Startupland: How Three Guys Risked Everything to Turn an Idea into a Global Business – by M. Svane & C. Adler
How strongly I recommend it: 7/10
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The mundane is sexy if you can make something that looks hard seem easy.
There are no shortcuts. You have to constantly take the hard route. I can’t give a precise formula for how we built a product and then a company. After all, in some ways I still believe it’s against the odds that we succeeded.
when you have a family. It takes a lot of self-discipline and focus. Some people are good at it. Some aren’t. If you want to be good at it, you need to: Have a proper home office that both you and your family consider more “office” than “home.” Let go of the fact that the garage needs to be cleaned up, even though you look at it all day. It’s harder than you think.
Make Skype your friend. You have to check in with your team members, peers, and boss all the time. Out of sight, out of mind. It’s remarkable that we live in a time when we can work from anywhere. But the bigger challenge is whether or not you have the personality to be productive at it. I could never do it again.
I learned an important lesson in this experience—one that influenced all of the investor decisions we’ve made since then. There is a vast spectrum of investors. Professional investors are extremely aware of the fact that they will be successful only if everyone else is successful. Great investors have unique relationships with founders, and they are dedicated to growing the company the right way. Mediocre and bad investors work around founders, and the company ends in disaster. The problem is, early on many startups have few options, and they have to deal with amateur investors who are shortsighted and concerned only with optimizing their own position.
As so many startup founders know, it’s really hard saying no to money, but sometimes it’s the right thing to do. Taking money comes with a price, and it can take you in directions that aren’t always healthy. We dodged a bullet by saying no to that money [from a particular investor after a big failure], though it wasn’t an easy decision. We had no cash, we were back where we started, but we didn’t look back. Rejecting the offer carried the same relief you feel when you break off a bad relationship. We were free and ready to move on. Poor, but happy.
[While raising money from family and friends] I wasn’t taking the long view. But I didn’t try to sell anyone either. “You are going to lose this money,” I said to these potential funders. “Think about it like a lottery ticket. There’s a much better chance that you’ll get nothing out of it.” Still, we made this friends-and-family fundraising round a formal process, working with a lawyer to draft the documents and creating a presentation in which we pitched the idea.
I invited potential investors in to meet with us. In these discussions I made it clear that they would have no control or influence over how we ran the business. (They had no experience with what we were doing, so giving them any power could only bite us in the ass.) They would be completely blind as to what was going on. And yet, despite all of this, these people, family, friends—maybe fools—wanted to invest anyway. I was surprised by the level of interest but also so heartened. They wanted to invest because they believed in us. They believed in the crazy idea that we could make something out of nothing.
How to Ask Your Friends for Money—And Stay Friends
The first rule of asking your friends for money is never to ask your friends for money. The second rule of asking your friends for money is never to ask your friends for money. OK, got it: You should never ask friends for money. That is, unless they have way too much money. In that case, knock yourself out. If you really are so desperate that you need to raise money from friends and family, make it clear that they will never get it back. Set expectations low. Make it like a lottery ticket. Don’t use the Zendesk case as an example. We’re the exception.
Make it into a Scratchcard lotto game—something that is fun, but most likely just a waste of money. Don’t give any influence in return. People are unsophisticated in this area. They don’t know how to run a business, invest aggressively, or take risks. They may not realize that a big portion of the investment basically goes to your own salaries. Don’t provide insight into the business. If you succeed, the last thing you want on your cap table (or roster of major shareholders) is a bunch of unsophisticated investors with influence.
Prepare yourself mentally for disappointing a lot of people. Even if you have succeeded in setting expectations low, you will still disappoint people. Even though they believe they can afford to lose the money when they invest, their financial situation may be very different twelve or twenty-four months out. And you may ruin a lot of relationships. Prepare yourself for that—and don’t do it if you cannot live with that.
Working with a VC is almost like entering into a marriage. It’s a long-term proposition, and you lose the complete control you once had over your own destiny. In any leery founder’s defense, the standard practice is strange and intimidating: you give your shares to the VC—they will vest over a four-year period, so you can get them back, but there are many ways you can lose the shares. (For example, getting fired by the board! That was something we suddenly had to realize could happen—at least in theory.)
Office Space: Real Estate Lessons Learned the Hard Way
Don’t ever spend more than 10 percent of your revenue run rate on building out your offices. Try to keep it to 5 percent. Or, really, 1 percent. (See the last point below.) Define a basic philosophy for the space, don’t overdo it, and make sure you leave enough room on the canvas for your employees to paint their own pictures. Kill your darlings. Don’t let your ego and your pet peeves get in the way of the bigger picture. Don’t make it a democratic process either, but do make sure you elicit feedback and properly accommodate the needs of every department.
Watch out for “startup style”: In its early days, Facebook thought it was cool to have graffiti on every wall. Facebook is still here. The graffiti is not. (Kind of like the eighties.) Do you really want to install a giant slide to show how startup crazy you are and then have guests sign a waiver to ride it? Table tennis or table football is super fun—until it’s not, and you’re super annoyed by the constant noise of it all. Office dogs are super cute, except for the ones that aren’t because they smell or bark or pee or are slightly aggressive. And they’re never appreciated by the people who don’t really like dogs or are intimidated by them. And finally, kiss your office space goodbye. You’ll move within a few years.
When it comes to pricing, we also learned that you don’t raise your price for an existing product for existing customers. That’s the relationship of a subscription service. And this makes sense; things get cheaper over time as you democratize the product stack and make it more accessible to more people. And if the mission is to democratize software, that inherently means that it becomes cheaper and cheaper. That’s what makes the model great for everybody. SaaS companies must show ingenuity to prove the value of new features and incentivize their customers to upgrade or buy add-ons to their products in a way that feels natural and organic.
I’ve learned something. I’m not very good at running meetings. I’m not very good at the traditional management processes. I need strong, independent people like Adrian, who don’t need management—maybe a grain of leadership, but not management—but more important, I need people who can build great relationships with the other executive members. When you have a management team of people who appreciate spending time together, who can have a good time together going out for dinner, who are not afraid of calling out each other’s bullshit, and who are comfortable having real hard conversations and can laugh and cry together, and in general just figure stuff out together without making it more complicated than necessary, your life as a CEO is so much easier.
If you cannot have a good, natural personal relationship with somebody, you will never have a good, natural professional relationship either, and you will never be an efficient team. More and more, my role as a CEO will be to ensure that we have right key people in place and that these people like each other, respect each other, and trust each other. I realize how banal that sounds.