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Archive for the ‘bootstrapping’ Category

Evil VC Seeks Minions for World Domination

Posted by Bob Warfield on January 30, 2014

EvilSeeksMinionsIf we substitute “Venture Capitalist” for “Evil Genius”, the placard on the right describes the Silicon Valley Startup Culture perfectly.  Yes, you young hopefuls, your friendly neighborhood (that’d be the Sand Hill neighborhood) VC really does expect you to sacrifice your lives in a play for world domination.  They don’t care about building a nice little $100M a year software business–that’s peanuts, doesn’t move the needle on the fund.  Son, it’s just not enough tonnage.  Must be prepared to work 24-7 for fascist psychopath for close to no pay.  Yep, that’s about the size of it.  They won’t even try to hide the fact–they write about how you should accept as little pay as possible.  In 2008 Peter Thiel went on record saying the best predictor of startup success is low CEO pay.  Really?  That’s the best predictor VC’s have come up with?  Thiel is not the only VC to suggest it, not even close, and they’re largely successful at getting what they want–75% of founders pay themselves less than $75,000 a year.

What about that business of “Messy death inevitable?”

I suppose it’s a function of how you define “Messy”, but the “death inevitable” part rings true.  VC’s these days want startups capable of reaching $1B in revenue.  The reason, as one explained to me over drinks, is that they make their exit when the startup IPO’s.  But in order to IPO at a reasonable valuation, they have to be able to paint a picture for those buying public shares that the company has years of growth left.  That’s how the Greater Fool theory works–you can never let people discover they’re the last ones and the valuation has peaked.  So what happens to $1B Unicorns?  First, by quantifying things at $1B, we learn that the Utility Curve for VC’s is drastically different than for most Founders.  Offer Most People $10M after 10 months of effort when they’ve never made even $1M, and an awful lot of them will say, “Yes.”  The VC’s will resoundingly say, “No,” and they’ll tell you that anyone who says “Yes” never should’ve raised VC in the first place.  BTW, I have been through that scenario personally and I can tell you it was a harrowing experience.

Getting back to that $1B Unicorn, the odds are not at all good.  Only about 0.07% of Consumer and Enterprise VC-Backed companies become those Unicorns.  That means, Dear Impressionable Young Founder, that your odds are one in 1428.  The odds of winning on a single number at roulette are nearly 40x better, and you don’t have to bet years of your life on the roulette number.  One in 1428 odds of achieving World Domination.

That Messy End will come about because of the inevitable terms in your legal documents with your financiers and because of how the system operates.  Consider if you had worked hard to achieve a modicum of success and sold a company for millions but none of the founders or employees got anything at all out of it except a job with the buyer while the VC’s saw a positive (but inadequate in their eyes) return.  Wouldn’t that be a messy end?  The key term in your documents that leads to tears is the “Liquidation Preference.”  Supposedly the market standard is 1X but I’ve seen numbers as high as 3X in some cases.  Now let’s suppose you’ve got a company that is sold for $50M.  That’s a lot of money: many would regard that as a successful company.  But, it’s only successful to the investors to the extent it generates a return on their investment.  Suppose they’ve put in $40M and have a 1X liquidation preference.  That means they get back their $40M right off the top.  Now there’s $10M left to split between the investors, founders, and other employees.  You’re probably diluted pretty good at this time, so let’s say non-Investors are getting $4M.  Suddenly your $50M sale is getting you more like $1M than the $5M you and your co-Founder expected.  It gets worse–with a 2X or 3X liquidation preference, you get nothing.

Make no mistake–the VC’s feel perfectly justified in all of this and see it as emminently fair.  Fred’s example from that link sure sounds fair, but as some of his commenters point out, it attaches no value to the sweat equity of the Founders and employees.  They may have worked years of their lives at sub-standard pay ($75,000 a year?) and not be entitled to a dime in a scenario where VC’s are getting all of their money back.

“NO Weirdos?”

Yes, the VC’s prefer to invest in the Old Boys Club.  Minorities and women will have a tough time breaking in, not that they are Weirdos in any sense, but the homogeneity of the VC Startup Club and especially of the VC’s themselves is strong.  You need to have gone to the right school and have the right background.

The VC’s BTW, are (mostly) not really Evil.  But they have certainly done everything in their power to create a set of rules that overwhelmingly favors their own success, even at the expense of Founders.  Looked at in the cold light of reason, it’s hard to argue it isn’t pretty much as the plackard about Evil Geniuses suggests, at least metaphorically.  Why then do Founders seek Venture Capital?

After talking to lots of Founders seeking advice (I’m on my 7th Startup, have founder 4 of the 7, and have had 3 happy liquidity events), I have concluded the primary motivator for Founders seeking VC is that they want to reduce their risk.  It’s ironic.  VC’s these days don’t accept Founders until they’ve forced the Founder to remove as much risk as possible.  You have to create a Product, find an Audience, and demonstrate Traction before they’ll put a dime in.  Or, you have to give away a surprising amount of your company for surprisingly little capital if you go the Incubator or Angel route.  Yet, these Founders are largely worried about two things they believe can reduce their risk.  First, they want knowledge.  They want people who have succeeded to tell them how to succeed.  Second, they want connections.  The Incubator promises to put them in touch with the VC’s when the time comes.  The VC’s promise more VC’s, talented executives, and many other contacts.  Founders want to be part of the Network.

Experienced Founders are less about the connections or knowledge, they’ve realized they can get connections and knowledge more easily in Silicon Valley than almost anywhere in the world.  Scratch the push for connections and knowledge up to inexperience on the part of young Founders.  Experienced Founders just want the VC’s check.  They want to get where they’re going faster and with the certainty that plenty of money in the bank promises to bring.  VC’s hate to be courted simply for a check.  It eliminates their view of how they differentiate their firm and belittles the possibility they will make a contribution from the Board.  Yet, even many VC’s share the view of many experienced Founders that aside from Cash, VC’s often add negative value.  No less a personality in the VC world than Vinod Khosla says 70 to 80% of VC’s add negative value.  If you look at the impact forcing a company to take unlimited risk in the quest to becoming a $1B Unicorn has, I would suggest that many companies that could have been successful by any non-VC standards and happily profitable got pushed too far and left behind a smoking crater when they fell short of joining the Unicorn Club.

One of my favorite bloggers is Seth Godin.  He writes about this odd conundrum perfectly in his short post, “How much does it cost you to avoid the feeling of risk?”  He’s talking about the risk of putting yourself out there, and it’s no different for Founders.  The VC’s are asking you to do most of the work of creating a successful company before they put any money in.  They’re asking you to do it on your dime.  Unless you have it thoroughly in your heart and soul that  you won’t be happy until you’ve created a Facebook or Google-sized success, forget the VC.  Finish the remainder of the work to create a profitable company instead of raising VC.  That’s the real essence of reducing your risk.

Turning your happy little company into a VC Startup is the first step on the ladder of radically increasing your risk because you’re committing yourself to swinging for the fence.  No bunts, no singles, doubles, or triples.  Swing for the fence, and if you miss, you’re a failure.  Make no mistake about it:

VC’s increase your  risk.

Posted in bootstrapping, business, strategy, venture | Leave a Comment »

Everything You Need to Know About Email Marketing in One Tiny Little Post

Posted by Bob Warfield on December 13, 2013

seths.headTake the time to go read Seth Godin’s post about the 8 things you really need to know about email.  It’s short, totally to the point, and exactly the way my bootstrap business CNCCookbook tries to pursue email.  It has worked great for us and I get tons of love letters back as a result.

If you have all of Seth’s bases covered, you will too.  As I mentioned recently, we use Mailchimp (sounds like he does too) to automate as much of the email process as possible.  Interestingly, I have not heard a word from them about my post on their becoming less user friendly over time.  That’s got to be a first.  OTOH, as Seth points out, they’re just a tool and not really the important part of the equation.

 

Posted in bootstrapping, business, Marketing | Leave a Comment »

Why Pay for Mediocre Marketing Advice When Good Advice is Free?

Posted by Bob Warfield on November 22, 2013

snake-oilOkay, it’s time for somebody to call BS on a practice I’ve seen for a long time.  This will probably get me some negative press, but it needs doing.  The practice I’m tired of goes something like this:

-  Entrepreneur starts up a bootstrapped business.  Enjoys modest success and quits Day Job.

-  Suddenly, they are the World’s Foremost Expert on Marketing, and they want to sell that expertise.

-  Often the expertise costs more than the product that let them quit their Day Job and often they make more on the marketing advice than on their “real” business.

I see this happen countless times, and it just strikes me as wrong.  Sure you made a few bucks with that obscure product that teachers love.  Sure you’re on a jihad against unicorns or who knows what.  Sure you quit your Day Job.  But are you really that big a deal that people should be beating down your doors to buy your marketing advice?  Well maybe.  Perhaps you even say you’re kind of a big deal, and in that particular case, you probably are.  But a lot of these folks just haven’t enjoyed that much success.

Ask some basic questions:

1.  What was their signature success that qualifies them to be your marketing mentor?

2.  How big was that success really?  How does that compare with what you hope to achieve?

3.  How many times have they succeeded like that?  Silicon Valley is filled with one trick ponies.

4.  Did they succeed only in frothy bubbly times, or do they have some success when times were tough?

5.  Did they product a big liquidity event or earn a great income year after year?

6.  If their core business is so great, how come they have time to be selling marketing advice?  Why are they selling marketing advice?

7.  If this advice is so special, are the other marketing luminaries quoting them?  Are they even part of that set?  Or are they just being quoted by their customers?  You know, the people that buy these things because they don’t know?

Young Entrepreneurs are vulnerable.  They’d have to be to give up a big chunk of their company for very little cash just so they can be part of an incubator they can learn from.  That’s another one of these deals that’s in the same category for me–you’re paying a lot for some advice that seems mediocre relative to what you can get absolutely for free.  Yeah sure, maybe you’ll make contacts that matter.  Guess what?  It’s not that hard to make contacts and there are cheaper ways to network.  Most successful people are surprisingly generous with their time and advice if you approach it right.

OTOH, maybe this incubator thing is just something you do so somebody will hang a credential on you that dispells some of your insecurity. You think that credential is so others will respect you, but mostly people respect success, not the promise of success.  A lot of this stuff is just getting in the way of getting on with it.  There is no group you can join, no person you can talk to, no degree you can get that will guarantee success.  It’s all up to you, and one of the first things you have to learn is how to sift through all the inputs and get what you really need while ignoring the rest.

I just hate to see people being taken advantage of out of ignorance or insecurity.  I’ve done 7 startups now, founded 4 of the 7, had 3 successful Big Exits (2 acquisitions and an IPO), 3 failures, and 1 very happily still going company.  That’s a pretty reliable track record where small business is concerned.  You don’t get that many hits accidentally.  I did my first run straight out of college in Houston, Texas at the tender age of 23 where there weren’t any incubators or anyone to ask for advice.  Most people thought I was weird or nuts for trying to start a software company instead of getting a real job.

When I was first getting my current bootstrapped company, CNCCookbook, going, I bought a bunch of those marketing products I’m railing against.  6 or 7 of them.  Each one was $75 to $300.  There was LOTs of information there to read.  Lots of formulas for success.  I was hungry to find the knowledge that had to be valuable because it wasn’t available for free.  I had everything from how to get 10 zillion followers on Facebook overnight to the you-betcha-sure-thing Guide to SEO.  But a funny thing happened.  Not one single one of those expensive products taught me anything I hadn’t already learned for free–not one of them!

We live in the age of Content Marketing, Inbound Marketing, or whatever you want to call it.  Many people are giving away extremely high quality information for free, just to get your attention, so they can sell you a real product or service.  You don’t need to pay a bunch of money for Joe-Average-Entrepreneur’s-Startup-Secrets-Snake-Oil-Course.  Real success stories are dying to tell you everything they know.

How can they do that?

It’s a time honored tradition in modern marketing.  So long as they have something else to sell, they give away valuable content free to earn your trust, interest, and attention.  I’ve used this method to build my CNCCookbook web site up to 2 million visitors a year–huge for the CNC Machining niche market.  It’s not that hard to do, but it takes some time, it takes some determination, some love for the subject matter, and the ability to write.  Personally, I think establishing contact with an audience via your content is a critical first step every startup needs to take–even before they have anything to sell.  I didn’t invent this idea–really talented marketing people did, and they’re out there today desperately trying to give away their best ideas to you!

Where’s the good free stuff?  Metaphorically, it is falling from the Internet sky on marketing blogs everywhere.  Seek out the most successful marketing software companies.  You know, the ones that really get content marketing.  There is a vast amount of great information pouring forth from their blogs.  You can even get materials a lot like the “marketing courses” these other guys sell by signing up for a white paper–no charge, they just want you to fill out a contact form.  You gotta believe marketing people who can successfully sell marketing software to other marketing people might just know a little something about marketing!

Here’s my short list of great blogs from marketing software companies:

KISSmetrics

Unbounce

I love split testing

MailChimp

ManageWP

SEOMoz Daily

Buffer Blog

Totango Blog

WordPress.com Blog

ComScore Voices

Get Elastic

Next, find companies selling marketing services such as SEO or other services.  Or they may be marketers that don’t sell anything to other marketers, but they’re just driven to write.  I guess I consider myself in that category.  I love to share information and ideas.  Again, there’s a ton of them with great blogs:

Analytics Talk

Chris Brown’s Branding and Marketing

Convince and Convert

Digital Marketing Blog

Futuristic Play by Andrew Chen

Heidi Cohen

Seth Godin

Quick Sprout (He’s Kind of a Big Deal)

IdeaLaunch

Jeff Bulla’s Blog

Marketing Tech Blog

Marketing Experiments Blog

SaaS Growth Strategies

Spatially Relevant

These people know each other.  They quote each other.  They respect each other.  If you want to learn from an expert, see who the other experts listen to.

Entrepreneur Resources abound too.  Get the word from fellow entrepreneurs and VC’s, but don’t pay for it.  You’ve got Hacker News full of from the horse’s mouth information by entrepreneurs and for entrepreneurs.  You’ve got more and more VC’s going on line to tell you what they think.  You’ve got tons of bootstrappers from 37Signals to SmugMug on down to guys like me, all telling you what they think and how they did it.  And they’re telling you all of that for free, or in some cases for the modest price of a cheap book like 37Signals or Seth Godin.

Stick all of those feeds into your RSS reader, then go find more.  Click through the links in the articles from these blogs–they lead to other rich sources of information.  Fill it up until you’ve always got a few hundred unread articles.  But try very hard to at least scan everything until you’ve got a good feel for what you’re missing if you don’t read.  While you’re scanning, start a ToDo list.  These are ideas from the articles you want to try and topics you need to research more fully.

Too much to read?  What’s the matter, you don’t have time to actually learn what it takes to be successful?  You need to be like a sponge early on, and none of those wanna-be-pay-me-for-my-sure-thing-courses are going to make that any easier than just reading this stuff that’s available for free.  In fact, they’ll make it worse.  They will also bury you in content, then they’ll send you endless emails trying to sell you even more content.  The difference is you are paying them your cash before you even know what you’re really getting.  Plus, you’re reading from one or a few sources and you don’t get to see what correlates and corroborates and resonates across many sources.  These guys I’m pushing above are giving it away for free and you can scan it and delete it if it isn’t of interest.  You’ll get the Gestalt view of it.  You’ll get a gut feel for how it all fits together.

What could be a more valuable way to invest your time?

Still not enough time?  You can add my own clippings blog, Firehose Press, to your RSS Reader.  Those are articles I culled from the Firehose–I subscribe to about 200 blogs–on marketing.  Articles that were good or that moved me to add something to my own personal ToDo list.  It gets updated less and less frequently because once I’ve learned the lesson, I don’t bookmark the same lesson over and over again.

Once you reach the stage where your ToDo list is getting long and you are skimming and deleting more than you’re seriously reading, you’ve lifted the plane off the runway.  Hopefully you’re reaching and audience and your next challenge is to get better at it.  You’ve now got an RSS Feed that’s filled with new ideas for your hopper every single day.  New A/B tests to try.  New tactics and strategies.  New ideas for content.

Good for you.  Instead of buying fish, you’ve now learned how to fish.  Go forth and be prosperous.  But don’t package up what you learned into some cheezy course or seminar.  You got there standing on the shoulders of others.  Help the next guy–reach down, grab their hand, and boost them up.

Posted in bootstrapping, business, strategy | 5 Comments »

Jump Starting a Small Business With Cloud Services

Posted by Bob Warfield on November 18, 2013

PennyPincherSo you want to start a small business, perhaps a bootstrapped tech company?  Good for you, I enjoy mine immensely.  Let me suggest you adopt a rule that I’ve used for a long time:

If it’s available in the Cloud, use the Cloud Service.  Don’t roll your own or manage your own server, even if it is a server in the Cloud.

The thing about a good Cloud Provider (or SaaS service, if you prefer), is that their service is their business.  If they’re doing it right, they can afford to know a lot more about it, do the job a lot better, and deliver it a lot more cheaply than you can.  Meanwhile, you have plenty of work to occupy your time.  Keep your focus on doing those things that uniquely differentiate your business and delegate the rest to the Cloud whenever you can.

That’s the high-level mindset.  Using this approach I have consistently taken companies that had significant IT burdens and gotten them down to where it takes a talented IT guy maybe 1/3 of their time to keep things humming along smoothly.  This for sites that have millions of visitors a year–plenty for most small businesses.  BTW, my instructions to the IT guy were to spend that 1/3 of time automating themselves out of a job.  They’ll never get there, of course, but all progress in that direction is helpful.

Why So Much Cloud Emphasis?

Let’s drill down on why I think that’s the way for small businesses to go.

First, there’s no need to deal with hardware and so that whole time-consuming effort of ordering the servers and setting them up is eliminated. You can turn cloud-based services on or off in seconds.

Second, the cloud-based services know how to manage their services because that’s all they do.  Suppose you choose to base your web presence on WordPress. You could deal with setting up the WP server on an Amazon instance and still be in the Cloud, but now you have to manage it (keep all the security updates going, run backups, optimize for speed, etc.). That takes time and expertise.

Or, you can let a service like Page.ly, ManageWP, or WordPress.com do all that heavy lifting for you.  Now you don’t even have to think about it much—it just happens and they follow industry best practices it would be hard for a small business to emulate.

Third, you can scale up and scale down. Small business traffic is very bursty. One day some big site like Techcrunch writes about you and your site is melting down—nobody can access it. You needed to scale up fast! The next day you’re back to your normal small business traffic. If you had invested the time and money in big scale, it’s wasted on those days laying idle. But, if you choose the right cloud-based host they can scale up and scale down automatically for you.

BTW, this is critical for good Google results as they penalize slow sites on SEO.

Okay, How Can My Business Use the Cloud to Best Effect?

I’ll cover this one by what I see as the critical business phases:

1. Reach your audience

Job #1 has got to be creating a web presence that lets you reach your audience. You need to do this even before you have a product to sell them, because you’ll need to take advantage of the time you spend building product to optimize that audience touch point. Towards that end, you’ll want the following:

-  Web Site with Blog: I highly recommend building that around WordPress using a WordPress Cloud Hosting service. It lets you leverage the huge WordPress ecosystem which means lots of off-the-shelf plugins and know how to make your web site sing with minimal effort on your part.

-  Analytics and A/B Testing: Get hooked up with Google Analytics via a plugin for WordPress so you can monitor what people do on your site and use that feedback to improve your Audience attraction and engagement. A/B Testing lets you try pages side by side to see which one works best. It takes time to optimize, so don’t wait until you’re ready with product. Start day one trying things to see what works.

-  Social Media: Get your Facebook, Twitter, and LinkedIn pages going ASAP. If nothing else, you need to nail down your presence and brand in those places. Use WordPress plugins to automate the interconnection of Social Media with your web site.

-  Domain: Don’t bother picking a company name until you nail your custom web domain. Read up on SEO aspects of that to make sure the domain is helping you pull traffic. Get yourself a DNS service such as DNSMadeEasy or one that Amazon provides. This will let you tie together disparate Cloud Based services under your brand and domain.  The DNS decides what computers actually get the message when someone types in a URL.  It’s like the central switchboard of your web presence and you’ll use it for all sorts of things.  It’s also your lifeline if some emergency strikes a Cloud provider and you need to bypass them to get to an alternate of some kind.

-  Email: Gear up both your firm’s employee email plus an email service you can use to email customers.  Start building your mailing list day one so you have as big a list as possible available to help when you’re ready to launch. I like services like MailChimp for the mass mailings and services like Google Apps for employee email. Be sure your email service includes easy integration to your WordPress blog and start a weekly email newsletter from day 1.

-  SEO: Learn to master your own SEO activities. It affects every aspect of your web presence. You have two audiences—people and the machines that are performing search at places like Google or Bing. You can’t afford to fail either audience. There are a variety of Cloud Services that can help you with this such

-  Surveys: You need all the feedback you can get to guide your efforts to reach your audience. I like SurveyMonkey and Qualaroo.  Survey Monkey does complex surveys.  Qualaroo does neat little spur of the moment unobtrusive surveys.  Both are extremely useful.  I use Survey Monkey for targeted surveys that go out via email and blog posts.  You get a survey when your free trial ends.  I use them to research market topics.  They’re great for creating interesting content–people love to read survey results.  Qualaroo is on key web pages asking:

“Would you recommend this product?”  on the download page

“What articles should we be writing?”  on the blog

“What can we do to make this product more likely something you could buy and use?”  on the pricing page and elsewhere.

-  Customer Service:  Customer Service isn’t just about fixing product problems.  It’s about giving your audience a way to reach you and a way to reach each other to engage.  As such, it’s worth setting these systems up from Day 1.  For my businesses, I want a Customer Service solution that offers a pretty big menu:

Trouble Ticketing.  This is the classic Customer Service app but it’s the one you’ll use the least often if you’re doing it right.  Consider Trouble Tickets to be a failure.  A failure to prevent the problem before it started.  A failure in documentation or user interface/experience.  A failure to communicate.  The customer’s point of last resort.  You have to have Trouble Ticketing, but you want to do everything in your power to make sure Customers never have to use it.

Idea Storming:  I love giving customers every possible way to provide feedback.  Ideation is the ability to put an idea on an idea board and vote on it.  Give customers a fixed scarce number of votes and then pay attention.  Whatever rises to the top on the voting is something you need to deal with.

Forums:  Own your own forums even though there are lots of forums out there.  Make them private and require some form of sign up.  This is your exclusive User Club.  Be very responsive on the forums.  Go there first and Trouble Tickets second.  If you help someone with a problem on the forums, others can see the answer and potentially be helped in the future.  If you help someone by closing a Trouble Ticket, you only helped them and the effort is not leveraged.

Knowledge Base:  You want a KB integrated with the rest of the Customer Service experience so that as someone enters a Trouble Ticket, they are directed to KB articles that can potentially help.

I use a service called User Voice to do all those things except the forums.  I use a free BBS service for that.

2. Build your product

If you’ve got a software company, or perhaps an e-commerce company, you’ve got to build some software.  There are helpful Cloud services here too:

-  Source Control: You need source control day one.  Being without it is like jumping out of an airplane without a parachute.  I like Github but there are lots of others.

-  Bug Tracking: For bug tracking and the like, Atlassian and others have this base covered. Don’t confuse it with Customer Service software, which I will cover under E-Commerce.

-  Online information resources: There are so many here I can’t begin to count, but we live in an age where there are literally thousands of developers helping each other online in all kinds of ways.  StackExchange can answer almost any technical question you might have. Online forums are there too for more specific areas.

-  Consulting: Need quick design work but don’t have a designer on staff yet? Need a specialized piece of code written that’s just part of your solution but nobody knows how? Need a little extra testing help or maybe some tech writing? There are tons of services like Elance that can get you some high quality temporary help.

3. E-Commerce

For this stage, you have a vibrant audience, big and growing email list, and your product has had a successful free Beta test. Time to start charging. Here are some things you may need to take the order, process payments, and handle the accounting:

-  Shopping Cart: If you chose WordPress, there are tons of plugins to help. But, they’re not the only game in town either.

-  Payment Processing: Who will process credit cards for you? Lots of possibilities ranging from Paypal to Stripe.  Be sure your processor covers International sales and any special needs you may have, like recurring payments for subscription services.

-  Accounting: A lot of these services can connect to QuickBooks to make your bookkeeping easier.  Scope that out in advance.

How Do I Choose the Right Service?

With so many different kinds of Cloud Service, it is hard to be specific. So, I’ll talk about the generic:

- Look for an online and vocal fan club for the service. It doesn’t take long with Google to see which services are loved and which ones are marginal.

- Look for companies similar to yours that use the service proving someone else has tried it and succeeded. Try to contact those companies and see what they think of the service. I’m not talking competitors—they won’t help. But there are always similar kinds of companies that don’t compete at all.

- Make sure you have a roadmap for what you need your services to be able to do for at least the next 2 years. Get your developers and others to review the proposed service against the roadmap and make sure you won’t have to switch down the road. It’s a good exercise to have that Roadmap available anyway—it’s just a wish list of everything you want to do for Marketing, E-Commerce, and Product over the next 2 years.

- Get your developers to look carefully at the published API’s for the services. Even if you won’t be using any API’s early, someday you might. The quality of the API’s is an indication of how well architected the service is too.

Conclusion

You can build a pretty amazing online Customer Experience if you make full use of available Cloud Services as described.  If you have build all of it, set up the servers, do the backups, install all the updates, and so on, you’ll be wasting a lot of your time that could be spent doing other things.

Posted in bootstrapping, business, cloud | Leave a Comment »

The Trend to Part-Timers, Freelancing, and Consultants Over Full-Time Employees

Posted by Bob Warfield on August 8, 2013

FreelancerOffshoring, Outsourcing, the switch to freelancers instead of full-time employees, and all of the other ways big business wants to shed expenses at no apparent cost is a trend that’s well underway.

Shortcuts all have a price of one kind or another. Usually that price is hidden from the bean counters that wanted to do these things for short term profit bumps regardless of the impact on quality, visibility into what was being done on behalf of a company, actually creating value that belongs to a company and is reproducible, making sure that talent is loyal and believes in the company and its goals, and so on.

As for freelancing, when you force someone to stand on their own two feet, when they have to learn to fish for themselves, suddenly, they get a much clearer picture of their real value to the organization and of the organization’s value to them. Successful freelancers are some of the hardest people to recruit on the planet because they know the organization doesn’t bring them much value while they are creating a great deal of the real value.  That’s why you have to pay consultants more.

If you find yourself having to go it alone, it will start out very scary.  You’re going to have to stretch to learn to wear more hats.  You have to learn to market yourself, for example, and to network to find business.  Cast off your fears and welcome those challenges.  Quit trying to join a large organization or get Big VC to back your idea.  You can go it alone more than well enough to come out way ahead.  After all, business wouldn’t be doing this to you unless they didn’t value you all that much.  That tells you something about how they will treat you if they did decide to hire you.  OTOH, you are also undervaluing yourself.

Why make the same mistake as the business whose decision you so disagree with?  Recognize your inestimable value and get to work for yourself.  Enjoy being your own boss.  Embrace the change and use it to improve your life.

Posted in bootstrapping, business, strategy | Leave a Comment »

Too Many Would-Be Entrepreneurs Are Thinking About Their Ideas, Companies, and Investors All Wrong

Posted by Bob Warfield on April 19, 2013

snake-oilAs so often happens, the serendipitous intersection of one too many notes from the same chord in a short time have prompted me to post.  In this case, I am seeing a lot of evidence that would-be entrepreneurs just don’t think about their ideas, their companies, or investors as they should.

Case in point: I recently had dinner with a friend to do some catching up.  He explained that another mutual acquaintance had an absolutely brilliant idea for a startup.  My friend really wanted to be a part of it, and he confided that they were thinking of going the Y-Combinator route.  I’m sure it’s annoying to my pals (especially the ones who are themselves Angel or professional VC investors), but any conversation that focuses more on the investors than the idea and business models immediately launches me down a set path that the recipient often finds a little bewildering if not downright antagonistic.  Despite all that, I asked my friend why he wanted to go with Y-Combinator?  Why get any invested capital at all?

He spent quite a while, too long really so it only lit my fire brighter, talking about the $30,000 they would receive in exchange for 15% of the company.  I asked him to explain what the $30,000 would allow him to do that he couldn’t otherwise accomplish on his own.  After all, $30,000 is really not very much money.  This goes to the heart of one way Entrepreneurs don’t think right about their plans.  If $30,000 seems like a lot of money to you, if it seems like an enabler of some kind, it’s my belief you’re using it to solve the wrong problems, and that in fact, they aren’t real problems to start.  You’re thinking of using it to quit your Day Job, to hire others, or to pay for advertising.  You don’t need to do any of that, as it turns out.

Let me explain–I’m a firm believer in Bootstrapping ala 37Signals.  Their formula is pretty simple–you can build a company on 10 hours a week while you keep your day job.  David HH wrote a great post on this not too long ago entitled “All or Something “.  The gist is that you don’t need to adopt an all-consuming commitment to get something interesting done.  The intro to his article is worth reading carefully:

One of the most pervasive myths of startup life is that it has to be all consuming. That unless you can give your business all your thoughts and hours, you don’t deserve success. You are unworthy of the startup call.

This myth neatly identifies those fit for mission: Young, without obligations, and few if any extra-curricular interests. The perfect cannon fodder for 10:1 VC long shots.

They’re also easier to rile up with tales of milk and honey at the end of the rainbow, or the modern equivalents, “compressing your working life into a few years” and “billon dollar waves”.

But running your life in perpetual crunch mode until the buy-out or bullshit-IPO fairy stops by your door is not surprisingly unappealing to lots of people.

In fact, what you do might even be better and more successful if you take your time by only working 10 hours a week on the idea.  I’ve seen this for myself with my CNCCookbook bootstrap.  The problem is you think you know exactly the right thing to build and if you could only get it done, riches would be yours overnight.  The reality is that nobody knows exactly the right thing to build in a vacuum.  You benefit by interacting with the market, and it takes time for the market’s message to come back to you and be properly infused in what you’re building.  You can’t infuse it at a 100 hour a week pace because it simply doesn’t come to you fast enough.  It requires a feedback loop and a little more gradual change.  This applies not just to the product itself, but to achieving a content-audience fit and then growing that audience to an interesting stage.  If you think otherwise, then you’re not being realistic.  You’re looking for that long-shot of completely unbridled demand that will seize your company and carry it in the vortex to the Land of Oz.  You’re looking for that 10:1 VC long shot.  Unfortunately, you don’t have a portfolio so that the 10 that didn’t work before the 1 that did doesn’t sink you.

Here’s the other issue–if you can’t overcome the kinds of problems $30,000 will solve without the $30K, you may not have the right idea or you may not have the right team for the idea.  Creating a successful multi-million dollar company is a big accomplishment.  If all it took was $30K, a little advice, and some networking, there’d be a lot more people with their own multi-million dollar companies.  There’s a set of skills your team must have.  There’s a set of qualities your idea and market must have.  Without them, $30,000 won’t begin to fix the shortfall.  $30K is just a convenience, not a solution.  It’s not even aspirin, it’s a vitamin pill.

So $30,000 is actually not really very useful to someone that is focused on the 10 hour a week plan.  Certainly it isn’t worth giving up say 15% of your company and potentially a lot more than that in terms of control and heartache that will still be there long after the $30,000 has been spent.  To his credit, my friend did get off the $30K after a little while and suggest that having all that networking and mentoring would be worthwhile.  That’s actually something I see as being much more valuable, but in truth, it actually isn’t all that hard to come by in Silicon Valley.  After all, the networking is one reason why we put up with so much cost to live here, isn’t it?  If you think you need an incubator to be mentored, to ask questions, and to learn how to do it, ask yourself how that’s any different than signing up for a bunch of the Anthony Robbins-style self-help seminars?  You know the kind–some flashy personality is telling you they have all the answers and they’re willing to share them so that you too can be a multi-bazzillionaire loved by everyone.  All for a price.  Guess what, this works for some people, but for most, they could’ve had the same answers without much effort.  I told my friend I’d be happy to help him understand how to launch and build a business having founded 4 software companies and been involved in 7 software startups.  I also told him the cautionary tale of those making their livings off such advice.

Hacker News is a good place to find such people, and I’m not picking on HN for it, that’s just where the paying customers are for these peddlers.  I call them the Entrepreneur’s Self-Help Gurus.  Don’t get me wrong–there are some dynamite folks out there who can and will help you, but I’m referring to a different sort of group.  These are folks who did something that if examined closely, was not an especially big deal.  Yet now they’re making more than they ever did on the not-especially-big-deal telling other people how they did it.  “I’ve got the secrets, and I’ll share them for just a small fee.”  Perhaps they created a software company in an odd little niche, never cleared more than $100K with it, but now they’re making $200K and more telling others how to do it.  To me, there is something wrong with that picture.  Just for kicks, I signed up for a bunch of the more popular pay-for-content mailing lists.  You can get them on sale all the time from AppSumo, for example.  After going through about four of them promising everything from SEO expertise to how to get 10,000 Facebook followers, I finally quit.  I hadn’t managed to learn a single useful thing from them.  In fairness, if I had been at the very beginning of my journey, they might have helped a little, but everything they had to say that was useful was available for free on some blog somewhere on the Internet that I had already read.  FWIW, I keep a clipping blog of such information I call Firehose Press.

I finally realized, that what these people were selling, was not the information, but the confidence to use the information.  That’s not something I really needed, and I hate to be a wet blanket, but if that’s what you need, are you sure you’re ready to be an entrepreneur?

One more thing on the subject of networking–you can go have coffee with so many extremely talented and successful people in Silicon Valley at the drop of a hat that it’s ridiculous.  People here are incredibly generous with their time.  Heck, if Y-Combinator fascinates you, go look up the Alumni and go ask them what they learned there and what they got out of it.  You just need to find a friend of a friend to introduce you and most decent people will share a cuppa joe with you.  Why not?  I often do.

Okay, so maybe the networking mentoring isn’t the thing.  What about all those juicy introductions to VC’s?  I have several problems with this one too, being the VC Curmudgeon and all.  It isn’t that I haven’t dealt with the VC’s.  In fact, they’ve been involved with every company I’ve been with until this latest one.  Let’s start with the intro process.  It’s not hard.  You need a CEO who they would want to talk to and an intro from someone they know.  If you have such a CEO, they can get that VC intro from someone they know.  VC’s actually want to meet people, they just want to meet people who won’t waste their time.  Same with Angels only it’s even easier to meet one of them and you might not need that CEO quite yet (but you will, so may as well find them so they can help you from going too far astray).  You don’t need Y-Combinator to meet these people.  What you need to meet a VC is pretty simple:

-  A product finished enough to be sold.

-  Real paying customers who will say extraordinary things about your product.

-  Traction.  The amount varies with the space, but there needs to be evidence that pouring gasoline on the fire will make it bigger in a hurry.

Too many entrepreneurs think investors want to give them cash to make some or all of those three things happen.  I won’t say it can’t work that way, but it works less and less that way every day in the Valley.  Y-Combinator, for example, used to invest more than $30K.  Most of the VC startups I’ve done raised a couple million dollars on a slide show and a team.  Those days are long gone.  You’re going to have to bootstrap to a greater or lesser degree (and mostly greater) anyway, so you may as well get started learning how to do it, even on 10 hours a week.  In fact it’ll be better if you limit yourself to 10 hours a week–it will teach you to focus.  The realization that I had to bootstrap to raise VC is what set me on the bootstrapping path, by the way.

Too many entrepreneurs think they need something to be able to be entrepreneurs.  They need money, advice, connections, confidence, permission, or at the very least, a guru they pay to tell them how it’s done.  But here is the amazing thing: you don’t need any of those things.  You can do everything that needs to be done in 10 hours a week to build a very successful multi-million dollar a year company.  Do that first, ahead of worrying about investors, and you will be 10x better off.  Because, here’s the thing, if that company explodes with a growth rate beyond your wildest dreams and you need a lot of capital right now just to keep the site up and running, that’s not a crazy home run extraordinary case for the VC’s.  That’s what they expect to see.  That’s what they’re looking for to get their checkbooks out.  That’s table stakes and we’ll see where it goes from there, whether you can monetize it, whether you’re the right ones to run it, and whether it is a passing fad.  If you have a deal at that stage, congratulations.  You’ll have to beat the VC’s off with a stick, and you’ll be able to dictate your terms.

But what if you don’t have one of those?

Don’t despair.  Remember:  an Enterprise Software Company that puts together a steady-but-not-sexy business and manages to get to $100M in revenue and an IPO is often seen as a failure in VC portolios.  They want the $1 Billion deals.  But you?  Heck, you’d be thrilled to be the 100% owner of a $15 million dollar a year software business with 20 employees that was throwing off cash like crazy and whose customers loved you.  That is unless you are that rare Zuck/Gates/Ellison/Brin type that really does care more for power than money or lifestyle, of course.

One last reference to recent influences that spurred this post.  I saw Jake Lodwick’s post in Pando Daily, “An Acquisition is Always a Failure.”  I understand exactly where this guy is coming from having had 2 of the companies I founded acquired.  Surpass was acquired by Borland and that was the Quattro Pro product and Integrity QA was acquired by Pure Atria.  Surpass was a great acquisition.  I joined Borland, we sold over $100M of Quattro Pro the first year, I moved up through the ranks to eventually run R&D for Borland in its heyday, and it was a fabulous company to be a part of.  I learned a lot.  Pure Atria was a great company too, but it didn’t last.  Six months after I got there it was gobbled up by Rational.  They already had a product with a brand that competed with Integrity QA’s product and it was based in Boston, not Silicon Valley.  Despite Integrity’s product being one of the most innovative things I have ever worked on (Genetic Algorithm-Based Software Testing), it basically never went anywhere because politically, it was stuck in a closet where there was no light.  It exists today as an IBM product called TestFactory, but it’s growth was stunted and it never recovered.

It’s fascinating to read the comments in Lodwick’s article and contrast them with where Jake is coming from.  He says:

Whereas we’d once been free to work on whatever seemed interesting, we now found ourselves in vaguely defined middle-management roles, sitting through pointless meetings where older doofuses who didn’t understand the Web challenged our intuitions and trivialized our ambitions.

That was basically my experience working for Oracle, where I learned a lot, but couldn’t accomplish much.  Similar with Rational.  Big Companies do work much differently than smaller ones, or as Jake says:

They’re another class of entity entirely, more concerned with sustaining their own rhythms and control structures than experimenting with strange ideas from acquired ex-founders. It wasn’t long before I was ejected like a virus.

Then he describes the frustration of being loose with money, but without company all founders who get acquired feel:

With a fat bank account, I was pretty set to do whatever I wanted for a long time. The sale afforded me the ability to make art, invest in other companies, and unwind. But it didn’t take long to realize that my new life was a hell of a lot less exciting than running an independent company had been.

So true.  Then we have the commenters, and as I read through them, it’s hard to see them as being focused on much but the money, whether this is an indictment of what they need to do (investors need an exit/cash out), or whether there aren’t a few examples where an acquisition made a thing far greater than it otherwise would have been (Android).  Most of them missed Jake’s message and wisdom entirely.

Here’s the thing.  At one point Jake talks about getting $50,000 checks each month.  Do the math carefully before you decide you need a VC-scale company to make enough money.  I went through one of those VC-backed Enterprise Software IPO’s, and while I made good money, it was #3 on my hit parade of exits.  Owning a business 100% that plops $50K checks on my desk each month would’ve been a much better deal, and this is to say nothing of all the deals that crash and burn because the VC was driving for a 10:1 Long Shot.  You have to live through a lot of Ramen noodles on the long shots, then maybe you’ll see that big payoff.  Or maybe you’ll have been diluted out of your mind and it won’t be such a big deal.  I’d have been much better off owning that $50K/month business that I could keep on running that doing the IPO I did.

In the end of the Day, as an Entrepreneur, you need to get crystal clear about a few things:

-  How much money do you need to get from your venture?  If $1M a year is a happy number, the chance is a bootstrap is much less risky than a VC deal.  Remember, income equates to investment portfolio about 20X.  That $1M a year income stream requires a $20M liquidity event after taxes before you can live like that without working.

-  How much control do you have to have?  Hey forget whether you’re an ego maniac.  I’m talking of control more akin to artistic control.  The control to deliver on what you do well.  On why everyone always says they love you, but that Boards, CEO’s, and Professional Managers are only too quick to override if it suits their agenda.  If that artistic control to do what you do best is important, adding people who own significant parts of your company can only dilute that control and maybe even result in your being “ejected like a virus.”  OTOH, if you want Bill Gates or Steve Jobs-style control over an industry, you’re gonna need VC’s.  If you want to change the world with Electric Cars and Private Spacecraft like Elon Musk, you’re gonna need VC’s.  Just be really honest with yourself about what you need versus what might be nice to have.

-  Most importantly, how will your venture change your life?  What does it have to accomplish to make you happy?

Too many entrepreneurs get signed up for the promise of (to quote David HH’s article), “compressing your working life into a few years.”  Sounds great, but it better be just a few years to put up with the amount of BS that kind of pressure cooker entails.  And the truth is, it is never just a few years.  It’ll be 10 long years to reach the conclusion, assuming it is a happy one.

Why not start out with a venture that makes you happy every single day you pursue it?  If it has VC potential, you’ll know soon enough and you can decide then what path to take.  If it doesn’t have VC potential, you may still wind up realizing everything you’d hoped for and more.  Even better, it may be at much lower risk.

 

Posted in bootstrapping, business, strategy, venture | 6 Comments »

Charging for Your Product is About 2000 Times More Effective than Relying on Ad Revenue

Posted by Bob Warfield on February 22, 2013

BootstrapsI was reading Gabriel Weinberg’s piece on the depressing math behind consumer-facing apps.  He’s talking about conversion rates for folks to actually use such apps and I got to thinking about the additional conversion rate of an ad-based revenue model since he refers to the Facebooks and Twitters of the world.  Just for grins, I put together a comparison between the numbers Gabriel uses and the numbers from my bootstrapped company, CNCCookbook.  The difference is stark:

Ad-Based Revenue Model CNCCookbook Selling a B2B and B2C Product
Conversion from impression to user 5% Conversion to Trial from Visitor 0.50%
Add clickthrough rate 0.10% Trial Purchase Rate 13%
Clickthrough Revenue  $      1.00 Avg Order Size  $ 152.03
Value of an impression  $ 0.00005  $      0.10 =     1,976.35 times better

Let’s walk through it.

Both sites have visitors who convert to something more.  In the case of the Ad-Revenue model, presumably it is a person who creates an account on a Facebook or Twitter-like site, thereby becoming a user.  Gabe says that conversion rate for a really strong property might be 5%.  It can be much lower, like 1 to 3%.  I went with the optimistic 5%–the model is already too hard to contemplate 1%.  In the case of CNCCookbook, the conversion is from visitor to Trial user for the software.  We have a 30 day free trial on all our products.

From becoming a User or Trial User, the next conversion rate is monetization.  For the Ad-Revenue model, I did a quick search for clickthrough rates on display advertising and came up with 0.1%.  Sure, you might get your Users to click on more than one ad over time, but let’s just keep these numbers simple.  They’re not going to click on 2000 ads to even the score, after all.  For CNCCookbook, we have a very high conversion rate from trials–about 13%.  I view that as a commentary on the high quality of our software–people like it if they try it.  I understand conversions in the 5% are more common, so you may be forgiven for deciding the ad revenue model is only 1000 times less effective than charging for a product.

Okay, given those conversion rates, we take the average revenue per transaction and multiply all that on through to find the value of an impression.  What is it worth to you to bring another visitor to your site?

In this analysis at least, it’s pretty easy to see why bootstrappers need to be charging for their products and not relying on ad revenue.  Unless you just happen to have an amazingly viral product, it’s just too hard.  You have to rack up way too much traffic to get to interesting revenue levels.

Or, to put it like 37Signals:  Charge for your products, Dummy!

Posted in bootstrapping, business, strategy, venture | 2 Comments »

Just Got My Vanity Plates from LinkedIn

Posted by Bob Warfield on February 12, 2013

I recently got a notice from LinkedIn stating that my profile was in the top 1% out of 200 million in terms of how many people had viewed it.  So, they sent me my vanity shot:

OnePctLinkedIn

It’s a nice letter.  I admit I puzzled over who could be spending so much time checking out my profile–seems like a lot more than 1 in 100 people would be ahead of me in terms of attention and name recognition out of the 200 million on LinkedIn.  I would count most of my LinkedIn contacts for starters.

However, it didn’t take much thought to conclude this was probably due to my bootstrapped company CNCCookbook.  We get about 1.5 million visits a year to the web site, making it one of the top CNC sites and almost certainly the most popular CNC blog.

In other words, my marketing is working.  That’s a good thing in a bootstrapped SaaS company.  What a great Age we live in when a SaaS company can be created by just one man and reach so many.

Posted in bootstrapping, business | Leave a Comment »

Is Silicon Valley Worth the Cost for Tech Startups and Bootstrappers?

Posted by Bob Warfield on January 9, 2013

SiliconValley_mThere’s always some article or other in the blogosphere rambling on about why XYZ will be the next Silicon Valley–they’re quite popular.  I just read an interesting piece that has some clues about the true costs of living here (yes, I live at least near SV and have worked most of my career in SV).  The article is really about how much top paying companies pay in the Valley, but it strays into the realm of cost of living.

While we can quibble with the accuracy of the numbers and ancillary factors like quality of life (undeniably good in the Valley or in NYC as some on Hacker News opine), let’s assume for the sake of discussion that while salaries are higher, they are not high enough to offset the much greater cost of living relative to other parts of the world.  Looking a the way our great state operates and as well as the Economy, it’s going to get worse too.

What does that mean for Tech Startups and Bootstrappers?

This is a poignant question for me because I moved my first startup to Silicon Valley from Houston, Texas in the late 80′s.  At the time it made total sense and I have no regrets, although even then it took us years to make enough money and then to screw up our courage to buy expensive California real estate and own a house again.  The reason I moved was not access to technologists or building product.  I was hiring great software developers out of Rice University (one of the best CS schools in the country) and University of Houston.  They were cheap and cheerful and we built software good enough to receive acquisition offers from both Borland and Microsoft (we wound up being bought by Borland and the product became their Quattro Pro spreadsheet).  Heck Silicon Valley itself hires tons of developers all over the world.  Building software in Houston was very cheap back then.  We took our company all the way to profitability for about $600K in capital over 4 years.

What got me to move was the marketing side.  Even back then I wanted a less advertising-driven and more content-driven marketing strategy, and the way to do that was through PR.  So I was doing media tours.  I was on planes to either the East or the West Coast to talk to the people I needed to talk to–there was no leverage to being in Houston.  I was also desperately in need of marketing advice, and there was nobody to talk to in Houston, Texas about how to do marketing for a high tech software company.  We worked with Ogilvy and Mather’s Compaq team for a while and they did great creative, but it just isn’t the same in terms of getting the right strategic sense.  So, after much deliberation, we moved.  It was absolutely the best thing for us and there’s nothing at all I regret about it.

Flash forward to today.  Are there still compelling reasons to endure the higher costs?

My central thesis for moving–the need to network in order to learn and influence–still exists, but it is weaker.  There are still plenty of great developers available elsewhere, and I would not come to SV just to gain access to them.  I might do so if I was a non-technical founder who wanted a technical co-founder who had “Been there and done that.”  I don’t know how else other than track record the non-techie could tell whether the co-founder was any good.  But not to put together a team.  You can build any product there is with a maximum of 10 developers, and you can find 10 good developers in any major city that has a school with a good Computer Science program.  Been there and done that.  While that leaves out a lot of territory, it also opens up a lot of territory.  If you are yourself a seasoned developer who hires well, you can probably even skip the need for a “Good Computer Science Program” and you’ll still wind up finding enough developers.

Let’s also talk about hiring non-developers.  I have less feel for that, but my sense is this is also available much more broadly than just Silicon Valley.  For one thing, I’ve worked with some fantastic people on content marketing who happened to be in Silicon Valley, but there wasn’t any reason to believe you couldn’t meet people like this elsewhere.  They weren’t so steeped in SV Startups that they’d be impossible to find.  If I were a Techie Founder desperately in need of my non-Techie Soul Mate Co-Founder, I would go on the hunt for the most successful blogger I could find in my area who I could get interested in my audience and in learning whatever they didn’t already know about how to turn their blog into a marketing tool.  You can do a lot with a blog.  Having worked with lots of Marketers in Silicon Valley, I think it is harder to find great content creation people than it is to find the Marketers, and I mean no disrespect to the Marketers.  It’s just that what has to be done on the Marketing side is pretty easy to discover:

-  SEO for your content

-  The idea of a funnel and Conversion Rate Optimization with A/B testing

-  The usual need to know how to ask for the sale

A little bit of that and a whole lot of super valuable content will get you off the ground surprisingly well.  That’s why so many Techies seem to actually get somewhere bootstrapping.

But getting back to this issue of networking to learn and influence, I believe those advantages are still possible, but they are far weaker today, and particularly weak for Startups and Bootstrappers.  We can learn so much more from the Internet and freely available content there than I could from buying books in the 80′s when I moved my company.  Endless people are making a living telling you exactly what to do.  I keep a clippings blog called Firehose Press for every article I read about marketing and sales that was a good one.  There’s tons of data there culled by daily reading.  More stuff than you can possibly act on.  While it would be handy to just hire or co-found with someone that already knows all that stuff, I don’t personally think that would be very easy even sitting in Silicon Valley.  For one thing, I have met a lot of Marketing people and very few understand SEO and the rest of it very well–they hire agencies to do that work.  As for Content Marketing experts, they are scarcer than Hen’s Teeth.  My own blog outperforms the metrics for the blogs of most of the companies I have worked for.

I can only really see three strong reasons for Venture Startups and Bootstrappers to be in Silicon Valley:

Energy, Fashion, and Bubble Riding

These are all somewhat intangible, but related.  There is undeniably Energy to be had by going to visit your startup buddies and talking about ideas, techniques, hopes, dreams, gossip, and what everybody is doing.  If you are getting energy from that experience, you’ll find it hard to get outside the community.  Sure there are places that claim to be the “Next Silicon Valley”, but I’ve talked to a number of folks who went from here to there and they say it is disappointing once you’ve experienced the real thing.  So I won’t deny that energy, but I will say there are also some negatives there.

Building a business is a lonely job, and despite the number of get rich by following my advice businesses there are, you are only going to get rich by keeping your own counsel.  It won’t happen because you and your young drinking buddies figured it out together.  Advice is good, but the best quality of real leaders is they make the right decisions absent enough data to have it handed to them.  That’s why CEO’s can be so tough to deal with sometimes.

Let’s also keep in mind that there are also monoculture risks in being too steeped in a community.  Yes, you can keep a finger on the pulse and understand the prevailing fashion trend (gee, are we doing photo sharing today, coupons, or some goofy check-in and review Consumer Internet play today?).  If you’re a dedicated Bubble Rider, you need to sense of what’s happening.  That’s what you do is jump on or ideally create the Fashion Trends.

But, it is not clear to me and never has been that this is a particularly low risk play.  I think it is much higher risk than simply solving real problems that real customers have.

Venture Capital

If you’re determined to raise Venture Capital you will have to be where the Venture Capitalists are.  You need to do that both to Influence them and to learn who they are and how to approach them in a way that is successful.  You can’t do that remotely and I am skeptical you can just get on a plane and visit Sand Hill Road when you need money.  Relationships have to be cultivated over time.  This is a serious Network Effect that isn’t going to change any time soon, and I think it is by far the strongest reason to come to the Mecca.

Pilot Accounts for Enterprise Software

If are so fashion challenged, as I am, to seriously contemplate Enterprise Software, you will need to find your initial Pilot Accounts.  If you handle everything right, they become your Reference Accounts.  You need about 10 of these carefully nurtured Kobe Beef Customers (hey, if they want a daily neck message, get your little hiney over to their offices and lay one on them) so that when the poor schmucks you actually plan to charge retail come through the door they have someone to talk to who will say nice things about you.  Trust me, you’re going nowhere without the Reference Accounts.  You can get started making real money with fewer than 10, but once you get 10, you can quit worrying about the Kobe Beef process and hopefully you’ve treated your other customers so well they are automatically Reference Accounts too.

To get your first Reference Accounts is going to be a function of networking.  It will be rare that you can just walk in the door cold and get someone at a Big Company to make a bet on your sorry startup self.  No, it’s only going to happen with someone you or someone you know already knows because they’re the only people that’ll trust you.  Either your sales guy will crack open his Rolodex (sorry, probably starting to be peeps who don’t know what that is!) or you’ll talk to someone you golf with, or something similar will happen.  While that can happen outside Silicon Valley (or insert other Tech Mecca Here), it is more likely to happen in SV.  The reason is because the Big Cos with offices in SV have done this before.  If you go cruising into some Oil Business cum Frac company in Houston, Texas, maybe they haven’t ever taken a flyer on a fly by night like your startup.  Maybe your pal knows he can lose his job if it blows up, whereas in SV they know it is all part of being on the Bleeding Edge.  Heck they have offices there partially because they want to talk to people like you so some can rub off and become a balm for their Innovator’s Dilemma.

Thing is, if you’re going to need a bunch of Reference Accounts, consider that you might need to do that in Silicon Valley.

Conclusion (aka When Am I Leaving Silicon Valley?)

On balance, if I was a young guy living outside SV looking to Bootstrap a new company into being, I wouldn’t start by moving to SV.  I’d just go for it and I expect I would be successful sooner, making more money sooner, yada, yada.  I would care about VC because I want to Bootstrap and I don’t care about Enterprise Software because it’s too hard to Bootstrap.  I would make sure I was reading all the right blogs and I would figure out how to do some remote networking in case I needed a service or some advice from someone not in my burg.  It can be done and works pretty well.

If, OTOH, it was going to be critical to raise VC, perhaps because I want to do Enterprise Software or because I’m a Bubble-Riding-Fashion-Seeking-Consumer-Internet-Kinda-Guy, I’d quit fooling around and get myself moved to SV.  There’s no substitute for it.

If I was a young SV guy who’d had some success and was thinking of starting my first Bootstrap company, I would seriously consider moving out.  I’m talking about a someone who is either single or at least doesn’t have kids.  Getting off the salary crack pipe is hard, but if you’re at the stage where the equity in your house will practically eliminate the mortgage in another town and you need to get your overhead to be cheap, cheap, cheap, it makes sense.  Ideal would be if you can go as a Techie/Non-Technie founding team.  Move to Austin or some place together.  Think of the adventure.  You’d be successful and self-sufficient that much sooner.

Now I’m an older guy already living in SV and Bootstrapping a company.  When am I leaving SV?

I probably won’t ever leave SV.  Too many friends here and the kids are teenagers at that time when moving them is really tough.  I do think about it largely from an economic point of view from time to time, usually when I visit some place like Houston that is much cheaper.  Summers there are pretty nasty though.  If I keep having thoughts of moving there, I’m going to have to change my visits to happen during the summer.

Postscript

Hey, what about those VC Incubators?  How can I possibly be successful with an Incubator?

Sorry, but I’m not a big believer in Incubators.  They’re giving you very little in exchange for what seems to me to be a lot.  Largely they’re giving you confidence because they’re selling the age old self help value proposition:  “We know the formula for wealth and we’re willing to teach it to you for a price.”  Here’s a little secret: everything they are going to teach you is readily available for free or at very low cost on the Internet.  The only thing they have is their reputation which is the magic pixie dust that’s going to tell you that THIS is finally the one true formula.  Guess what?  There is no one true formula.

Go read the books by the 37Signals guys.  They have a great reputation too and it is a lot cheaper.

BTW, VC intros are part of that One True Formula.  Incubators can get them for you, but you can also get them for yourself.  It’s not really that hard but it is also not really that important.  I was getting them in frickin’ Houston, Texas at the tender age of 22 right out of school.

The VC’s won’t give you any money until you have something worth investing in.  Go get that done and you can get the meeting with the VC’s.

Posted in bootstrapping, business | 3 Comments »

No office, no boss, no boundaries: The Life of a Bootstrapper

Posted by Bob Warfield on January 7, 2013

LonelyUmbrellaI loved this CNN article that I found courtesy of Hacker News, except for the sketchy spin on loneliness.  It captures some of the lifestyle I’d like to have, though I’m not there yet.  I have been able to quit my day job, but I’m still low enough in six figures and busy enough with the business that living continuously on the road is somewhere, um, down the road.  To give an idea, here is what my day looks like, give or take a half hour on the timings:

6am to 7am:  Wakes up, triages email, RSS Blog Feeds, and News on iPad from bed.  Decadent, I know, and a disgusting habit, but I’ve grown to like it enough I will admit to it.  I use my iPad for information consumption and triage.  I hate typing on it (methinks the Microsoft Unicorn er Surface will fix that), so at most I read the email in Gmail and either star it for futher attention on a real PC or archive it.  This is a common workflow for me and I also use it for my RSS Blog Feeds.  I subscribe to about 200 blogs at the moment, so being able to rapidly triage is critical!

7:30am:  Sit down in front of PC to do CNCCookbook Customer Service.  Order fulfillment, question answering, and site metrics monitoring all fall in this category.  Between Customers, Beta Testers, Trial Users, and other miscellaneous contacts, I am dealing with a population of about 6,000 that want a piece of my time in some way.  My tools for this time include GMail, User Voice (my Customer Portal software), a PHP BBS clone (our User Forums which I call the Customer Club), Google Analytics, and Mailchimp if I need to check status on some mail campaign.  For example, every Wednesday morning we do a big mailing of our blog digest and I like to check which articles are getting the most traction.

8:30 – 9am:  Depending on how much is going on, I am ready to progress from customer service to writing software.  It’s important that I shut down the web browser and bring up my Agile Backlog (that lives in Excel because it is just so easy and I don’t have to coordinate with a team) and Adobe Flashbuilder.  Time for heads down software development.  I take a break after every 2 or 3 Agile Backlog items are retired or every 2 hours to hour and a half, whichever comes last.  I find the breaks refresh my ability to concentrate and help stave off a stiff back and neck.  Ideally a break will consist of a walk on at my new treadmill desk and a bit of Web Grazing (it’s more leisurely than Web Surfing) on my iPad.  Of course, I will take the opportunity to do a quick Customer Service check-in on the walk and deal with any issues when I get back to my PC.  If the weather is nice, I’ll take a short walk outside.  You can see Monterrey Bay from my house.  Breaks are 10-15 minutes and I think they correspond to time in an office spent at the water cooler, restroom, or chatting with coworkers.

11:30 – Noon:  Go to lunch.  Unless I am really in a crunch mode, I want to leave the house for lunch.  I have lunch with my wife MWF and with a co-worker, friend, or other contact on Tuesdays and Thursdays.

1 – 1:30pm:  Back to work.  I do a quick Customer Service check then I am back on the coding with breaks cycle.

3:30pm:  Go offsite for coffee.  I am a total coffeeholic.  My ideal office-style work environment will be within walking distance of at least one Starbucks-or-better quality coffee establishment.  I will then proceed to take people on walking meetings for coffee, one in the morning, one in the afternoon, instead of looking them in a conference room.  Works great.  Unfortunately, I can’t really justify more than one coffee outing a day in my new Bootstrapper’s Lifestyle.  I don’t have anyone to meet with really.  Nevertheless, there are quality of life issues, and it is important to step back from the individual tree I am banging head against at the moment to review the status of the forest.

4:45pm’ish:  Back to work.

6pm:  Dinner with Family.

7pm:  Back to work.  If I am really up against a deadline (all self-imposed, but they really always are), I will keep coding.  Otherwise, this is when I do my marketing work.  The vast majority of marketing at this stage consists of writing content.  I averaged 5 blog posts a week in 2012.  To do this work, I keep a big Delicious bookmark list of things that might turn into articles.  Or they might not.  If I can’t face writing at 7pm, I will allow myself up to 1 hour to go Surf the web to research article ideas.  The rule is I have to stick to content that is relevant to my audience.  Content creation happens about 5 nights out of the week.  The other two involve setting up A/B tests, working on web design, web analytics, and grooming my Agile Backlog for Marketing.  Everything except the Editorial calendar is managed from my Agile Backlog, including all marketing.  The Editorial Calendar works better by immersing myself in ideas and seeing what ignites the Muse.  Something always does.  Ideas either come from Surfing the Web, looking at my Delicious Bookmarks, or through Keyword and other Analytics Analysis.

9-10pm:  Knock off.

I don’t watch TV except for Kindle Fire episodes after 10pm.  When I went to Windows 7 64-bit, my last first person shooter computer game quit working.  I have studiously avoided starting on another.  While I do play games, they’re simply ones that get old after 10 or 15 minutes of play.  I follow this routine religiously 5 days of the week.  On the weekend, I follow the same routine unless there is a Quality Alternative.  The QA’s include a structured activity with the family such as seeing a movie or going dancing with my wife (we love live music).  The other source of QA’s is getting time in my own Machine Shop where all of this started.  That’s what I had to do to scrape up an extra 10 hours a week to start Bootstrapping with a Day Job and that’s what I’ve kept to since leaving the Day Job.

On vacations, I bring a laptop that is equipped to do all of this work.  I have access to everything from any computer thanks to the magic of Dropbox, 1Password, and having signed up for as many Cloud/SaaS alternatives as I could.  I prefer not to write code on vacation as time is short and that’s not why I am there, but I can and do keep up with Customer Service and will even manage to write a bit of content–more like 1 or 2 articles a week instead of 5.  If I know I will be travelling, I tee up 3 or 4 articles that can be published before I leave.

That, in a nutshell, is the life of this busy bootstrapper.  From my Bootstrapping Odyssey post you can get an idea of the marketing results and deliverables that can be accomplished on such a schedule.  From a coding perspective, Github suggests I committed about 900,000 lines of code (Adobe Flex for the most part) during 2012.  I only worked full-time the last half of 2012, so hopefully I can do more in 2013.

I love the Bootstrapper’s life I have found.  It’s hard work, sure, but I’d be working just as many hours at some Venture-Funded Startup if I wasn’t doing this.  I know, because I’ve done that 6 times before.  I’ve also had the luxury of taking long periods off between gigs. It takes time to find the right position at an executive level.  Periodically, I consider whether I would be happy retired and living off the fat of the land.  Then I spend whatever money I’ve made on silly toys in a move akin to the old explorers burning their ships in the New World so there can be no turning back.  Life is empty for me without the act of creating something–products, companies, new relationships, new experiences, and new interests.  Perhaps it is my sense of mortality, but I realize after just a couple of months that I haven’t yet accomplished everything I want to in life and it’s time to get back to work.

As for the loneliness aspect, the guys described in the CNN article need to get out more or something.  I miss coffee with co-workers, but I have always been an extrovert at heart and keep friends and contacts for years and years.  I’ve made a wealth of new ones as part of CNCCookbook, so the journey continues.  I was talking to one developer friend about Bootstrapping and he wondered aloud whether it would be possible to work from Venice, Italy.  I opined as how if the company were successful enough, I’d encourage it just so I could fly there periodically to meet with him.

Posted in bootstrapping | 7 Comments »

 
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