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 How to start a
company
(and win an Apple Macbook Pro)
By Cameron Purdy
Editor's Note: DZone isn't a sponsor of this contest,
but thought that it was a neat idea and felt it should be uplifted.
Have you ever had an idea for something you'd really like
to do, but then find a limitless list of lots of reasons why you couldn't
do it, why you shouldn't do it, or why you should just wait a while before
you do it? I've been struggling with giving birth to such a notion for a
while, and I think I'm finally ready to take the plunge and make it
reality.
Like many ideas, this one began easily enough. I was
talking with a local entrepreneur here in Boston about what finally made
him pull the proverbial trigger and step out on his own to start a
business. At the time, I had just begun to work with others like him to try
to share things that I had learned, to lend a helping hand, and to provide
a listening ear. (Humorously, as it turns out, the listening ear was always
the most valuable thing that I had to offer; it turns out that you can get
bad advice from just about anyone.)
Over the next few years, I asked the same question often,
and was often surprised by the answers. It turns out that there's a
surprisingly small gap between the decision to stay in a safe job and the
decision to go out on one's own to join a startup or even start a new
company of one's own. Often, it came down to a small incident, a
conversation overheard, a line from a movie or a presentation, or even the
proverbial coin toss.
That started me thinking: How many people are a hair's
breadth away from trying it? I was soon to find out. Since starting and
subsequently selling a company, I've spoken to countless people about their
own dreams - and often plans - of starting something new. Some of the ideas
and plans might be classified as "challenged", but I've been surprised by
how many are truly ingenious.
Following the thread to its logical conclusion, I started
asking people a simple question: "What's stopping you?" It turns out that
there are a lot of good reasons. For example, many people have comfortable
jobs that pay them far more than they could find anywhere else; it's truly
hard to walk away from a deal like that. I was surprised though by how many
bad reasons that there were, such as:
- I don't know how to write a business plan;
- I don't know how (or I don't have the necessary connections) to raise
capital;
- I've never started a company;
- I didn't go to business school;
- I'm an engineer, not an entrepreneur or an executive.
So I set out to slay some of these dragons, and in the
meantime a fun idea began to be crafted in my cranium. First the
dragons:
I don't know how to write a business
plan.
Don't ever buy the nonsense about a business plan. Yes,
at some point you'll need something written down as part of the process of
raising venture capital (assuming you go that route), but don't start with
a written business plan. Look, there is a name for people who start by
writing a business plan: business school students. If you ever need
to know which way it is to the university cafeteria, those students may be
the best people to follow, but please don't take their advice on business
until they've personally run a few into the ground.
I've had venture capital partners tell me that they get
four hundred business plans each day. I'm going to put this as bluntly as I
can: When an investor pulls out their checkbook and asks you for your
business plan, make sure you have one. If the investor isn't pulling out
their checkbook, then their request for a business plan is simply a way to
stick you into a pool of things that they might look at some day if nothing
exciting is going on. Trust me, if they like your idea, your widget, or
your verbal plan, then they'll help you write a business plan if they want
your business.
Investors are much more interested in talking to you and
meeting your team than they are in yet another forty-page document with a
ten year revenue and hiring plan specified to the nth
degree based on random quotes from Gartner.
Having a plan doesn't always mean that you've written
one.
I don't know how to raise capital.
If you're going to start a business, then get used to the
feeling of not knowing exactly how to do your job. Every market, every
company, every year, every technology is different. No matter what you
think you know already, you will have to learn an astounding amount each
day, and even if you learn it all quickly, it's still not any guarantee of
success.
Raising capital the "investor way" is actually a
relatively simple process. I'll try to summarize it here:
- One or more investors become interested in what you are doing (or more
likely, what you convince them that you can do if they invest);
- You iterate through a few phases of writing plans and they lead you to
believe that you can get a good deal of capital without giving up much
equity;
- The investors provide you with the actual contractual paper which is
written in an unparsable language from a different p***t and you sign with
your blood.
Raising capital the "entrepreneur way" is a more
difficult process, but I suggest that you try it. It goes something like
this:
- Once you have your plan in your head, you start proving it out one way
or another. Prototype it. Build it. Preferably sell it, which is to say
that you find customers who are willing to give you money - even if you
haven't quite gotten around to building it yet.
- Start cultivating relationships with investors, but limit the time
that you allocate to a manageable level so that you can focus on your
business; ultimately, the investors are a means to an end, not the business
itself.
- As soon as you have any revenue (read: customers), the investors will
start finding you.
Most businesses suffer from a natural chicken-and-the-egg
problem: You need money to build something so you can sell it to customers
so you can get revenue so you have money so you can build that thing in the
first place. In the absence of both the chicken and the egg, you have to
improvise. Can't get customers to pay for something that doesn't exist? Use
a prototype to get verbal commitments that they would buy it if you had it.
Find out how much they would actually be willing to pay, and then assume
they're lying because the half of them that do end up buying it in the
first couple years will pay only half that - if you're lucky.
I've never started a company.
Yeah, no kidding. If you had, you wouldn't be reading
this nonsense. Next!
I didn't go to business school.
I admit that I do wish that I had gone to business
school, because it probably would have helped me to avoid some stupid
mistakes. Maybe a whole bunch of stupid mistakes.
On the other hand, had I gone to business school, I
probably would have been smart enough to not start my own company.
If it makes you feel any better, after you start getting
some revenue you can always hire people that went to business school.
It's also comforting to know that when you're big and
successful, your university will give you an honorary business degree in
exchange for a new building.
I'm an engineer, not an entrepreneur or an
executive.
People can't be convinced of something they choose not to
believe, so if you want to believe that you're not up to it, then I can't
convince you. On the other hand, in our high technology industry, most of
the entrepreneurs are engineers, nerds and geeks. Most startups are built
around a core of entrepreneurship that flows from the vision of an
engineer, a technologist, a coder, a geek. Where do you think executives
come from?
Great executives don't come from business school; they
came from the school of business, also known as the School of Hard Knocks.
Great entrepreneurs are a mixture of confidence and abject terror; focused
execution and chaos; incredible forward-looking vision and myopia.
There's only one way to find out, and the first step is a
doozy, which brings me back to my fun idea. I know first-hand that there
are tons of great ideas out there, just waiting to happen, and so I started
thinking of ways to push a few ideas over the proverbial edge. Thanks to
all the irrational doom and gloom about the economy, it's a great time to
be starting a company, before everyone else jumps on the recovery wagon,
and while you can hire great people at reasonable rates, so I'm already
feeling like the timer is running.
So here's how I'm going to pull this off:
- First, I have to trick people into sending me their really good ideas,
so that they actually have something to lose. Since I'm talking about high
technology startups, this is incredibly easy: I just need a contest with
some suitably expensive Apple product as a prize.
- Next, I evaluate the ideas, and pick the best one; the author wins the
prize.
- Now comes the fun part: I let the author know that their idea is legit
- that they could actually make it happen. If they want to meet investors,
I'll introduce them. If they need some advice, I'll introduce them to other
entrepreneurs. I'll give them a limited period of time, say 90 days, to
actually start executing on their idea. If they do, it's theirs, but if
they don't ... I'll publish it so anyone can run with it.
So is some expensive Apple gear worth it? There's no
hidden agenda: I'm going to use the value of your own idea as the leverage
to make you actually do something with it.
The fine print.
- To participate, send your idea - written as a publishable essay
explaining why it's a great business idea - to me: cameron.purdy@gmail.com.
- I have no financial interest in this. I don't want money if you get
bought. I don't want stock if you go public. No one is paying me to do this
or covering my expenses or otherwise behind this effort. Not even
Apple.
- If you do start a company, I'm not looking for a job. I'm can't
promise any quality of service on advice either, since I'm always behind on
my own work (and my advice may suck).
- I'm not doing this to steal your idea. I have plenty of my own crazy
ideas, and I have my own work to do. If you don't trust me, don't send me
your idea, unless you think the expensive Apple gear is worth it.
- For this initial iteration, I'm going to limit the scope to the U.S.
because I'm not a lawyer nor do I want to talk to one. I also won't accept
entries from employees of my employer, since that would probably violate
something.
Until next time,
Cameron Purdy
To
read more of Cameron's work, visit his blog.
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