Tuesday, February 16, 2010

Setting Up Your Startup: 5 Non-Obvious Things to Get Right Early On

When you first start working on your startup there will be 1001 things you need to focus on -building a product, getting users to use the product or your first sales, hiring the first employees, etc.

In this mad rush to build a company, there are certain foundational things that people often don't learn about until it is too late. Here is a list of some things I see entrepreneurs often miss:

  1. Get a *great* lawyer. Just as not all engineers are created equal, not all lawyers are created equal. Even within a great law firm, the individual partners vary in quality. Having a good lawyer impacts many things you do in the future e.g.:
    • Fundraising. A great lawyer will know on a per partner basis what each venture capitalist has/does not have in term sheets or legal docs. This increases your negotiating leverage significantly, since you know what really is "standard" for the firm (biggest argument people make is "oh, that is not standard - we do not do that here".)
    • Deals & other stuff. Deal hacks are the specialty of a great deal lawyer. What terms can screw you down the line in non-obvious ways? Lots of other key stuff will be driven by your lawyers - financings, acquisitions, etc.
    • Most lawyers will defer enough legal fees to cover incorporation and first financing event. Some lawyers will ask for a small amount of equity for this deferral. Do not give this to them, as this is currently non-standard.
    • Our lawyers from Mixer Labs were Daniel Friedland and Mitch Zucklie - I could not recommend them more highly.
  2. Get FF-Shares/Starter Stock. This is a class of stock that lets you sell some of your stock into future funding events provided that your board approves of the sale. This allows you to sell e.g. a few % of your holdings into a $100 million or $500 million round. So if you need to buy a house, fix a family medical problem, etc. you can do so easily without having to force an exit of the whole company. Typically, straight common stock can not be sold into a financing event given the impact it may have to common stock valuations. Starter stock is a way around this without impact the cap table or investors. See e.g. Ooga Labs post on this.
  3. Be aggressive on "legal" issues. Just as you want to be cutting edge on technology, you should take an aggressive stance as a startup on legal issue. By this I do not mean break the law, but rather, be willing to take on some legal risk early in the game that established players will not. A good example of this is YouTube, which allowed people to upload short snippets of copyrighted material, versus Google Video, which did not. YouTube was acquired by Google for >$1 billion, while Google Video was shut down. There will always be people on your team with legal opinions, particularly around copyright. These people are *not* lawyers and their opinion should not be treated as legal counsel. See "Get a *great* lawyer" above.
  4. Give equity gifts to loved ones. If there are people you want to benefit from the upside of your company, give them small equity gifts today so they will not get hit with big tax bills later. E.g. 0.5% of your company's common stock may be worth $2,000 today and $2 million in a few years. So give the gift of equity while the tax bill is small.
  5. Be smart when to be cheap. You should be as frugal as possible when setting up a startup. Some things just won't be worth the time, so remember that your time is precious! E.g. one friend of mine spent 2 weeks optimizing health insurance for his team, which he then realized saved him a few hundred dollars over the course of the week. You should think of your time as precious and make the conscious trade off of cash saved vs time saved.
Any other things one should do when setting up a startup? Let me know what I missed!

TS Elliot Quote

We interrupt this regularly schedule startup centric blog for a quick quote from TS Elliot:

In a minute there is time
For decisions and revisions which a minute will reverse.
For I have known them all already, known them all:—
Have known the evenings, mornings, afternoons, 50
I have measured out my life with coffee spoons;

Tuesday, February 9, 2010

Hiring Techniques for Early Stage Startups: How to Get Your First 3 Employees

So you just raised $1 million in seed funding and need to hire the first ~3 engineers for your team. You have gotten a bunch of high level advice from your investors e.g. "only hire A players" and other truisms that don't actually help you hire anybody.

What are some tactical steps you can take to bring on your first 3-5 employees?

  • Work Your (Engineering) Network (In Person If Possible): Go after the smartest developers you went to school with or worked with. If they are not available, ask them who their smartest/strongest friends are. (note, smarts alone are not enough as I wrote in a blog post here.). Constantly and consistently hit up people you know for leads via email, IM, phone calls, walks. I have found that typically engineering people and product managers provide the best leads. BD/sales people and VCs provide the worst ones (more on this in a minute). Typically asking someone in person for help (E.g. over coffee) will lead to more leads/intros then a phone call or email.
  • Investor Intros (Will not be helpful for hires 1-5): People who network with VCs are typically not the 'low in the organization, straight out of school, scrappy, badass engineering hire' you are looking for for your first 2-3 hires. Usually investors know people later in their careers who have worked in their portfolio (or who network a lot). These types of people typically want to manage a bunch of people but not really get their hands dirty with all night coding. This is often the worst possible first hire for you on the engineering side - they will be expensive (cash and equity), not do a lot of work themselves, and potentially bring in a lot of habits from their enterprise software (or whatever) experience. There are always exception to the rule, but I have found this to be true more often than not. (One venture firm that is actively trying to buck this trend is Andressen Horowitz. I have been pretty impressed by how they think about helping their portfolios with early stage hiring. There are other counter examples - e.g. Rajeev Motwani had an amazing group of engineers he would refer).
  • Investor's Closing Candidates (Superhelpful). Where investors can help out is in closing a candidate. Once you get to the point where someone is debating your offer versus another one - that is the time to pull your investors in to close the deal. The investor will help give a 3rd party, "Officious" view of why your company is so amazing. Candidates will think "wow, if investor X who funded all these great companies is also funding this one (and taking the time to talk with me) I sure as heck better join this startup!"
  • How to Use LinkedIn: (i) See who everyone you know on LinkedIn is connected to. (ii) Ask each person you know who is connected to someone who looks like a good engineer for an email intro. (iii) Do *not* use LinkedIn messaging to make this request. Send the email directly to the person's personal email address. They will then forward it to the candidate's email. (iv) The candidate will see the email in their inbox and think "Wow, my friend Sameer passed this on personally - I should really talk to this startup founder". Anything passed directly on LinkedIn via their messaging system will largely be ignored. (v) Make sure to personalize the email to the candidiate and use social proof that your startup is badass (e.g. mention investors if they are well known, link to a TechCrunch/GigaOm/Venturebeat article etc.)
  • Don't Take No For An Answer. Often the first reply to an email introduction by your friend to a candidate will have the candidiate reply "Sorry, I am not looking now". At this point you should not say thank you and move on. Instead, ask for 5 minutes of their time e.g. "I understand you are not looking. Nonetheless, I have heard great things about you. Can we talk for 5 minutes just in case you are interested in the future or know someone else who might be interested in the role". Many of the best people are not looking. You need to convince people why even though they are not looking, yours is an opportunity they can not miss. Furthermore, even if they are not looking now, they may suddenly have a new boss they hate 3 months from now and they will follow up with you then (this has happened to me over and over - people follow up a few months later and want to talk again).
  • If Someone Does Say No, Ask For Other Leads They Know.
  • Talk With Manager/Director Level People Even if You Wont Hire Them. Some people avoid reaching out to manager or director level hires as they may be "too senior" for the role you are hiring for. This may be true, but they have managed a large number of people in the past. Ask them to refer the top 2 people who no longer work for them to you.
  • Its a Numbers Game. Fundamentally, hiring a great early team is a numbers game. Hiring may become your full time job for a few weeks. Just like any other sales job, you will need to generate a pipeline and keep the pipeline full of candidates as you churn through people looking for a great fit. Do not compromise! It is much easier to hire then to let someone go, and the cost of an early mistake may be high. Be smart about it - throw ou bad candidates early and focus your energy on the good ones. You will be under pressure to get your product built, or get interview fatigue. No matter what - keep cranking on hiring! This stuff is important! Don't give in!
  • Employee #1 Is Going to Be The Hardest. Finally, you need to keep in mind that of all employees to bring on, the very first hire is going to be the toughest one to get on board. Equity expectations may be out of whack with reality, and people may in general have a hard time taking the leap to be the very first employee to believe in you. Two tips on this one (a) stick with it. You will find that first hire eventually. (b) look for people from startups that are not doing so great, as long as the candidate has not been there for many years. If they have been at a failing/not good startup too long, it often means they either have bad judgement or that they will be burnt out when they show up on their first day. However, if they are at a startup, it shows their willingness to take risk. Alternatively, look for people who used to work at a startup who are now at a larger company (e.g. one that bought their startup). This is not a hard and fast rule, but rather another criteria you may use when asking who in your network may be most willing to take the plunge.
What do you think? Any techniques you have used to hire in the past that were especially effective for the first 1-5 employees?

Saturday, February 6, 2010

Hiring the First 5 Engineers: What Sort of People Do You Want on Your Team?

Often when discussing the first engineers to hire for your startup, people will say things like "hire people smarter then you" or "hire rockstars". This is NOT sufficient criteria for getting your startup team going.

While you always want to hire people who are shockingly smart and outstandingly great at building things, this is not sufficient for an early stage startup. For a raw, young company, you also need people with additional traits which differ from what is * necessary* for a later stage company.

For small startups I think you should find people with these traits:

  1. Do what it takes-edness (to coin a term). Willingness to dive in and fix any problems that come up and to take charge since there will not be anyone else to do so. This includes the willingness to do lots of grunt work - there is no one to delegate to.
  2. Persistence/tenacity.
  3. Ability to deal with uncertainty and not freak out. You may end up with multiple pivots depending on company stage. You need people who will stay calm and keep with it.
  4. Generalist technical knowledge. You will not have a "front end team" an "ops team" a "backend team" and a "database team" etc. You need someone who can optimally work on all parts of the stack.
  5. Not religious about technology (or other aspects of the company). This is useful at any size company, but at a startup you really don't want to waste time debating the merits of Python versus Java. You just want to build stuff and get it done. No engineering ego (I find the most confident engineers often don't need to reinforce their ego - they already know they are very good so dont feel threatened easily) and no drama.
  6. Get a lot done. You need people who can just crank on product. They need to be able to problem solve independently and go figure stuff out.
  7. Do "just enough". Focus on the 80% of stuff that needs to get done, not the 20% edge case which most users won't care about (i.e. hire people who buil things that are very solid, but not "perfect" - this applies to an internet company, not e.g. a later stage hardware co)
  8. Get along with the team. This does not mean the person is not quirky or lacks personality. It does mean that you will be 5-10 people in a room every day and you need people you and the rest of the team get along with.
  9. Bonus points: financial stability. This could be a low personal burn rate, or ability to take a low salary either through a past financial success, being straight out of school so living costs low, or other means. This means the person may be more willing to take a low salary in exchange for more equity, which helps the company survive longer on less.
  10. Lots of other stuff, but I think the above is important.

How Do You Ensure People Have These Traits?
  • Reference checks. Make sure you ask hard questions of the people with whom you check references. Push on quantitative, not just qualitative feedback (e.g. what % of engineers are they on characteristics a,b,c) and ask for specific examples of how the candidate exhibited the traits you are looking for.
  • Beer test. Take them out for a beer or dinner and see if there is a good culture fit.
  • Have the candidate come in to work with you for a day. Give them a simple, tractable problem that can be coded in a day. See how they solve it. Were they pragmatic? Did they use open source packages or build something from scratch? Did they solve the problem? Can they defend their design? Did they think of the next steps they did not have time to tackle? Did they define the problem properly? How do they react to tough questions? And, importantly, are they serious enough about the opportunity to spend a half or full day working with you guys?
I will be writing another blog post on Guerilla Hiring Techniques for Startups - How to Find Your First 3 Employees.... :)

Any traits I missed? Thoughts?

Tuesday, February 2, 2010

5 Life Extension Technologies You Can Employ in Day To Day Life

Lately there has been a lot of science developed around life extension.

I thought I would add to the discourse by explaining ways to not only extend your life, but also to make the moments of life that you have feel like they last that much longer.
  1. Say something awkward. Awkward moments always seem to last 5-10x longer then a normal moment. If you can create a lot of awkward moments time will pass slow.
  2. Drink lots of coffee. Feeling highly agitated and that the world around you is not moving fast enough is a sure way to stretch out the moment. Similarly, getting too little sleep may help with this too.
  3. Travel to a new place. Often when you arrive in a new place a day can feel like a week, especially if the place is very stressful or you try to pack something in to every waking moment.
  4. Take lots of long flights. Flights help time pass more slowly in two ways - a) Time dilation - since you are accelerating relative to the earth, you will age slightly less then people below you - SUCKERS! b) Flights are extremely boring. Time seems to pass extremely slowly on long flights, thereby extending your perceived life. Try to sit by a newborn or at a seat with a broken video viewer.
  5. Eat right and exercise. This should extend your life as well, but is not an approach recommend for amateurs.

Bonus ideas:
  • Go to jail. This one is self explanatory.
  • Spend more time with family. Even when alcohol is involved, spending time with family seems to pass very slowly.
Things to avoid:
  1. Days with lots of meetings. Ever notice how quickly those days go by, yet you feel like so little of your work has been completed?
  2. Fun. Sometimes, when things are really fun time goes by very fast.