickly toned down the original, striking out a couple of the more quotable phrases. And, to his credit, he shows the edits too, in the post you'll find when you go there.

Fire people who are not workaholics. don't love their work... come on folks, this is startup life, it's not a game. don't work at a startup if you're not into it--go work at the post office or Starbucks if you're not into it you want balance in your life. For realz

What's going on here? I think it's culture shock; war between worlds. These are not simple disagreements. There is a whole lot of aggression and anger in the comments.

There was a joke I heard first in Mexico City. Maybe you've heard an English version, but this is a translation. It's related to all of this.

A man walks into a crowded cantina and starts shooting two six guns in the air, getting everybody's attention. He draws a line across the middle of the bar and issues an order: "I want all the fools on one side of the line and the jerks on the other."

"Wait just a minute," says one man in the crowd. "I'm no fool."

"Then move to the other side of the line."

That's what this controversy is trying to do to startups and people running startups. It's pretty much either or, if you believe the flow and direction of the comment storm: fool or a jerk.

And I don't think it's that simple. I see at least two other issues rolling around vaguely in the middle of this. And perhaps a way to bring them together.

First, how do you define success? Every so often somebody reminds us that it's an important question. But we get lost in the startup tension, or maybe that's the startup culture. I think all we have to do is ask the question, as a reminder. There are so many shades of gray between the back of plain old failure and the white of fabulous billionaire success. Some people want to have a life, and they want the people around them to have lives. And it's not like there aren't examples of startups that respected people and balance. On the other hand, there are lots of stories around. One person's obsession is another's passion. You can paint that picture how you want. Do you want to be coach the kids' soccer team or (have a very small chance to) be on the cover of magazines?

The second issue is founders with blinders. They want the whole team to share the obsession but they forget that only a few of the top founders actually stand to share the pot of gold at the end of that very-hard-to-catch rainbow. Sometimes its leadership, sometimes its selfishness. It's insisting that everybody buy into their private dream, which sometimes is shared, and sometimes not. I've seen that kind of driven-and-driving-founder at work. The younger Steve Jobs was like that at Apple during the Macintosh gestation in 1983. Philippe Kahn had a lot of that when he build Borland International in the middle 1980s. I saw it again from a comfortable distance in the late 1990s, with dot-coms and their hard-driving work-is-everything atmosphere. That reminds me of the late 1990s in Silicon Valley. Back then it happened all over. I knew a company that raised $45 million venture capital in its first year, hired more than 100 employees, nobody over 30, and brought in dinner almost every night and offered video games and ping pong in the office. The 12-hour days were the norm. The long hours, the lack of balance, the obsession is supposed to be shared by the whole team, but, in many of these cases, the supposed rewards at the end of that long trek won't be shared by the whole team.

It can be a bit like the one-size-life-fits-all syndrome, except in this case it's the one-size-no-life fits all. Does that work? It didn't for that company I knew, which (because a legal settlement so required it) shall remain nameless. It did for Apple and Borland. I don't think that works very well for very long for anybody, at least not for any extended period of time. But then again, some of the people who say that it works have a whole lot of money.

And how do we bring it together? I think it might be value. Believing in what you're doing. I've known companies, and teams within companies, that believed that what they were doing in the business mattered, to them and to the world. There's a very special feeling that you get when you walk out the door at the end of the day with the feeling that you've spent your time making the world better, not worse. Some companies are built on making things better, while others are built on getting money out of people's pockets. Some companies respect their customers, some companies bilk there companies. You know who you are. Does that make it better?

(note: I posted this originally on Small Business Trends. I'm crossposting here for readers' convenience)

Paul Graham on the Future of Web Startups

Paul Graham, Web entrepreneur, Harvard PhD in computer science, dot-com winner, posts an essay on the Future of Web Startups. He says cheaper startups mean more startups, changes in college, a need for better ways to filter startups for investors. Cheaper in this context is a reference to the common theme of Web 2.0, meaning generally lower investment requirements, zero to proof-of-concept with $250,000 instead of $2.5 million, as in my post Cheaper and Easier of a couple of months ago.

It takes a lot of pizzazz to list 10 future predictions. It's a great ice breaker, to jump-start thinking.

Will cheaper startups change college life because kids jump out starting companies instead of looking for jobs? Is investment size the critical factor in that idea?

Do cheaper startups mean standardization of startups? The idea is that a lot of technology products -- computers, for example -- evolved like that; but did they? Was that true for cellphones (yet)?

Do cheaper startups mean we need better methods for reviewing potential investments? Does that assume, somehow, a new status quo in investment structure, instead of spreading startup funding broader, to new sources?

Interesting questions.

True Story: Business Plan Addict

Yesterday I posted my slogging it out theory, how business is sometimes a matter of doing the work, getting the store open, returning the phone calls. That post reminded me of someone I worked with who did just the opposite.

I haven't seen Ralph (not his real name) for several years now. Rumor has it that he finally did get a company going, sales of a few million a year, and then fought with the programmer whose work got them started, and fell from grace.

Ralph was a serial non-entrepreneur. We worked together off and on for about six years and during that time he was never not working on a business plan. He was going to get financed. "Business Plan" to him wasn't just planning a business, it was a lottery ticket to a carpeted office and big BMW and somebody else answering the phone and making the coffee. He spent years working on one business plan after another, none of which ever got financed. He was a business plan addict, living on the dream of hitting it big, always looking for the big win, but never actually taking small steps in the right direction. Nothing could happen until he "got financed."

Like the gambler that never leaves Las Vegas, Ralph was always hoping that the next one would be the big one.

That phenomenon is the main reason for this post. My slogging it out post yesterday reminded me of Ralph's way of not slogging it out, using the business plan as a reason to not do anything. My wife always said he didn't do anything, he just talked about it, and dreamt about it. 

On the other hand, Ralph was 10 years older and had more industry experience, so he did some mentoring. For example, at one point we worked up a  business plan for assembling generic business computers in Mexico City (that may sound random, but I had lived there for 10 years and was returning to live there again). He was to be my partner in the Silicon Valley, and I was going to build the business in Mexico. As part of that plan, he taught me, step by step, how to build my own computer. Do you remember the S-100 bus and the CP/M operating system? I built my own.

His best advice for me was extremely valuable: "Sell boxes, not hours." Ralph liked pithy entrepreneur-folk wisdom like that.

Unfortunately, he also taught me a lot of what not to do. From what I heard later, Ralph finally did get something going after I had moved to Oregon, and his business had several million dollars of annual sales back when that was a lot of money. We drifted apart so I don't know for sure, but mutual friends tell me that the propensity for luxury offices and big-company perks hurt a lot as his business turned into one of those Nova-star affairs that crashed and burned fairly quickly. There was also a rumor that the crashing had something to do with questionable legal moves that were unfair to a partner who had done the programming to get them started.   

This true story is in this blog mainly for several actual business points:

1. If you're in the startup mode and working on business planning, don't suspend business life until the plan is done (because it never is) or until you're financed. If it's a good idea, get going. Keep working the plan. If you need to get financed, keep at it, but take small steps in the meantime.
    
2. If you're working on a startup, take my advice (not Ralph's) and think about cinder block offices and such in the more economical locations. If your business isn't about receiving clients or customers, wait for the luxuries until after you have more revenue than costs and expenses.
    
3. Sorry, this one is so obvious, but as your business rises in the world, make sure you bring along the people who got you there.

-Tim

Second or third mover advantage

Seth Godin posts "The Netflix of ..." today on the value of being an original instead of an imitator. We have the general assumption of first mover advantage and first to market, and nobody wants to be a copy. However, sometimes it's better to be the second or third to market instead of the first.

Does that sound crazy? Back in my consulting days I had a client from Quarterdeck Office Systems who was very disappointed the week after VisiCorp had introduced VisiOn at COMDEX. Quarterdeck wanted to be first with a graphical user interface working over the operating systems of the day (remember DOS?) but VisiCorp beat them to it.

VisiCorp died less than two years later. Quarterdeck Office Systems went public nine years later, valued at $182 million (not so much these days, but in 1991 that was a lot of money). And my point, with that entrepreneur back then, is that sometimes second or third is better, because investors understand what you're talking about.

I followed up afterwards with a Palo Alto venture capitalist David Gold, over lunch. "Often it's better to follow somebody into the market", he said,  "because it's so much easier to explain what you're doing. We're just like so-and-so except that we do it this way, or that way, obviously some better way." That of course is a much better story than just plain "we're just like Netflix." Seth makes the point that Netflix' model tracks back easily to the nature of the DVD business, where being the "Netflix of purses or watches" doesn't generate immediately obvious images.

However, there is something to coming into the inflection point of the markets, when people understand what it is. Amazon.com was not the first website selling books, Google wasn't the first searcher (not even Yaho0). Neither Toyota nor Honda had the first hybrid auto. You've never heard of the first supermarket, but Safeway and  Kroger's followed along a little later. McDonald's came along after Automat, White Castle, and many others.

In the world of high tech and venture capital, Microsoft Excel wasn't the first spreadsheet integrated with graphics, nor was Lotus 1-2-3. Does anybody else remember Context MBA (there's a blast from the past ... do you think the "MBA" in its name hurt it?). The Macintosh wasn't the first graphical interface operating system either (does anybody remember Xerox Parc and the Xerox Star?). The first personal computers were Altair and MIPS, not Apple, Radio Shack, or Commodore. 

"Just like so-and-so, but better" is a nice pitch. Search Google for "'just  like', 'but better'" and you'll come up with 415,000 pages. 

So yes, being an original is much more satisfying, and if you can seize that advantage and keep it, it's great business. But being second or third works well too. It's sometimes easier to explain. 

-- Tim

Put Your Video Pitch Online

What do religious conviction and the awareness of liabilities have to do with entrepreneurship? They're key to being a successful entrepreneur, according to Vinod Khosla, formerly a General Partner at Kleiner Perkins, and founder of Sun Microsystems.

I've been browsing through the entrepreneurship channel at vator.tv, a very interesting new site offering a collection of video pitches and a forum for posting your own pitch.

Take a couple of minutes (literally, two minutes) to watch Khosla's summary of entrepreneurship success, or Bob Grady's two minutes. Then browse through the video pitches. Vator is running contests for several categories.

 

I've been looking forward to a site like this. It was just a matter of time.

-- Tim