March 19, 2005

Paul Graham on starting up

Paul Graham, co-founder of ViaWeb (acquired by Yahoo), has a nice article on starting a start-up. Some Extracts:

On Ideas
An idea for a startup, however, is only a beginning. A
lot of would-be startup founders think the key to the
whole process is the initial idea, and from that point
all you have to do is execute. Venture capitalists know
better. If you go to VC firms with a brilliant idea that
you'll tell them about if they sign a nondisclosure
agreement, most will tell you to get lost. That shows
how much a mere idea is worth. The market price is less
than the inconvenience of signing an NDA.

Another sign of how little the initial idea is worth is
the number of startups that change their plan en route.
Microsoft's original plan was to make money selling
programming languages, of all things. Their current
business model didn't occur to them until IBM dropped it
in their lap five years later.

Ideas for startups are worth something, certainly, but
the trouble is, they're not transferrable. They're not
something you could hand to someone else to execute.
Their value is mainly as starting points: as questions
for the people who had them to continue thinking about.

On People
What matters is not ideas, but the people who have them.
Good people can fix bad ideas, but good ideas can't save
bad people.

What do I mean by good people? One of the best tricks I
learned during our startup was a rule for deciding who
to hire. Could you describe the person as an animal? It
might be hard to translate that into another language,
but I think everyone in the US knows what it means. It
means someone who takes their work a little too
seriously; someone who does what they do so well that
they pass right through professional and cross over into
obsessive.

What it means specifically depends on the job: a
salesperson who just won't take no for an answer; a
hacker who will stay up till 4:00 AM rather than go to
bed leaving code with a bug in it; a PR person who will
cold-call New York Times reporters on their cell phones;
a graphic designer who feels physical pain when
something is two millimeters out of place...

Techies score over MBAs
In a technology startup, which most startups are, the
founders should include technical people. During the
Internet Bubble there were a number of startups founded
by business people who then went looking for hackers to
create their product for them. This doesn't work well.
Business people are bad at deciding what to do with
technology, because they don't know what the options
are, or which kinds of problems are hard and which are
easy. And when business people try to hire hackers, they
can't tell which ones are good. Even other hackers have
a hard time doing that. For business people it's
roulette...

If you work your way down the Forbes 400 making an x
next to the name of each person with an MBA, you'll
learn something important about business school. You
don't even hit an MBA till number 22, Phil Knight, the
CEO of Nike. There are only four MBAs in the top 50.

What you notice in the Forbes 400 are a lot of people
with technical backgrounds. Bill Gates, Steve Jobs,
Larry Ellison, Michael Dell, Jeff Bezos, Gordon Moore.
The rulers of the technology business tend to come from
technology, not business.

Prototype
The only way to make something customers want is to get
a prototype in front of them and refine it based on
their reactions...

In a startup, your initial plans are almost certain to
be wrong in some way, and your first priority should be
to figure out where. The only way to do that is to try
implementing them.

On the need for a "professional CEO"
Sometimes the VCs want to install a new CEO of their own
choosing. Usually the claim is that you need someone
mature and experienced, with a business background.

Maybe in some cases this is true. And yet Bill Gates was
young and inexperienced and had no business background,
and he seems to have done ok. Steve Jobs got booted out
of his own company by someone mature and experienced,
with a business background, who then proceeded to ruin
the company. So I think people who are mature and
experienced, with a business background, may be
overrated. We used to call these guys "newscasters,"
because they had neat hair and spoke in deep, confident
voices, and generally didn't know much more than they
read on the teleprompter.

Talking to VCs, but not for money

Talk to as many VCs as you can, even if you don't want
their money, because a) they may be on the board of
someone who will buy you, and b) if you seem impressive,
they'll be discouraged from investing in your
competitors. The most efficient way to reach VCs,
especially if you only want them to know about you and
don't want their money, is at the conferences that are
occasionally organized for startups to present to them.

Apartments not cubicle farms
An apartment is also the right kind of place for
developing software. Cube farms suck for that, as you've
probably discovered if you've tried it. Ever notice how
much easier it is to hack at home than at work? So why
not make work more like home?

When you're looking for space for a startup, don't feel
that it has to look professional. Professional means
doing good work, not elevators and glass walls. I'd
advise most startups to avoid corporate space at first
and just rent an apartment. You want to live at the
office in a startup, so why not have a place designed to
be lived in as your office?

Location
Besides being cheaper and better to work in, apartments tend to be in better locations than office buildings. And for a startup location is very important. The key to productivity is for people to come back to work after dinner. Those hours after the phone stops ringing are by far the best for getting work done. Great things happen when a group of employees go out to dinner together, talk over ideas, and then come back to their offices to implement them. So you want to be in a place where there are a lot of restaurants around, not some dreary office park that's a wasteland after 6:00 PM. Once a company shifts over into the model where everyone drives home to the suburbs for dinner, however late, you've lost something extraordinarily valuable. God help you if you actually start in that mode.

On the "how many people do you have" question
If you ever end up running a company, you'll find the most common question people ask is how many employees you have. This is their way of weighing you. It's not just random people who ask this; even reporters do. And they're going to be a lot more impressed if the answer is a thousand than if it's ten.

This is ridiculous, really. If two companies have the same revenues, it's the one with fewer employees that's more impressive.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.