Adam's Advice and Reading List for High Tech Startup Entrepeneurs

If this inspires you, feel free to chat about it:

Must-Read List

Numerous friends ask for advice on startups-- truth is that it's 99% regurgitation from these five books, which I recommend reading in this order:

  1. Startup: A Silicon Valley Adventure. Chronicles the emotional side of taking part in the silicon valley adventure. IMHO, this 'game' isn't worth playing if it's "only about the money", and frankly, I intensely dislike working with people who are in it for this reason. Jerry Kaplan explains how people get emotionally wrapped-up in what they're doing, and why people work insane hours for money they can't spend in their lifetimes. warning: this is also depressing, since Go Corp. was victimized by a combination of over-hype and the power of Microsoft's marketing savvy. Even worse, his follow-on, Onsale, ultimately got creamed by Amazon, eBay, MicroWarehouse and others.

  2. High Tech Startup. Some financial and legal subtleties of the game. It is worth noting that the normal rules of business simply don't apply, and you need startup specialists to help you in HR, accounting, legal, office management-- and of course, financing. Nesheim's book explains many of the important details.

  3. Crossing the Chasm. How to get a general-purpose, new technology to be embraced by a mainstream audience. This is the startup playbook, read by virtually everyone in silicon valley.

  4. Inside the Tornado. What happens when you've crossed the chasm, and how to succeed when markets matter more than customers (sigh).

  5. Selling the Wheel. A light-hearted, fictional account of how the wheel was brought to market. A great complement to the Moore books above -- but an easier, faster read.

  6. The Sales Learning Curve. A quick slide deck that talks about how sales and busdev teams learn to close deals, including realistic ramp-up times.

  7. Culture. A long-ish slide deck on high performance corporate culture. That said, it's worth noting that Netflix doesn't value "fun" or respect or kindness. By contrast, here's Google's culture and 10 things.

  8. Marketing High Technology. A very insightful book about the difference between a "device" (aka technical solution) and a "product" (aka total solution). Pay no heed to his mistaking sales+marketing to mean total solutions-- he's forgetting about techpubs, support and especially professional services. His key point is that core product engineering isn't the complete picture. A classic example is why VHS was a better product than Betamax.

Optional, i.e. read the others first

Living on the Fault Line (mandatory if you're post-IPO) . This book explains "core" versus "context" and why doing "one thing well" is critical even after you have the resources to "diversify" (aka get into the context business). It applies to startups, but there it's obvious: you simply don't have the (financial, personnel or managerial) resources to do more than one thing. The Addamark team loved to tell self-deprecating jokes-- one of side-benefits of having a 10-for-13 team-- and I used to joke that our motto ahould be: "one thing well, if that."

Product Strategy for High Technology Companies . Although not particularly useful for startups, I liked this book for its concept of "vectors" of technology. One useful place this helps is when investors, executives and customers inevitably ask for a "product roadmap." While it's tempting to say "WTF?! let's talk about the next 90 days!" obviously these constituents are placing big bets on your long term strategy, and giving the "wrong answer" can doom the relationship.

Miscellaneous Advice (that I haven't seen in books)

Maybe someday I'll write a book, but until then some "free advice." Love to hear any feedback: See below for details:
  1. project, product, company. When deciding to start a company, decide if your NBT (next big thing) is a project, a product or a company.
  2. the gorilla game. Some projects are better suited for large companies.
  3. be real. It's fine to think big, but make sure you can back it up.
  4. what to worry about. Pick your investors, employees, lawyers and customers with extreme care. Don't worry about company name, logo, or office space.
  5. product development. Don't over-invest in the product without solid feedback from the market, i.e. target customers-- people who'd buy your product and pay enough for it. It's a mistake to hire product developers who don't know how to cut corners-- ideally, you want people who are eager to "do it the right way" when the company gets established, but take equal pleasure in cutting corners like crazy, yet still ship something barely usable.
  6. startup experience counts. There are now lots of people who've had success in startups. You should focus hiring on people who've been in successful startups, ideally several of them (!). Of Addamark's first 10 employees, the average was 4 startups, and 2 successes; the executive team was 10 for 13 in the previous decade, i.e. before the bubble-- and people had heard of these companies and products.
  7. what to outsource. Outsource legal, HR and as much of IT as you can (e.g. email, mailing lists, etc.). Don't outsource proddev, busdev or marketing/strategy-- these areas have big ramp-ups, and consultants will each make the same early mistakes.
  8. ignore dilution. Quite apart from the math, winning is more fun than losing (trust me), winners look better on your resume and there are some fun intangibles that come with winning once or twice. Life is short-- focus on winning at all before worrying about your stake in the win.
  9. busdev, not sales. Good business development folks can help define the product, and find markets for it-- and oftentimes, the first market for a new product or technology is pretty exotic.
  10. early VC fundraising. Fundraising is a form of sales-- understand your customers inside and out, and treat the whole thing like a sales pipeline.
  11. angel fundraising. Money is money, so take angel fundraising seriously -- think of it as a form of sales, i.e. pipeline management.
  12. recruiting. Recruiting is another form of sales, and there's an art to it.
  13. corporate structure and capitalization. It pains me to see great products and technologies floundering in companies that aren't viable.
  14. revenue management. Once the product is "sellable" and the company "viable," the next thing you need is professional revenue management, aka "sales management."

In detail:

  1. project, product, company. Before getting too excited about your latest idea, ask yourself if it's a project, a product or a company.

    A project is some useful and innovative tool or service, but unlike a product, it's unclear if anybody will enough pay for it to justify its manufacture (and delivery, i.e. through channels) -- much less whether this is still true in the presence of substitutes and knockoffs. Products are projects that are sellable-- they have financing, designs that incorporate feedback from prospects or customers ("people who can pay enough"), reasonable quality controls and processes, legal representation, etc.

    A company is a product with headroom: infrastructure to grow, a fleshed-out management team, the ability to create multiple products, etc. Since companies can be tiny and have one product, the real distinction between "product" and "company" is whether the financial returns of the product justifies the corporate structure necessary to make it successful. A classic problem is starting a company that doesn't attract enough capital or talent to give it life beyond the founder's personal investments in time and money, thus starving the company of longevity, the ability to weather storms, the plethora of different skills to execute on the vision, etc.

  2. the gorilla game. Another thing to consider is whether your project is suited for a startup. For example, database management systems (DBMSs) make for lousy startups, because (these days) they're a feature of a product-- not a whole product that a customer will buy. It would be a tough road to sell jet engines in the after-market: buyers expect them to be deeply integrated and supported by the jet manufacturers (Boeing and Airbus).

    Another version of the problem comes in scale-- big companies own distribution channels and partnerships and branding that can impede your success. That's why it was so difficult to compete with Microsoft in desktop applications, and why it's so painful to get "shelf space" in larger retail chains, including groceries.

    Being on the wrong end of the gorilla game isn't fatal, and can be rewarding. For winner-take-all markets, the game plan is to partner with, or get acquired by a large company which will complete your product. To do this, you need to demonstrate both grass-roots success as well as a fit with the larger companies products.

    Finally, history is made by the people who violate this and other "rules"-- from TiVO ("DVRs are a feature of your cable company"), to Google ("who needs another search engine?"). The key is having a truly breath-taking product that's so compelling that customers and partners ignore what you lack. It's crucial that your product can be "purchased" separately-- it would be a tough road for a startup to sell jet engines in the after-market.

    You'll know when you have it, because people "in the know" will tell you: they've tried other solutions and choose your product and use it all day long.

  3. be real. A lot of the time, you're playing poker-- for you hold'em players, we're talking big bets on the river card, when you can't push anybody off the table. Like any good poker player knows, you don't want your bluffs called very often. Technically, it's fine once in a while because it "keeps'em guessing"-- but that's a very advanced strategy I wouldn't recommend for first-timers. Once your reputation is sullied, it's hard to get back.

    For example, if you claim that your technology does "ten times" better, you'd better be ready to prove that... in someone else's lab. If you say you've got N million users, make sure you've double-checked your log analysis-- or better yet, have it proven through Google Analytics, Nielsen or Comscore.

    Another tip: defend yours and your company's reputation and do so honorably. When competitors or executive knock you down, take the high road and use it as an opportunity to sell yourself to them and others. As one example, I was once chastised by a middle manager for flubbing an executive presentation-- where I hadn't been the one presenting! Many things I write off, but not this: I've given >100 public and executive preso's and press interviews, and I always practice beforehand and always read the papers and watch the videos afterwards. Moreover, it's a key part of my career and it would be dangerous for this mistaken identity to spread. Incidentally, since he was my manager's manager at the time, and this was the straw that broke the camel's back, I immediately put in a request for a transfer-- who knows what other bum raps he's giving me? post-script written 18 months later: that manager was later stripped of managerial responsibility and fired a year later.

  4. what to worry about. Carefully pick your investors: even if you control the board, crappy investors make your life miserable and distract you from success. Down the road, they can gang up on you to make a bad decision. Finally, they can say the wrong things to other people e.g. employees, customers, competitors and other investors. Even the best investors say and do stupid things all the time-- focus on whether they'll do brilliant things and are well connected.

    Carefully pick your employees-- in most cases, they are the company (not code or patents). Eventually, the company can manage turnover, but even then it's painful.

    Pick your lawyers carefully-- I've heard horror stories of mediocre lawyers letting startups get into trouble. Go with a firm (and individuals at the firm) who have lots of startup experience and lots of current startup clients in your field. Healthcare looks nothing like enterprise software. You will need many types of lawyers: transaction lawyers for negotiating and closing deals; corporate lawyers for investments, compliance and day-to-day business; IP lawyers for filing patents. Good lawyers should "get it" and also give you sound advice that you can double-check. Get referrals, hold out for good ones, check references, and make sure you have good bi-directional communication. Good lawyers are in demand, be prepared to pitch them. $400 per hour is small potatoes compared to defending a lawsuit or signing a bad deal.

    Carefully pick your customers-- they need to have a real demand for your product; be educated about alternatives; can speak on your behalf to investors, employees and other customers; be technical. Ideally, customers are well known inside and outside their industry, willing to pay lots of money and represent an example for which there are many others.

    About all of these-- always be willing to walk away if you get a 'funny feeling'. When the opportunity smells like it'll "take the company to the next level," make sure you have good lawyers help craft the deal.

  5. outsource HR. HR scales up but does not "scale down," and therefore it's a great candidate for outsourcing. I prefer TriNet which we used at Inktomi, Addamark and others. They really "get" the startup game. Email me, and I'll get you a referral to someone there. Another company is AdminiStaff but (circa 2004) they seem less friendly to startups.

  6. recruit for skills, not titles. For the first couple of years, you're going to be gated on the availability of skills in the company, and people will have to "wear many hats." This has many implications. First, you want to recruit people with many skills and who are comfortable wearing many hats. A CEO who only knows how to sell isn't much help-- the person also needs to manage. A tech person who can only "do software" is a classic disaster-- she also needs to know how to raise money. Second, you want people who aggressively (not just "willingly") handoff roles to specialists over time, esp. "outside their organization". Power politics is destructive. Third, you want to be careful not to "hire your friends". This is tough: only your friends will be "crazy enough" to join your startup, but too many of them and your company will lack the breadth of experience to survive paradigm shifts. For example, if your programmers all prefer to work on Windows, but the market is demanding Linux, you'll be screwed and not even know it until you try to port the code (insert horror story here).

    One trick I first saw at Perforce: don't give your executives VP titles until the company is ready. Hire them as Directors, and when they push back, explain that the VP title is being reserved for when the company is big enough to justify it-- and it's their job to make that title come to life. This avoids title inflation, with a 100 person company having SVPs and EVPs and CxOs. There are ways to assuage fears about "hired over," but the best is to avoid having VPs at all. Finally, the best executives will be there for company success, not for the title.

  7. order of hiring. When you first get going, the order in which you hire people is a critical success factor. First, you don't have the resources (capital, wallclock time, and managerial time/energy) to hire (and train/integrate) people you don't absolutely need. In most cases, capital constraints make this self-evident-- $1m doesn't go very far. But even if you're well-funded, hiring people in the wrong order will leave you trying to keep high-powered people busy, create unnecessary corporate goals (aka "politics"), etc.

    Without further ado, my preferred order of hiring is:
    1) prototype product engineer. You need someone who can bang out a prototype, suitable for raising money. This is typically a full-time job-- often the future CTO-- but I've seen it be contracted out to part-timers. Many successful companies have been founded by businessfolks who recruited someone who did this.
    2) early stage product manager. Next, you need someone (or a team) who knows how to design a prototype. Almost invariably, this is one of the founders.
    3) general business manager with startup experience. Once you have a prototype in the works, you need a business-focused person who can pitch it to others and guide it into being a commercial venture. Core skills and experience should include: startup financing, startup fundraising, marketing, negotiation, startup legal issues, startup HR issues, etc. These skills are needed even to support product development.
    4) legal. You need this early on, and it should be outsourced. If you have a good idea, there are terrific lawyers at classy lawfirms, who specialize in representing startups-- they take a percent of your company's stock, in return for deferring their (exorbitant) legal bills until you get financing.
    5) business development. As soon as the prototype is fleshed-out enough to sell, you need a busdev person to get some customers, if only to get feedback about the product. Revenue also helps to close financing. You don't want a "bag carrying" salesperson-- they're too expensive (in cash), tend to be market-specific and they rarely have the skills to "invent" sellable products from your prototypes.
    Less-early-stage hires include: quality assurance (QA) and engineering management, marketing, office manager, financial management (controller or CFO), etc.
    It is worth noting that hiring-order is sloppy stuff: invariably, you have times when you're under-staffed and/or high-powered people aren't busy enough.

  8. the turnover paradox. IMHO, turnover should be absolutely minimized. First, it makes for a crappy culture-- a revolving door reminds people of the impermanence of a startup and it makes people feel personally at risk. Second, recruiting takes a lot of time; turnover doubles that. Third, it means that your intellectual property and/or business ideas/lessons are walking out the door, possibly to competitors.

    That said, the turnover paradox is that double-digit percent turnover (per year) is healthy. Between the stress of hiring quickly enough to succeed, limits on who'll be crazy enough to join, and constant shifts in strategy, it's impossible to know who will work out. Therefore, my advice is (a) avoid "firing" people-- lay off the position(s). First, this reduces the risk of lawsuits; second, it reduces the stigma to them; and third, it places the blame on your own head where it belongs-- a "bad hire" is always the fault of the manager, never the employee. Even if the person misrepresented him/herself, it's your job to call references and double-check this. You should be thinking that 100% of the responsibility is your own, and self-assess after each turnover. (b) Try to make it mutual and not stigmatic. Some people will "blow up" on you, but generally it's possible to wave goodbye. For example, I hate cliff-vesting because it shifts the responsibility in the wrong direction, and doesn't save enough stock to be worthwhile. Having former employees hold a little stock (and be proud of having worked at your company) is a great way to reduce the risk of them selling your ideas (aka consulting) to competitors. (c) remember that high-powered talent hates to be under-utilized. Though people often don't see it this way at first, it's better for the person in the long term to get out of a bad situation. (d) turnover is critical for attracting, retaining and motivating top talent and reducing politics. When underperformers are coddled, the overachievers start whispering in the halls and whining in private. This is no fun for anyone.

    My philosophy on startup performance reviews: (a) they should be tied to events, not the calendar (although in sales, the quarter is the event). (b) they should be 360-degree both to avoid protection/favoritism, as well as to capture team effects, (c) they should be simple/numeric and not longhand-- both to reduce conflicts, but also to keep people from spending lots of time thinking about writing (many people hate to write). Also, 90% of review content people already know-- so it's an abhorrent waste of time, for something people hate to do.

    Instead, I prefer something like this (modified from Cohera): the basic review is a 10-scale form across each of 10 department-specific axes, each person eval'ing N=4 other people around the company plus themselves. The CEO gives a number of points you could "spend" on your evals-- e.g. if the team were executing like crazy, we'd get 300+ points to spend across the 4 evals. Among people who score really high or low vs. their role, more detailed reviews were done. Likewise, more work was done when self-assessment was wildly out of sync with outside assessments. Low-scorers could request that additional assessments be done. This way, we created a review funnel, allowing people to focus their energies on work, instead of writing performance reviews. The points can be doled out per department, ie. if sales is sucking wind, it gets fewer points...

  9. separation of role. It makes sense to hire a lawyer to represent you in court-- even if you're a trained lawyer. Likewise, there are numerous times when you can derive benefits from having two people work together, even when one of them has the skills to handle both roles. "Good cop, bad cop" negotiation is a classic example. Another example is in demonstrating to investors that you have empowered people representing conflicting roles, e.g. product development versus sales.

  10. early VC fundraising. Fundraising is a form of sales. There are a million books on raising VC money, so I'll skip to the things they don't say. About VCs: (1) most VCs are terrible at "picking winners" and even the reasonably good ones are only good in narrow niches. VCs don't "develop ideas"-- they evaluate whether a proposal is good or not, and don't have the patience or time to "fix" proposals that are slightly off. Fortunately, good VCs won't stigmatize you-- I once raised a round from a VC who was referred by another VC-- even though the original VC turned us down. When the funding announcement went out, the original VC sent a very nice congratulations email. (2) It pays to learn the dynamics inside VC firms. For example, VC firms typically require two senior partners to drive a deal through. Junior partners don't count, for example. Thus, once you woo a senior partner, expect to need a second one before the partner meeting. In fact, the referral story in (1) came because we found a VC who "liked our deal" but couldn't interest his partners, so he referred us out.

  11. angel fundraising. Again, I'll skip the basics e.g. raise only from qualified investors, etc. (1) Angels invest for all sorts of reasons. For example, tech-savvy investors often invest for the prestige and for the networking benefits; marketing-savvy investors often invest for the pride/prestige of "picking winners" (yes, you can "win" yet return little to the original investors); wall street people and bankers often invest for the excitement. (2) There's a lot of paperwork in raising money, and we're talking about qualified investors ($1m net worth) so you should set some reasonable floor, at least $10K. Going the other way, if it takes 2 hours to raise $30K, you're still beating the dollars-per-hour efficiency of raising from VC firms (in a series A). (3) Don't expect much from friends-of-friends -- it's hard enough to get non-trivial sums of money from people who've known you for years, much less strangers. (4) Because of #3, you'll quickly exhaust the low-hanging fruit, leaving only longshots and long-cycle (6mon+) opportunities. One solution is to recruit key executives on pure-stock and deferred-comp packages, then leverage their rolodexes to raise additional money. In one venture I know, the visionary founder raised half the money, the cofounder raised a third and one of the early executives raised the rest. The ultimate VC financing came through a lead by that early executive. (5) Avoid putting in your own money. A certain amount is healthy, but it's very bad for the company to be funded by insiders-- you want outsiders rooting for your success. Outside investors also provide a more objective view on your company, and act as a measure of success. Having many "smart money" outside investors looks great; having a CEO self-fund the company buys you nothing. Finally, outside investors help with leads-- sales, fundraising and recruiting.

    [Aug'09] I'm often asked about raising angel financing, there are several useful tactics. First off, treat this like a sales funnel, and expect an order of magnitude higher hitrate among direct friends and former colleagues of the founders, than among friends-of-friends and friends-of-non-founders. Second, a helpful tactic is to not "raise money" but instead "ask for feedback"-- this takes the pressure off potential investors, who can ask you if they can invest. Third, a particularly efficient route is to hold "feedback sessions" among "friends of the company"-- the goal is to fill a room at the private home of a successful entrepreneur, with 15-20 people who are "heavy hitters" either in tech, your startup's domain area, or business. Think famous named people and/or famous companies they work(ed) for. The idea is that person X will attend to meet and impress person Y, i.e. this is a networking event. Doing this ensures high quality feedback: everybody's on best behavior and using the feedback as a way to network. Again, you're obviously raising money, but it's all done softly-- interested investors will approach you afterwards one-on-one, comforted that they're not alone in supporting your company. Fourth, a "technical advisory board" and/or "customer advisory board" is a great way to show thought leadership, and also blunt worries about competition, i.e. if famous person X is associating herself with your company, then you must be a leading innovator.

  12. recruiting. [Apr'04] Recruiting is the single biggest determinant for success, with the people you hire literally being the DNA of the company. The challenge of recruiting is often under-appreciated by people who've never been responsible for it. First, you need to "sell" people on joining your venture, which isn't easy. Remember the old adage "good help is hard to fine"-- that's because smart, reliable, hard-working, no-nonsense people are never without work, so you have to lure them away. Here's some basic tips: (1) strategize: list reasons why people would join your venture instead of others, including reasons they wouldn't. Then, use this to source candidates. For example, when talking with recruiters, let them know these things. When considering how to source candidates, emphasize channels that tend to fit your criteria. (2) treat hiring like a project, including realistic schedules, budgets, risk analysis, contingency plans, etc. This avoids a lot of heartache when candidates ask for a lot more money, can't join when you need them, etc. (3) use pipeline management-- an ordered set of steps, with tracking of how candidates are getting through the process. You can optimize the pipeline by front-loading the steps that are most likely to filter-out candidates, and which are the least time-consuming. A proper pipeline also lets you optimize each step separately. For example, my first contact with a candidate is designed to be cheap-- usually an email with some basic information. I call candidates who express interest-- sadly, I haven't found a way to avoid these bazillion calls, since I don't like to pre-screen too much. (4) respect legal and ethical guidelines. Long before lawsuits or violence, hurt feelings are common in hiring. Since life is long, you may run into candidates in the future, where they remember your rejection. The world is a small place, so be careful of your reputation in the hiring process. Ditto this advice in day-to-day management after hiring. If you're recruiting for someone else, remember that you've built a relationship with the candidate, and should be available if problems arise. I like to check in from time to time. (5) tips for checking references. Of course, you check references, right? good. And you don't hand this to HR, right? good. They ask dumb questions like "how long did you work with X? what are X's strengths and weaknesses?" These questions have obvious "correct" answers, which neither avoids fraudelent references, nor elicits the issues that would lead to not hiring the person, much less provide information on how best to manage the person after they're on board-- which is the real value of reference checking IMHO. And HR won't impress the reference-giver, who will often talk with the candidate afterwards about their experience. Instead, you can chat up the reference-giver and impress them that (a) you know the candidate and can articulate why you're excited about working with the person, (b) your company and department are a great place to work and that (c) you'd be an awesome boss. Oh, and this is also an opportunity to source candidates for other positions. Some good reference checking questions:
    - what project(s) did you and X work on? This detects fraudulent references, and also tells you how sharp the reference giver is, which IMHO is a good gauge of whether you should trust this reference-giver. Make sure the reference describes project(s) in enough detail.
    - what was X's most shining moment? This helps gather stories, which you can then use to butter-up your management if you need to ask for deal-terms (e.g. money) that are outside your parameters. This question also butters-up the reference-giver for more difficult questions, such as...
    - can you describe a situation in which X failed to deliver on his/her goals? Then followup with "how long did it take X to realize s/he wouldn't succeed?" and "how did X communicate this?" and "how did management react?" This detects "kicked-dog" syndrome, and lets you know what sorts of sensitivities the candidate might have, and how they might react in a politically-charged situation.
    - can you describe an corporate culture or environment that X would NOT be successful in? You may have to push a little and pidgeonhole the reference who's intent on blowing sunshine. It helps to ask this before you describe your company, of course.

    (6) interview tips. Obviously, respect is the key here. Don't show up late, take a phonecall or eat a burger during an interview. And treat every minute as precious and not recount stories from childhood. Don'y ask stupid HR questions like "describe your strengths and weaknesses"? when you could instead ask "what do you like about this position and why do you want it?". Don't ask a easy or trivial technical questions when you can instead ask deep, hard technical questions that detect junior vs. senior talent and detect incompetence. This is best phrased without acronyms or jargon. For example, my favorite question at Addamark for engineers was "managing big data-- say several terabytes-- is a big pain in the neck. Can you describe some of the challenges?" Junior people will talk about technical details, senior people will talk about fundamentals. Incompetent people will get those details wrong.

    There are a slew of miscellaneous tips I've found-- YMMV. (1) I try to schedule interviews for after lunch, say 2pm. This avoids wasting all day in a first interview, avoids taking candidates out to lunch, which empirically seems to hurt the hit rate (sorry, I have no explanation), and also uses the staff when they're least productive and most reasonable, i.e. while digesting burritos. (2) ask a person the range of cash compensation they want in the first phonecall, apologize for the awkwardness, and do it before saying anything about you want to offer. This avoids interviewing people you can't afford. Also, some people will name low-ball numbers which could either be a good or bad sign. If the number is in range, I tell the candidate up front, which puts people at ease and lets them focus on the job itself, rather than compensation. (3) stock compensation is messy because candidates either under-value or over-value the stuff, which creates deal-closing and post-deal management problems. (4) In an hour-long interview, I look for the candidate to tell me something (relevant to the job) that I didn't already know.

  13. corporate structure and captable. [Apr'04] Consider the corner restaurant that runs out of money before they figure out their pricing, fix quality problems -- and build up their stock of "regulars." What happened was that they were under-capitalized, and it happens to high tech companies all the time. There's an old silicon valley saying: "always raise more money than you need." Riffing on the adage "a banker is someone who gives you an umbrella when it's sunny and takes it away when it's raining," I often say "a venture capitalist is someone who sells you an umbrella for $1 when it's sunny, but $1000 when it's raining." You can also raise too much money, but that's largely gone away post-boom.
    Beyond under-capitalization, you have to keep a clean captable-- you can't issue tons of shares to everybody. More subtly, preferred shares have to have reasonable preferences-- anti-dilution clauses, participation rights, etc. all need to be managed carefully. If you expect to raise money at ever-increasing valuations, don't expect the preferences to get gentler with later rounds of financing. Down-rounds and dilutive stock splits are morale-killers, if only because employees never have as large a stake as they want ("deserve"). You risk poaching from competitors selling less-diluted stock as well as employees comparing stakes (bad form, but it happens). Later employees are invariably unhappy with the ongoing contributions of some early employee who has a much larger stake, nevermind that the earlier employee took outrageous risk in joining.
    It's true that lots of other things can be fixed-- so my last piece of advice is to get good corporate attorneys. One veteran's advice: your lead attorney should be at least 40 years old, because it's mathematically impossible to have enough experience otherwise. You also want attorneys who believe in you and your business, and will give you attention and priority. Treat your attorneys like board members, making sure to reinforce the future potential of the business-- but also take steps to make them look good (to friends, colleagues and family members) for representing you. Top firms can have lame attorneys, but top attorneys rarely work for schlocky firms. Don't be afraid to ask questions, and check the answers with information on the internet.

  14. revenue management. [Apr'04] Once the company is viable, the product is good enough to sell, production is under control, you have the pricing structure and channels chosen-- then don't wait: bring in professional revenue management, i.e. someone who will take responsibility for "making the numbers" and who has a full bag of tricks for maximizing revenue by the dollar, including incentive programs, cutting special deals with key customers, bundling tricks -- but who also is also a responsible manager over the long haul, who'll properly incentivize salespeople, support staff and partners, who'll maintain price-consistency over time, between products and between customers, and who'll maintain the integrity to keep you out of jail.

Objection/Question Handling for Founders

Along the way, you're going to get some bizarre-sounding questions thrown at you. First off, don't react badly. While thinking through your answer, say "that's an interesting question," particularly if it's not.

The key is to stop and ask yourself, "why is this person asking me this? what do they really want to know?" The remainder of this section are some common questions you may be asked, likely scenarios for why it's being asked, and some possibly-good answers. If you have ideas, please email me: asah @

  1. what's your vision for the company? Typically, the right answer is to think "big" but quickly demonstrate a willingness to be practical in various shorter timeframes. Minimally, you need to have a reasonable story about multiple products and applicability to multiple market segments, claiming survivability in the face of a market segment collapse (but don't say this). Obviously, for certain cases this isn't possible, and you're better off stating the bald truth (e.g. "we're gambling that either Siebel or another top CRM vendor will need our solution to help their failing deployments-- assuming that gets us off the ground, we can then move into helping ERP applications and other arena").

  2. how big is your addressable market? and who are your competitors? Typically, the underlying question is around how important (read: big) your company can be, based on how important a problem it solves. Having scary competitors is OK, as long as their "unfair" advantages don't actually lock you out; about the only such advantage I'd consider unsolvable (read: too high risk) are distribution or legal challenges. Even then, that just means you have to shop around a little more to find people who are as crazy as yourself.
    FYI, it really is true: you should shoot for addressable markets in the billions if you're going to take money from big-name, professional investors (read: VC) because the dilution and control profiles of these guys truly demand it.

  3. what about competitor X? The underlying question is "do you know your competitors, and how well?" to which a good answer demonstrates that you understand the competitor landscape, the direction(s) that competitors are heading in, and (ideally) even the people involved. A token story for how you'll compete is usually good enough for most parties.

  4. what is your exit strategy? This is tyically asked by serial startup veterans and by investors, and the underlying question is whether you'll go for the exit when offered, or not. Typically, people are coached to say "either IPO or buyout-- we'll decide at the time" which is good but generic. For some core technology companies, the savvier statement is "nobody will let us IPO-- if we succeed, we'll get bought by a distribution partner already familiar with our technology." For some whole-product companies, the right answer is IPO, with upside buyout prospects being less likely (though be careful to say that you'll always entertain offers!).

  5. more coming...

©2000-4 Adam Sah.