Not Getting Started
How to Get Your Company Off the Ground

Many entrepreneurial dreams remain just that—thoughts on paper or in the mind of the would-be founder. And it’s no surprise, because starting a company is among the most difficult and time-consuming tasks you’ll ever undertake. But there are steps you can take to ease the mental burden and create the time you need to pursue your vision.

I spend so much time working with entrepreneurs on finding product-market fit, honing go-to-market strategies, and scaling their businesses that it’s easy to forget that getting a startup off the ground can be equally daunting. I was reminded of this when an entrepreneur came to me with a compelling idea targeting a big market and then asked how she would go about getting started. For those of you who have already been through the team-recruiting and fundraising process, this may be old news. But for those who aspire to make the big leap and start their own business, this chapter should serve as a helpful guide on what to do—and what not to do.

Making the Leap

More startups fail due to people not taking the leap than for just about any other reason. Deciding to quit a steady job is hard, especially if you have a family, a mortgage, or other obligations. If you’re not in or fresh out of college, one of the best ways to get a taste of what a startup is like is to join an existing one.

Big-company employees and executives often have the most difficult time adjusting to the reality of a startup.

Entrepreneur A always wanted to start his own company. He was often described by peers and managers as one of the most entrepreneurial people they had worked with. But something held him back. As a child, his family had struggled to make ends meet, and his parents had indoctrinated into him that getting a good-paying job at a large company was the way to go. After college, he immediately went to work for a big, established tech company where the salary was good but the upside was limited. He kept thinking about starting a company, but each time he almost made the leap, something prevented him: a tumble in the stock market, discouragement from his family about pursuing his dream, the pull of obligations and comfort of a steady salary, or the promise of promotion at work that he used as a justification to stay put.

Some years later, Entrepreneur A, now supporting a family and paying a mortgage, finally made the leap to start his own company after the big tech company where he had worked for so many years was reorganized. He agonized that he wouldn’t be able to pay the bills and support his family, and yet this change had an incredible effect on him. He pursued his dream with absolute focus and the determination to make it a success. Not raising money, recruiting a team, and acquiring customers simply wasn’t an option—he had to make his startup a success. As a result, he did.

There is nothing like self-motivation when starting a new venture. I wouldn’t wish being broke on anyone, but from the perspective of someone starting a new company, if you’re broke, you’ve got nothing to lose and infinite necessity. As a result, you’re willing to take all the risk in the world. If you’re rich, you can invest your own capital and probably convince other people with capital to put in money alongside you. Some investors will question your drive or ambition. The flip side to that, of course, is that having made some money, there’s a good chance you want to make more.

Being neither rich nor poor may be the hardest starting point of all. A steady income and a comfortable lifestyle, combined with ongoing obligations, may make the prospect of ultra-high risk-taking daunting.

And then there is the prospect of a long period of time without work-life balance. People ask me about work-life balance and startups. They don’t go together. There are jobs that can support work-life balance, such as lifestyle small businesses. But doing a startup isn’t one of them.

I grew up working and helping to pay my family’s bills. I shoveled snow in the winter, cleaned the school pool in the summer, and started writing software programs because it was a lot more fun and paid better than either of those other activities.

Even when I’m “not working,” I’m working. Perhaps it runs in my family. My grandparents immigrated to the United States—they had no choice. When they got here, they were flat broke. Starting a business was their only option. They worked all the time to make ends meet and create a life for themselves and their family. Against the odds, all of their children went to college, and most of them went on to graduate school. Three of them became entrepreneurs in their own right.

Entrepreneurs are workaholics. They’re obsessive about their products, users, and customers, and they work to fulfill that obsession. Those who are rich enough to retire build more products, start new ventures, and continue to try to change the world. Just look at Elon Musk, founder of PayPal, electric-car company Tesla Motors, and space exploration company SpaceX. Or consider Steve Jobs, founder of Apple, NeXT, and Pixar.

If this isn’t your frame of mind—work as long as it takes and succeed at all costs—you should seriously reconsider launching a startup. You’re likely to get part way into the endeavor and then fail for lack of desire to out-odd the odds.

But, that said, there is no better time to start a new company than right now. Dozens of people, when I asked why they decided to start something new, gave me the same straightforward answer regardless of age: “I realized if I didn’t do it now, I’d never be able to do it.”

Build a Big-Idea Company—Not a Company of Ideas

Before starting my first company, I spent a lot of time at Starbucks with my soon-to-be cofounders, brainstorming possible ideas. It was 2000, and although we knew mobile was going to be big, we weren’t sure what we could build that would take advantage of the market trend. The devices of the time were archaic compared to today’s smartphones, and we felt extremely limited by them as a result. We knew we wanted to build something on the device, but we weren’t sure what.

Every month, and sometimes every week, we tried a new idea. In some sense, this was good, because it enabled us to test a lot of ideas quickly without getting overly invested in any one of them. We pitched our company at angel events and to various investors, but we didn’t yet have the big idea—the catalyzing vision, articulated clearly and succinctly. We knew it, and they knew it.

As we were building our mobile web pages and applications for sending messages, however, we started to notice a trend. The pages weren’t displaying consistently, and the messages weren’t going through reliably. For a while, we were convinced the issue was our software.

To figure out what was going on, we built an automated service for sending and receiving text messages and checking the validity of mobile web pages. It turned out it wasn’t our software that was the problem—it was the wireless networks and issues with the devices themselves. A lot of other people were experiencing the same issue and were willing to pay us for the monitoring and data our rudimentary service provided. Finally we were no longer a company of ideas, but a big-idea company. That project became the company, and the solution we built ultimately became Keynote Mobile Solutions.

Many people find coming up with new ideas for companies challenging. Faced with a blank sheet of paper, they realize they’d rather be iterating something that already exists. Coming up with the one right idea can be even more of a challenge.

Big ideas come from a founder’s personal need to solve a problem, a wish to generate income, an overwhelming desire to transform a large market, or all three. Jeff Bezos is said to have written the business plan for Amazon.com on a cross-country drive to Seattle after worrying that he had missed out on the Internet gold rush. Pierre Omidyar created eBay after experiencing first-hand the inequalities of financial trading markets. Marc Pincus started gaming giant Zynga after playing video games and becoming frustrated that they weren’t more social.

People have told me over the years that they would start a company if only they had a great idea. My response to them remains the same. Great ideas are right in front of you. If you don’t have one, partner with a cofounder who has a great idea, or join an existing company. Many great operating executives would readily admit they’re far better at scaling up companies than brainstorming new ideas from scratch.

A startup is a highly passion-driven and irrational endeavor. If you feel no passion for an idea or market, no overwhelming sense of desire to find a solution to a problem you’re facing or to transform a market or the entire world, don’t start a company.

Most company ideas are simply not big ideas. They’re lifestyle businesses or small businesses. They can satisfy your personal lifestyle needs or generate an income, but they won’t scale into big companies. The difference often comes down to goals and ambition: the desire to run your own scuba-diving school versus creating the leading dive school with franchises around the world; running a local bed-and-breakfast versus starting Hilton hotels; opening a local café versus creating Starbucks.

Big businesses start out as little businesses. The difference between those that scale and those that don’t often depends on market opportunity and personal ambition.

If you’re a technologist, perhaps you just want to build a piece of technology and flip it to Google or Facebook. That may be good for your bank account, but it won’t result in a large company. It takes the same amount of work to build something big that it takes to build something small; the level of ambition, types of personal fulfillment, and skillsets required, however, are different.

What is clear is that although it’s possible to start a company when you have lots of ideas, building a great company requires a single overarching idea: the big idea. Pierre Omidyar was working on multiple projects before eBay became the project. Marc Pincus started several other companies before finding his calling as an Internet entrepreneur.

Keep searching until you find the big idea.

Surviving a Lack of Capital

If you’re trying to capitalize your new idea, and you’re having trouble raising money, there are two possibilities. It’s you or the investors. This can be a tough reality for the new entrepreneur to face.

When I started my first company, we invested our own savings and raised money from a few angel investors who knew us from our past jobs. It helped that we were incredibly naïve. Had we fully appreciated what we were getting into, it’s likely we would never have left our comfortable jobs and started a company to begin with.

We pitched dozens of venture capitalists on that first company. At the time—late 2000 and early 2001—we also had no appreciation for financial markets and what these investors must have been experiencing as they watched their portfolios go from the highest highs of the bubble to the equally lowest lows of the bust.

The private markets, which include venture and angel investments in privately held companies, typically aren’t as volatile as the public markets (such as NASDAQ and NYSE). However, the public markets and macroeconomic changes heavily influence private-market investors. These investors are influenced emotionally and psychologically as they watch their personal portfolios move up and down; they also take into consideration potential lack of downstream capital—that is, the ability of companies to raise more money later. If markets are down, that can reduce the ability of these private investors to make their companies liquid, get returns out, and raise additional capital. This leads to very specific “open” and “closed” windows when it’s relatively easier or harder to raise venture capital or other sources of private financing for your company.

As a result, raising money isn’t just about you and your idea—although that is certainly a big part of it. Raising money is about finding a match between you and your vision, and investors who not only buy into you and your vision but are capable of funding that vision as well.

Most new businesses aren’t suitable for venture capital. And venture-capital firms can only invest in a relatively small number of new opportunities each year. Statistics indicate that of the millions of businesses created annually in the United States, fewer than 1,000 receive venture funding.

But there’s more to it than that. Although most investors claim to be actively investing, many aren’t. Timing may be bad. An investor may have just done a deal or a series of deals and as a result doesn’t have the capital or bandwidth available to make another investment right away. Others are busy putting the capital and time they have into supporting their existing investments.

Investors who are part of partnerships may not have the ability to get a deal done—there may be partnership dynamics that prevent a particular partner from making an investment even if that partner wants to make one.

And some people who refer to themselves as investors may not really be what they claim to be! Before I knew much about raising money, I took it at face value that if someone was referred to us an investor, that’s what they were.

It turned out that any number of funds and angel investors we pitched early on, before we knew what questions to ask and how to filter, were simply going through the motions—some people did it for social reasons, others did it because they were getting paid to look at new deals. When we raised money for our first company, a lot of the investors we talked with were in triage mode, trying to work their way out of the bust. Looking at a new deal—even without any intent to invest—may have been a welcome break from the reality of their portfolios.

There are dozens more reasons investors don’t invest that have little or nothing to do with you. Some investors only invest in tech businesses; others only invest in non-tech businesses. Certain investors make only early-stage investments, whereas others make only late-stage investments. Investors may have minimum ownership requirements, amounts of capital they have to put to work, or return requirements to satisfy the expectations they set for their funds.

Others may already have a company in their portfolio that competes with yours. Conversely, some may be looking for a specific kind of investment—in a certain sector or at a particular stage—to fill out their portfolio. For example, a fund with a lot of earlier-stage investments might make a handful of late-stage investments to speed up the fund’s time to liquidity (how quickly the fund can return money to its investors) to help with fundraising for future funds.¹

And although it’s easy to think of the investors you’re talking with as the source of money, many investors—even some individuals—get their capital from other investors. Venture funds raise money from university endowments, large pensions, and funds of funds. Just as you make tradeoffs on how to spend your own money, institutional investors are constantly making tradeoffs on how to allocate their capital; these tradeoffs have little or nothing to do with your company.

Becoming disillusioned by repeated rejections is one of the shortest paths to failure. Keep in mind that numerous investors passed on Apple, eBay, Google, and Facebook, to name just a few well-known successes.

When I started investing, entrepreneurs would approach me about how they needed capital. As the old saying goes, the best time to raise money is when you don’t need it. Investors flock to you when your business is going gangbusters. Most run as quickly as possible in the other direction the minute they smell fear or desperation. This may seem counterintuitive—after all, Warren Buffet and others made their fortunes by finding companies that the market mispriced (that is, underpriced) and investing in them. But most people want to go with the flow, not against it. They want to join success, not create it.

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Venture investors are by definition not value investors. Value investors look for fundamentals they understand combined with great-deal economics when they buy. In contrast, venture investors look primarily for companies that will grow quickly and become big, and that they can market to others once that happens.

Control Your Own Destiny

Keeping in mind that your business may not be suitable for particular investors, or investors may not be able to invest, it’s still your job to finance your startup. To do that, you have four non-exclusive options through which you can control your own destiny. And controlling your own destiny is critical to startup success.

Rent and Ramen

The first option is to go on the “rent and ramen” plan. Cut your expenses down to the absolute minimum, and spend all your time validating the market need for your product. One way to do this is to create a few web pages and buy some ads to see if there is demand for your concept. Another way is to create mockups and show them to people. Or, you can build an ultra-simple version of your product and release a beta.

If you’re not a developer, become one, or consider hiring some developers via an online development marketplace like oDesk or vWorker, programmers from a local university, or a friend of a friend. Of course, it would be ideal to build your product “right” from the get-go, but the reality is that you may have to plan on throwing that first version away and rebuilding it once you have enough capital to do so.

Nights and Weekends

A second option is the “nights and weekends” plan, where you keep your day job and fit your startup in around the edges. Although this plan is great in theory, in practice it’s very difficult to make work. It can be useful for solidifying your idea, doing market research, or figuring out key unknowns, but it’s hard to scale a business by building it nights and weekends.

Investors

A third option is to raise some money. Talk to angel investors, ask your friends, and pitch former colleagues. It helps if you’ve worked at a big tech company that has a bunch of wealthy current or former employees. Family members or others in your network can provide capital as well. Obviously, you can’t go back and change your family history, but you can make use of every node in your network, every resource available to you. Getting into one of the well-known incubator or quick-start programs like Y Combinator or TechStars can be a great way to go. Put all these approaches together, and then make the funding last until you can raise more money.

Jeff Bezos was turned down by dozens of people, as was Scott Cook, founder of Intuit. If you’ve never raised money before—let alone asked people for money—the task can seem daunting.

Just remember, Girl Scout cookies are sold one box at a time, door to door. If the Girl Scouts can raise money for their cause, you can raise money for yours. Granted, the Girl Scouts have a great pitch, a great product, and a great brand. Make sure you have the same key ingredients.

Customer Financing

The fourth option, of course, is to build a profitable enterprise from the get-go by having your customers finance your company. If you know a customer, get a contract to fund the development of your product. Or, create something that generates revenue immediately.

While in business school, I spent a couple of hours in the library every day building web pages and buying traffic to send to those pages. Every time a user clicked an advertisement or filled out a lead form on one of my web pages, I made money. I started out making just a few dollars a day. Before I knew it, I was managing a team of outsourced ad buyers and had a $750,000 run-rate business on my hands, more than enough to pay for school.

Building the Team

Some days it may feel nearly impossible to pull a team together and even harder to keep one together once it’s assembled.

Ideally, there are some people you’ve known for a while with whom you’d like to start a company, and whose skills are well matched to the company you want to start. Perhaps you knew them in your last job, in school, or through some other work connection. Regardless, you won’t really know what they (and you) are like to work with as cofounders until you actually are cofounders. It’s one thing to talk about starting a company and another altogether to work together day and night for months on end. Keep in mind, you’re not looking for your whole team at once. You’re looking for one or two cofounders with whom you want to work.

You can also go it alone. The common wisdom goes against this approach, but it has advantages. You set the direction and decide how to spend the money and what to do. Not a lot of meetings or disagreements—unless you like arguing with yourself, of course!

What about hiring? Your first few hires will be difficult. There is no way around it. In Silicon Valley, at least, talent is in demand, and people have the option of starting their own companies versus coming to work at yours. So it’s paramount that you have something compelling, exciting, and game-changing to work on. Otherwise, there is no way for you to stand out from the crowd. Even the highest-profile, best-backed companies face challenges when it comes to hiring. Start with a great story, and work your network. Ask everyone you meet—lawyers, VCs, angel investors, and friends—if they know of great people looking to do a startup.

Users and Customers

Getting your first user or customer can seem like the hardest thing in the world. Some products lend themselves to early adoption by people you know. For example, if you worked in the storage industry and have been selling storage products, you probably can work your existing network and relationships. Or, if you’re building, say, a consumer-facing mobile photo application, you can use the app yourself and tell your friends to try it. In both cases, you have a ready-made, easy-to-access user base.

The alternative is to try to get people you don’t know to use your product. That can work—but it tends to be a lot more difficult.

If you’re building a business application, call someone you know and ask them for some business, or advertise online. If you’re building a consumer product, send invites to friends or generate scarcity, by, for example, creating the appearance of a limited number of available invitations. One way or another, you have to get the word out and test the waters.

You want visceral reactions. If people love the product, that is success. If people hate it, that is a form of success as well. Either way, you can take action on those reactions and avoid failure.

What you don’t want is for people to be ho-hum about whatever you’re doing—polite yeses will kill your company. You want to strike a nerve. You want whining and complaining. “If only it did this” is gold you can act on. “Seems interesting,” however, is fool’s gold.

Location, Location, Location

I founded my first three companies outside Silicon Valley. The San Francisco Bay area is prohibitively expensive, the competition is fierce, and talent is hard to come by. Yet there is no place like it. Successful, large tech companies have been built in other places—Microsoft, Amazon, and aQuantive in Seattle, for example—but the list is short.

The Bay area promotes a different level of risk taking and a very different view of failure than anywhere else. Starting a new venture or joining one is looked on positively even if the company ultimately fails. Experience with failure is an asset—you’ve learned on someone else’s dime. Dozens of larger tech companies are looking to hire people with entrepreneurial experience to help them keep their organizations innovative.

The flip-side of the Bay area, however, is that loyalty is a lot harder to come by. People jump around more and are on the lookout for the next hot startup—which may be their own.

In the Bay area, practically everyone knows what “doing a startup” means. There is a lot you don’t need to reinvent—legal paperwork and fundraising approaches, for example. You can spend your time focusing on your competitive advantage: that which differentiates you. You also gain the benefit of cofounders and employees who have started their own companies or worked at other startups.

The Bay area also has a very positive energy. Despite the vast number of startup failures, it has the bright outlook of constant reinvention that is infectious in its ability to help you succeed.

Of course, moving to the Bay area is not always an option or desirable. What’s critical is to be able to recruit a team, acquire customers, and raise sufficient capital to build your company. It’s easier to do that where there’s already some startup infrastructure. If not Silicon Valley, consider a hub like New York City, which has a number of startups and early stage investors, or cities like Austin, Seattle, Boulder, Boston, or Chicago.

Summary

The biggest obstacle in the way of you starting a new company is you. To be an entrepreneur, you must be both idealistic and realistic. You have to believe the illusion that you’ll succeed even in the face of hundreds of naysayers and statistics that indicate high odds of failure, while addressing the day-to-day realities of your business. This is what creates the emotional rollercoaster ride entrepreneurs so often talk about.

To avoid the failure of never getting started at all:

• Get started! There’s no time like the present.
• Control your own destiny by controlling your sources of capital.
• Go out and get users or customers—get real-world feedback.