Keep Working, Worker Bee!

10.27.2005

Okay, time for the rest of the Startup School writeup.




Michael Mandel — Chief Economist, BusinessWeek

Mandel had a pretty amazing talk. He only spoke from prepared remarks for a few minutes, and then opened up his talk for questions. This wouldn't work for most people, but Mandel was so provocative with his prepared remarks and so broad in his ability to answer questions that it worked.

His talk was about the larger economic context of startup businesses. He said what he's learned about economies can be summed up in four words: "Boom, bust, boom, bust." Furthermore, no matter what stage you're in, everyone thinks it'll never end. Now that there's a bust people think it'll go on forever, but during the Internet boom people thought that would go on forever too. He said that once he was giving a talk called "The Coming Internet Depression" and after the talk, "a bunch of Cisco executives pushed me against a wall and suggestied I should recant, or bad things would happen to my Internet connection."

Economists don't talk about startups very much, but in Mandel's view the chief advantage of the United States is that we foster innovation. Not technology, per se, since that can transfer across borders very easily, but a culture that actually fosters innovation. That puts us in a great position to be the engines of economic growth, since innovation accounts for something like half of all economic growth.

More specifically, he listed some of the US's key advantages:
  1. Financial. The US is, in Mandel's view, the only country in the world with a viable venture capital system.

  2. Human capital. People here are willing to work harder to make innovation happen. The role of a venture capitalist is not to give you money, it's to spur you on to do better. As he said, their job is to throw you out if you have a good idea that you're not executing well, and it's your job to not give them that chance.

The problem with economies driven by innovation is that they're more susceptible to boom/bust cycles. That's why he's worried about China's move towards capitalism: not because they're booming right now and are going to take over the world, but because eventually they're going to have a big old capitalist-style bust and they've got a communist government that may not be able to handle it.

Steve Wozniak

Woz gave a fast-and-furious talk about the origins of Apple Computer in just something he was doing in his spare time. He went much too quickly for me to keep notes, so you'll just have to download it from the Startup School's presentation page to listen to it. One thing that struck me was that we take computers so much for granted that we forget that just a few decades ago they didn't take for granted that a computer game could be written entirely in software, for instance.

Mark Macenka — Partner, Goodwin Procter

Macenka gave a talk called "The Great Value of Avoided Mistakes" about the legal stuff you ought to know about beforehand rather than finding out later on you should've known about. First of all, he said you've got to understand that you need to get cashflow-positive as soon as you possibly can.

Second, you need to know your intellectual property status and be sure where you stand there. Before you get started, know the rights of your former employers, your NDA status, your non-compete status, and so on. Remember that your former employer doesn't have to win a court case with their non-compete agreement, they've just got to scare away the company that would otherwise be buying you; in other words your former employer's rights might be more important than you thought. Also consultants, research sponsors, and the other owners of your company are important considerations at the outset.

A related issue is third-party infringement — if you're using GPL software in your application, for example, be sure you're not using it in an illegal way, and if you are using it in an illegal way make sure you fix it immediately. If you don't fix it immediately it'll just get harder and harder later on, and deals really do fall through based on issues like this.

Also be sure you're clear on who owns what within your group of founders, and make certain you can't get screwed by them. If your not careful, one of your co-founders might quit a few months in and still end up owning half the company, and if that happens you're working for them.

Stan Reiss &mdsah; General Partner, Matrix

"What's venture capital about?" Reiss answered this question from the perspective of a real live venture capitalist. First off, venture capital isn't for everyone, and if you can't make more money by accepting venture capital and its associated strings than you can without it, then you shouldn't take it. (Sounds obvious, but apparently a lot of people don't think about this calculation very much.) That said, VC-backed firms really do tend to have much bigger outcomes than non-VC-backed companies. (Exactly why isn't totally clear, but it could be due to the fact that VC firms are more interested in companies that bigger outcomes, or simply that the good VC firms are really able to make good companies great.)

He also said that while it's tempting to think that venture capital is very hit-and-miss, but the reality is that the top ten venture capital firms are making about 80% of the money of the entire industry, and the list of companies in the top ten have barely changed over the last 30 years. So it's very important to be backed by a good firm, not just any firm.

The question and answer period was pretty weird, dominated mostly by people who wanted to know how they ought to protect themselves from the evil VC companies that were going to listen to their pitch and then steal their brilliant idea to give it to someone else. I was reminded of Paul Graham's comment:
Actually, startup ideas are not million dollar ideas, and here's an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there's no market for startup ideas suggests there's no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.
Reiss, along with everyone else who talked about VC, pointed out that they're really much more interested in the quality of the people than the ideas.

Stephen Wolfram — Founder, Wolfram Research

Stephen Wolfram told us all about his revolutionary and new ideas about science that in the long run will overturn everything we thought we knew about anything (it's true, just ask him) and in the short run produce nifty ringtones. You can't argue that he hasn't been able to create a successful business, though, and he thought he knew why: first of all, his entire company insists on understanding everything from first principles before doing anything, and that includes everything from the mathematical principles to the design of the user interface. (I haven't used Mathematica enough to know whether this approach works, but it sounds good anyway.) Second, he said that at the core of everything successful is some very hard problem, though it might not be where you expect it, meaning that if you want to start a successful business you've got to be willing to take on hard stuff.

Chris Sakka — Principal, New Business Development, Google

This talk was basically an ad for Google, but it was a heck of an advertisement. He (and his incredibly slick slides that were certainly put together by some graphic designer somewhere) basically said:
  • Start!
  • Focus on solving a user problem first and let monetization flow from that solution
  • Go big!
  • Make a demo as soon as you can — just talking about stuff won't get you very far; you need to really show people what your product does before they'll be interested.

Sakka also spent a long time talking about how great Google is to work for — on-site laundry, a giant gourmet cafeteria where the whole company eats at once (they like to do it that way so people can sit around and spin ideas off each other), a culture of complete openness, and so on. The clear message was: build a company to be bought out by Google, because if you do and you're good enough you'll get to come work for us.

Olin Shivers — Associate Professor, Georgia Tech; Founder, Smartleaf

Olin basically just went down the list of things he thought people might not know that he'd learned through starting a company. His major points:
  • Choose your co-founders wisely. You're getting married to them for all practical purposes, so treat it that way.
  • You should be open about money. People tend to try to be private about that stuff, but it hurts the internal politics of a company more than it helps it.
  • Venture capitalists: you'd think they're all technically deep, experienced managers who are contrarian and have nerves of steel, and once they're on your side their interests are in making your company successful. That's completely wrong! Most of them are sheep who are just following trends, and their interests may not even be self-aligned, much less aligned with you. He underscored Stan Reiss's point that you really have to choose your venture firm carefully, and hope a good one will take you on.
  • Failure is a part of the process, but you have to learn from it. Steve Jobs was a big loser, and his endeavors are at best hit-and-miss — but the hits (iPod, OS X) have learned from the misses (Newton, NeXTSTEP).
  • Related: to start a business, you've got to have a high tolerance for feeling like a moron all the time.
  • To succeed, you need to be both stubborn and flexible at once. Stubborn in that you need to pursue your goals even in the face of seemingly impossible adversity, and flexible in that the way you get to that goal may need to change on the fly.
  • You need to work like crazy and be obsessed.


Participants of the 2005 Summer Founders Program

The last talk of the day was by a large group of the participants in Paul Graham's Summer Founders Program. They mostly just took questions, but here's what I took away from their answers:
  • We had fun!
  • If you start a company, your relationships will suffer.
  • Large businesses often don't want to give small businesses the time of day. To have any chance you must be fantastic at communicating.
  • Make a demo.
  • Tell people your idea. The kiko.com people in particular said that they were initially very secretive, but they found that most people won't run out and make a competing product the day after you tell them what you're working on, and they're much more likely to give you helpful pointers.
  • Make a demo.
  • Starting a company is like jumping off a cliff and trying to build an airplane on the way down.





So that was startup school. Overall, very informative and lots of fun. I can't say I'll do it again next year — I've already learned what I was hoping to — but I'd recommend it to anyone who's at all interested in making a company.

3 Comments:

  • Your blog is very useful, but please give some thought to the headlines. If your headline is "Okay, time for the rest of the Startup School writeup", what do you think we see on the summary screen of an RSS reader ? You guessed, it gets truncated -- "Okay, time for the rest ...". How about "Startup school summary (II)" or something like that? The first words of the headline ought to communicate the most.

    By Anonymous Anonymous, at 04:44  

  • Hi. Actually I don't put headlines on the post at all -- Blogger is making them up itself. I'm actually thinking of switching to another system entirely (WordPress hosted on my own domain); if I actually do that I'll try to make sure the RSS feeds have reasonable headlines on them.

    By Blogger Jacob, at 07:21  

  • Hi! My name is Chris and I work at Help.com. One of our members posted a question and after reading your blog about start-ups I thought you might be able to reply with an answer this question.

    "Should I start my own business? At 29 years old and with a succesful career, I can’t stop thinking I should venture out on my own and take some risk. What things should I consider?"

    Thanks!

    By Anonymous Chris, at 15:53  

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