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Plunnge … Reinvention for the new generation

July 27, 2011

The Scuba Sutras got covered in a book .. Plunnge: Reinvention for the new generation.

Plunnge is a compilation of stories of fifteen people who choose to do something different from the usual.  Pick it up if you can!

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Lessons from LinkedIn …

May 23, 2011

The recent news of LinkedIn’s IPO certainly raised a huge amount of interested chatter around the web .. and its share of controversy.  How could a company with about $250M in revenue … and about $15M in profits, command a market capitalization of $10 BILLION?  Was the stock under-priced (at $45 opening, quickly ramped up to $120 or so in the first day’s trading) to start with?  Are social networking sites creating a brand new internet bubble?

LinkedIn goes IPO

LinkedIn goes IPO

Then I found this excellent article by Judith Hurwitz on the Harvard Business Review, that talks of the smart moves that LinkedIn and Reid Hoffman made.  It wasn’t just luck: it was smart moves.  And not surprisingly, these moves truly paid off.

Here are some of the excerpts from the article (you can read the full article here):

Smart Move #1. It shifted the focus quickly to infrastructure, relationships, and planning. Startups usually have their basis in a novel idea, and often the visionaries behind them want to keep coming up with cool ideas. LinkedIn’s Reid Hoffman was not that kind of founder. In his previous role as an executive vice president of PayPal, he was the guy in charge of external relationships and the payment infrastructure that was the heart of PayPal’s intellectual property. He came to LinkedIn with an understanding of what really matters to execution.

To me, this sounds very much like the 6th Sutra: I will respect the currents around me.  When LinkedIn started way back in 2003, they looked like these screenshots.  Initially, they looked like an online Rolodex … but by 2005, they quickly transformed themselves into what the market really wanted: connections leading to jobs and contracts.  And yes, since then, they have stuck to that current all along.  And boy … has Reid Hoffman’s strategy paid off.  Even Google, when it went IPO, commanded less of a premium to opening stock price.

Smart Move #2. It drew up, and followed, a roadmap. In LinkedIn’s early days, no one really understood what the company was all about. Again, it preceded Facebook. This was before the world went crazy with social networking. But it is clear that there was a well-defined roadmap in place. Hoffman and his team understood that there was a need for a real business-focused connection model, since in business, success is often driven by “who you know.” And they had thought through what it would take to create a network to translate what people do in the physical world to the digital world. Revenue would come from advertising and from people subscribing to a tool for finding new business contacts. Certain steps would have to be taken to attract a critical mass of participants to the network, at which point its value would be easily recognizable and self-sustaining. The business plan behind LinkedIn would use this critical mass to build payment based services and advertising. It sounds obvious to say a startup should have a well thought out plan, but in fact this distinguishes LinkedIn from hundreds of other social networking companies that might have been just as lucky in other respects.

and

Smart Move #3. It stuck with its target market. Fast-growing companies often succumb to the temptation to expand into too many markets, rather than miss an opportunity. There were probably many helpful critics who told LinkedIn executives that they should add in a consumer play — after all, Facebook was growing like a weed. LinkedIn didn’t do it. Sticking to the business plan of targeting the business market was the smart move.

Now: don’t these sound like the 2nd Sutra: I will maintain Neutral Buoyancy, to you?  LinkedIn has been brilliant at “planning the dive, and diving the plan”.  They quickly (within a couple of years) discovered their neutral buoyancy (professional connections) and steadfastly stuck with it.  They had enough distractions around them, remember: Facebook and Twitter, to name a just a couple of them: but they still stuck hard and fast to their core plan.

I also wanted to set something in perspective here: when LinkedIn started up, it was diving in uncharted waters.  They’ve been around for about 8 years now … which, in Internet terms, is literally an eternity.  Facebook, Flickr, YouTube, Twitter … none of them existed in May 2003. Neither did the iPhone or Android. Internet Explorer 6 ruled the Web, Safari was in beta, and Firefox was still Firebird.  And (Google’s) Chrome? Wasn’t it the polish on automobiles?  

And finally:  Justin Bieber was just another precocious Canadian nine-year-old in 2003. 

LinkedIn itself has changed dramatically since those early days of 2003. The LinkedIn network started with just 10 people — the founding employees connected to each other. Since then, it’s grown into the world’s largest professional network, with more than 100 million professionals in over 200 countries and territories. LinkedIn currently has more than 1,000 employees in 12 offices around the world, including London, Paris, Sydney, and Mumbai.

But the plan has not changed.  Since almost 2005, LinkedIn’s leadership has stuck to the same plan that they had: to create the world’s largest professional contacts social network.  And they’ve grown their membership year on year.

Kudos, LNKD.  More power to you!

Lessons on Leadership and Teamwork — from 700 Meters Below the Earth’s Surface

February 17, 2011

I found this absolutely fascinating Wharton article on lessons for leaders from the Chilean miners who found themselves trapped in the San Jose copper mine in the Atacama desert.  And I just had to do this … draw out the parallels between what the Wharton article reports and the Scuba Sutras.  For those who want the full Wharton article, go here.

Frame grab shows trapped miners in the mine

Here are some excerpts from the article.

Universia-Knowledge @ Wharton: In your view, what have been the keys to the miners’ survival, even when they didn’t know if the outside world presumed them to be dead?

Francisco Javier Garrido: The keys to survival in an extreme experience such as this one … can be summarized by three concepts [that] can be applied to the business world. First, there is the [background and expertise] of those who compose the group of people. [Those skills] have been vital for correctly understanding the context [the miners] find themselves in, as well as for grasping the real possibilities of being rescued. This has also been fundamental for keeping the group of people together and remaining hopeful about their chances to survive. Second, [the miners] figured out that it was vital to have [a leader] … with the longest seniority in the ranks of the workers. This was critical for keeping the people on the team together [and] for creating trust in the possibility of emerging alive …  as well as [creating a system for] assigning tasks and the rationing of food …..

The 5th Sutra:  I will not confuse certificates with expertise.  <grin> .. can’t help thinking what might have happened had they selected a B-School graduate as their leader in this situation.

UK@W: Do you believe that the importance of leadership — and the role of the leader — becomes clearer in crisis situations?

Garrido: These 33 men have given us a lesson not only in integrity, but in order and coordination. A spiritual leader has flourished: Luis Urzúa has taken charge of maintaining the cohesion of the group and keeping their spirits high. Meanwhile, the rest of the miners have contributed their own fair measure of effort … in exchanging information with the rescue group; boosting their chances of survival by rationing food, and by paying special attention to those miners who are … in the most precarious health, and [those] who are depressed. Without doubt, it is during a crisis when leadership [is most] tested … whether they have been formally chosen to execute leadership roles, as is normally the case in organizations, or whether [their role] is the result of the natural effects of chance and circumstance.

The 4th Sutra: I will be a good buddy.  Look at the way the entire team rallied around a common cause (well, to be fair, survival is a terrific motivator)!  And look at how they supported each other during this time … not just depending on the leader to set the tone, give out the orders.

UK@W: What will be the main challenges for organizing the group of miners from within and from the outside?

Garrido: We have already mentioned that the motivation of the group, just as in the business world, is essential for maintaining hope for a [rescue.] The challenge will be to maintain an ordered mind, with a sense of orientation to achievement; the spirit of the body and coherence for fulfilling the goal …

The 2nd Sutra:  I will maintain neutral buoyancy.  Remember all the disaster movies you’ve seen (The Poseidon Adventure?  Towering Inferno? 2012?)?  Remember how its the guys who run around desperately are the ones who invariably die off?

I found a number of other connections too between the article and the Scuba Sutras … lets see how many others you can find now.

And yep … while none of us would like to find ourselves in the situation the miners found themselves in, these are truly amazing lessons for leaders.  I’m going to be using this example in my next Scuba Sutras workshop!

I will enjoy the dive, not just the fish

December 23, 2010

If there was ever a video that I related to … about enjoying the dive, even though there are no fish to be seen, it’s this one.  I was smiling as I went through the two-minute video, watching the divers effortlessly move around, just immersed in the water.  I was grinning when I saw, toward the end,  the diver spread his hands out wide .. almost as if to say “What do you say to THAT?”  And I laughed when I heard the video-taker laugh in her mask.

What I found enthralling was how the divers … in spite of terrible visibility, and in spite of seeing almost nothing around them .. still found the experience of diving so much fun.  Their feelings come out in the video .. look again, and you’ll hear the buddies enjoying themselves laughing (and believe me, its tough to laugh underwater).

Funnily enough, I met with an old friend .. very senior in his organization .. a week ago.  Given that Christmas and New Year were just around the corner, I expected to see him relaxed and in great spirits.  So when I asked him “What’s up?  How’ve you been?”, I didn’t expect him to answer:

“Terrible.  Nothing’s happening”.

Huh?

I looked around his office … lots of relaxed people, lots of humor and some horseplay, even a tree in the corner (with folks dropping off gifts for each other under the tree!).  All in all, I thought, a great environment.  What was bugging him?  Bad case of the Grinch?

And then it hit me .. my friend was under pressure.  The quarter was ending soon, and with everyone slowing down around him (including his customers), he was tense.  Sure, he had met most of his goals for the quarter in the first two months itself, but the last couple of things he was trying to tie up were taking longer than he had expected.

What was worse was that he was stressing out his own team.  I met with his assistant on the way out, and after cheerfully chatting with her for a couple of minutes, I asked her what was bugging “the boss”.  She grimmaced.  “Ahh … he’s always like that toward the end of the year.  Just ignore him.  He’ll be fine toward the beginning of the next year”.

Huh????

I went back to my friend, and asked him if he wanted to grab a coffee.  “Why not? Nothing’s happening, anyway”, he said.  And so we got out of the office and went across to the coffee bar outside the building.

“You know, it bugs me that the rest of the team don’t seem to understand that we’ve got to close stuff off cleanly by the end of the quarter”, he said.  “I can’t stand to see these guys horsing around when there’s work to be done”.

“What’s due?” I asked.  “I thought that you guys had wrapped up pretty much everything by the end of November, didn’t you?”

“Reports!  Quarter analysis!  I’ve got to get these off the ground and send it out!  And I can’t seem to get these guys to get serious about it!  There’s at least a couple of days of serious work here!”

“What’d happen if you sent it out by the 3rd, instead of the 31st?” I asked.

“Well … nothing, really, I guess.  Some bonehead at HO would probably rap my knuckles, but … ”

“And don’t you realize that your own team is talking about you the same way you are talking about that “bonehead” in HO?  Don’t you think that your own team is probably thinking “That bonehead boss will probably scream at me, but it doesn’t really matter?”

I guess that hit him.  He went very quiet for a few minutes.  And when we had finished our coffee, I suggested that he better get back to his office.

He grinned. “Hey, its OK.  We can grab another coffee … or its only 15 minutes to lunch?  Want to hang around?  I’ll grab a couple of the others from the office and check with them if they want to go out for lunch, too.  And you can tell us Scuba Sutra stories.  How’s that sound?”

Have a great Christmas and a terrific start to the new year, guys.  And go easy on yourselves .. relax a bit.  The whole world is chilling … be a shame if you stress yourself out at this time.

And as you saw in the video … enjoy the dive.  Don’t worry about the fish.

WTF is Neutral Buoyancy???

September 15, 2010

Phew.  Three weeks of the Scuba Sutras workshop are just getting over.  Interspersed with meeting with over a hundred start-ups  (at the Economic Times Power of Ideas), listening to their plans, helping them fine tune their business …. hectic, hectic, hectic.  But you know what?  One thing comes across in every meeting.

Start-ups are chasing anything that is moving.  And yep … there goes their neutral buoyancy!!

Perfect Neutral Buoyancy

Perfect Neutral Buoyancy

For those who came in late, check back to the Second Sutra … I had plugged in some live stories there.  But  here are some more examples from what I saw the last three weeks.

Like the start-up that wants to offer a concierge service … and is willing to do anything (pick up laundry or groceries, book travel tickets or movie tickets, pay phone and electricity bills … you get the drift).  Wondering how to raise the funding to build all these services.

Or the one that has a strong technology solution in context-based search … and is now building multiple products for multiple domains (Healthcare, Entertainment, Market Research, IT Services … the list goes on).  And struggling with multiple issues across delivery and customer service.

Take the one that wants to use the power of collective buying to drive up bargaining power .. and looking to offer it across “all high value products” (to use their own words) … cars, apartments, LED TVs, Home theater systems, high end phones.  And wondering where to start.

Now, here are a few who have mastered the principle of Neutral Buoyancy.

Like the small architect firm that two years ago was designing and supervising construction of apartments, houses, condos, townships …. anything.  That finally threw up its hands, and decided to offer a single service … that of offering sanction drawings … to builders from out of their own home state.  That grew their business three-fold and their profitability five-fold in two years … after downsizing their team.  And are still growing at break-neck speed.

Or the education company (see Heymath!) that got its act together almost from day one, that today offers its services to hundreds of thousands of students across fifty countries across the world … by deciding to focus on one single area: Math education.

“Hey”, I hear you say: “I understand this.  I know that focus is critical for start-ups.  But you know what?  As a start-up, revenues are important.  I’ve got to chase every deal that comes my way.  Isn’t it better to get the revenue in first, and then once the revenues are in, worry about this ‘focus’ bit later?”

Good point, that … Revenues are important.  But far more important is getting the “right” revenue.

Think about it.  Assume that you are running a services company, for the moment.  Assume that your product or technology is ready, and that you meet customers who like it.  Their only catch … “Can you customize this piece for us”?

So you begin doing that.  And realize that you’ll need to .. perhaps … add a couple of people who understand the customer’s domain to do that.  So sure, you do that.  Deliver on time.  Happy customer, happier you.

Now the next customer pops up … similar story.  “Can you add this little module for us”, they ask. “This is the way its done in our industry”.  So you do that.  Perhaps buy some software licenses to do this.   Deliver on time.  Happy customer, happier you, again.

Third customer … again requests you to modify your product a wee bit.  So this time you bring in external resources … on contract .. to help you do this.  But by now, you’re perhaps beginning to realize that every customer situation is different.  And that they investments you’ve made in people, infrastructure and software are not really helping you any more.  If anything, they have depleted your cash flow quite a bit.

By the time you are ready for the fourth customer … you could be in serious trouble.  You’ve gone splashing after every opportunity that you’ve seen … and are now struggling for resources to deliver.

Get this: Neutral buoyancy is all about multiplying customers many-fold … without having to change your focus from your product or service.  Or investing in additional infrastructure.

Its the equivalent of diving deep in the first few minutes of your dive … and then slowly drifting along, surfacing as you go … enjoying the sights that your dive bring you.

So how do the successful companies and entrepreneurs do it? First, they started by putting some “reasons for diving” in place.  They explained why the company they founded existed.  They dived in deep, and then they drifted along, watching what the sights showed them.

Here are some of the “reasons for diving statements” (oh, btw, the companies themselves called them “focus statements”)  from some of the biggest success the world has seen recently.

“… helping everyone become TV stars …” : Steve Chen, Co-Founder, YouTube

“We’re here to make RECORDED music sound as close to LIVE music as possible”: Ray Dolby, Dolby Labs

” … helping people connect around their sphere of interest so they could do business”: Pierre Omidyar, Founder, eBay

“Our goal is to help people understand what is going on in their world a little better”: Mark Zuckerberg, Co-Founder, Facebook

Do you see the commonality in all these statements?  There is a clear, clear purpose for existence that comes through.

And then, after that, anything that they do is aimed at delivering on that purpose.

Now, ask yourselves this first:  Do you have a clear statement that tells you why your business exists?  Who do you plan to serve?

Next: and this is the toughie … Its easy to say that your product or service services the whole world.  eBay and Facebook do that.

But you know what?  They started from a really, really small base.  eBay started because Pierre wanted to set up a site that would help his wife sell kewpie dolls.  Facebook started because Mark wanted to connect his Harvard college pals  to each other.

You see?

So here’s the next question: Where do you want to start?  Who is that customer who is waiting for you to come along?

Get these two answers in place … and you’ll be well on your way to enjoy the dive.  Have fun!

Finding good buddies

August 30, 2010

When my wife and I used to go on diving holidays earlier, we invariably used to dive together as a buddy pair.  When we had our children, the situation changed.  These days, we alternate: one of us stays on land with the kids, and the other goes diving.

Diving at Netrani: I'm on the left, Nalini is on the right.

Hopefully, this will change soon: our daughter, Sunayana will be ten soon … the age when she can get certified as a diver.  And then we’ll probably alternate taking Sunayana on dives, while the other stays on land with our son, Udayan (who’s too young to go diving 🙂 …. yet).

But even today, when we go diving, we are fortunate that on **most** dives, we are able to find, and pair up with, good buddies.  I’ve dived with people from all around the world : Americans, British nationals, Japanese, Germans, Israelis, Frenchmen, Italians, Scandinavians … and of course, Indian nationals.  What constantly amazes me is the way diving unites people.  Two people who probably can’t begin to speak each other’s language out of water are able to work so well together, under water!

When I look back at the photos that I’ve taken while diving, I can’t help linking it back to the buddy who I was with at that time .. who helped me spot that elusive fish.  Gordon Parr, who spotted the squid on that night dive ..

Squid .. Night dive.  Thanks, Gordon!

Squid .. Night dive. Thanks, Gordon!

or Noa, who was amazing at spotting the micro-stuff like Nudiebranchs.

Nudiebranch .. Thanks, Noa!

Nudiebranch .. Thanks, Noa!

At the same time, we’ve also had these incredibly bad buddies that we’ve been paired up with on dives.   Like the American who was considerate enough to kick me in the face every time he darted forward to grab a look at a lion fish, or the Japanese guy who was so aloof that it almost felt like I was diving alone.

In business, too, we often get buddies who are “external” to the core founding team … but who are great at helping us “enjoy the dive”.  And sometimes, we are partnered with “buddies” whose sole task seems to be to throw every obstacle in our path.

Take, for example: your chartered accountant.  Now I can hear you say “Ah, ah! Hang on there!  A chartered accountant? As a buddy?  You’ve got to be kidding!”

Do you want to hear about the CA for the start-up who took three months to get the company registration completed,  because he had so many large customers that he couldn’t be bothered with this fledgling company?  And almost cost this start-up its first customer, because the company wasn’t registered?  What about the CA who delayed tax filings for this other startup (he was busy with his other accounts, he said!) … and almost sunk it because of the penalties that piled up?  And this other CA who never bothered to give any prudent financial advise to this startup, but yet landed up faithfully every month to collect his fee?

For a start-up company, the critical “external” buddy is the Chartered Accountant.  Given that most start-ups are founded by people who understand as much financial accounting as they understand complex fast fourier transforms, a good CA is worth his or her weight in gold.  He or she can make the business … just as easily as a bad CA can break the business.

So how do you select a good CA?  Asking other startups is a good first step.  How long have they had this CA?  What has he or she done for the company … apart from managing the books?  Is he (or she) proactive?  How long does the CA firm take to respond to questions?  How do they react to questions?

Next: meet the CA.  Is he actively interested in what your organization is doing?  Does he show his interest by asking insightful questions?  Can he partner with you … help you control your costs while you can focus on building your business?  Is his team experienced enough to help you plan your cash flows and your taxes well?  Can they actively advise you … rather than passively maintain your books?

Finally … and this will take a couple of visits … how well do you relate to each other?  Is your CA willing to make time for you and your questions?  Or does he look at you as just another account that he barely acknowledges?

If you’ve selected your CA wisely … you’ve just doubled your chances of success.  At the very least.

And just as a good dive buddy makes your dive enjoyable, a good CA will ensure that you enjoy your entrepreneurship.

Paul Graham: Y-Combinator

August 10, 2010

Paul Graham is perhaps best known for being the promoter of Y-Combinator: a start-up seed fund.  Since 2005, Y-combinator has invested in some amazingly successful start-ups, including loopt, reddit, xobni and justin.tv.

Paul Graham

Paul Graham

In October 2006, he was asked what made start-ups fail.  His full list can be found here, but I found some amazing parallels with the Scuba Sutras.  Here are some of the points that Paul makes  …

Single Founder (My note: 4th Sutra: I will be a Good Buddy)

Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.

What’s wrong with having one founder? To start with, it’s a vote of no confidence. It probably means the founder couldn’t talk any of his friends into starting the company with him. That’s pretty alarming, because his friends are the ones who know him best.

But even if the founder’s friends were all wrong and the company is a good bet, he’s still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.

The last one might be the most important. The low points in a startup are so low that few could bear them alone. When you have multiple founders, esprit de corps binds them together in a way that seems to violate conservation laws. Each thinks “I can’t let my friends down.” This is one of the most powerful forces in human nature, and it’s missing when there’s just one founder.

Obstinacy (My note: 6th Sutra: I will respect the currents around me)

In some fields the way to succeed is to have a vision of what you want to achieve, and to hold true to it no matter what setbacks you encounter. Starting startups is not one of them. The stick-to-your-vision approach works for something like winning an Olympic gold medal, where the problem is well-defined. Startups are more like science, where you need to follow the trail wherever it leads.

So don’t get too attached to your original plan, because it’s probably wrong. Most successful startups end up doing something different than they originally intended—often so different that it doesn’t even seem like the same company. You have to be prepared to see the better idea when it arrives. And the hardest part of that is often discarding your old idea.

But openness to new ideas has to be tuned just right. Switching to a new idea every week will be equally fatal. Is there some kind of external test you can use? One is to ask whether the ideas represent some kind of progression. If in each new idea you’re able to re-use most of what you built for the previous ones, then you’re probably in a process that converges. Whereas if you keep restarting from scratch, that’s a bad sign.

Fortunately there’s someone you can ask for advice: your users. If you’re thinking about turning in some new direction and your users seem excited about it, it’s probably a good bet.

Hiring Bad Programmers (My note: 5th Sutra: I will not confuse certificates with expertise)

I forgot to include this in the early versions of the list, because nearly all the founders I know are programmers. This is not a serious problem for them. They might accidentally hire someone bad, but it’s not going to kill the company. In a pinch they can do whatever’s required themselves.

But when I think about what killed most of the startups in the e-commerce business back in the 90s, it was bad programmers. A lot of those companies were started by business guys who thought the way startups worked was that you had some clever idea and then hired programmers to implement it. That’s actually much harder than it sounds—almost impossibly hard in fact—because business guys can’t tell which are the good programmers. They don’t even get a shot at the best ones, because no one really good wants a job implementing the vision of a business guy.

In practice what happens is that the business guys choose people they think are good programmers (it says here on his resume that he’s a Microsoft Certified Developer) but who aren’t. Then they’re mystified to find that their startup lumbers along like a World War II bomber while their competitors scream past like jet fighters. This kind of startup is in the same position as a big company, but without the advantages.

So how do you pick good programmers if you’re not a programmer? I don’t think there’s an answer. I was about to say you’d have to find a good programmer to help you hire people. But if you can’t recognize good programmers, how would you even do that?

Launching Too Early (My note: 1st Sutra: I will never dive without a check)

Launching too slowly has probably killed a hundred times more startups than launching too fast, but it is possible to launch too fast. The danger here is that you ruin your reputation. You launch something, the early adopters try it out, and if it’s no good they may never come back.

So what’s the minimum you need to launch? We suggest startups think about what they plan to do, identify a core that’s both (a) useful on its own and (b) something that can be incrementally expanded into the whole project, and then get that done as soon as possible.

This is the same approach I (and many other programmers) use for writing software. Think about the overall goal, then start by writing the smallest subset of it that does anything useful. If it’s a subset, you’ll have to write it anyway, so in the worst case you won’t be wasting your time. But more likely you’ll find that implementing a working subset is both good for morale and helps you see more clearly what the rest should do.

The early adopters you need to impress are fairly tolerant. They don’t expect a newly launched product to do everything; it just has to do something.

Raising Too Little Money (My note: 8th Sutra: I will remember my 50 bar limit)

Most successful startups take funding at some point. Like having more than one founder, it seems a good bet statistically. How much should you take, though?

Startup funding is measured in time. Every startup that isn’t profitable (meaning nearly all of them, initially) has a certain amount of time left before the money runs out and they have to stop. This is sometimes referred to as runway, as in “How much runway do you have left?” It’s a good metaphor because it reminds you that when the money runs out you’re going to be airborne or dead.

Too little money means not enough to get airborne. What airborne means depends on the situation. Usually you have to advance to a visibly higher level: if all you have is an idea, a working prototype; if you have a prototype, launching; if you’re launched, significant growth. It depends on investors, because until you’re profitable that’s who you have to convince.

So if you take money from investors, you have to take enough to get to the next step, whatever that is. [5] Fortunately you have some control over both how much you spend and what the next step is. We advise startups to set both low, initially: spend practically nothing, and make your initial goal simply to build a solid prototype. This gives you maximum flexibility.

Spending Too Much (My note: 2nd Sutra: I will maintain neutral buoyancy)

It’s hard to distinguish spending too much from raising too little. If you run out of money, you could say either was the cause. The only way to decide which to call it is by comparison with other startups. If you raised five million and ran out of money, you probably spent too much.

Burning through too much money is not as common as it used to be. Founders seem to have learned that lesson. Plus it keeps getting cheaper to start a startup. So as of this writing few startups spend too much. None of the ones we’ve funded have. (And not just because we make small investments; many have gone on to raise further rounds.)

The classic way to burn through cash is by hiring a lot of people. This bites you twice: in addition to increasing your costs, it slows you down—so money that’s getting consumed faster has to last longer. Most hackers understand why that happens; Fred Brooks explained it in The Mythical Man-Month.

We have three general suggestions about hiring: (a) don’t do it if you can avoid it, (b) pay people with equity rather than salary, not just to save money, but because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first.


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