From Coder to Co-Founder: How to Move from Engineering to Entrepreneuring

O’Reilly’s Marc Hedlund has run a number of how-to sessions on startups and entrepreneurial skills at ETech and ETel. Today’s tutorial, Entrepreneuring for Geeks, covers the technologist who wishes to build a business from an idea.

Hedlund began with twenty amusing and useful proverbs for seeking VCs and investors:

• it’s good to be king – entrepreneuring is fun, lets you explore all aspects of work and yourself.
• losing sucks – the risks of personal finance, health and relationships can suffer from unsuccessful ventures and are heightened.
• building to flip is building to flop
• prudence becomes procrastination – by thinking & talking to too many people can lead you to be discouraged from taking a risk and ignoring confidence in your ideas.
• momentum builds on itself
• jump when you are more excited than afraid – just make sure you’re more excited than afraid.
• the idea – pay attention to the idea that won’t leave you alone…if you have to convince yourself to work on it, then it’s the wrong idea.
• whom should i tell my idea to – potential customers YES, other entrepreneurs NO…don’t keep your secrets from the market or the market will keeps its secrets from you.
• immediate yes is immediate no – run away from the ideas that have instant support, if you read about it in the NYT ideas section in December, it’s time has passed!
• build what you know – easy to focus on things for people who live in front of computers, but also build from your own experiences in life.
• give people what they need, not what they say they need – think about the answers your getting and ensure you have confidence in the providers of answering.
• your ideas will get better the more you know about business – a hard pill to swallow for technologists, but like anything, you’ll perform better the more you know about anything.
• people…three is fine, two divine – two people leads to a good dynamic, one requires strong motivation, three+ can lead to crippled decision-making.
• work only with people you like and believe in – advice from Eric Schmidt…if they’re good at their work and you like them, hire them. Equally, work with people who like and believe in you, just naturally.
• great things are made by people who share a passion, not by those who have been talked into one
• cool ideas are useless without great needs – SETI@home proved there were few customers for grid installations and hence no enterprise idea. Is there a great need that people would pay for … even people who don’t like me or know me! del.icio.us – selling companies limits your customers (maybe five big acquirers), selling services can yield millions of customers.
• build the simplest thing possible – don’t build for perfection…race to a working product and make the simplest thing that addresses the need.
• solve problems, not potential problems – you only have to solve a scale problem when you have scale!
• test everything with real people – grab Starbucks customers! Customers make the obvious mistakes and help you to correct.
• start with nothing and have nothing for as long as possible – idea>got VC>started company, this is unusual as VCs usually only come to a running company. Use your salary to fund your startup – you can then ask yourself after days and weeknights ‘should I quit my day job’.
• the best pitches are plainspoken and entertaining (not in that order) – businesses that can be explained simply are usually the most powerful.
• never let on that you’re keeping a secret – your secrets will be shared, so better to be open and honest but direct unwanted questions to questions you really want to answer.
• no means maybe, yes means maybe – keep giving VCs an investors updates regardless of outcome…they may eventually come around.
• for investors, the product is nothing – market size, team, competitors are more interesting. Don’t do twelve slides on the product and one on the team…say more about the team.

When questioned on best practices for ‘entrepreneuring from within’, Hedlund found it difficult to generalise but suggested that it’s down to convincing company leadership to exchange part-ownership for the freedom to spin-up a new company.

Moving onto fundraising, Hedlund covered a lot of the same ground from ETech 2005 in outlining the behaviour of VCs and the patterns to look for when seeking investment.

• VCs don’t start new companies – for initial funding go to customers, consultancy, angels, loans, grants and yourself (you can invest some of your money at a trusted online trading platform).
• focus on the business first – if VC funding is available, you can go faster, but you must be prepared to fund a business.
  • Build the product
  • Get users
  • Make money
  • Don’t spend it
  • Get to break-even
• VC provides money, credibility, guidance & review, some introductions and advocates for the company.
• The best way to get VC is not to need it (!)
• Think of investors as a continuum, not a YES/NO boolean…try and understand their level of enthusiasm plus what worked for them and what didn’t.
• Funding is more than a full-time job – someone needs to be present consistently at all investor pitches in order to see the patterns and act consistently.

Hedlund sought to conclude his advice with a series of questions that the entrepreneur must consider when seeking to startup or indeed seeking investment:

• Will customers care about this product?
• Are they high-margin customers?
• What has changed to allow a startup to grow?
• Are there enough customers willing to pay?
• Is there a sales channel that will be profitable?
• Do want to work with these people for five years?
• Are the numbers believable?
• How much to get to profitability?
• Do they know the competition, how well are they positioned?
• Do I believe these people can win?

Hedlund went on to comment on the idiosyncracies of recent startup flips, including Bloglines, del.cio.us, FeedBurner, Flickr & Odeo, before leading into a case study of a startup proposed by Hedlund himself. GripeJuice was collective bargaining site for consumers hit with bad customer service.

GripeJuice did fulfil a need, for people stuck in call-centre interactions, addressing poor user experiences. Users that shared a bad experience with others could collectively leverage the service provider. However, the service required some significant effort from the user, also the correlation between service frustration and the desire to pay for that resolution was disconnected in that payment didn’t solve the customer’s original problem immediately. Also, ironically, the best customers will be those that complain the most and are likely to be most critical of GripeJuice!

In the closing Q&A Hedlund took questions on internal entrepreneurship in large organisations – I spoke briefly with him about potentially bringing some of this expertise in France Telecom, perhaps through our upcoming User 2.0 conference.