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BS50 Part 7: Do You Need A Cofounder? – The Cons

February 10, 2012 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

In the last installment of the BS50 we talked about why having a cofounder could be a good idea. This time we’re going to take the alternate side and point out a few things that could be detrimental to your startup.

Personality Conflicts

Startups and small companies truly are like families. Everyone has to spend a great deal of time around each other and everyone has to rely on each other for success. There are no inconsequential team members when a team has only 2 or even 5 employees. Everyone has to work well together or the quality of product shipped will suffer. Personal conflicts between team members can upset the delicate balance in small teams.

This risk is heightened significantly when you’re considering a cofounder. A cofounder is going to bear a significant portion of the decision making responsibility, so trust and understanding are absolute requirements. To be successful you’re going to have to implicitly trust your cofounder, letting them handle their area of expertise without your input. If you don’t get along with your cofounder then the startup will necessarily feel that discord.

Financial Considerations

A cofounder, depending on your specific stock and financial agreements, will necessitate a large portion of income generated. This is somewhat less important if the company gets off the ground quickly and starts earning enough revenue to cover expenses. But what happens if the fledgling company struggles along for a year or so and there isn’t enough revenue coming in to pay either cofounder enough to keep them around?

Long-Term Stability

The long-term goals of your cofounder should matter when making decisions. Are they in the company for the long-term or are they just going to dabble in your startup for 2 years? A committed, long-term cofounder is significantly more valuable to your company than someone who’s just looking to help you out for a while or wanting to get out of their current job.

Your Take

What are your thoughts on bringing in cofounders? Have you had any experiences with a cofounder before? Please share in the comments.

Next up we’ll talk about the potential pitfalls of adding cofounders.

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BS50 Part 6: Do You Need A Cofounder? – The Pros

October 26, 2011 by · 1 Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

The decision whether or not to have a cofounder for your new venture is one of the most critical that you’ll make. It will affect everything from how the company is operated to how much money you personally make once you’ve built a successful business. There are many things to consider, and it’s not a decision that should be taken lightly.

I’m going to split this discussion into two parts because it may get a little lengthy. In this post I’ll hit on the advantages of bringing a cofounder in.

Cofounders Vs Employees

First, a quick note about when you should choose a cofounder instead of an employee. Early on you’re most likely not going to have any revenue, so hiring an employee immediately creates an expense that has to be paid. If you’re considering hiring someone who is extremely talented and that you trust implicitly then you should consider making them a cofounder (co-owner of the company) instead. If they’re passionate enough about your idea then they may forego some salary now for ownership considerations and deferred income a little further down the line. Cofounders are inherently more invested in the company’s success.

Complementing Your Skillset

Bringing in a cofounder whose skills complement yours, not mimics them, is a great way to round out your newly formed organization… they can be the yin to your yang. If your startup is a web company and you’re a designer then you’ll probably need to bring in a developer. Bizdev types will probably need someone technical, depending on the industry. Having founders with a combined skillset that covers the majority of the work needed to get a company off the ground is a luxury and probably gives you a better chance at success than going it alone or having to rely on contractors and new-hire employees.

Cofounders Are A Force Multiplier

The initial work required to get your product to an MVP state or an early alpha stage is daunting. Being able to split that workload will help you get your product out the door sooner and let you start the even longer process of building a profitable product earlier. This force multiplier allows you to more aggressively tackle opportunities and challenges, go after bigger clients, think bigger, etc.

Your Take

What are your thoughts on bringing in cofounders? Have you had any experiences with a cofounder before? Please share in the comments.

Next up we’ll talk about the potential pitfalls of adding cofounders.

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BS50 Part 5: Your Unique Skills and Why They Matter

October 20, 2011 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

Would-be startup founders are typically a confident bunch, knowing what they want to do and having the confidence that they can be a success. They also typically have a skillset that allows them to think big.

The Things That Make You Special

Successful business owners, and particularly founders, have special qualities that allow them to deal with all of the issues that arise during the process of building a company. They may have tremendous leadership skills that allow them to rally teams together to pull off the impossible or an innate creativity that allows them to see things in ways that no one else ever has. Maybe it’s drive and a passion to succeed that helps you overcome the never-ending series of obstacles to success.

If you’re considering starting a company of your own then you have something special inside of you as well. You need to fully understand yourself and the special traits that you have. Building a company may be one of the toughest challenges that you’ll ever face, so you certainly want to make the most of your abilities. Don’t leave anything on the sideline. Identify your special skills and cultivate them; always be improving.

Be Careful – Don’t Let Your Talents Get Stale

Working in a small company means that you have innumerable tasks that need to be done. Having to focus on all of those disparate tasks can have the unintended effect of taking you away from what you’re really good at. Try to continually keep your skills sharp by focusing on tasks that require your particular skills or even creating small tasks that could be beneficial.

I personally have experience with this problem. I used to be particularly good at several software related things, Microsoft VBA, development, and the like. Now, I can barely even read the code. I wish I would have taken a little time over the last few years to keep a couple of those skills sharp.

Your Thoughts?

What are some skills that you make you particularly successful? What rare skills do you see in others that you think would make them good startup founders?

Next up we’ll talk about the pros and cons of cofounders.

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BS50 Part 4: Estimating Profitability

October 14, 2011 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

There are many different types of companies out there, from large multinational corporations to mom-and-pop general stores in small towns to Joe Blow’s handyman service. All are valid, and all depend on just one factor for staying in business: profitability. And yes, I’m purposely excluding non-profits.

Profitability Is The Goal

Personally, I don’t think that you should ever consider bootstrapping a startup company if profitability (strong profitability) isn’t your top priority. You will most likely fail if you can’t find a path to profitability within the first few months of your existence, unlike venture-backed startups who can meander toward their goals unprofitably for a couple years. If you’re thinking about bootstrapping then most likely you’re already in the right mindset; wanted to put the profitability caveat out there just to be sure.

Estimating the Profitability of An Idea

First off, everyone knows it’s impossible to correctly estimate the revenue or profitability of an idea. That’s the stage we’re at now, just an idea or a few potential ideas. You can do a very rough and quick assessment of your idea’s potential by looking into the following variables:

  1. Estimated monthly expenses excluding marketing and advertising. You most likely won’t have much salary and payroll expense at the beginning, so this is really the cost of doing business. Expenses like servers, software, computers, etc. should go here.
  2. Advertising monthly expense. This is often the make or break expense category for a business. All businesses need to advertise somehow. Your marketing and advertising skills are often the difference between success and failure. The cheaper you can advertise effectively then more profitable you will be.
  3. Revenue. This is the hardest variable to predict. So my best advice is to guesstimate how much income you can make in your 2nd month (I’m assuming you won’t make any money at all in month 1) and count on realizing just 10% of that revenue. I’ve always been known to severely overestimate initial income potential, so assuming you’re 90% off should be a safe projection. After month 2 you can assume a small monthly growth factor, something like 3-5%.

Once you’ve got the variables somewhat figured out just plot out a spreadsheet. Total revenue minus total expenses equals rough profitability. Don’t worry about anything other than the big picture items at this stage. You can always fill in the detail once you’re actually moving forward with the startup.

Next up we’ll revisit your skillset. What do you think of the series so far? Comments appreciated!

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BS50 Part 3: Originality Is Overrated

October 5, 2011 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

In the last post I wrote about following your passion and doing what you love. Now, let’s discuss the idea (illusion?) of originality in internet businesses.

True Originality Is Hard To Find

There’s still plenty of room in the internets for completely new ideas to pop up, but it’s happening less and less. Many new startups that you see are simply new takes on existing processes or technologies. How many photo sharing apps do we need, really? The last truly original startup that I remember seeing is Square. The good news is that you certainly don’t need an original idea to be successful.

Passion + Better Product = Success

Your overall potential for success depends more on the quality of the product or service that you produce than anything else. A great idea with a poor execution (I’ve had plenty of those, trust me) will usually fail. User experience is greatly important… first impressions and all that.

You can win in a tough market by building a better product. A good example that comes to mind is Zendesk. Customer help desks certainly aren’t a new idea, but their implementation of the help desk is fantastic and a little different from what was available when it first launched. Now there are several other help desk providers out there following Zendesk’s lead and providing twists on their product offering.

Things like simplicity, ease of use, ease of setup, and price are things that you can use to differentiate your product from competitors. In recent years it has became clear that simpler solutions often win, so think simplicity and ease of use over flexibility and configurability. Apple, Basecamp, Zendesk, etc. are great examples of how providing less can mean more.

Next time we’ll revisit the fine art of making money. What do you think of the series so far? Comments appreciated!

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BS50 Part 2: Playing To Your Strengths

October 3, 2011 by · 2 Comments

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

In the last post I wrote about how to come up with ideas and filter them. This time I want to talk about choosing ideas that align with your skills and passion. Doing something that you love will save you a lot of time and angst in the long run.

Do What You Love

The best business advice that I can ever give anyone is quite simple… do what makes you happy. Why spend time working on something that you aren’t fully invested in emotionally? You should automatically reject any ideas that are related to things that you don’t like. For example, you wouldn’t want to start writing a baseball blog just because you think it could be profitable if you really and truly dislike watching sports.

Find your passions and try to see if there’s a business idea around them. Like cooking? How about a something to help home cooks? Keep making lists and see what ideas stand out.

Take A Step Back

Once you’ve identified a passion and a business idea around that passion you have to temper your excitement with reality. How good is the idea, really? Is it truly just a three star idea that you perceive as five stars because it excites you? Get some feedback from friends, family, etc. to see what they think. Always ask for honesty when getting feedback. Having someone tell you what you want to hear will only hurt you over time.

Identify Your Skills

What are you good at? Are you a designer, a developer, a business development-type? If you’re not particularly skilled at design you probably don’t want to get into the web design consulting business. Same goes for development. You can always augment your own skillset by bringing in other cofounders or team members, but that’s a decision that has to be made very carefully. Bottom line is that you should always try to do something that you’re actually good at.

In the next post I’ll write about why it doesn’t matter if your idea is original. What do you think of the series so far? Comments appreciated!

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BS50 Part 1: Ideas Are Easy

September 30, 2011 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

So you’ve decided that you want to bootstrap your own startup, great! Having a great idea is the first step. Luckily, ideas are often the easiest part of the entire process of building a company. Every entrepreneur has countless ideas; most are weak, some are good, a couple may be real winners. The key is sorting through your ideas and determining which to actually follow through on.

Ideas Happen Constantly, Be Prepared

You never know when and where inspiration will strike, so you have to be ready to record any ideas that you have. I always have either my notebook or iPhone with me and record  ideas there. I also have larger notebooks that I transfer the ideas to for safekeeping. My notebook has hundreds of ideas in it that have been collected over the years, many of which have since been done by others. Don’t let a good idea go to waste because you’re not prepared.

Idea Filtering

Your goals for yourself and your eventual company play a key role in the idea filtering process. How large of a company do you want to build and manage? Are you looking to stay in your current geographical area or are you open to moving to San Francisco or New York? How much cash do you have in the bank right now? These questions are all additional filters that need to be applied to your ideas. There will also be ideas that fit your situation perfectly… put a gold star next to these. The gold star ideas are the ones that you are most prepared for and can most easily act upon.

Narrowing Down

You should have a short list of no more than 3 or 4 ideas that you’re interested in pursuing. If you have one idea on the short list that seems much better than the others then you should start with it. If all ideas are rather equal then you probably don’t have a killer idea in the group and should keep looking. Quality over quantity is essential here: it’s better to have one 5-star idea than five 3-star ideas.

In the next post I’ll write more about choosing an idea that plays to your strengths. What did you think of the first post in the series? Comments appreciated!

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The Bootstrapped Startup 50

September 27, 2011 by · Leave a Comment

Bootstrapped Startup 50

Readers and friends, we’re getting ready to undertake a massive journey together. I’m preparing to start a lengthy series of posts that I’m calling the “Bootstrapped Startup 50″. The BS50 is a series of 50 posts about the process of creating your own bootstrapped startup, from the ground up. There’s a lot about the company building process that I haven’t written about, so this will be a great, structured way to get that information to you.

I’m hoping that it will be informative enough to give anyone a great foundation with which to build their own successful company. As always, I look forward to your questions and comments. Let me know what you think about the concept and whether or not you think it will be helpful.

The series will start in the next few days and you’ll see 2 or 3 posts per week, so it’ll take about 5 months to get through everything. I’ll have posts that aren’t part of the series sprinkled in throughout, so I won’t just be writing about bootstrapping.

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