Startup Lessons

I thought this was be a good time to summarize my learnings for fellow entrepreneurs and myself on the street smarts of running a startup:

1. Haters. When you will start out on a startup adventure, you will get your soon to be ex-workers will try to discourage you, your friends, spouse and even your family might not be very supportive at first. But despite this hating, you have to keep it real and take the plunge . Don’t worry.

   

   People around you will be more appreciative and will get more comfortable as time goes and everything will be OK. And God knows if you ever get rich, they may start saying that it was their encouragement that lead to blah blah ..

2. Know that you can make a lot of money. If you are doing a Web 2.0 company and willing to take a very high amount of risk, this might not be a priority. But for all others, make sure you get these concepts right:
   1. Quantify your value proposition : What is a good value proposition? The technology’s value should be clearly demonstrated with hard numbers. Look for four elements:
      • A well-defined business opportunity.
      • A benefit or value that’s measurable in dollars
      • A favorable price/benefit ratio.
      • A short payback period.
   2. Sales, Sales, Sales: Nothing happens until somebody sells something. Gregg has some great practical ideas on this.
   3. Read and follow the boostrappers bible by Seth Godin. (free limited version). It will get help you get your head wrapped around important concepts like a ‘business model’.
3. Timing. Timing is everything in the startup world. You don’t want to be too early or too late. Both are bad. If you are too early, you become the sacrificial goat. Either the market never happens or new entrants into your market improve on your design and copy it after you have spent years and millions of dollars working out the kinks with early customers. If you are late, well – you are reading the good news of someone else cashing out on your idea. Remember, none of these companies was a pioneer or innovator in their own fields:
   • Google was not the first search engine or first one to conduct an online advertising keyword auction
   • Oracle was not the first database company
   • Microsoft… everyone knows this story
   • eBay was not the worlds first marketplace
   • Hotmail, Blogger, AOL, Flickr was early and on time
4. How pick your partners.

• Pick people who care about you and your company
• Intelligent, flexible, entrepreneurial, experienced in your field, good communicators, execution engines
• People you can trust and you can be sure that they will be loyal to you
• Partners who have ’skin in the game’. It means they should personally have to something to lose and to gain
• Avoid people who take long time to make decisions; things have to be spontaneous and less analytical
• Avoid people who are doing it for a quick buck or cash payouts
• Avoid people who are not dependable and are sloppy

1. Talk is cheap & quality of your team is everything. Hire execution engines. There are only two types of startups, “The Quick and the Dead”. For your team, you need the smartest people who can deliver consistently. A player hire A players; B players hire C players”–meaning that great people hire great people. On the other hand, mediocre people hire candidates who are not as good as they are. It’s either because they don’t know have ‘A’ people in their network or they do it to feel superior or they cannot simply impress smarter people to work for them. If you start down this slippery slope, you’ll soon end up with Z players and you end up with an organization that produces Z class products, design and ultimately it reflects into the entire company.
2. Motivation check. Money is an important part of the overall reward of working with a startup and taking a risk, but usually this alone will not be able to sustain an individual to survive the hardships of a startup. Being a part of a startup is an emotional affair. Just like in the matters of the heart, it takes patience, unconditional love and compromise. Look beyond a person’s education credentials and work experience. Figure out what ultimately motivates them. Is is the technology? Is it the love of your product? Is it the added responsibility that they get? Or a chance to change the world. Keeping all other things equal , the answers to these questions will ultimately determine how much hard they will work and how much of their heart will they pour out for the company and the team.
3. Use titles for accountability. Flat organizations work the best for startups, but as the team grows it is important for you as a founder to focus on one or two core areas of the business and give responsibility for other areas to manage. It does not mean it is hands-off management, but it means that initiatives get executed per the plan of the team and day to day is managed by the head of each department. As the organization grows, provide the right titles to the people who have worked hard and earned the trust of their co-workers to be their leader.
4. Have a hiring process. I know that it us hard to hire a Human Resources manager in the earlier stages of a company, but it is critical that the founders pay particular care and micro-manage the hiring process. Guy has some great tips in his post and book. One bad hire can drop the survival rate of the company significantly as it makes you lose time and valuable cash. On the positive side, one good engineer can take the product to new heights. Use common sense, use books, check references via LinkedIn, friends, co-workers — do whatever needs to be done, but be thorough and you better be right.
5. Limit ’strategic discussions’: Strategy is evolving in a startups life span. Things will change month to month in the first two years of the company. Discussion about long term direction is healthy and should be encouraged, but don’t spend months ‘talking’ about it and trying to figure out everything in the beginning. Startups need to be nimble, flexible and opportunistic and need to iterate on strategy until they find the sweet spot in regards to the product and market focus.
6. Make decisions quickly, but not too quickly: Startups have their advantage of been quick because the decisions can be made quickly, but make sure you are not moving fast in the wrong direction. Case in point, take your time in hiring, but don’t waste days in trying to figure out an office space and furniture. Your time can be better spend focusing on customer service, hiring and product engineering.
7. Don’t get too ahead of yourself: This posting by Joel on “Fixing Venture Capital” scares the living daylights out of me. The fundamental reason is that VCs do not have goals that are aligned with the goals of the company founders. VC’s typically try to accelerate the growth of various areas of a company (represented by curves) somewhat ‘artificially’ and almost always prematurely, which causes various problems.

 

You regulate each of these curves so they stay roughly in sync. Why? Because if any two of those curves get out of whack, you have a big problem on your hand—one that can kill your company. For example:

• Revenues grow faster than you can hire employees. Result: customer service is inadequate.
• Revenues grow slower than you hire employees. Result: you burn cash at a ridiculous rate and go out of business. That’s an easy one.
• PR grows faster than the quality of your code. Result: everybody checks out your code, and it’s not good yet.
• Employees grows faster than code: Result: too many cooks working on code in the early days causes bad architecture.

 

It’s only after we’ve lost everything that we’re free to do anything.

FightClub woke me up to various social and spiritual questions. Chuck Palahniuk is one of my favorite authors. When Palahniuk made his first attempt at publishing a novel (Invisible Monsters) publishers rejected it for being too disturbing. This led him to work on Fight Club, which he wrote as an attempt to disturb the publisher even more for rejecting him

A few famous lines:

Narrator: You wake up at Seatac, SFO, LAX. You wake up at O’Hare, Dallas-Fort Worth, BWI. Pacific, mountain, central. Lose an hour, gain an hour. This is your life, and it’s ending one minute at a time. You wake up at Air Harbor International. If you wake up at a different time, in a different place, could you wake up as a different person?

Narrator: This is your life and it’s ending one minute at a time.

Tyler Durden: Fuck off with your sofa units and strine green stripe patterns, I say never be complete, I say stop being perfect, I say let… lets evolve, let the chips fall where they may.

Tyler Durden: Fight Club was the beginning, now it’s moved out of the basement, it’s called Project Mayhem.

Tyler Durden: Only after disaster can we be resurrected.

“The things you own, end up owning you.” -Fight Club

“I felt like putting a bullet between the eyes of every Panda that wouldn’t screw to save its species. I wanted to open the dump valves on oil tankers and smother all the French beaches I’d never see. I wanted to breathe smoke. I felt like destroying something beautiful.” – Fight Club

“I flipped through catalogs and wondered: What kind of dining set defines me as a person?” -Fight Club

“With a gun in your mouth you can only speak in vowels.” – Fight Club

 

“Contrary to what your mothers and teachers tell you, you are not a beautiful and unique snowflake. You are the same decaying organic matter as everything else. We are all part of the same compost heap.” – Fight Club

Google AdWords pay-per-action

Google is in beta with a program called pay-per-action for the Google content network. Note that this is not for the Search network.

Essentially, advertisers only pay for actions that are completed on the Google Content network thereby making it a pay per performance model. It can be summarized in three single steps:

• Define an action, such as a lead or a sale, that you would like a user to complete on your site and set the amount that you’re willing to pay whether it’s $5 for a purchase or $1 for a newsletter sign-up. You control your spending by setting a daily budget.
• Set up conversion tracking, so that your completed actions can be tracked.
• Pay only when the sale or the sign up is completed.

What is means for advertisers:

• They don’t have to deal with junk clicks and click fraud from content network websites.
• They can manage their budgets and profitability more finely.

What it means for publishers who supply the content to place the ads on:
They must focus on deep, fresh and relevant content to be able to get quality readers. Since they will no longer be paid for clicks and only on performance, they will have a network of offers to choose from. (Google been the youngest among them)

What it means for the future:
This is nothing new for the industry. For years, companies like Commission Junction, Quinstreet and Adteractive have been offering this model. Advertising has come a long way from pay for impressions to pay per click and pay for performance. With a major network like Google, jumping into this should be a cause for celebration for advertisers.

What it means for Search marketing platforms like SearchForce:

• They will provide better tools to manage offers and compare other network offers.
  • For example, we will have tools for picking up the most profitable offers from the choices that publishers have
  • Tools to help advertisers to project the payouts that they might want to offer. Like what Cost per lead or Cost per signup
• Algorithmically manage to a Cost Per Action under various constraints like a budget.
• Expand to other pay for performance networks so advertisers can get a unifying playing field.

The Formula for Quality Score in Google and Quality Index in Yahoo

What is it?
Quality Score is a measurement of an ad’s quality in relation to each of your keywords. The factors that go into determining your score is an evolving formula currently best represented by Google:

Quality Score = (keyword’s CTR, ad text relevance, keyword relevance, landing page relevance)*

*The interactions between the Quality Score variables are something that the engines keep as a secret. Google is telling us what things it considers most relevant, but they are not telling us on what level of importance they are giving to each factor and how they effect each other.

Key takeaway: You should try to increase ‘relevance’ on all the factors if you want to bump up your quality score and get more quality clicks.

Why is it important?

It’s very simple. The higher the quality score, the LESS money you pay the engines and the process of getting your quality score to improve will make your search engine marketing campaigns more effective. This is because it will force you to think hard about what keywords you use, which messaging and offers works best for your products and services and how well you explain your offerings and get people to buy them.

When your ads are highly relevant, they tend to earn more clicks, appear in a higher position, and bring you the most success as long as you manage to your key profitability metrics. And most importantly the Search engines charge you less for the same clicks and the same keywords, so your overall cost to acquire a click goes down!

Key takeaway: You need to think hard on how to position your product, get into your customers shoes and try to understand how well you would respond to your own ads, landing pages depending on where you are in the buying cycle. The best way to do this is continuously improve and test your assumptions, collect data and make incremental changes.

Action Items:
Well, if you have reached this far, might as well go all the way and dig into the the exciting and nebulous world of the Quality score!

Review SearchForce’s best practices guide
Google Quality Score FAQ’s
Yahoo Quality Index FAQ’s

Founders at Work

This is a picture of Guy Kawasaki’s copy of Founders at Work: Stories of Startups’ Early Days. It has broken his record for the “book with most stickies.”

Key Lessons from his blog and posting are here.