Sachin Rekhi

BJ Fogg’s 5 Secrets of Behavior Change

Startup2Startup has been on a roll lately with great events and this week was no exception. BJ Fogg, a professor and researcher from Stanford University, stopped by and shared with us his secrets on behavior change. For those of you who are not familiar with BJ Fogg, he has been studying behavior change for over a decade, is the founder of the Persuasive Technology Lab at Stanford, and author of the book Persuasive Technology. He also led the first Facebook Apps class at Stanford, which was massively successful in generating explosive growth for student apps. BJ Fogg has leveraged his insights into how technology can be used to bring about behavior change both in his academic work as well as in industry work, especially in the mobile and health sectors.

His focus for the evening was around how we can leverage his research in our own startups to help bring about the behavior change that we seek in our users. Practically every startup is trying to elicit some behavior from their users, whether it’s getting them to log into your site daily, signup for a new service, or share their content with their friends. And the lessons from BJ Fogg help us to understand the psychology behind eliciting these behavior changes and how we can ensure they happen. I thought I’d take a moment to summarize his 5 key secrets from the evening.

1. Look for Patterns
Despite significant advancements in technology, BJ Fogg made clear that humans frankly haven’t changed that much. Our reasons for acting are fairly universal and we should leverage these age old lessons in our own work. And when we see patterns of behavior change that work in other settings, they can often be re-applied to our problem. What follows are four such patterns that can be applied in most settings.

2. Baby Steps
In designing for behavior change, one of the keys to success is ensuring you are seeking only baby steps from your users. For example, a common exercise goal is to exercise 45 minutes/day. That’s a fairly amorphous goal and intimidating to start. So instead, you should break it down even further. Maybe to something as simple and achievable as walk 10 minutes/day. But even put a limited span of 10 days on it. And schedule it specifically after lunch. Then the idea of walking 10 minutes/day after lunch for the next 10 days seems significantly more approachable and achievable. While this may not be our ultimate goal, it’s the best way to get to the desired behavior change started. And it’s no wonder that many of the top diet books are limited to 2wk or 30 day programs.

One common example of leveraging such an optimization in the web world is signup forms. Sometimes we attempt to walk the user through all the steps necessary to get the most value out of our app during the signup process. But the reality is the drop-off rates are going to be significant unless we break it down to the very minimum needed to get them started, and then exercise baby steps to get them the rest of the way there. Leveraging existing logins via Facebook and Twitter help here to even further reduce the friction required.

3. 3@1
In BJ Fogg’s behavior model, behavior happens when 3 things exist at the same time: a trigger, ability, and motivation. A trigger is the call to action. That could be an email, a social notification, a mobile message, etc. Ability is about how easy is it for the user to take the action that we seek. And motivation is the user’s inherent desire to achieve the results. All 3 of these need to be present for the behavior to actually happen.

This gives us a framework to analyze our own app scenarios to see if we are ensuring that all three are actually present in order to maximize the opportunity for the desired behavior.

4. Hot Trigger in Path
BJ Fogg’s advice to maximize effectiveness in behavior change is to put hot triggers in the path of motivated people. The idea is to first start with folks who are inherently motivated. And then focus on triggers that allow the user to accomplish the task right now, as opposed to cold triggers, where the user is not empowered to act right now. For example, a billboard ad is a cold trigger because there is no way for the user to take an action right away. So instead ensure that you are always delivering triggers when they can take the action immediately.

The interesting lens that BJ put on looking at the current market environment is that we are currently witnessing a fight for who controls the ability to push hot triggers to users. Google, for example, has had this ability the longest with their search engine rankings. But Facebook’s notifications system has become more important than ever. And at the same time the mobile platforms are creating an even more interesting triggering capability. Understanding how best to leverage these emerging triggers is necessary to successfully driving behavior change.

5. Ability > Motivation
Another key insight from BJ was that ability matters more than motivation in designing for behavior change. It’s much easier for us to move the needle on ease of use than it is for us to change motivation. While we like to think that we can leverage education to get the user more motivated, that’s an extremely uphill battle. Instead put your effort in taking away all the friction in performing the desired action and thereby improving their ability to complete the action.


Overall I thought it was a great lens to apply on product design: focus on the key behaviors that we are trying to elicit from our users and optimize those through lasting lessons from psychology. I know I’m going to leverage this framework in my own work on Connected to think about how to elicit some of the desired behaviors, including reconnecting with one person in your network each day.

Design is Product, Product is Design

Last night I attended another fantastic Startup2Startup event focused on Interaction Design. The lineup was terrific with Jason Putorti, lead designer of Mint.com and now co-founder of Votizen, Kate Aronowitz, Director of Design and User Experience at Facebook, and Garry Tan, co-founder of Posterous and Designer in Residence for YCombinator. They brought together a breadth of experience in design across all stages of the startup lifecycle.

I thought I’d briefly summarize by sharing five key quotes from the night and some of the discussion around them.

“Design is product, product is design”
Garry Tan spent some time talking about this idea that design encompasses the entire experience users have with your product. This is a fairly new notion that has become popularized with the recent rise in design thinking. Prior to this design was often seen as simply a phase in the process near the end to spruce up the user interface. But with the rise of successful startups that have focused on design first has come the realization that building your entire product from a design-centric philosophy could give you significant advantages against your poorly designed competition.

“Great design is invisible, bad design gets noticed”
Jason Putorti brought up this quote from one of his idols in the field, Jared Spool. One of the common misconceptions that he talked about with design was the idea that it was simply about the pretty visuals designers were asked to incorporate near the end of the cycle. Jason instead talked about how it’s much more about being intentional with the entire user experience. And frankly the best design is the design that goes unnoticed. The design that you don’t even think of. Think Apple and the iPhone. You forget about the product interface and focus completely on the content you are consuming. And that is part of the brilliance of it’s design.

“Designers need to have a vision for the product. A/B testing will not get you to a vision.”
Jason Putorti also talked about the fact that while A/B testing and metrics have their place, they are no replacement for having a strong vision early on. And oftentimes the best feedback early on is qualitative in nature and around whether your customer’s pain is really being solve by the product you are putting out.

In the subsequent table discussion, we talked about a variety of ways to get at this crucial feedback. The obvious choice is conducting usability studies with your users. But for early stage startups this can often be very expensive and time consuming. Instead, we brought up a variety of cheaper alternatives to this. For example, UserTesting.com provides a quick way to conduct an online user study and get immediate feedback on your product. In addition, Olark or SnapEngage enable simple online chats with your current users to hear about their pains and have them reach out when there are issues. And we also talked about instrumenting your product so that any negative user event, such as a low star rating within the product or downgrading a paid account, results in an email being fired off to your team who can then respond immediately to address or at the very least learn from their issues.

“Done is better than perfect”
Kate Aronowitz later brought up in the conversation a famous motto at Facebook: done is better than perfect. Kate spoke about how this can be quite hard at times at Facebook since when you bring together some of the world’s top designers, perfection is their ultimate goal. Yet shipping bits, getting real user feedback, and iterating is of even greater important and they often release before designers ever feel their work is done. Kate suggested this is exactly the kind of culture you want to build into your organization to make sure that you are always pushing the envelope with your actual users, not just in your lab.

“The ideal startup team consists of: a designer, a hustler, and a hacker”
Garry Tan brought up this recent quote that has been going around the valley about the makeup of the ideal early stage startup team. Only recently has it become popular to seek out a designer as a founder or one of the earliest employees.

We talked about a variety of tactics to help startups hire rockstar designers. The talent crunch for designers mirrors what is happening for top engineers, so all the same best practices from last month’s Startup2Startup apply. In addition, the panelists suggested looking outside of the valley cohort of designers since they are all in high demand. Instead they suggested taking bets on younger designers who have a great portfolio but maybe not a great set of production apps they have built. Jason, for example, noted that Aaron Patzer took a chance on him, given that he didn’t have much app experience, but instead design agency experience. But that worked wonderfully given how much recognition Jason has received for his work at Mint. So keep a look out for folks that have great design fundamentals, even if that’s in other mediums like print, because it can carry over well to the web apps world as well.

Altogether it was another great Startup2Startup event and important design lessons for all of us in the startup world.

How to Hire Great Engineers for Your Startup

Last night I had the pleasure of attending the latest Startup2Startup on engineering management with Yishan Wong, an early director of engineering at Facebook.

The area we spent the most time discussing, both during the presentation and during the discussion that followed, was how to hire great engineers for your startup. I thought it was a particularly appropriate topic given that I receive weekly requests from colleagues asking me for help on their quest for engineers. So I thought I'd take a moment to post on some of the most actionable take-aways from the discussion.

The fundamental insight was that a transition has occurred in the last couple of years causing the core problem of technical recruiting shifting away from being a filtering problem to now becoming a marketing problem. The reasons are obvious: the growth in tech fueled by access to capital coupled with the declining engineering graduates continues to widen the supply and demand gap. Startups need to now spend more of their recruiting resources not around improving the filtering process of selecting candidates that have applied for positions, but mainly the marketing process of finding interested candidates in the first place.

With that, let's talk about 5 practices you can put in place today to improve your chances of finding great engineers.

Leverage your network.
We have all heard that the best folks to hire are those that are already in our personal and professional networks. The first thing any of us do when looking to hire is try to recruit folks that we know or have met at some point in our career. But Yishan took it one step further by talking about specific practices that you should be employing to maximize the value of your networking for recruiting. The biggest one was not to simply reach out to folks once and see if they were interested in your opportunity. But instead to hit them up every 3 months. Circumstances change and they change especially fast here in the valley. You want to make sure that not only are you reaching out to them when it may be a good time, but more importantly that you are top of mind when they do decide it's time for a change. The other key strategy is to not simply think of people in your network that are actively looking. Some of the best hires are those that are not looking, yet still decide to jump when they find a much better fit at another company.

SHAMELESS PLUG: You might want to try out my latest product, Connected, as a great way to leverage your network for recruiting.

Become a magnet.
Yishan also talked a great deal about the need for a company to find a way to become a magnet for great talent. In the early days, Facebook widely distributed technical puzzles that they often asked during engineering interviews. While many people thought the puzzles were used primarily to asses technical talent, they were in fact used mainly as a marketing tool. They were eager to find engineers that enjoyed solving and discussing these kinds of technical challenges and wanted to convey to engineers that Facebook was the place to go to tackle them.

Similarly, we talked about how Netflix did a fantastic job of putting together an astonishing culture deck that certainly caused a boost to inbound recruiting with the company. It very clearly laid out what Netflix believed in and how they were going to win in their market and made many people feel like this was an exciting company to work for.

There are a variety of tactics that can be employed to achieve this, but the goal is to find a way for your company to become a magnet of technical talent. Only then can you expect a great pipeline of candidates.

Hire H-1Bs.
Unfortunately the immigration process in this country is still so painful and while there are efforts to resolve them, they still persist. However, many companies simply overlook foreign candidates because of all the hassle associated with the visa process. This can be a real mistake. It turns out that for certain countries, the process really takes no more than a great lawyer and some up-front legal fees. Being open to doing so gets you access to a whole new pool of talent. And frankly, these employees will be more likely to be loyal to you since you have gone through the process of getting them their visa on their behalf. I know several companies that have successfully hired many folks this way.

Contribute to open source.
Early in a startup's life, it can be difficult to justify contributions to open source projects given the limited resources the team has. But it turns out that there are two reasons you may want to reconsider this stance. First, many engineers love giving back to the community and contributing and it can be a real carrot to offer prospective candidates. More importantly, the open source community is very tight knit and having serious contributions to projects can be a great way to market your company to other open source contributors, who are often some of the finest tech talent available.

Prioritize what you need.
Given how difficult it is to hire, it's unrealistic to expect to find someone that matches all your ideal criteria. The key is to pick the few attributes you are really unwilling to compromise on and let that guide your recruiting process. While hiring the right people is paramount to success, so is making forward progress in your company. So make sure you are truly discerning in your required list of criteria. And realize that often attributes like having the right attitude end up being more important than straight technical skills or experience.

I hope that gives you some good ideas on how to super charge your startup's own recruiting process. If you come across other techniques that work, please do share!

Why I Love San Francisco

I had lunch with an old college buddy last week and he has been considering moving to San Francisco to start his next venture. We got into a discussion of the potential advantages and disadvantages of doing so. I thought I'd throw up my thoughts on the subject for those interested.

I've been in San Francisco now for the past three years. My immediate prior residence was up in Seattle, but I originally grew up in upstate New York. I have come to love San Francisco for many reasons, but mostly because it's an ideal place to start a technology venture.

While I am clearly biased, here is my attempt at a balanced discussion of the pros and cons of starting your venture in San Francisco or the Bay Area in general.

Advantages
Discussions on startup tactics & methodologies
One of the things I appreciate most is the open dialog on the best practices in starting and running a startup. You know that if you run across a problem, you can leverage the fact that many others in the valley are thinking about the best way to tackle it, whether it's user acquisition, metrics, marketing, etc. Even more interesting is the open debate about the best methodologies for building your company, including recent debates on agile development, customer development, etc.

Network of people to help you
Since there are plentiful startups in the exact same boat as you in the Bay Area, there is an amazing network of people that can help you achieve success in their area of expertise. This could be anything from technical to product to business development to sales expertise. You can rest assured that someone has been there and done that and oftentimes is willing to help a fellow startup out in order to prevent you from making the same mistakes they made.

Access to capital
The available capital sources, including angel investors and venture capitalists, are definitely most plentiful in the Bay Area. Many investors prefer investing in companies that they are close to, so simply being in the Bay Area can often give you a leg up. In addition, since there are always startups looking to raise money here, there is a growing ecosystem of help in order to get the round done. There are people that can help you get the right introductions, refine your pitch, and help you with negotiating the best possible round of funding.

My kind of fun
When you are like me and feel like you live to work (instead of working to live), you will love the fact that you can find people to engage with you on your startup 24/7. Whether its conference, happy hours, coffees, lunches, or just geek hangout fests, there is limitless events to keep you in and around the startup sphere as much as you like. There are also great incubator-style open work spaces that are full of startups all day long that you can participate in. Some people think doing a startup can be lonely. But that is definitely not the case here in San Francisco.

Nice weather
While this may seem like a trivial one, I think having nice weather in the Bay Area is a nice plus. As many who have started a startup will tell you, your startup will be an emotional roller coaster ride with high and lows as the business ebbs and flows. If you were stuck in cold and dark weather, it does nothing but make those emotional highs and lows even more acute. California weather helps to generally keep you a little more optimistic about your startup's prospects.

Disadvantages
Group think
One of the main disadvantages of living in the Bay Area is that the startup echo chamber can often result in group thinking. This means many people are chasing the same ideas, leveraging the same methodologies, and following the same trends. While leveraging best practices in general makes a lot of sense, oftentimes the most successful startups are those that go against the grain and do something no one thought would work. In some cases it can be harder to pursue those kinds of ideas here or at least you may gravitate to chasing whatever the hotest trend is: social networking apps, mobile apps, real-time apps, location-based apps, etc.

Not a friendly incorporation state
Despite being home to a ridiculous number of startups, California is not the ideal state to incorporate. Both in terms of forming an LLC or Corporation, California is not as advantageous as places like Delaware. Because of this, many corporations still choose to incorporate in Delaware even if their primary business location is in California. Similarly for LLCs, California imposes high taxes just to get up and running, versus other states like Washington where there are no such taxes.

High state taxes
Another governmental drawback of starting your venture in California is the high state taxes. This was especially acute to me coming from Washington where there are no state taxes. But across the country, California has some of the highest. This just drives up the cost of doing business and ultimately increases your burn rate.

High cost of living
Along the same lines, San Francisco is just an expensive place to live. Regardless of whether you are in the city or one of the suburbs, you are going to be paying a premium in terms of cost of living compared to many other parts of the country. This again results in increased burn rate.

My Development Stack

I'm always interested in improving my development stack in order to maximize productivity, facilitate rapid iterations, and maintain flexibility. Over the years I've periodically iterated my web stack, from a Microsoft-based self-hosted environment, to a PHP-centered world, to finally my present Python\Django stack on top of a cloud platform.

I thought I would detail my current stack and technology choices for those interested. I would also love to hear from you on what you use or if you have any suggested improvements.

Hardware
Mac Book Pro 15''
Not only does Apple make elegant Mac Book Pro laptops for both portability and to serve as a desktop replacement, but the Mac OS X operating system is terrific for web development, since the underlying Linux OS allows the system to closely mimic my production environment.

Dell Ultrasharp 24''
Ever since getting my Dell Ultrasharp 24'' monitor, I refuse to do any serious development away from it. The productivity gains from having a large monitor are astonishing and I can't believe I lived without one for so long.

Klipsch Quintet III
I spend a lot of time listening to music while coding, so this top notch speaker system, Klipsh Quintent III, has become an essential component to my development environment.

Developer Tools
Eclipse \ PyDev \ Pylint
While some will rave about the elegance of TextMate as the IDE of choice for Mac (or simply emacs or VI), I've always been a fan of powerful IDEs. (I did work on the Visual Studio team for 2 years before coming to the valley, after all). Eclipse, coupled with the PyDev and Pylint plugins, provides a great development environment for Python. In addition to all the Eclipse productivity features, you get Python specific syntax highlighting, code completion, syntactic analysis from PyDev and semantic analysis from Pylint.

Subversion \ svnX
Subversion is my go to version control repository, with svnX as the native Mac client. While Git is the latest craze, I haven't found it's features compelling for my small team. Though Github itself as a hosted Git provider has some compelling features that I have been meaning to try.

Project Management
MonkeySort
While Basecamp or Trac are the tools I most often recommend to young startups for basic project management, I instead use a very simple task manager I built called MonkeySort. It has the 3 things I need and nothing more: lists, prioritization, and task history.

Google Docs
All of my specs, project timelines, feature breakdowns, competitive analysis, overviews, and presentations are produced in Google Docs, including documents, spreadsheets, and presentations. While not as feature-full as Microsoft Office, they provide anywhere access and easy collaboration which are very important to me.

Hosting
Amazon Web Services
I'm a big supporter of cloud platforms to reduce the administration overhead of deployments as well as increase the flexibility of increasing\decreasing capacity whenever necessary. I've used AWS for my previous startups and continue to use it for my new projects. I've dabbled with Google App Engine as well, but found it too limiting for large applications.

WebFaction
I have a cheap $10/mo shared host running on WebFaction. I use it for hosting my Subversion server. While I could easily do this on AWS, I personally prefer having my development servers separate from my production environment.

Front End
HTML 5
I'm excited for the innovation we are seeing in HTML 5. For the first time in a decade we are experiencing the browser wars again. I'm taking advantage of the new HTML 5 capabilities wherever possible (especially on mobile web apps), including offline support, local data storage, canvas, video, and audio components.

jQuery \ MicroTemplating
JavaScript is no longer a toy language due to the wonderful libraries that have been created. My personal favorite is jQuery, with its super easy DOM manipulation, which is the most painful part of javascript development. I'm also using John Resig's simple MicroTemplating framework for javascript templates.

Server Side
Python
I discovered Python while learning Google App Engine. While I've abandoned App Engine, Python has stuck with me as a highly productive and elegant web programming language. The additional benefit of it over PHP is that it is easily usable for non-web code, so I use it for all my queue server and offline processing as well, allowing one elegant language across all my web and non-web components.

Django
Django in my mind is a great compromise between Ruby on Rails and raw PHP programming. RoR has too much magic going on for me under the covers and has somewhat of a take it all or leave it all mentality. Django, on the other hand, is extremely pluggable, allowing you to use individual pieces like the ORM, templates, URL dispatching, etc or to abandon an individual component without throwing out the framework. The flexibility allows you to easily start on the complete stack and switch components as you grow out of them.

Web Server
Apache \ mod_wsgi
I use Apache with mod_wsgi as my app web server for all of my Python\Django code.

Nginx
Nginx has been a great web server in front of my apache instances for static file serving as well as round robining for distributing server load. Very easy to configure and super fast for these tasks.

OS
CentOS
CentOS is a complete open source version of Red Hat Enterprise Linux, so it has the robustness and scalability of Red Hat's core operating system. In addition, it's extremely lightweight and perfect for server deployments. I've moved most of my prior Fedora instances (AWS default) to CentOS.

Data
MySQL
MySQL has been the reliable back-end relational database I've been using for years. Development has been significantly simplified now with Django's ORM, but MySQL is still a crucial piece of the architecture.

memcached
memcached has been a relatively new addition to my stack in order to significantly improve the performance of applications that have complex SQL queries behind them. I've also started using it to cache API requests in addition to database query results.

Monitoring
Munin
While Amazon provides it's CloudWatch server monitoring solution, it's needlessly expensive and limited in the kind of monitors you can attach. Instead I use Munin, which is completely free and has a rich ecosystem of pluggable monitors that you can add. I use it to track everything from website latency, to memcached usage, to MySQL query usage, to Apache requests, to Nginx load balancing. All visible in one easy to use web dashboard.

Pingdom
It's of course necessary to get real-time alerts when servers are down. I trust Pingdom for this task. I have also been using Cloudkick recently for this and it's additional cloud platform server monitoring functionality.

Startup Lessons Learned from my Recent Wedding

As many of you know, I spent the last two weeks getting married. Yes, it did indeed take two weeks, including a wedding on April 24th in the Bay Area, as well as a reception in my home town in Rochester, NY on May 1st. Beyond the actual wedding festivities, there were months of planning and preparations prior to the events. Now that all of this has culminated, I thought I would take a moment to reflect on the lessons learned relevant to the startup community from my recent wedding experience.

Enjoy the journey, not just the final event
It's pretty obvious that the time involved in planning and preparing for a wedding completely outnumber the hours of the actual wedding festivities. It's therefore extremely important to find ways to enjoy the actual planning in order to ensure the entire experience is worthwhile. For me, I took extra pleasure in the cake tasting, wine tasting, and wedding favor preparations. Similarly for startups, some people find that their main motivation is the potential final exit opportunity. But like weddings, startups are an arduous process that takes immense time, energy, and motivation, and you have to enjoy the journey itself, and not just the final exit, in order for a startup to really be a worthwhile endeavor.

Pursue your passions and you'll have the greatest success
The interesting part for me in vendor selection for our wedding was that many of the vendors we selected were entrepreneurs in their own right. The ones that struck me as the most successful were the ones that were truly pursuing their own passions. Jason Shires, for example, has always been deeply passionate about music and being a DJ. And he has built a wonderful wedding DJ business, Quantum Music, out of this passion. It shows in his energy and dedication to the client that he isn't just doing this for the pay off. He's doing it because he loves making a party rock. Same for Enez Peoro, who fell in love with cake making over 30 years ago when she took her first class. Since then she has been teaching cake making as well as making extraordinary wedding cakes through her business Cakeabakin. She takes extreme pride in her designs and it shows in her work. I think sometimes when entrepreneurs are looking at pursuing a business idea, they don't put enough weight on pursuing their own passions. I encourage everyone to do so, since you are likely to have more success in a space you are passionate about rather than simply pursuing a great market opportunity.

Confront your biggest fears early
Every wedding involves planning a ton of things that are unpleasant or downright dreaded. For some it's putting together the guest list, figuring out how to pay for the wedding, or deciding the seating chart. For me it was learning to dance for our first dance. The best advice I can give you is to confront these fears early. Similarly in your startup you'll come across many fears for which you dread the answer, whether it's will anyone will use your product, will you be able to generate revenue from your product, or can you cheaply acquire users. One should address these fears as soon as possible as the fear will continue to eat at you until you confront it and learn how best to solve it.

I also wanted to take a moment to thank those of you from the startup community who helped celebrate this special day with Ada and I, including Jameson Hsu, Andrew Chen, Anson Tsai, Noah Kagan, Jared Kim, and many others. I would especially like to thank Gus Tai for being our wonderful officiant for the ceremony.

Thanks everyone!

The Monk and the Riddle by Randy Komisar

Based on a suggestion from Andrew Chen, I spent Saturday afternoon reading The Monk and the Riddle by Randy Komisar, which put me in a reflective mood on my own goals and vision for success here in Silicon Valley.

Randy Komisar put together a short narrative that challenges the traditional assumption of the deferred life plan, romanticizes the notion of business as a creative pursuit, and even finds room to go into a discourse on self-knowledge of one's own motivations. Beyond this, Randy litters throughout the book a great set of lessons from his own career as a successful entrepreneurial executive.

I thought I'd take a moment to share some of the highlights through a set of my favorite quotes from the book.

The Deferred Life Plan

The Deferred Life Plan. For the promise of full coverage under the plan, you must divide your life into two distinct parts:

Step one: Do what you have to do.

Then, eventually-
Step two: Do what you want to do.

The Deferred Life Plan certainly dominates Silicon Valley. Most people think getting rich fast provides the quickest way to get past the first step - and where can you get rich faster than Silicon Valley? The problem is that, despite the undisguised affluence, the verdant hills, and media-generated mythos, the vast majority of people in Silicon Valley will not get rich. Most business ideas do not find funding. Even the majority of those that are funded - that is, vetted by very smart people who think enough of the ideas to invest in them - ultimately fail. And the lucky winners may get to step two only to find themselves aimless, directionless.

Tim Ferriss echoes this same sentiment in The 4-Hour Work Week about how too many of us optimize for our deferred lives that may never materialize and both authors encourage finding ways to stop deferring and doing what you are most passionate about today.

Randy suggests that some of us may even postpone our ultimate life dreams indefinitely out of fear of risking what matters to us most only to find it ultimately uninteresting, unsatisfying, or unachievable. He encourages us to embrace that risk head on and right now; otherwise we face an even graver risk of never enjoying the rewards of pursuing our dreams.

Business as a Creative Institution

It comes down to my realization over the years that business isn't primarily a financial institution. It's a creative institution. Like painting and sculpting, business can be a venue for personal expression and artistry, at its heart more like a canvas than a spreadsheet.

This perspective on business rings true to my own view. I initially fell in love with coding as a creative hobby. I saw beauty in elegant solutions to technical problems. As I matured, business became the next logical pursuit in taking my solutions to problems and finding creative ways to commercialize and create value for all stakeholders.

Self-knowledge of Your Passion
Randy goes on to define where we traditionally source our notions of success, distinguishes passion from drive, and suggests that self-knowledge is paramount in making that distinction for yourself.

Most of us have inherited notions of success from someone else or have arrived at these notions by facing a seemingly endless line of hurdles extending from grade school through college and into our careers. We constantly judge ourselves against criteria that others have set and rank ourselves against others in their game. Personal goals, on the other hand, leave us on our own, without this habit of useless measurement and comparison.

Passion and drive are not the same at all. Passion pulls you toward something you cannot resist. Drive pushes you toward something you feel compelled or obligated to do. If you know nothing about yourself, you can't tell the difference. Once you gain a modicum of self-knowledge, you can express your passion.

Entrepreneurial Lessons
Littered throughout the book is a set of best practices for aspiring entrepreneurs from Randy's own entrepreneurial adventures. My personal favorite was his metaphor for CEO archetypes as various kinds of hounds and how different types are needed at different phases in a startup's lifecycle.

The first CEO is "the Retriever". From the muck she must assemble the core team, the product or service, and the market direction - all around a coherent vision. She must also raise the money and secure crucial early customers and partners. She is prized for her tenacity and inventiveness. The second CEO is "the Bloodhound." He must sniff out a trail - find the market and prove the business. He needs to build an operating team and establish a market beachhead. He is prized for his keen sense of direction and company-building skills. The third CEO is "the Husky." She must lead the team, pulling an operating company that grows heavier by the day with people and public company responsibilities. She is prized for her constancy and scalability. None of these, to me, is top dog. All are equal in importance, just different in skills and temperaments.

While much more theoretical and philosophical than the books I normally find myself reading, it turned out nonetheless to be an inspiring and thought-provoking read.

Optimizing for Fundamental vs Strategic Value

Every week I meet with different entrepreneurs asking for my advice on topics ranging from funding strategy, exit opportunities, user acquisition, monetization, to technology investment. However, unlike others who often have a set of best practices they like to dispense around these topics, I find myself spending a considerable amount of time understanding the entrepreneur's personal goals before laying out my recommendations.

Entrepreneurs come in all shapes and sizes and there are a variety of successful outcomes that can be achieved. It's therefore important to be wary of anyone that gives you one-size-fits-all advice before understanding your needs.

One dimension along which I wanted to elaborate is a founder's choice to optimize for building fundamental vs strategic value. Let's start with some definitions. An entrepreneur that focuses on building fundamental value is optimizing for creating a standalone business that generates meaningful cash flow and profit as an independent entity. On the other hand, an entrepreneur optimizing for strategic value is one that is building their organization in such a way to maximize potential value to a larger organization that will ultimately benefit from an acquisition of the entrepreneur's startup.

When superficially looking at these definitions, one could argue that every startup is in the business of generating profits and therefore all startups are focused on building fundamental value. In addition, one could also argue that these are not mutually exclusive and ideally when an organization is building fundamental value they are also increasing their strategic value for potential acquirers. While both of these statements are true, the reality ends up being much more nuanced.

With the nature of startups having limited resources, entrepreneurs find themselves either consciously or unconsciously biased towards optimizing for fundamental or strategic value. With every decision an entrepreneur makes comes a set of trade-offs that could result in the maximization of either of these types of value. And a lot of my advice on the topics above depend on which direction you go. For example, your funding strategy may vary significantly depending on the outcome you are optimizing for. The timing in which you choose to focus on monetization may also differ depending on this strategy.

Let's take a look at some concrete examples.

Last.FM, a social music service founded in 2002, was ultimately acquired by CBS Interactive for $280M in May 2007. I remember chatting with Michael Marquez, who was in charge of the acquisition at CBS, about why they ultimately decided to purchase Last.FM. As a media conglomerate, CBS was very interested in aggregating meaningful target demographics that they could monetize by leveraging their existing sales force and brand relationships. At the time Last.FM had one of the largest online music communities. In addition, Last.FM had experimented with a variety of ad units and had shown some initial traction on ability to monetize it's inventory. However, Last.FM had not built out a large sales team nor was it already making meaingful revenue. It had simply shown that it worked on a small scale, which ultimately proved to CBS that if they married their own large sales team with the Last.FM inventory, it could be a match made in heaven. Last.FM's decision to focus on growth at the time clearly helped to boost it's strategic value. In addition, it's revenue experiments without huge investments in building out a large sales organization also improved strategic value.

imeem, similarly, optimized for strategic value. While imeem was interested in reaching profitability to ensure its on sustainability, it nonetheless regularly made decisions to trade-off short-term profitability for maintaining strategic value. For example, imeem could have chosen to stop servicing international markets that were shown to have little monetization potential, yet continued to do so in order to maintain its large user audience that could be attractive to an acquirer. Similarly, when imeem's VIP subscription service started to show traction, imeem could have decided to push more free features into the premium service in order to boost revenue, but leadership chose not to out of unwillingness to alienate it's large free user base. Unfortunately in the end for imeem this bet did not pay off since the market for such media acquisitions softened, imeem was unable to prove profitable per unit economics to potential acquirers, and it simply ran out of cash to continue fighting the good fight.

LinkedIn, on the other hand, continually shows that it is focused on building fundamental value. LinkedIn has been profitable for years and many say it's an ideal IPO target. While they are in no rush to actually pursue the IPO, the decisions they make on a day-to-day basis are optimizing for fundamental value. One example of this is their API platform. While they have finally released an API platform, it is by no means as open or powerful as similar platforms from other social nets like Facebook and Twitter. And in many ways it has to do with the fact that LinkedIn has existing revenue lines from paid subscriptions for pro users and recruiters, as well as licensing and advertising revenue, which they are unwilling to sacrifice simply to provide a more open API to their users. Some may argue that this is shortsighted of LinkedIn in that a more open API may result in an ultimately more profitable business, yet you can't argue with the fact that LinkedIn is consciously making the trade-off to continue to maximize it's fundamental value over all else.

My point with these examples is to show how decisions are made in startups every day that trade-off fundamental vs strategic value. There is no "right" answer on whether to optimize for one or the other. It depends on a combination of the founder's personality, risk tolerance, desired company culture as well how best to reap the value in the specific opportunity one is pursuing.

In the end though, the answer I hear most frequently from entrepreneurs is that they are pursuing fundamental value but are opportunistic about considering strategic opportunities. On one hand this is a very reasonable answer as entrepreneurs don't want to take options off the table. But at the same time, it's really a non-answer and I urge entrepreneurs to consciously realize what they are currently optimizing for in the decisions they make every day.

Lessons Learned as an Entrepreneur-in-Residence

As many of you know, I spent the better half of 2009 as an Entrepreneur-in-Residence at Trinity Ventures. It was one of the most rewarding experiences I've ever had and would encourage anyone who gets the opportunity to do it. Working alongside Gus Tai, Ajay Chopra, Jim Tybur, Dan Scholnick, and the rest of the Trinity team provided an inside look into the world of venture capital. Given that I've spent most of my entrepreneurial career in scrappy startup environments, I developed a valuable new perspective on evaluating opportunities.

I thought I would take a moment to share some of the most compelling lessons I learned during my Entrepreneurship-in-Residence.


Why Hasn't it Existed Before. One of the most valuable thought exercises for innovative opportunities is to think about why your solution hasn't existed in the market before. If there are structural changes that have occurred in say the last 5 years that make this opportunity possible today, then you may be on to something. If there are no such changes and you simply think that "no one has thought of this before" then I would urge you to dig deeper, as you may simply not have enough domain expertise to know why it is a bad idea.

Seek Leverage. For every startup opportunity, think about how to get the most leverage in the ecosystem to command the lion's share of the value created, as opposed to being limited to taking a small sliver. This was one of the most important perspectives VCs offered. For example, Trinity helped me think through how to take an end-user product idea and expand my thinking to eventually become a platform for an entire ecosystem.

Human Behavior is Fundamentally Consistent. When looking at introducing new consumer behavior, look for analogies that exist in the offline world or using previous technology that may be applicable to this new behavior. For example, while Twitter is definitely a novel service, it can be fundamentally thought of as an expansion of the the traditional town hall concept.

Disrupt Incumbents. In certain spaces, after the market leaders gain significant market share, they stop innovating and simply focus on servicing and maintaining their existing customers. This creates opportunities to disrupt these spaces with cutting edge technology. For these spaces, think "if I were to re-invent this space from the ground up using present day technology, what would it look like?"

Original Thinking. When you look at some of the biggest innovations in the past decade (Facebook, Twitter, YouTube), they often come from original thinking. The founders of these startups are often young and unlike their older brethren, haven't yet fossilized their world view into the existing paradigms. This thinking creates opportunities for innovation.


Venture Funding is not for Every Startup. Given the economics, VC funding makes sense for startups with high return potential. Right now there is too much money chasing too few good deals and has lead to funding companies that really aren't VC fundable opportunities. We have seen some right-sizing with the economic recession, but the over-funding continues.

Goals Differ Based on Funding. Often the goals in the initial stages of your company are very different depending on whether you choose the bootstrap or venture funding approach. For bootstrapping, the most important goal is to get to cash flow positive as soon as possible. This is less important for VC funded opportunities since they are more concerned with quickly understanding the overall market potential.

VC Value Add. While VCs aren't great at everything, they do provide incredible value add in a variety of specialties. Seek out investors who can help support you in these endeavors. Their expertise often include recruitment, financial strategy (ie raising future rounds of funding), strategic perspective on large opportunities, business development contacts, and liquidation strategy (ie acquisition\IPO).

Relationships Matter. VC funding is very relationship focused. It's critical to create a strong relationship between a VC and entrepreneur. This is not something you do in a one hour pitch. Try to get to know them over time before closing a round. Given that you'll be stuck with the VC for the entire life of your company, it's also very important for you to develop a personal and trusting relationship with your VC beyond simply to help close the deal.

Addressing Slow Growth Businesses. For existing slow growth businesses looking for funding, it's often difficult for a potential investor to discern whether that slow growth is due to tepid market demand, poor execution, or simply not enough resources to fully penetrate the market. Only the last one is a positive thesis for an investment. So if you are one such startup, make sure you have a great justification for why your growth has been slow to begin with and exactly how that will change in the future.

Fundable Entrepreneurs. VCs spend a lot of time thinking about whether a founder is VC fundable. The key questions they are asking themselves is can he or she build a strong team around them, scale the organization, and relentlessly pursue the larger opportunity? VCs are typically biased towards repeat entrepreneurs. So make sure to pimp yourself and the team as much as possible.

Failed Startups. If you are in a space with a history of failed startups (ie music), you need to have a strong positive thesis on why you will be different, supported by evidence. Don't wait for a VC to bring this up. Address this immediately and with confidence.


Related Posts

• My Muses for Brainstorming Startup Ideas
• The Value of the Y Combinator Experience
• Make Something People Will Buy

The PayPal Wars and its Lessons for Today's Entrepreneurs

I was perusing Andrew Chen's bookshelf and came across The PayPal Wars by Eric M. Jackson. It turned out to be a riveting tail of the entire journey of PayPal, from its early conception to its monstrous success, retold by one of its earliest hires in marketing. It's a story I thought I knew, but there was so much more to it than the simple success story we all hear about.

I thought I'd take a moment to reflect on the five most important lessons I learned from their journey and my thoughts on their application to today's entrepreneurs.

1. Strong long-term vision coupled with pragmatic short-term attainable goals
One of the most insightful aspects of the story was getting a chance to understand Peter Thiel's management style from the inside. Though he is known as a brilliant financial strategist, it was a simple management tactic he used throughout that really struck me as effective. Peter Thiel is no doubt a man with a big vision. His vision for PayPal was no less than to become "the Microsoft of payments, the financial operating system of the world" and he often talked about solving corrupt government practices of inequitable wealth distribution through his simple online service. This world domination view became a strong rallying cry for all employees. Yet he was always careful to put in place pragmatic short-term attainable goals that kept the team focused and executing against an achievable milestone. This included carefully monitoring, tracking, and rewarding success on increases in percentage of eBay listings using PayPal verses their biggest competitor at the time, Billpoint.

2. It's all about assembling an A-team
Equally exciting about the story was being introduced to the entire management team, which was full of rock stars. Peter was big on hiring incredibly talented, brilliant, and ambitious folks. They didn't necessarily need to be experts at the role they were assuming, but smart and hungry all around. Many of the strategic decisions they made and their success in doing so can be directly attributed to the team. Today all of these top execs have moved on to new and equally ambitious projects, including Peter Thiel (Clarium Capital, Founders Fund, Palantir), Max Levchin (Slide), David Sacks (Geni, Yammer), Reid Hoffman (LinkedIn), and Elon Musk (Tesla). By focusing on bringing the right team together, entrepreneurs can ensure that they can handle even the most difficult challenges.

3. Push decision making down as far as possible
One of the key takeaways for me was that leadership is not about having all the best ideas, but instead about providing a culture for great ideas to win, regardless of where in the company they came from. PayPal promoted this culture throughout and even institutionalized it through the producers role. Producers at PayPal is what we would typically call product managers these days. They essentially were given full authority and responsible for a feature area or discipline and expected to execute and report on their success. Even the naming of the role "producer" showed how focused they were on results and holding people accountable to them. By pushing decision making down, they allowed the best ideas to win from the people who were living and breathing the space all day long, not just the senior management tam.

4. Even the winners have rocky roads
While it's easy to look upon the success of PayPal as a sure fire win, it was clear from this story that throughout they faced many challenges and potentially disastrous situations.

In the early days fraud became a horrendous issue for PayPal. They were losing millions of dollars to the mafia and other organized fraud circles. The reputation, business, and economics were at stake if they could not solve this problem. Max however was able to build strong algorithms for detecting the fraud and eventually reduce the risk. In addition, they had a rather tumultuous merger with X.com which caused a complete shuffle in the star management team, Peter Thiel leaving as CEO, and then his eventual return. And their IPO, which occurred prior to their acquisition by eBay, was almost doomed by pending lawsuits and banking regulatory issues.

It's an important lesson in that all startups have rocky roads, even the successful ones. One needs to know what they are getting into when embarking on a startup, but be equally persistent to overcoming them.

5. The risk of dependence on a platform
Yet the biggest issue that plagued PayPal throughout it's journey is one that is near and dear to many entrepreneurs today: dependence on platforms. PayPal's rise was built on top of eBay as the preferred method of receiving payment for both buyers and sellers. Yet their success was completely dependent on eBay. eBay constantly changed policies which completely disrupted PayPal's service and caused them to endlessly be scrambling to maintain listing share. The situation got monumentally worse when eBay acquired PayPal's competitor Billpoint and made it the default payment method on their service. Many would have assumed PayPal was dead at that point. Yet PayPal was able to survive, through a variety of tactics.

The most important tactic that I think is a key lesson for today's entrepreneurs was building a consumer brand and strong customer affinity towards it. When eBay made changes which threatened PayPal's position, PayPal often appealed to their own users, who flooded the eBay forums with complaints. This strong customer affinity eventually forced eBay to have no choice but to buy PayPal if they were going to keep their customers happy.

While platforms like Facebook and Twitter have created huge opportunities for entrepreneurs, it has caused many of the largest startups leveraging these platforms to feel at risk due to the whims of the platform. My belief is the startups with a strong independent brand and consumer affinity have the highest likelihood of survival.


I'd highly recommend The PayPal Wars to anyone looking to really understand what it's like to work inside a rocket ship startup with an A-team at it's helm.

Respect for the Criminal Trial Process

In a departure from my usual focus on startups, I thought I would take a moment to reflect on my most recent experience in jury duty.

I was selected as one of twelve jurors for a murder trial against a defendant who was accused of beating up his girlfriend and throwing her out of her apartment window in San Francisco in 2005. After an intense 2 week trial and jury deliberation, we today found the defendant guilty. His punishment is still to be determined.

This was my first experience with jury duty and the criminal trial process and I must say I was impressed with the court proceedings and the overall fairness of the trial. I've included my specific thoughts on the jury selection process, the burden of proof standard, and the trial timeline.

Jury Selection
Probably the longest aspect of the entire trial was jury selection. Judge Kevin McCarthy mentioned that for this trial they tried to put together a jury four times prior to finally assembling one. The issue was that this case was projected to take up to four weeks and many potential jurors filed for hardship which allowed them to postpone their service and potentially serve on another case.

After a large enough pool of potential jurors was found that did not file for hardship, the Voir dire process began, which allowed both the prosecution and defense to examine the potential jurors and object to any that may have clear biases or additionally reject any juror for any reason at all (up to 20 times). I was impressed with how they systematically removed anyone with any potential bias that might effect this case. Since this case involved an African American, a victim who suffered from bipolar disease, a substance abuser, and occurred in the Tenderloin, anyone who was found to be biased against African Americans, had personal experience or a close relationship with someone who had bipolar disease, had personal experience with substance abusers, or currently lived in the Tenderloin were all ruled out.

Despite the motley crew that initially showed up to jury duty, I was happy to see that the final jury selected appeared educated, fair, unbiased, and very reasonable.

Burden of Proof
In a criminal trial, the burden of proof standard requires that the jury find the defendant innocent until proven guilty beyond a reasonable doubt. The judge carefully defined the "beyond a reasonable doubt" standard on multiple occasions to ensure we understood that it was not beyond all doubt, since nothing can ever be beyond all doubt, but instead the evidence left us with an "abiding conviction" that the defendant committed the crimes he was accused of. We had lots of discussions during the case and during jury deliberation specifically about this burden of proof to ensure we all understood and stuck to this standard.

In the end we convicted the defendant not based on direct evidence (for which there was none), but instead based on circumstantial evidence that painted a very clear story of what happened. This evidence included witness testimony from neighbors, DNA evidence, autopsy expert testimony, victim's daughter's testimony, a proven pattern of domestic violence, etc.

I'm glad the burden of proof standard exists to ensure avoiding wrongful convictions and that the process was fully followed throughout the trial to ensure a very fair process.

Trial Timeline
The one aspect of the trial that was very frustrating was the trial timeline. The murder occurred Nov 4, 2005 and only today on May 13, 2009 was the defendant tried and convicted of murder. That is nearly 4 years after the crime was committed! And during the first year, the defendant was at large. While I understand they couldn't keep the defendant under arrest without sufficient evidence, it was unclear the police were expending significant resources to both put this evidence together or try him. At the same time, if he had been innocent, he spent a long time behind bars without being tried. Throughout the trial it appeared this case wasn't top priority for the police and mistakes were made throughout, which is extremely saddening.

Overall I definitely saw this as an interesting opportunity to get first hand experience into our criminal trial process and come out of it both respecting our system and better informed.

And now back to our regularly scheduled startup discussions :)

Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads

Andrew Chen asked me to write a guest post on his blog Futuristic Play about some of my experiences monetizing music at imeem. I wanted to link it here, as I imagine many of you will enjoy reading it as well.

Make sure to check out his other posts, as his blog is definitely full of very interesting insights and on my must read list for any internet entrepreneur:

Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads

My Muses for Brainstorming Startup Ideas

As today marks my first day as an Entrepreneur-in-Residence at Trinity Ventures, I'm spending a lot of time thinking about how to formalize my process for starting a new venture. Every startup goes through phases including brainstorming ideas, selecting evaluation criteria, performing due diligence on top ideas, picking a winner, deciding on a corporate structure, putting together the team, evaluating funding options, and more. While the popular press often glamorizes the startup story as an epiphany moment from an opportunistic individual that grows to a successful corporate behemoth, I prefer a much more systematic approach to entrepreneurship (and life in general, for that matter). As I begin this journey myself, I thought I'd document my new venture process along the way, share it with all of you, and hopefully hear from you on your own thoughts.

Often one of the earliest steps in forming a new venture is coming up with the idea. I won't argue that this should necessarily be the first step though, since in my previous venture Anywhere.FM we picked the team before the idea and that was the right choice for us. I also won't argue that it is necessarily the most important step, because while a startup needs a great idea, it's not without great execution that an idea can become a successful endeavor.

I'm often asked where I come up with all my ideas, as I'm typically chock-full of potential ideas percolating in my head. I have a variety of sources of inspiration that help me put together laundry lists of potential startup opportunities. Before I dive into my muses though, I think what's important to realize is that the best idea brainstorming happens outside of any specific brainstorming phase. Good idea generation is like a muscle that you are constantly flexing. It's a mindset and attitude towards the problems you face everyday and your ability to effect change. While some people are innately curious and problem solvers, I still think like any muscle, this skill is something that can exercised and improved.

I'm personally innately curious. But what has been a huge boon for me was learning to program on my first computer, an Apple IIc, when I was in middle school. I quickly learned BASIC and fell in love with the idea that I could make things. In the early days it was often games to amuse myself (which is what typically attracts many young boys to programming), but as time passed I started making more useful applications. One of the issues I had early on was quizzing myself on vocabulary words. I quickly wrote a program I called Vocabulary Master to provide me random word definitions, give me three attempts to guess the word correctly, and tell me the word if I failed to remember it. It was a very simple application, but was the foundation for my strong belief that I can solve real world problems through software. Ever since then I've constantly had a list of potential ideas. Oftentimes when something bothers me or I think that something can be improved, I add it to a list of potential projects (and I have to say that I love the fact that now I have an iPhone always in my pocket to record my ideas). It's this critical lens of looking for ways to improve what you see every day and having the attitude that you can do something about it that I think makes for a great base of idea generation.


Logo for Vocabulary Master

Beyond that, there are specific muses I've used to help jump start my creative juices:

Improving Your Work Life
I think often the best source of ideas comes from your area of expertise and the problems you face on a day-to-day basis in your career. You probably find yourself saying "Why is this so hard? There has got to be an easier way" every so often. It may be a product extension to your existing business's core products, or may be unrelated to the business, but a pain point you feel trying to get your job done. From my experience at imeem focusing on monetization, I've come up with countless pain points in trying to monetize social media and large publisher sites that could be fruitful startup opportunities.

Analyzing Macro Trends
I think another very important exercise is analyzing macroeconomic trends and thinking about the opportunities it creates. What obviously comes to mind first these days is the recession, and I think a lot of startup opportunities will come out of that. Anywhere from helping people save money, find jobs, or tapping into the funds made available through the stimulus bill. But beyond the recession, I think there are a lot of other exciting market trends that are creating countless opportunities. Anywhere from the proliferation of APIs, to the rise of cloud platforms, to the opening up of mobile devices.

Bringing Existing Innovation to New Applications
I believe there remains significant inefficiency in applying new technologies across multiple vertical applications. It behooves a startup to focus at least initially on a very specific application to prove out the model and to provide the best experience. But this creates significant opportunity for other startups to bring that existing technology innovation to new verticals and thus becomes a fruitful source of startup ideas. I often think about how trends in certain spaces can be applied to new segments. For example, can we bring the viral spreading of applications native to Facebook apps to iPhone applications? Or can we bring the successful virtual goods monetization model from social games to non-gaming sites?

Latest News in Your Area of Interest
If you have a specific area of interest or vertical segment that excites you, I think its hugely valuable to constantly keep up with the latest news in that area. These days its so easy to use Google Alerts to subscribe to daily feeds of the latest news, blogs, and search results of your topic of choice. I have these setup for various areas of interest, including open platforms and personal productivity.

Exposure to Startup Ideas
I think it's also very important to constantly be exposed to new startup ideas. When you hear people's ideas and their take on solving them, it definitely helps to get your own mind thinking about related opportunities in the space or at least helps to think critically about how they may have come up with such a solution. I daily skim TechCrunch as a great source of startup ideas. I think Jessica Livingston's Founders at Work was also a great case study of many different startup ideas.

Talk to Existing Entrepreneurs
As I said, great entrepreneurs have this ability to constantly come up with ideas and potential solutions. I've been spending the last month catching up with a lot of my fellow entrepreneurs to not only chat about their business, but more importantly, interesting things that they have seen outside of their own startup. When an entrepreneur is busy executing against a specific idea, he is knee deep in one specific space. That doesn't mean though that he doesn't think about other ideas or have other ideas percolating in his head. I think its often great to tap into this creative thinking to spur some of your own ideas.

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Related Posts

• Protect Yourself With the Corporate Veil
• Make Something People Will Buy
• Lessons Learned from imeem

Protect Yourself with the Corporate Veil

While I am a big believer that entrepreneurs should spend the majority of their time focusing on getting a quality product to market, one piece of overhead that should never be overlooked is incorporating or forming an LLC prior to product launch. To some this is obvious. Of course you setup your corporate structure before anything else. But to hackers and hobby programmers this may not be their first instinct. Sometimes you have a hobby website that just starts taking off and you never planned on it being a real business. But then it starts to become one and you may not have the protections incorporation affords.

Take a look at this recent case, EMI vs. Seeqpod. This case has received a lot of press lately not only for the fact that EMI has joined Warner in suing Seeqpod, but EMI went so far as to sue Ryan Sit, creator of Favtape, for simply using the Seeqpod API. This case has huge implications for mashups across the web because it then potentially holds all mashup developers liable for potential infringement due to their use of third party APIs.



Many saw this case as particularly nasty of EMI because they sued Ryan Sit, the developer of Favtape, himself. Since Ryan Sit was named directly as a defendant, all his personal assets are now potentially at stake in this law suit. It's an unfortunate turn of events given that Ryan built Favtape simply as a side project outside of his day job. But what isn't evident from the press is whether Ryan ever incorporated or formed an LLC around Favtape in the first place. The site nor the parent company Freestyle Labs show any indication on their sites of being incorporated, which could suggest the company may likely be simply a Sole Proprietorship.

Regardless of what the specifics of the Favtape case end up being, the point is that it is important for every entrepreneur to protect himself by forming either a corporation or an LLC, which affords limited liability protection to the entrepreneur. While sole proprietorships and partnerships are the easiest corporate structures to form, I would highly discourage them since they provide no such protections.

Even among the corporate structures that do provide limited liability protection, one must still decide between forming an LLC, C-Corp, or S-Corp. Out of the three, an LLC is the easiest and cheapest to form. It simply requires an $80 filing fee, a few corporate documents, and paying the annual $800 minimum tax. You can even use services like MyCorporation to come up with and file the documents for you for a nominal fee. So I would suggest that at the very least, you do this.

However, there are many cases where a C-Corp or S-Corp is a much better fit. If you intend to take any outside money at all, you will very likely be required to form a corporation and thus its better to directly incorporate (though you can convert an LLC to a corporation when required). Incorporation is more involved, requires more organizational maintenance, and is more expensive. It can run anywhere from hundreds to upwards of ten thousand dollars to setup everything correctly and maintain it. It is best to work with an experienced corporate lawyer to ensure it is set up appropriately.

I am by no means a lawyer and am not qualified to recommend a specific corporate structure. All I am suggesting though is that you please protect yourself and make sure to incorporate or form an LLC prior to launching your product to ensure that you are not one of the victims in this highly litigious country of ours!

The Value of the Y Combinator Experience

I'm often asked about my Y Combinator experience so I thought I would take the time to blog about it. I did Y Combinator the Summer of 2007 in Boston with two awesome co-founders. We built Anywhere.FM, a web music player that brought an iTunes-like experience to the web, and eventually sold it to imeem.

So what is Y Combinator? Y Combinator is a new kind of seed stage venture firm. While they provide financing and advice like all venture investors, their model for doing so is very different. They give small amounts of cash (<$20,000), take small amounts of equity (<10%), and fund startups in batches twice a year. These summer and winter batches bring all the entrepreneurs in a given batch together in Silicon Valley for 3 months to have each startup build a demo-able product to show off to investors at the culminating Investor Day in hopes or raising a follow-on angel or VC round.

I would break down the value of the Y Combinator experience into four main benefits: jump starting the startup process, access to a fraternity of entrepreneurs, investor day, and funding.

Jump Start the Startup Process
Starting a company is a lot of work and a lot of very important decisions need to be made early on. Who do you pick as co-founders? How should you set up vesting schedules? What corporate structure is best? How do you assign board seats? How much money should you raise? What do you focus on early on?

Y Combinator not only provides a solid battle-tested structure for setting up your startup, but also gives tons of advice on how to succeed at your startup. The advice comes from a variety of speakers that Y Combinator bring ins. This included people like Langley Steinart, founder of TripAdvisor, who shared incredible advice on getting deals with partners and having a strong hand in investor meetings. Greg McAdoo, venture capitalist at Sequoia, also came in to provide us a complete inside look into the VC funding process. And Paul Buchheit, creator of Gmail, provided a ton of valuable lessons learned from the early days at Google and how to build a product to tens of millions of users. It's these kinds of high quality speakers that YC is able to attract that would be difficult to have access to on your own.

Fraternity of Entrepreneurs
One of the most remarkable phenomenons is the bond that is created between fellow entrepreneurs who have gone through a shared experience of trying to make something people want. What results is a fraternity of startup founders. This fraternity extends beyond your own class of YC startups to the entire alumni network of YC startup graduates.

This strong network is accessible each and every day for founders to get advice ranging from who is the best hosting provider, to evaluating deal terms, to making intros, and more. I've never met a group of people more willing to help you out. For those new to the startup community, there is no easier way to get assimilated.

Investor Day
The culminating Investor Day is by far one of the most valuable aspects of the YC program. In one or two days, you get access to an unbelievable number of top notch investors that are eager to hear your pitch. Due to early YC success stories, including Reddit, Loopt, Xobni, and Zenter, YC has been able to attract an incredible line-up of VCs who come out every batch in search of the next big thing. These investors span the entire range of angels to VCs looking to make small to large investments in a variety of tech startups.

Funding
While the funding is an important benefit, I believe it is actually the least important of the above mentioned benefits. YC only invests a very small amount of money, which is really just enough to help you cover basic expenses during the three month project. It's not difficult to scrap this kind of money together on your own. So if you evaluate Y Combinator purely as a funding source, there are many other options out there. But the real value of YC comes from the funding combined with all the other more important benefits.

My overall assessment is that Y Combinator is an amazing program for a young first time entrepreneur who is serious about jump starting the entrepreneurial experience with the advice and guidance of a strong network of fellow entrepreneurs and successful investors.

A whole class of Y Combinator style seed stage venture firms have cropped up due to Y Combinator's success. They typically offer a similar program in a different city. These range anywhere from TechStars in Boulder\Boston, LaunchBox Digital in Washington DC, DreamIt Ventures in Philadelphia, Shotput Ventures in Atlanta, or Seedcamp in Europe. My advice though is if you are serious about starting a company, I would highly encourage you to get to Silicon Valley, as its a night and day difference between starting your company in the heart of technology innovation as compared to the outskirts.

So what are you waiting for? Go ahead and apply. The deadline is March 18 :)