Advice to a wannabe entrepreneur

More times than I can count (or even want to remember) some aspiring entrepreneur contacts me to ask for advice on how to start a business and bring their idea to market. The QBQ (question behind their question) is often “can you recommend a CEO who will turn my idea into a $100M company?”

What is so hard to get across to these idea rich (and execution poor) entrepreneurs is that anyone who is competent enough to raise money, hire talent, develop a product, discover customers, and scale a business already has plenty of good ideas to choose from. The experienced entrepreneurs know that it isn’t the idea that matters, it is the right combination of talent, business model and market.

Until recently, I would spend several hours or days trying to help the novice give flesh to their idea. Of late, I send them the following and ask them to follow up with any questions they might have. For some unknown reason (like doing a new venture might actually require real work), they never follow up. As Fl!p might say:

No-one-has-enough-time-and-everyone-is-looking-for-money

Hacker, Hustler, Designer, Visionary

The current shorthand for what makes for a minimally viable team (MVT) is a hacker, hustler, designer and visionary.  You can find a lot of articles through Google or Bing on this topic to get a better idea of what is going on.  In the grand scheme of things, the hacker and designers are relatively easy to acquire.  However, the hustler is the challenge and the one that you are looking for.

A good hustler must be able to sell stock, sell product, and sell the dream to potential talent to join the fledgling company.  Folks that can do all three are relatively rare and hard to find.  And good ones who have been there and done that are even harder to find.  The problem when you find them is that they will question why they need you and your team in order to raise money and develop the product.  You need this hustler to raise the money and to lead the development of the product and then do the business development to sell the product.

It would be a different proposition if you were going to do the fund raising and you just needed the hustler to lead the development and sell the product.

People who are good and have been there and done that are very conscious about giving away equity as they know that they will have to give a lot of equity to investors. So they are very careful about making sure that anyone they give significant equity to provides a large amount of value.  Ideas do not constitute value. You and your team are likely providing enormous value in your current job through your professional services (or other random efforts), but I don’t see much value on the software product and software product business development side (other than providing some feature requirements).

In doing my research with the 9Mile Labs “Cohort 1” startup companies and with several other companies that I am doing VC due diligence for, the least available resource is the Hustler. Of the nine companies at 9Mile Labs, there are only three hustlers in the group and they are deeply invested in their own ideas.

I know of several people who could do the hacker and designer roles, but the Hustler is the key role.  Unfortunately, I don’t have a group of people I could recommend in the hustler category – for you.

Project versus Prototype versus Product versus Business

One of the best insights I’ve come across on the nature of entrepreneurial work is in Michael Gerber’s Emyth Revisited.  While the text can seem trivial, the key insight is not – those struck with the entrepreneurial lightning bolt focus on doing individual contributor work, not on building the business.  The role of the entrepreneur is to see the business as the product, not just the product as the product.  While easy to say, 95% of the entrepreneurs I mentor and do research on do not understand by their actions what this means.

An idea sprouting from a consulting project and a crude prototype are a long way away from creating a Product, let alone a Business. The difference between $50k to a $100k to do the project or prototype versus the $1M to $10M to create a viable business is the difference between an idea person and an experienced entrepreneur.

The really good news is that today you can create a viable software business for ~$1M. That is down from $10M to $15M that it took us to fund Attenex to a cash flow positive state 10 years ago.  With the advances in contract manufacturing you can also do hardware products in the same range of investment as for software these days.  A terrific book on the synthesis of what we’ve all learned about online businesses and the similar ability to do this approach with hardware can be found in Makers: The New Industrial Revolution. 

I’ve written a lot about different aspects of this transition from project to product on my blog:

  • Mentoring Idea Stage Startups – an expanded set of references
  • Observing Users for Software Development – It is never ending.  One of the gifts you have is all of the observation that you can do with your current project.  However, the key word is OBSERVE.  Let the users be articulate through their actions.
  • The Other 90% of Software Development – this is the bottom of the iceberg. All of the things in here (and many more) are what software engineering is about (versus prototyping).
  • Advice to a Non-Technical CEO of a Software Startup – a really good hustler will not be all that technical.  They will be more of a people person.  However the success of the company is completely dependent on the ability to produce product.  In many ways you can use this blog post as a source of questions to help you attract and qualify someone to lead the company as a hustler.

Funding

You have some interesting challenges with what I understand you want to build – both a hardware “kiosk” and a software system.  While both are easy to prototype, you will probably need double the amount of funding.  Your kind of software business can be built for ~$1M to get to the first pass of cash flow positive.  You will most likely need the same for the hardware side.  Hardware versus software businesses have very different needs and so you will need double the people (there is not a lot of synergy between the hardware and software sides).

As a general rule I hate hardware businesses after spending way too many years on the hardware side.  The primary reason is that you have to predict demand (which nobody can do) so you always have supply chain problems and spend way too much on inventory (you either have too much or too little which requires high expediting fees) and distribution and channel partners. So the quicker you can get your business to be only a software business the better.  Support costs for hardware are high and are low for software.

VCs rarely get involved at funding levels in the sub $1M level.  It is almost always angel funding or friends and family that are needed to get started.  And it is getting tougher to raise money if you are not what the VCs call a franchise entrepreneur – someone with a proven track record of creating and selling a company.  You have to have the product built and be generating revenue and have a repeatable sales process before most angel investors or VCs will pay attention to you.  The usual suspects in Seattle are Alliance of Angels, Zino Society, and Keiretsu Forum.  These are the places to find the high net worth investors some of which could be interested in what you are doing.   You might also find potential Hustler candidates at these forums.

The Zino Zillionaire event is usually a good one to find a large audience of potential investors and potential hustlers.  9Mile Labs is having their demo day coming up soon along with other Seattle accelerators.  Attending these events will give you some idea about what a sampling of businesses has accomplished over the last six months in an accelerator environment.  Both Mentors and Investors will be present.

The Market

Almost every idea that I encounter today is some variant of collecting images and video. The current hot idea is to create the next Instagram and sell it to Facebook for an obscene amount of money.

Everybody and their brother is producing products for the collection and storage of video right now.  With the coming advent of Google Glass and other very interesting Augmented Reality tools, there will be an explosion of video collection products.  The challenge is how to AUTOMATE the making meaning and story telling from the raw stuff.  Gordon Bell at Microsoft has been doing some really interesting work on Uploading Your Life to the computer with his vision of Total Recall.  From Your Life Uploaded:

“Three streams of technology are coming together to make the world of Total Recall a reality. First, and perhaps most important, we are recording more and more of our lives digitally without even trying. Digital cameras, e-mail, cell phones, and personal digital assistants (PDAs) are the vanguard of technology that is generating an explosion of digital records of our daily lives. Digital sensing and recording will become ubiquitous. Second, this mountain of new personal digital records can now be stored more cheaply than can easily be imagined— for about two hundred dollars you can own enough memory to store everything you read, everything you hear, and ten pictures a day for your whole life. Third, technologies enabling you to search, analyze, and present all kinds of reports from such large mountains of data are being developed, with astonishing results. Google will by no means be the last extraordinarily successful company to be built on new search technologies. So, we live in a world with more digital memories, more space to store them, and better and better technology to recollect them. The world of Total Recall is inevitable for these three reasons.

“You become the librarian, archivist, cartographer, and curator of your life.”

Bell, Gordon; Gemmell, Jim (2010-10-26). Your Life, Uploaded: The Digital Way to Better Memory, Health, and Productivity (p. 5). Plume. Kindle Edition.

A tool that illustrates this transition from collection to quick production of some video is 9Slides.  I’m experimenting with doing video Q&A versus text.  In my small sample size everyone is unanimous that the video is better (even though this is not professionally produced).  Each of these snippets took 15 minutes to prepare and shoot.

I am also using Animoto to create Lifelets as a quick way of sharing stories through imagery. While it isn’t fully automated, it is very easy to select photos, choose a theme and music, and then share with others.

The company that can crack the categorizing and producing of video stories ON DEMAND and fully automated has a multi-billion $ market.  The collection and storage of the video is already at the commodity level from a software product standpoint.

For a humorous look at the wonderful world of innovation and new ventures, check out Fl!p and the gang at Fl!p Comics.

This entry was posted in Design, Entrepreneuring, Flipped Perspective, Human Centered Design, Software Development, Value Capture. Bookmark the permalink.

One Response to Advice to a wannabe entrepreneur

  1. Pingback: Whiteboarding: Designing a software team | On the Way to Somewhere Else

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