If you look to the academic world, it is remarkable how little research has been done on entrepreneurship and the creators of enterprises. There are piles of management books, but these are more likely to give advice and standard solutions rather than describing relationships based on experience. In economics, too, one has completely ignored the entrepreneur. It talks of supply and demand, about capital and production resources. Never does it talk about those who create demand, persuade capital and lead and motivate the means of production — about archentrepreneurs. Perhaps the academic world is too far from the doer-mentality that is the lifeblood of the entrepreneur’s daily life.

Vision Impossible
One of my favorite anecdotes is about how Henry Ford went to his long time banker to present a business plan for mass producing “automobiles” in the hope of getting the bank’s financial backing. The banker is said to have been impressed with the business plan, analysis and budget. Despite making an effort, he could not really find any flaws in Ford’s arguments. But despite that, Ford didn’t get a loan. The banker started by complimenting Ford for his work, but based his rejection as follows:

“Mr. Ford, think that if your business plan became a reality, there would be automobiles in such numbers that our dear old gravel roads would not hold them. You would have to put some hard substance on them. In addition, you would have to put up some kind of fueling stations, possibly all over the country. Think what that would look like? And how would you get fuel to them? By train? Another thing that comes to mind is that we have to prevent fools from getting automobiles, perhaps by some kind of license. Otherwise there will be accidents. As if that was not enough, some kind of signaling system has to be put in, at least in thickly settled areas, so that people don’t run into each other. You must understand yourself that I am describing a society so absurd that even you can’t believe in it. Our bank, in any case, cannot contribute to such fantasies.”

And so Ford’s loan application was refused. But Ford didn’t belong to those who give up on the first try, and we all know what happened. Ford became one of the past century’s greatest archentrepreneurs.

Today, practically anything can be manufactured. Paradoxically, realism is becoming more and more relevant in a future becoming more and more like science fiction, where everything can be made by inventing and combining the possibilities of new goods and services. Is it realistic that there is a market for this product? Is it relevant for the potential customers? Does it create value and is it better than the competitors’ product?

It is said there were some 2,600 carmakers in the US at the turn of the 20th century. They all saw what the banker didn’t see. Today, only a few giants are left. Only they have the ability to link what they saw to a capability of executing it.

I come across a lot of immaturity in the startup market in Europe. Some of it is accidental. Some wilful ignorance, created because people simple won’t inform themselves.

So here, dear reader, is your cut out and keep guide to how not to do a startup in Europe.

Let’s start off with Money.

Stay really dumb about money. Don’t read anything. Subscribe to no blogs about how venture capital works. Next up, confuse venture capital with startups and assume you simply must have an Angel round. Avoid working out a business model which may actually bring in revenue. Cashflow always beats taking investment — but you’ll ignore that.

Instead, concentrate on looking good and courting investors instead of getting traction with users. Don’t work out how to build a product and win users. Just go out there with a business plan and nothing to show that you can execute.

Raise as much money as possible even if you have no idea what you will do with it and don’t bother with Lean Startup thinking.

When raising capital get no competition going amongst investors to offer you a term sheet. Avoid talking to more than a handful of potential investors. Then, at the first sniff of funding, give an Angel with no experience in technology far too much equity, leaving little to interest a VC later who might do follow on funding. Make sure you choose your investors based on their inexperience and lack of connections that could help your business.

Once you have your investment, instead of actually building an awesome startup, obsess about exiting the business thus ensuring its failure. You should also make sure to ignore the companies that might be potential acquirers. You are far better than them anyway. Seek no advice form any entrepreneur who’s done it before. Go it alone.

Always remember that when you are an entrepreneur the most important thing is to be secretive, share nothing and tell noone what you are doing. That way there is no way you can test your ideas against the feedback of the tech community. In Europe, it’s better also to not look outside your country’s borders — in case there might be opportunities for collaboration.

Regarding your product, there is a lot of work to be done here. First of all pack so many features and services into it that users are totally confused and gradually lose interest. Make sure your CEO has no experience of Product Management and always assume your engineers understand product.

If your startup is a clone of a US startup, then assume it will work, because it worked in the US, right?

Pay no attention to user experience and make sure you iterate the product as slowly as possible and rarely. Ignore user feedback, but if you must, pay attention only to the feedback which merely confirms your strategy, rather than the users who suggest improvements. Obsessively stick to your roadmap and avoid “pivoting”.

Better still, don’t build your product at all. Hire an agency! You don’t want a team that works on passion and dedication. Just one that works on a client fee. Besides, sourcing teams from anywhere based on talent, able to work on Skype and Yammer, is so tedious.

When you launch, make sure it’s in a small market with little prospect for growth. Tell everyone you will launch internationally “later”. To that end, ignore a US version.

The actual launch should be preceded by a lot of PR that you are about to launch and how awesome the company will be. Make sure this goes on for months, even a year, so that when you do finally launch the press and bloggers can be underwhelmed.

When talking to investors and media never rehearse your pitch. They like it that you stumble over your words and can’t say anything coherent about your strategy — it creates authenticity. They also enjoy that there is no real news of story around your startup that would interest their readers or bring their site traffic.

Make sure that, in the case of social networks you try to create a brand new one. Don’t use Facebook Connect or Twitter OAuth to allow log ins. You will be bigger than them anyway and users really enjoy creating more profiles.

Do all these things and you are sure to have the most successfully Lame Startup in Europe. Now get to it!

Entrepreneurs these days can’t stop talking about a different set of algorithms for optimizing startup survival and success. Build the minimum viable product, test and iterate, work on only what customers actually buy or use, pivot. Today’s entrepreneurial Golden Path can look a lot like the reductionistic mutation and selection process that Dawkins describes.

The above Customer Development/Lean Startup algorithms sure are useful, but on their own they’re no more a recipe for startup success than a healthy diet and a good night’s rest are the path to winning a marathon.

Startups are not like Dawkins’ organisms. At their best they are vehicles for our passions, our desire to remake a world that’s better than how we found it. Whatever the process, it is a startup’s relentless focus on a higher purpose that attracts a great team and transforms markets. But all too often these days I hear entrepreneurs talking about their vision as if it’s a major risk (“it could blind us to what customers really want”) rather than the locus of their real power.

“Whatever you do, don’t be idealistic.” This is what an early venture capitalist told my co-founders and I when we pitched him our idea for a new way for companies and customers to communicate we called Get Satisfaction. In our minds we had glimpsed the future: people collaborating openly with companies on the social web. It was clear to us that the result would be more empowered, happier customers, and more humanistic organizations. This one idea was what got us all out of bed in the morning. It was not only a purpose, it was a design principle for everything we did.

Despite the doubts of some industry insiders, we never considered hedging; instead we embodied our vision, heart and soul. Long before we had a product we spoke at conferences, blogged regularly, and courted the press to tell our big market story. We welcomed a new era of “people-powered customer service,” and within a few months of launching our product we threw our own conference, “The Customer Service is the New Marketing Summit.” There was no turning back.

At a high level, we had asserted what we thought was going to matter to the market rather than waiting for the market to tell us. We had certainly taken a risk being so bold (because that’s what startups DO), yet we gained a palpable advantage that impacted everything: our brand had become synonymous with a point-of-view. Why did this work so well for us?

• We were well positioned as the market caught up with us (the rise of “Social Business,” thanks to Twitter and Facebook). Had we waited until the wave had crested we would have been just another opportunist chasing a trend. Our early commitment translated to trust and leadership, which in turn led to significant customer traction.
• We did pivot the business, developing several lines of service directly informed from what we learned from customers. But those customers had been attracted to our vision in the first place–their feedback was well aligned with our ideals
• Thanks to the design principles that rose from our ideals, we had a means of deciding what to build and how to build it beyond the ad hoc suggestions of users. Where there were conflicts (e.g. how to allow companies to remove user posts without compromising transparency) we innovated.

Like any startup, we’ve struggled with a thousand and one small and large issues along the way. It can feel like “death by paper cuts” at times. Having a higher purpose keeps the whole team focused on what matters without sacrificing adaptability. While intelligent design may have no role in biology, it is invaluable to creating a startup that can lives up to your dreams.

It’s also great advice for entrepreneurs. Whether you’re building a technology business, opening a restaurant or providing a new kind of service, it’s not enough to simply identify a gap in the market and address it. Finding a problem is easy; the key is to find a solution that you’re passionate about, and then create what you know is needed. The best startups aren’t just new companies – they’re manifestos by people who seek to change the world.

The web isn’t just a platform; nor is it a market. It’s a movement. Think of the success stories of the past five years: Twitter, Facebook, Google, GroupOn. Twitter and Facebook changed the way people communicate and made social networking mainstream (Mark Zuckerberg was even just named Time’s Person of the Year for 2010). Google makes it its mission to make the world’s information accessible to all. GroupOn, meanwhile, gives the power of mass brand advertising, hitherto available only to larger chains, to independent shops and services. Each of these businesses is run by a passionate team who care deeply about not just their product, but the effect of their product on society.

Gatekeepers – people or organizations who control access to a particular resource based on value judgments or legacy hierarchies – are a thing of the past. (The quintessential gatekeepers are the record labels and movie distributors, who are – thanks to Internet startups – having to radically rethink their businesses or face extinction.) It’s not a coincidence that Silicon Valley is in the same geographic location as the epicentre of the social radicalism of the late sixties and early seventies. The values that caused a seismic shift in society then have transplanted themselves into software today, often backed and funded by the same people.

Pragmatically, building a business is a strenuous, long-term proposition. You’ll work long, hard days and burn the candle at both ends, seemingly for no reward. What seem like overnight successes are often borne of heavy lifting over five years or more, and it’s therefore imperative to a startup’s survival that its founders are capable of going the distance. This is much more likely if you’re doing something you love. In turn, you’re much more likely to love what you’re doing if it’s something you believe in.

Furthermore, if you believe in your mission, you stand a much greater chance of convincing other people. Startups are both time and cash poor, making marketing a challenge. Ideally, you want other people to help you spread your message. By establishing aims that transcend business and appeal to people on an emotional level, you can create something that other people can be evangelical about. This is hard to fake: this Christmas, the British restaurant chain Nando’s is attempting to draw an emotional reaction with an asinine “campaign for no turkey”, to a fanfare of silence and tumbleweeds. It’s best if your mission is inspirational from the start.

Famously, the podcasting startup Odeo came a cropper because its founders weren’t that interested in making podcasts. As they floundered, wondering what their business model was going to be, Jack Dorsey took a couple of weeks to build a tool that had been burning at him; something he knew he wanted to see out there. The result was Twitter, which he built and supported inside Odeo as part of a two-person team. Eventually, Evan Williams bought back their investors’ shares and sold off the podcasting entity to a company more interested in enterprise broadcasting.

Odeo has since become an enterprise video management tool. Meanwhile, the original team either moved on – creating products they knew had to exist, like Tony Stubblebine’s social events platform Crowdvine – or stayed to concentrate on Twitter. The rest is history: the Odeo team was talented, smart and had the makings of greatness, but they just didn’t care enough about podcasting. A simple way for people to share what they were doing, breaking down barriers, treating its users as equals and listening carefully to their needs? That, they could get behind. Users were soon also inspired.

If you’ve been following 24 Ways To Start since the beginning, you’ve read a lot of great advice about starting a company. I’d like to add a small piece of my own:

Just do it; disrupt the incumbents and have a great time doing it. Do what you need to do in order to make it work, whether it’s attracting investment or finding people to fill in the gaps in your skills. But don’t forget to change the world.

Then comes that most tricky of questions: “how do you intend to make money?”

The knee-jerk reaction is to turn to the page with your financial model with 50 rows of numbers, three growth scenarios and with even the price of the water cooler factored into the financial model. After all, surely your future shareholders want to see you can handle all the detail, right? This approach however doesn’t reveal an appreciation of the highly important and yet dynamic situation faced by startups where far more is at stake depending on the assumptions you make surrounding the three key issues:

1. Unit price or revenue per customer
How much money will you charge one customer for one product? The simpler the answer to this question, the quicker your business will be understood. Whether you charge a price per user, server or download early-stage businesses will need to set a price, or a range of prices for various product packages. If you offer several different packages each with a different price then I would discuss average prices. Nevertheless, simplicity is the objective. In fact, early-stage businesses are most effective in winning those first key supporters when the revenue plan can be calculated in your head with some simple mental arithmetic.

2. Cost to acquire a customer
How much does it cost you to acquire a new customer? Regardless of whether your sell direct to consumers or to enterprises, winning those customers will have a direct or an indirect cost. If you sell direct, you will need to factor in the costs of attracting customers to use and purchase your product as well as a discussion on how those costs will change over time. Even better, you can discuss how you might influence the acquisition costs to your advantage. If you sell to enterprise customers, you will face the costs of the sales process though the same discussion can be had around the change over time.

3. Cost to serve a customer
Once a customer has signed on, how much customer care is needed to keep that customer? The cost of serving a customer base needs to be added to the cost of acquisition in order to estimate the profitability of each new customer relationship. Internet based business, especially those with a high degree of self-service, have enabled the cost-to-serve to decline dramatically. If you are providing any ongoing service requiring incremental effort, however, that cost may make some levels of revenue per customers unprofitable. And again, the same goes here as for the cost-to-acquire, the most interesting aspects are how it will develop and how it can be influenced over time.

Another way to describe this analysis is per-customer economics. These three elements sometimes seem too simplistic, though they’re often made overly complicated or simply overlooked. Their usefulness in explain your business can’t be underestimated. Breaking down a venture into a few key assumptions will aid you enormously in convincing early supporters of the viability of your business idea. Separating out these numbers will strengthen the aggregated business plan and also engage anyone evaluating the business in thoughtful discussion. Only when the interplay of these revenues and costs are understood, even if only as assumptions, can an evaluation of the viability of the business model really begin.

We were that silly frog during the development of one of our products: slowly getting boiled without realizing that we were getting more and more screwed. The symptoms: customers complaining about buggy software, release schedules slipping horribly out of control and costs rising beyond triple the budgeted costs.

If only we’d asked ourselves if we were being a frog and had jumped out of the boiling pot we wouldn’t have gotten burned as badly as we did.

This is the story of our efforts at developing an Outlook plugin. It’s a story about frogs, boiling pots, outsourcing, weird randomness and mismanagement¹. Hold on tight for something that reads like a good ol’ BOFH story.

Getting into the pan
Development started off like any other development process. We knew that building a sync plugin for Outlook would require platform-dependent expertise. We had a great experience with our OSX client development done by an external freelancer who was eager, dependable and got the job done fast (thanks Gernot). So we made the decision to outsource the job. We quickly found a suitable list of developers and chose one.

The developer we chose had the right credentials. He wasn’t the cheapest but seemed the best value for money. Let’s call him Kev². Kev was an independent developer, we had direct and frequent contact via email, chat and phone. Kev was very keen to take the job and was excited about starting. We mutually agreed that Kev would be online every day in IRC so we could answer questions quickly and he would commit SVN daily.

We, the frog, are loving this new pot. Nice temperature by the way. Yes, the water’s perfect.

Things start off good, we based the project on an hourly rate. But the risk was low because every iteration would provide running software. Agile. Risk-free. Perfect. Up till now, all is good. We’re excited, eager and ready for a challenge.

The water is getting hotter
Then development and SVN commits started to slow down, Kev didn’t join us in IRC anymore and we had trouble getting any replies to emails. Occasionally we would get an email with a new build and at this time it seemed like we were nearly there.

We switched the project from an hourly rate to a fixed fee after seeing that the costs would be more than we budgeted. This would move some of the risk to Kev and be the right incentive to have him deliver both a working release and the source code.

Getting new build releases slowed down even more and we wouldn’t get the corresponding source code. We’d get responses about him using multiple PC’s, not having “the code on the internet connected machine”. And IRC just “wasn’t his way of working”. Very different language from when we started.

We remained in the pot. The water? Comfortable. Nice. Hot? Nah, we have releases! Working software. Teh Awesome!

Boiling?
After 3 months of hacking, including delays and the increasing communication difficulties — Kev finally emailed a working alpha version. We were relieved and excited to have something and I guess actually happy that we’d stuck with Kev through the bad times and persevered through the difficulties. All we needed now was the source code.

In hindsight this is where things really started to suck the fat kumara. As soon as we finally got the source code we found out Kev had used an open source project in one of the parts of the Outlook plugin. Open source? Yeah, of the kind that you cannot use commercially, and thus we couldn’t release it. Crisis! Death! Nazgul! Badgers with small guns shooting you in the eyeballs.

Ok, you’ve got to give it to Kev, he did agree this was wrong. And he would do his utmost to fix it. We decided it was better to use a licensed version of another library and Kev would only have to integrate things. Easy as cake. Crises averted.

We of course remain in the pot. Still ok, I guess. Hot? Yeah a little. But, we’re still in control. We’re fixing it. Crisis averted. Just a little more time…

Code held for ransom
During the next months Kev managed to fix the Outlook plugin and we were able to release an alpha version and subsequently a beta version. We kept having to fight to receive the source code.

And never got it.

Then more than a year after starting the process and still not having received the latest source code we found out another kicker. This finally woke us up and we realize we’d not just gotten into boiling water but we’d been there for a long time.

Kev admitted to us that he’d gotten into great financial problems and that the IRS had confiscated his gear and that there was no other way to get our source code than pay the total that he owed the IRS. You can imagine our reaction. There’s no way we would or could do that. Kumara. And. Suck.

It’s boiling!! Jump! Jump! Get out! Get out! Anywhere but here…

The consequence was of course that we didn’t have the source code. 12 months of time, energy and for us a huge pile of money was lost to this process. And thus we had to rewrite the whole thing! We were close to being boiled alive, without source code and thus forced to jump out.

Jumping from one boiling pot into another
So we found an alternative. This time the perfect solution. We thought. Everybody’s doing it. You know, outsourcing. To India. Cheaper, more developers, thus faster… right? Tight management to be the issue. Clear budgets and all. We found an outsourcing firm, with project management nearby, literally 1km away. So it would be tight. We agreed on a budget upfront. And all would be good. Heaven. Did I mention tight?

After 4 weeks the close-by-our-office “Management” came back to us, telling us they wouldn’t be able to stick to the budget and planning. They told us it would be based on “Time and materials”. So I assumed (stupidly — like a frog) this would only take 1 or 2 extra months. At this point even a frog would get suspicious but I’m not a frog and still it ended up taking another 4 months and we still had no working client.

It was similar to the Kev experience but this time I made sure they kept sending us the source code. After pushing hard we received weekly and monthly updates including source code. Thankfully we had direct access to the team and developers working on our project via IRC and MSN. However progress was still too slow and the time and materials was getting expensive.

Jump out! It’s going to boil here too! Jump before it’s too late. But this time, find a nice pot NOT on a stove.

Out of the boiling water
In the course of developing our Outlook plugin we’ve hired an external single developer in Sweden, an off-shore development house in India and recently we’ve moved our Outlook development 100% in-house and on location. We are now back on track with our development and extremely pleased with how we’ve managed to turn this situation around. This process has cost us dearly, both in money, time and possibly an investment round — but definitely parts of my own personal sanity.

Introducing Frog Driven Development
Of all the lessons learned in this process the most important one is never to stop asking yourself if you are being a frog. Keeping going on the false promise of “we’re nearly there” is lethal. It leads to the equivalent of a startup killing death spiral that can suck up all your most valuable resources: morale, money, focus and worst of all, time.

So keep asking yourself “Am I being a Frog, right now?”. If the answer is yes, jump out. The only way to tell the difference in temperature is by comparing and testing the waters. That is Frog Driven Development. Compare the waters and find the one that has a temperature that doesn’t kill you. How do you tell? Ask experts, get people that have done this before. Ask your wife. Ask your dog, the neighbor. The answer is likely to surprise you. Get more people to tell you: you are a frikkin’ frog dealing with badgers. Are you on that slippery slope? Are details killing you? Get out while you can.

Jump.

Now.

1. I don’t mean to blame anyone (except myself) and I’ve tried as much as possible to remain neutral and objective — even though I probably failed at this. I apologize in advance that this post is a one-sided affair but decided it’s important to give at least one side of the story.

A big reason not to share this story is that it’s ugly. We managed to get in quite a mess and I’m sure there are things that others would have done differently. However you live and learn and we’ve learned so much from others sharing their experience that we like to try to give something back and hope others can learn from our mistakes. Which is a much better reason to share the story.

2. Name changed for privacy reasons. Kev was from Sweden. So you know.

The faster and crisper you can tell the story of something the sooner you can get believers in what you are doing. If you are starting a business you need believers, they are your customers, your team, your suppliers, even your family. (and yes, if you must have some, your investors.)

There is a catch in having a great story, which is that if you cannot deliver at all on its promises you will likely fail, and the better the story the bigger the failure can be, just look at Enron.

So assuming you can actually deliver some value to solve a paying customers pain, there are two key elements of your story that are vital. The most important aspect that your story should address, as Pip Coburn says, is your perceived pain of adoption. The perception of how hard it is to use your solution is easily mitigated by a good story, and this is more important than your pricing in terms of being a barrier to you making sales. (Sometimes price is part of the perceived pain yet its less prevalent than you might think.)

Services that give lots of value for free may be looking to grow really fast, like Google, or they simply may not have a good story, like friendster. Every business I am involved in I always aim at pains, push towards having a really good story and to keep evolving the story so it matches the business and becomes crisper and tighter.

Still, over and over, I see people bringing me business plans that have an executive summary that is dark and impenetrable, or covered in the greasy fingerprints of incompetent consultants who use buzz words and jargon to make the company mission and vision sound cool.

The most important part of your business story needs to be that it conveys to your customers what it is you are doing and what you stand for in as few words as possible. Even the name of your company can be a part of this. Yet even if you have a difficult to understand name like “Nokia” you can mitigate that with a great story in the strap line “connecting people”.

This is even more true if you offer a new service. You want people to figure out what you do as quickly, and in as emotionally satisfying a way as possible. Of course once your brand is big enough you might decide to drop this part of your story because everyone knows what you do already, like “Ebay”, “Amazon” and “Google”, all of which have to some degree become words in the dictionary.

Still Facebook, who are by all measures pretty big these days, still has a two line explanation of what they do on their home page – “Facebook helps you connect and share with the people in your life.”, and if they still do it, why shouldn’t you? Also it’s much cheaper to iterate your story than it is to innovate your service and it can make just as big a difference.

So start with your story, get it good, then test it (use AdWords and a dummy website and all your friends as sounding boards), and then perfect it and keep perfecting it till your brand is a new meaning in the dictionary, because that is the really critical element in any startup.

There are two big problems with this myth. The first is that it’s partly true, there are some start-ups that really did take off like a rocket, and secondly that it’s extremely unlikely to happen to your start-up. But that doesn’t mean your start-up can’t still deliver enormous success.

If you’re building a mass consumer product that relies on a social graph you might just achieve that, if you’re building anything else, maybe for a more niche market, or building a complex application that can’t just be built and launched in two months, you’re unlikely to ever achieve that level of instant adoption that is held up as the pinnacle of web entrepreneurship.

So what if after launching your minimum viable product it didn’t take off quite as you’d dreamed? This is where you dust off your business model, and it’s time to Pivot or Persist.

Even if you’re bootstrapping, or working on a small amount of seed funding, it’s important that you have a plan for growth, and if things didn’t grow that way, it’s important for you to understand why not. Your business model is a living document and you should revisit all of your fundamental assumptions about your plan for growth. Did your first product suck? Did your marketing suck? Did a major competitor eclipse you? Are all of your fundamental assumptions about getting any customers completely wrong? Are you just plain delusional in that you are in fact the only person who really wants your product!?

It’s important to be brutally honest about where your business is going. Get some external help from a trusted friend or advisor — one that will be honest enough to tell you if the idea you’ve put your time and money into just plain sucks if necessary.

At the end of that process you’ll have a way forward: Pivot or Persist.

It might be that you need to tweak how you approach the market, or which market you’re approaching. It might just be that you need to keep working, that all of your fundamentals are still sound, but you need to make the product better. That Pivot could be a 5 degree turn to the left to change how things work, or it might be a total change in direction, or a whole new business.

I’ve seen both sides of the coin — I’ve seen entrepreneurs jump from ship to ship too quickly just because the one they were on didn’t take off quickly enough for their liking. I’ve also seen entrepreneurs persist in a bad idea that was fundamentally flawed and would never take off as they would like.

Persistence, perseverance and a cast iron belief in what they are doing in the face of sceptics are some of an entrepreneur’s most important assets.

Pivoting your business quickly; changing its formula to changing circumstances or market realities is one the entrepreneur’s most important skills.

Knowing when to Pivot and when to Persist is a wisdom all of its own.

Sounds familiar doesn’t it? Wide-eyed dreams of millions earned selling something you’ve built in just a few months—or maybe even weeks. And all this made possible by the millions of downloads a day on your favourite app store.

Mobile apps may seem new and different, but when it comes right down to it—an app is merely a product, and the app store, your distribution channel. Once you release an app, you join the ranks of millions before you, someone with a product, trying to entice their audience to look, to try, and hopefully to buy.

“Ah but tech is different” they say. “Never before has there been such a wide audience, such an opportunity to instantly sell to the whole world!”

To be honest, I don’t buy it. Instant distribution is just that. It doesn’t guarantee success, or even sales. What it does guarantee is an overcrowded marketplace where relying on being ‘discovered’ by users (or app store curators) is not enough to grow a product into a viable business.

Luckily however, there’s plenty you can do to rise above the crowd and create a product people will fall in love with.

Be clear about your business model
How will you make money? It’s pretty crowded out there and each successful app seems to sprout myriads of imitators. If you’re relying exclusively on app store sales for income, you’d better have a plan to promote your product every chance you get. Remember however that selling the app itself is not the only way to make money.

Research the pain points
For almost any product (even a completely new one), there is a pre-existing audience. Sometimes, your audience is using a competing product. Other times, they’re using something completely different—like an equivalent physical product (or even a combination of products). And for each of these products, there are pain points, things that aggravate users and make them long for something better.

Look for pain points in all directions: user experience, missing features, performance, behaviour, functionality; even language and branding. Solve these pain points and you’ve got a real chance of winning over those customers.

Decide who your app is for, and why
The best thing about doing research is that you meet lots people (virtually and otherwise). That guy with the colourful avatar who insists on answering every question on your competitor’s message board. The lady you watched (ok… eavesdropped) using a similar product on the train home one day. Will your product suit both of them? If so why? (And just as importantly, why not?) We can all name a product that is bloated beyond belief from trying to please too many people—each with vastly different needs and behaviours. Don’t let your product become one of them.

Use the Internet to promote your product
Adding a rudimentary product page to your corporate web site is not enough. Create awareness of your product any way you can (except spam!) If you’ve done your research, you already know where your potential users hang out. Go find them in blogs, message boards, and through social media. Once you’ve developed an audience, create buzz with promotions, contests or monthly draws. (And yes, I know that doing this on your average app store is a problem—so be creative. Maybe a free app isn’t the only thing you can offer them.)

Customer service is now your job (get used to it)
I don’t mean to sound grouchy here but users will have questions, and they deserve an answer—especially if you’re charging for your product. With a bit of planning, even the smallest team can provide excellent customer service. Create a schedule to ensure someone is always available to respond to queries (even if only within business hours). Create easy to understand stock responses to common questions. These will save loads of time and prevent the confusion that can occur when emails are accidentally answered in “engineer-speak”.

And don’t forget the personal touches. You may have answered that question a thousand times, but knowing there’s a real person on the other end will make a world of difference to your customers.

Listen, learn and evolve your product
Every interaction with your customers is an opportunity to evolve the product in some way. Pay attention to power users, but don’t ignore people who are using your product in ways you never intended. That ‘weird behaviour’ may be the pain point that inspires your competitor’s next product.

Create an API
Building to each and every platform costs money. As soon as you launch on one platform, you will be under pressure to support more and more of them. If your product is completely closed—it’s all on you. Your decision not to support a given platform will become a source of stress for you, and your users. With an open API, you create opportunities for others to expand you product in ways you may not be interested in. (Remember those users you chose not to target? Maybe someone else can!)

Three times in the last week, entrepreneurs told me that they were waiting for legal opinions before launching.

• One wants to use the logos of the brands he sells on his web-store, but is afraid of what the brands will say
• The second has a super slick sign up process, but having the user tick a ToS acceptance, totally wrecks the process, and with it the product
• The third stores user data, and wants to be sure that he complies with the data protection legislation

Let’s start with Terms of Service. You want users to sign off on them. You trick them into ticking a little obscure box, in front of 56 pages of mumbo jumbo. You ask the lawyer to make a ToS that is watertight. The lawyer sends you a bill for ten thousand. Everyone who comes along signs up, and all is good. Except it isn’t. If you break the law, then whatever you write won’t help — and, if you don’t seriously screw up, it doesn’t matter – most judges are actually pretty reasonable.  So its close to a waste of time, and of course it’s catastrophic if it breaks the product.

Writing mumbo jumbo never absolves you from behaving decently and actually, it shouldn’t. So, why not figure a different point in the process to tell the customer what you want to say and explain your policies.

Can you imagine you had to sign something every time you walked into a store in the shopping mall?

Next, you have an e-commerce store. You want to put the logo of the products you sell on the welcome page to the site. Ask Adidas? No. Just put them there. Show respect for their brand… sell the Adidas clothes. Assume they are happy. But, don’t ask a lawyer. He’ll tell you you are probably ok, but there is a risk that the brand may possibly be able to perhaps sue you for something he can’t quite put his finger on now. Except they won’t. First they won’t notice — and when they do, what is going to happen? They will write to you. Four choices

1. write back asking for some money for all the lead generation you are doing for them
2. apologise and take their logo off
3. ignore them
4. writing back telling them what you think of them, as per The Pirate Bay

Two things are for sure — even if you took option d, you’ll have time to react and you won’t be going to prison.

Finally, what about user data. It’s simple. Figure what everyone else does. Ask your mentors what they do. Read the internetz, figure what Paypal do. Just do what everyone else does.

So, get on with it.  Please create a great product that folk love, behave in a way that you and your employees can genuinely defend, and use your money on customer service not lawyers.

In fact, to steal a trademark’d phrase : Just Do It

Happy Christmas.

But creating a financial model is less about being right or wrong, and more about going through the process of detailing how a business “works”. The result, a set of financial statements, key operational metrics, and a set of key drivers and assumptions, creates a map for you to explore how your tactical product, marketing, organizational and strategic decisions impact your company’s profitability. It will help you determine your key milestones, capital needs and types of potential investors.

Here’s the key: your model will be wrong. Instead of focusing on the bottom-line income statement and the hockey-stick growth you’re projecting in year 3 of your venture, focus on your process, assumptions and key drivers and build a detailed month-by-month model that you can modify and update over time.

How?

1. Focus on expenses
You’ve probably already spent a lot of time thinking about your product, users, marketing plan and exit plan. Therefore, start your financial model by estimating your expenses. Because people are the foundation of successful startups, start with your hiring plan. Project the types of positions you’ll need to hire, when you’ll need to hire, and how much you’ll have to pay them (salary, benefits and equity). Estimate office expenses, rent, insurance, legal, accounting, taxes, equipment, and travel and entertainment costs. Create space in your model for your marketing, hosting, sales support and delivery costs to fill in later.

2. Outline how the product or service is built, marketed, sold and delivered
Create your revenue plan with a very concrete, tactical, bottoms-up look at the entire chain of events necessary to take your product or service from a plan to the customer. How long will it take to develop your product and build the organization? Think about your sales staff, website and marketing plan and how your budget for each channel translates to impressions, click-throughs, visitors, trials and sales.

Your model will vary depending on the type of business and business model. Are you B2B or B2C? Are you pursuing a freemium model? Do you have different levels of service at different price points? Are sales one-time or subscription-based? How long will the average customer keep using your product? Consider pricing, discounts, sales, coupons and free trials, when customers pay, and how long it will take to collect invoices.

Then, consider your partners, commissions, affiliate fees, monthly and per-transaction costs. What kind of hosting and customer support do you need to support your estimated level of sales?

Then, combine your expenses and revenue estimates to create your first profit and loss statement.

3. Analyze your assumptions, addressable market and benchmark your projections
Start digging into what your model means. How big is the addressable market for your product or service, and is it growing or declining? Who are your major competitors and what portion of the market do they currently have? What percentage of the market are you estimating you’ll be capturing within 3 months, 6 months and a year? Is it reasonable?

Analyze key metrics and drivers. Which assumptions have the most impact on your projections? Will a small change in price have a big impact on profits?

Just like you build products, iterate and refine your financial model by testing, analyzing, benchmarking and running your model by people you trust.

4. Create detailed financial statements
If you’re an early-stage company and you’re not looking for funding, you probably won’t create the detailed statements necessary for late-stage investors. Creating a balance sheet, statement of cash flows, financing structure and capitalization table requires a bit of finance and accounting knowledge. Scour the web for template financial models, talk to other entrepreneurs, potential investors and consultants, and you’ll have a good idea on how to finish your detailed model.

One bit of advice: don’t hire someone just to build a financial model. Either a) work with a consultant who is gifted at translating strategies into Excel equations while you learn how models work, or b) hire someone in your business who has the skills to build the basic financial models necessary for your stage. You won’t need a CFO until you’ve reached significant traction and have the types of opportunities to leverage the skills of a quality startup CFO.

If you can answer all these questions, then you’ve done the analysis necessary to build a strong financial model. It won’t be completely right, but that’s not the point.

(How does this all of this come together in Excel? Download one of my sample financial models for entrepreneurs for a working example, free to download and use. Also download Gif Constable’s financial model for freemium tech startup business and Glenn Kelman’s financial model from Redfin, and then start asking friends for the best examples they have seen for other startups. Find companies with comparable business models, acquisition strategies and operational plans. And have fun hunting.)

Let me start this with a true story: Two years ago I mentored startups at Seedcamp. My group of mentors consisted of VCs from the largest European firms and top-notch technologist from companies such as Amazon and Microsoft. We ended up talking to at least 20 entrepreneurs from all over Europe. We gave each and every one our business cards. None of them followed up, nor at best send out a LinkedIn invite with the standard invite text. First I thought “…it’s just me”, but after asking my fellow co-mentors, it turned out this was true for them as well.

I was baffled – as an entrepreneur you are in the business of relationship-building (and if you think otherwise, you better rethink your approach). You should see every interaction with someone who might be helpful to you and your business as a golden opportunity. Not making use of this opportunity in the best possible way is not only wasteful, it might be the make-or-brake moment of your company.

So here it goes – my personal tips on how to properly followup.

The Why

I guess by now I don’t need to tell you that you should always follow up. No exception. If someone spends time with you, listens to you, probably gives you some advice or helps you in any other way, you follow up. A follow up is not only an act of courtesy, but your opportunity to build a long-term relationship, ask for a favor or simply say thank you. Its the good manners that your Mom taught you.

There is a ton of research which shows that people are very inclined to help you if you just ask. It’s engrained in our nature. We want to help. It makes us feel better and boosts our own ego. And on the flip-side – who wants to be the Scrooge who didn’t help someone (if asked nicely)? Finally – don’t hesitate to followup just because you think the person is too busy or too important. We are all humans – we all work the same.

The How

Now that we’ve established that you always follow up – make sure you follow up properly. Send a short email thanking the other person for his/her time, and do ask for something specific. Yet think about keeping your early demand small, you don’t want to overburden your newly established contact. Remember, always ask – it’s your golden opportunity to build a working long-term relationship.

This is all pretty much a no-brainer, right? And people seem to grok it when it comes to email (minus the “ask for something” part). But once you get into the wonderful world of social networks, all this seems to fall apart. Never (and I mean never) send out an invite on a network such as LinkedIn using the standard invite text. The signal you are sending me by doing this is: You are not worth the time for me to change this text and I just want to connect with you to add you to my collection. In my eyes this is one of the biggest mistakes you can make, and a surefire way for me to permanently ignore you.

Here’s how you do this properly – don’t leave the standard text in there, write a short, personal message which sells the other person on the idea to connect with you. This is usually best achieved with a small ask – e.g. “I would love to stay in touch with you and ask you every once in a while (not more than once every couple of months) for your advice on XYZ”.

The What’s Next

Don’t trick yourself into believing that it ends here and all will be good. This is only the beginning – granted you got it of a good start, but now you want to mature your relationship (think long term, not short term again — no-one likes to feel used). Send an email every once in a while, pointing out some interesting news or research which is relevant for your contact. Ask for the occasional coffee to compare notes. Get creative and add value for the other person – trust me, it will pay back twice over.

With that being said – go and network. Make new friends, allies and partners. Don’t be shy. Ask for help. And always follow up!

Before I even get into PR, let’s talk about what PR is not. It’s not attending conferences. It’s not a blog. It’s not advertising. It’s not attending start-up parties. And finally, it’s not your mom raving to her friends and colleagues about how great their son or daughter are doing “with that Internet business”. PR can touch upon a couple of these things (sorry, your mom won’t really ever count in this regard) but it’s not one or the other alone and I see this mistake made often. PR needs to be defined, executed upon and measured. If you can’t measure it, don’t bother. Actually, if you can’t measure it in some way, it’s not PR. More users, more clicks, more revenues… that’s what you want to be measuring after executing on your PR strategy. If you’re doing it right, the numbers will be going up.

Throwing parties or going to conferences because all the other cool kids will be there is wasted money. It’s also wasted opportunity because you could be doing so much more for your business with that time and money. Only go to conferences where you can do business. “Doing business” means you will meet potential partners, customers or learn something mission critical to your business. If one of these three options aren’t executable, leave it out. Same thing goes for parties. If you can throw a party to get your partners to do more with you or your customers to buy more from you, go for it. Small parties to keep your employees happy are also fine. But parties to “get our name out there” just aren’t effective. Don’t even get me started on “house-warming” parties for new office space.

So let’s get back to my point about PR. Start-ups always have limited resources: too little time, too few employees, limited finances and so forth. PR in the traditional sense of the business is necessary once you’ve (1.) built your product, (2.) launched it, (3.) managed to get people to pay for it and (4.) proven your business case. If you haven’t taken care of (1.) through (4.) you will waste money and at worst, torpedo your success. People will be expecting too much too early. You will be over-promising and under-delivering. This leads to a death-spiral almost impossible to get out of. You can always catch up on PR and fortunately, if your product rocks, PR kind of takes care of itself. So, to summarize, don’t focus on PR too early. Only after you’ve created something to rave about, do so. Don’t get caught in the trap though of focusing on PR too early. It’s fun to do and easy as you can throw money at the problem. But it’s only a strategy and a solution after you’ve focused on more important things like your product and business case.

In college I spent a lot of time in the campus dark room dipping rolls of film and sheets of paper into various chemical baths beneath a dim red light. The most interesting part, though, was mounting the negative into the projector and exposing the photo paper. Every time I turned on the bright light of the projector I was reminded of a saying that has stuck with me ever since: “A photograph is nothing more than an image created by light.” Think about that for a second. The only way the photograph, and hence, the viewer, interact with the original subject is via the light that was captured. None of the fancy flashes, soft boxes, bounces, umbrellas, or backdrops mean a thing if the light they produce or redirect is in the wrong place. If the light is bad, the photograph is bad.

I think the same concept holds true for web applications. Adapting the saying for our own situation, I would say: “A web application is nothing more than an experience created by design.” Users can’t see what technology you use or whether you follow an agile development process or not. All they experience is what’s on the screen. It can’t be confusing, it can’t look amateur, and it can’t have spelling errors. If the UX is bad, the web application is bad. It’s that simple.

The way you get good UX is by having a good designer. Someone on the team must be skilled not only in making things pretty, but in making them usable as well. Without a good UX/visual design, you may as well not even bother. It’s impossible to stress how important this is.

Design comes first. It defines what you will build. Once you have an idea of what you’re creating, you need to figure out how to make it happen. That’s where the Architect comes in.

With the recent explosion of open source solutions to common problems like databases, web frameworks, job processors, messaging systems, etc, you need a team member that has a broad understanding of the technology landscape. The choices you make early on will impact your company for many years, and the wrong choices can spell disaster. The role of the Architect is to choose the best tools for the job, and to decide when new tools need to be created.

The Architect must also be ready to scale any piece of the site when you start attracting users. There’s a fine line between premature optimization and crumbling under the wave of thousands of new signups. A good architect will always be one step ahead of the curve, laying the groundwork for future scaling needs just before they are needed.

Design and architecture dictate what you build and how you build it, but without someone to do the construction, you’re dead in the water. The role of the Developer is to turn the wishes of the Designer into reality while staying within the constraints that the Architect has put forth. In addition, the Developer has to ensure that the codebase remains healthy and protect against technical debt. Sloppy development up front means a huge amount of wasted effort later on.

The three roles of the Designer, the Architect, and the Developer may reside in a single person, but it’s much more common to see groups of two or three people satisfy all these skills. In fact, the best founding teams are those where everyone fills some combination of roles. This fosters an environment of friendly argument that leads to better decisions.

But whatever you do, make sure your team fills all of these roles. Once you do, executing on your idea should come easily!

It’s not easy for us to say, and many times, not easy for an entrepreneur to hear. You’ve been working hard on your business, you think it’s great, your only friend thinks it’s great (you’ve lost everyone else because you’ve been holed up working on your project), your family parted with their hard-earned cash to help you out… and then you meet with investors and they say No.

Great. “Investors are such idiots” you’ll think… well, maybe. Or maybe not. It turns out No has many meanings…

First, I’ll admit I personally hate saying no, but I do try to be pretty blunt when doing so, and giving a good reason why I say no (not always, but I try). Your job as an Entrepreneur is to figure out what the investor is saying when they say no… because there are different flavors of No, and different reasons for No.

The most frequent No is actually “Not now”. If that is the case, all is not lost, find out how to get to “Yes.”. It’s going to be a specific milestone or proof point. Find out what it is, ask clearly if you achieve x or y, will they invest at that point. The answer will normally be “Yes.”, and they will lay out exactly what they want to see. This usually lowers the risk of some element they’re not comfortable with yet. If that’s the case – then get on it and get back there. You’ll find a way.

There’s also a variant of “Not now” known as the Excalibur Test. I’ve given many entrepreneurs the Excalibur Test – give them something to do then have them come back with it later. If they’re successful, you write a check. And if they don’t come back…well, the story ends there. Excalibur tests or proof points are fine; but be careful that an investor doesn’t have you running around in circles when they have no real intention of investing—regardless of the outcome.

Another reason investors say “No” is bandwidth. Most people don’t realize an investor will only make 1-5 deals per year—depending on many factors (stage, size, etc.) They may actually like your business, but simply can’t deal with another investment at that exact moment in time, even though they love it. It definitely happens…

Other reasons you may get a No: lack of fit with the firm or individual’s investment thesis/areas or stage. This one is far more likely. Many investors are not what they seem. Every VC you meet in London will say “We do early stage.” What they actually mean is “We invest in profitable companies that don’t really need money”. The risk profile of that firm is simply not one that’s going to invest into an early stage – let alone a seed stage business. Everyone says “Great companies get funded.” but that’s an urban myth. I know several very good companies that haven’t been able to get funded because they were simply “too early”. Think about Fit and Stage when you’re talking to an investor and understand that you may simply not fit the bill. You can test this by asking if they think you should talk to someone else. If they make a suggestion, ask for an intro. You will have confirmed that you’re not right for them, and the intro helps act as validation for your business in the next investors eyes.

Another reason investors may say No is simply a lack of vision. They don’t actually get what you’re doing. It happens a lot. This one is really easy to spot, and understand. If this is the type of No you get, take it and move on. It doesn’t mean they’re an idiot (although that’s what you’ll be thinking), and it also doesn’t mean you’re some gifted visionary (which actually you may be). More likely it just means you see the world differently. It’s a simple No. Move on…

And then sometimes, the No is actually because the baby is… well… ugly. No one likes the Ugly Baby and it’s even worse to have to say it; but bad ideas are plentiful. Perhaps the business won’t scale well (niche business), will be difficult to execute operationally (manually intensive, for example), doesn’t create any real value (reselling someone else’s product/service), is crawling with competitors, etc. This is the hardest one to swallow. When it finally sinks in… and you realize that you’re working on a dud, I’d recommend you cut your losses and do something else.

Whatever answer you hear, focus on your business (unless it’s an ugly baby), and your customers. You’ll get to a yes… maybe it’s a different investor, or it’s a paying customer. But it will be a Yes.

Keep pushing. Believe in yourself. Happy 2011.

Asking people what they’ve done wrong, depending on their answer, will generally put them in one of a few categories, and knowing what category someone is in ahead of time can really help me (and you) decide if I want to work with them to any extent in the future.

Denialists. There are people who would have you believe they have never made a mistake. They’ve always done everything correctly and for the right reasons and fate has conspired to keep them down. These people have a laundry list of things outside of their control that went wrong at one point or another that ended up negatively impacting them, but these were no fault of their own. They were right, someone else was wrong and they were left holding the bag. This is dangerous because by refusing to admit an error, these folks will make the same mistake over and over again.

This isn’t always a personal problem, sometimes it’s cultural – in many parts of the world mistakes and failure are looked down on and these people are trying to save face and cast a good light on themselves. But that doesn’t change what it says about the person and their approach. I really never want to work with these folks, because I know it won’t be long until I’m the reason things aren’t working out for them. These people aren’t always as vicious as I’m making them sound, sometimes they actually believe everything bad is everyone else’s fault. All the more reason to keep your distance.

Time Bombs. There are a very small number of people who say that nothing has ever gone wrong who are not just casting blame elsewhere. For real, everything has always worked out perfectly for them. These people are lucky bastards and are either due for a spectacular meltdown of which could happen any moment – especially if you add your own crap luck to the formula, or will always be the luckiest person in the room which is just totally annoying. These people are mostly the stuff of legends, but they do exist and I don’t like working with them either.

Then there’s everyone else.

We’ve all made mistakes. We’ve all done things wrong. We all know it. The important thing is what we’ve learned from those. It doesn’t matter what you got right or wrong, but what you walked away from that experience with and how you’ll use that information to your advantage in the future.

Fuelled with what seemed like a phenomenal amount of money from angel investors we expanded from 20 people in a small digital media studio in Beak Street, Soho to circa nearly 200 people on 3 floors of No.1 Regent St, London where we kitted out two recording studios for our online radio station that featured the best DJ’s, a video editing suite for the online TV broadcasts and hired the best writing talent we could find.

So there you had it. It was 1999 and we were at least 5 years too early with an on-demand online radio station, video station, digital magazine and online community that was growing fast all wrapped in a hyper-cool, search engine unfriendly Flash based site. Pretty much anybody that was part of the London underground music, fashion, design or political scene was involved.

We were burning through money at a rate of £250K per month while our membership and site visits were going through the roof. The on-demand streaming of high bandwidth audio and video in those days meant that the more successful we were the more it cost us and did those costs escalate – every month. We quickly became victims of our own success. I experienced corporate vertigo having gone from a happy almost family like atmosphere of a 20 person team to a 200 person company + 100’s of freelancers in less than 6 months.

We made a tactical error in the design of Ammo City. Having been spawned out of a cutting edge digital design company called Digital Arts our creative team was naturally precious about the visual presentation and navigation of the site at the expense of understanding how the net worked and the future importance of search engines. Hence the site was beautifully crafted in Flash but unless you knew how to find it none of the great editorial or shows would be found via a search engine yet this lent the site a kind of cool cachet. Knowledge of the site was spread by word of mouth and it’s lack of 1999 Internet etiquette provided an unintentional aloofness that didn’t appear to hurt the volume of traffic. One problem however was that it was a site that could only really be enjoyed with a broadband connection and in 1999 the UK was still mainly in dial-up mode certainly for domestic connections so we were relying on people goofing off at work or access from the US and other places where broadband was more prevalent. We could literally tell from the server loads when universities in the US were waking up or getting into their evenings where East and West coast students were pulling down on-demand radio streams from the hippest London DJ’s. UK Garage, Drum and Bass, early Grime were all achingly hip and these shows were incredibly popular in the US and Canada.

Ammo City literally became the London underground music, design and fashion scene online with the added dimension of intelligent editorial.

So the audience and the costs of servicing that audience continued to grow at an almost exponential rate which lent a strange pain/pleasure principle where more users equated to a higher burn rate unmet by incoming revenue.

Shareholders and investors were quick with advice and I must confess that even when it was counter-intuitive I felt so out of my depth I assumed that they must be right. We spent money like water because we were told if we didn’t spend it we wouldn’t get the next, yet to be negotiated, tranche. This was a land grab and we were grabbing land.

Yet in the grabbing of land we were yet to really figure out how to monetize.

Suddenly at the behest of my shareholders I was surrounded by people who came from big corporations but had never run a start-up. They used lots of clever words and management double-speak that I was rapidly trying to acquire less I seemed like an incompetent CEO. I had a former marketing director of Coca Cola, a former COO from Virgin, an editor from NME each from an entirely different culture and with old media ideas of how to make money. Of course none of us knew.

The missing ingredient here was an understanding of how the net would evolve yet in truth we did know as can be seen from our promotional video. It’s just that we didn’t have visionary shareholders or deep enough pockets to achieve what Facebook and YouTube achieved 5 years later. We succumbed to the mantra of the time and tried to sell advertising space but online advertising wasn’t really understood back then and besides the sport shoe advertisers that might want to connect with our audience were put off by editorial that talked about sweat shop labour. Advertisers, as in other media, want access to your audience but at the same time want to influence editorial and as soon as you do that you stop being authentic and you lose your audience. It’s a vicious cycle but explains why so much mainstream media and corporately sponsored sites are crap.

So there we were with a growing audience, a respected brand and burning money. Internally we had running battles given that we had kept the digital design business as a going concern whilst at the same time attempting to build a global youth brand. Both sides of the business thought they were supporting the other either via incoming revenue (the design business) or credibility (Ammo City). Fights continually broke out between fiefdoms, my creative director stopped talking to me for reasons still unknown and then shareholders began hold secret meetings with members of my executive team concerned that I may be cracking up under the strain of running two large businesses and having to switch personalities between being the head of a ultra-hip youth brand and then the head of a corporate digital design company for clients such as Swiss Re and Volkswagen. I’ll be the first to admit I was finding it a challenge especially as the staff numbers had grown so quickly and inevitably I became seen as a bit of a wanker by people who I hadn’t hired but had been hired on my behalf.

What I found strange was that the concept for Ammo City was sound and this was what attracted investors to the proposition in the first place yet once installed they felt it necessary to deploy checks and balances that made it impossible for me to function. Whilst they were attracted to my creativity and entrepreneurship they then expected me to be able to speak like an accountant, a lawyer and the head of a public quoted company whilst still driving an authentic youth brand and an utterly disparate corporate digital design company.

What only occurred to me later was that these people had absolutely no idea about how to run a start-up, they had only ever run businesses from the comfort of an spreadsheet and a cursory glance at a then popular business journal called Red Herring.

The melt down happened when a couple of passenger planes were parked on the Twin Towers in New York.

Suddenly money just stopped moving around, the dot com 1.0 bubble was already letting out air and 9/11 gave it the final burst. Contractually committed funding to the business was withheld and we found ourselves traffic rich and cash poor. By this time a shareholder and executive team mutiny was well under way which meant that I had to fire people whom I’d had long term business relationships as well as friendships with for gross misconduct. Unlike many CEO’s at time I had been too naive to set aside a personal escape fund so almost went down with the ship but naturally the majority of people whom I’d provided employment for blamed me for the failure and I experienced a period of complete isolation.

So what did I learn from this experience?

It took many years of reflection to understand what I’d learned. But here’s a few things I do know now.

1. Don’t be taken in by people who have lead corporate careers. Just because they come to you as former CFO, COO, CEO or whatever from a major corporation might look good when talking to a venture capital firm but it means shit when it comes to building a new business from the ground up in a totally new area. These people can be useful advisers but always remember that you don’t have to take their advice use them as a sounding board only because in talking to them it may help you define your own thinking but don’t let them side track you. If they’ve never built something with their bare hands from scratch they’ll never understand what you’re up against.
2. Keep your vision and go with your intuition. If I had 1999 again I would have done many things differently. I would have taken the cheap warehouse space in Brixton rather than moved to expensive offices in Regent St that kept our shareholders and corporate customers happy. I would have conserved cash and spread it like marmite rather than burn it as fast as my shareholders encouraged me to. I would have concentrated on one business rather than tried to run two in order to maintain a fake source of revenue at the expense of losing focus. I wouldn’t have taken on senior executive team members introduced to me by shareholders as in the end this created distrust and fragmentation within our team.
3. Understand what you’re good at and don’t get deflected into areas that you’re not. This has been a constant challenge in my career and I think it’s something to do with being an entrepreneur in the UK. As a CEO in the UK it seems that you’re expected to not only be the visionary, creative genius and person that can lead a team up mountains fuelled on passion and a love of late night pizza you’re also expected to be an accountant, a lawyer, a spreadsheet jockey and half a dozen other things. I know lots of start up CEO’s who are good at a lot of this stuff but I’ve yet to discover a successful start up that has been run by a bean counter. This is an area where it appears that the US has a more enlightened approach to investment and where there is a “wrap around” of professional support that allows you to pursue the vision they invested in that plays to your strengths rather than forcing you to operate within your weaknesses. You may only be the CEO in the start-up phase, once it’s rolling you will probably need new management to make your idea sustainable.
4. Compromise is the enemy of integrity. Great ideas are not realised by consensus. Be authentic and stick to your vision. Even when nearly everybody says you’re wrong you’re often right.
5. Being a CEO or founder is lonely. Don’t assume that your employees are as committed to your vision as you are. You may have egalitarian ideals but most people just want a job and need clear direction. Not everyone is a leader or thinks like one. Shareholders are not your friends, they have invested in you because they expect a significantly better return from their money in your business than if they had put it in a bank. They will want to see that return earlier than you expect and will not be sentimental or care about the 72 hour weeks that you are putting in to realise your vision. In many ways you are an indentured slave. It might be your idea but it’s their money you’re spending. Don’t assume that they really understand where you are going.
6. Don’t fear failure because this is where you get the most powerful and useful learning. The UK investment community still hasn’t recognised that success is going from failure to failure without losing enthusiasm. Each failure tells you more about yourself and the world around you. Use this knowledge in your future ventures and don’t let it dent your confidence just try not to repeat earlier mistakes.
7. Entrepreneurship is not something you learn at school or from an MBA. An MBA is fine if you want to take a position within a going concern but it teaches you nothing about the day to day creation of something out of nothing.
8. Ignorance is bliss. If you don’t know what is impossible then you have no limitations. Disruptions and $multi-billion dollar businesses are often caused by people imagining impossible things and then doing them.
9. Be authentic. Understand what really matters to you and how you define personal success. This will take time but it is the key to long term success. It is tempting to behave and be the person that the outside world wants you to be but maintaining multiple personalities is time consuming and you will be found out. If you don’t like wearing suits then don’t wear them, if you don’t agree with something then speak out. Do you really want to be trapped inside a personality that isn’t you?
10. Understand that money changes people. Even the people who you think you know the best.
11. Burn as few bridges as possible. You never know what’s coming next. But having said that don’t be a doormat, some people really deserve to know exactly how you feel. If they are decent people they will respect your honesty if they’re not then you really haven’t lost anything.
12. Think disruptively and don’t fear the big boys.

1. look for a real consumer (or customer) need

The best startups address a real need, that much is obvious. However, ensuring that you optimize your product or service to meet this need isn’t easy. Amazon stays true to this philosophy with its “Working Backwards” approach, starting any new project by writing a press release describing the offer to the end consumer. Amazon’s next steps are writing a frequently asked questions document and defining the full customer experience before finally developing the product. Stay true to your consumer’s needs and beware any compromise you make – each one provides oxygen to your competitors.

2. look who is meeting it now and disrupt them

Most consumer needs are being met today in some way, the question is whether you can meet them better. For example, Netflix meets a consumers’ needs better than traditional highstreet based video rental businesses. In fact, Netflix turned the incumbents’ expensive retail channels into their Achilles heals by distributing via the internet. It then leveraged the strengths of the channel to improve the customer experience, offering tailored recommendations, greater movie choice (at lower cost because of centralised stocking) and greater flexibility. Netflix even smoothes demand by inviting customers to create a list of films they want to watch and the company chooses the order in which they receive them. Netflix owns more than 55 million discs and, on average, ships 1.9 million DVDs to customers each day while Blockbuster filed for Chapter 11 in September. Recognise how your consumers’ needs are being met today and turn your competitors’ strengths into their weaknesses.

3. launch with ‘just enough’

Once you’ve identified the consumer need and turned the incumbents’ approaches into their Achilles heals, it’s time to launch. Launch with just enough to gauge whether your hypothesis is right and learn fast. Too often startups kid themselves that they need more features both before launch (a basic self-protection mechanism?) or after launch (to avoid addressing poor uptake by consumers?). Dropbox is a great example of a product that kept it simple: MIT-grad Drew Houston was frustrated with how often he forgot his USB drive and developed what he thought was a better solution to meet his need. To test whether anyone shared his need he initially released a short video explaining his plans on Hacker News – the video received 1200 Diggs and Houston realised that they must be onto something. The team then built the simplest version of the product possible, which retains its wonderfully simple UI today. The lesson, launch with the bare minimum to meet your consumers’ needs and learn fast.

More reasons why I love Netflix here and Dropbox here.

Have a disruptive Christmas

@thulme

I embarked on the Neoteny Labs journey with Joi on December 1st, 2009. That journey is now a year old, and I’m really happy at the progress that we’ve made to date. We ran a small event in Singapore in December 2009 called Neoteny Singapore Camp 1 (NSC1) and had a ball of time. The fund (Neoteny Startup 1) opened in end-April 2010 and had our initial close a month later with some overwhelming responses. We made 8 investments over the next 6 months, and might close on 1 or 2 more over the next quarter.

Even though I’m technically sitting on the other side of the table, I feel like I’m part of an early-stage startup – we’re constantly figuring out ways to do things better and quicker. Joi has been an awesome mentor and together with Reid as an adviser to the investment committee, has done a great job with the fund and the portfolio. The team has grown a little, with Farhan Yaqub moving from Dubai to Singapore to work with me on the investments, and Sean Bonner helping out with our black ops as he weaves his way around the world. It’s really hard not to be infected with the enthusiasm of the founders (and their teams) that we back ;) . I’ve hopped out of bed quicker and attacked my day with more gusto over the past year than all of my previous 28 years of existence combined. Each night I go to bed, I wish I had 8 hours more before the day ended.

I’ll make another cliché statement. The sky really is the limit, but passion and ideals need to be grounded upon strong execution. Execution is more a function of good habits (trainable) rather than natural talent (innate). I start my day by running through and prioritizing the list of to-dos that awaits me. I spend my day meeting and connecting folks to do my bit for the ecosystem, while fragging my to-do items along the way. I end my day in bed by feeding more to-dos into Awesome Note on my iPhone *cues the scene where Rambo smokes his joint in a darkened room and feeds bullets into his magazines*. Heh.

If you’re going to tell me you’ve tried but you don’t think you can do it, STOP. The trick is to WANT to become a “hustler”, and by want, I mean REALLY REALLY WANT. Persevere in your pursuit of excellence, learn from others, never stop sharpening your edge – you’ll get there one fine day. The human will can be really amazing – just take care not to hustle too much and lose the zen in all that you do.

Ideas are free, and until implemented, are like the ephemeral dreams that escape our waking consciousness as each of our days begin. Don’t get too obsessed with your startup vision, lest they turn into Cone of Cold spells that sap away at your life force. Leave illusions of grandeur behind you, and take action today.

Chinese wise men once said, “万事起头难“. It’s never easy to take that first step, but once you have, keep taking your second, third, yadda yadda steps and never look back.

The mission from the mothership in San Jose was clear. Make it happen now and account for every penny. In that age of dot.com largesse, eBay was stingy. No Boo.com extravagance for us. Our crap office was embarrassingly ill-equipped. They were ever so tight. Quite right too. We had to have all the hunger of a real start-up.

But we had something most start-ups don’t have: transplanted US executives bringing a “playbook”. Mythical and unwritten, they cited it daily. The yanks (all male MBAs replete with khaki slacks and blue Gap shirts) couldn’t see past it. Like aliens, they left as mysteriously as they arrived every now and again. They sought online banner deals with AOL, Yahoo and the like and they were dogged. They wanted to replicate the US success by repeating the same moves. The UK was just another planet.

We Europeans wanted a bit more though. We demanded changes to the platform for our local markets which were rarely forthcoming. Website changes were slow and reluctant. For the most part, I was on the blower, or out and about each day like others, building eBay one Del-boy at a time. I must have met or spoken to 100 stamp and coin dealers that first month with eBay. Plenty of people thought buying and selling on the internet was a crazy idea back then. We feared QXL. Yes, really.

But everyone shared a tremendous sense of urgency. To this day, I have never worked with a team that was so focussed on getting something worthwhile and amazing done every day. Get a result. Now is best. That was the idea. Report some progress. And every day in that summer of 1999 at eBay did end with a gaggle, where everyone was expected to report a result. Critically, it wasn’t an exercise in bullshit or evasion. The camaraderie and enthusiasm was such that you really did want to tell everyone about something brilliant you’d done.

It’s perhaps a blindingly obvious thing to say, but I’ve subsequently found it overlooked in other start-ups. As you look at the horizon, amid the chaos to build something brilliant tomorrow and build a 6-month strategy, can you honestly say you’ve had a good day today?

1. % of new buyers per bundle
2. % of companies that will work with us again

Those are the only two things we optimize for. We of course love our existing customers and do other things but we strive to really improve those two numbers.

We are new and young and have experimented with many models for best incorporating partners in our bundles. Pay them all equally for being in a bundle, don’t pay, pay some arbitrary %, pay a % of the value they are generating among a few other variations. One thing we also tested was only paying companies when our customers redeemed on their site. It was the honor system. I heard Groupon did it and thought it seemed fair to all partners involved.

We did this a few times and have an agreement with partners that spelled this out in clear English. YOU WILL ONLY GET PAID ON THE REDEMPTIONS ON YOUR SITE.

We did an AppSumo.com bundle, it sold pretty well and then it was time to pay the partners.

Noah: Hey (name removed), how many customers redeemed on your site?

Partner: 100.

Noah: Okay, $10 * 100 = $1,000. Where should we send the check?

Partner: Weird. How many did you guys sell?

Noah: Around 700.

Partner: I want $7,000. What the F are you guys doing?

Noah: Huh? The contract you signed says you only get paid on redemption. There are only 100 words on the agreement so there is no fine print.

Partner: Man, this is a horrible and I doubt I’d work with you guys again.

Noah: The money is yours. It’s our fault for not making it more clear.

That happened with two partners. What did we learn from that experience?

• Think Long-term, not short-term. If our priority was profit then we may have wanted keep that money, not focus on partner retention.
• Make things ultra clear and agreed upon before working together.
• Have priorities / values and stick to them.

Investigating your market and understanding why customers buy is critical. If you’re addressing a big enough and fast-growing market, you’ll have higher chances of success. I think it’s important to see things from the consumer’s perspective: do you have a typical customer? What buying habits? E.g. What, how much and how often do they buy? What’s currently on offer and why would they choose to switch or buy your product?

2. Plan & get your hands dirty:

You need a business plan and some goals. Get your ideas on paper and KISS your numbers (Keep It Short & Simple). It makes good sense to simply understand how much your business is going to make in its first years. Then you really need to start. I mean not just coming up with a clever strategy but implementing your plan and turning it into a product. With an eye on your cashflow and your milestones, just do whatever it takes, talk to your clients, sell sell sell, get immersed in your business and keep what works. Being on a project mode to constantly improve is a best practice.

3. Focus on people

They will all make a difference, partners, employees, investors… Surround yourself with good people, reward them and be a real person, not just a business person. I think paying attention to relationships and cultivating a culture is a good thing. If you need, try to find a mentor because surely it doesn’t hurt to hear from someone who’s done it all before, right?

4. Persist, persist, persist and protect your ideas

99% of businesses are not based on just inspiration but on perspiration, determination to turn it onto reality. You can be enthusiastic but be careful too that you don’t share details of your plan with potential competitors….

Good luck & Enjoy the journey. I wish you success and happiness for your own personal venture in 2011!

The only little niggling question that remains is what exactly is the “it” that they can do better than anyone else? Having worked with many entrepreneurs in the technology startup world, and having spent 14 years in the internet space, I find that “it” rarely involves the ability to build products that people use. Meeting this condition just happens to be necessary for a venture to succeed. We’ll call it Condition 0 (note that there are four important words in the condition). Quite often, entrepreneurs are indeed naturally good at, or driven to be good at, many things. Just rarely that one. If you have any doubt, you’ll have to try to explain really hard why else would 70-90% of all start-ups fail.

There are generally two kinds of entrepreneurs in the internet startup world that I have encountered. The first I’ll call “the Visionary”. The Visionary will often have a conception of a game-changing value proposition that might be quite unique or have huge potential. He is usually very voluble and persuasive, generally able to recruit people, and funding, to his venture. His skills are most on display at pitch meetings, conferences, and company outings. He is very good at understanding the “people” part of Condition 0, and may even have a decent conception of the “use” part. That is, the Visionary can literally visualise (and explain) how people will use the new concept or how the venture will benefit them. However, in many cases, the visionary also thinks that he knows exactly what needs to be done to convert this vision into reality and make it a concrete offering. Don’t be that guy. As a Visionary entrepreneur, realise that your skills are not in execution. It is extremely unlikely that you know how to “build” something. That you have the patience, organisational ability, structured thought, or even managerial talent to create a concrete piece of work. Nor do you really understand that a “product” requires the planning of specific features, user flows, inputs, outputs, implicit and explicit messaging, technological components, etc. all arranged and developed in proper sequence with proper priority. As a Visionary, do what you do best: develop the broad vision, inspire stakeholders, and go raise some money! Find the right people to “build the product” for you and fulfil Condition 0. Think Richard Branson and all the great managers he’s hired along the way. Be that guy.

The other kind of entrepreneur I’ll call “The Engineer”. These are probably more prevalent in the internet startup world, because they are usually born of a hard-working coder who has been solving problems for a long time and perhaps has identified a particular issue that everyone has or that she would like to solve on a much larger scale. The Engineer is, of course, without equal at “building” things – a requisite for Condition 0. She may even have had decent experience in previous jobs building “products” with well-defined scope, cohesive feature sets, release schedules, and possibly even usability analyses. However, the Engineer may also believe that getting the solution distributed, adopted, and monetised on a mass scale is just a question of coding something that she and her friends (probably also engineers) find pretty cool. Don’t be that gal. As an Engineer entrepreneur, realise that your skills are not in the psychology and behaviour of humans, competitive response prediction, or message positioning and PR. That you might know how you or your friends will use the product, but that you have no idea how all the other “people” in the wider world will perceive or interact with it. Moreover, driving “usage” requires creating the solution in a way that lines up with user needs at a particular time and place, make it clear to the user what the value to them is, pre-empts competitors, and creates long-term brand equity. As an Engineer, do what you do best: develop kick-ass technology or even intellectual property, create low-cost, high-performance architectures, manage and mentor other engineers in your company, and release good products fast. Hire the right team to help you figure out what will “people use” and commercialise the product, thereby fulfilling Condition 0. Think Larry and Sergey hiring Eric. Be those guys.

One of the characteristics of a good entrepreneur is that she realises her strengths and weaknesses and has no hesitation in hiring people to complement her own skills. She is proud of what she is good at, and has no embarrassment whatsoever over filling out her team with superior talent. I will stress that a good entrepreneur isn’t one that gives the appearance of having all the angles covered on her own. (Nor is it one that got lucky and pawned off a venture onto some other sap with stupid money – that’s just a good con man.) A good entrepreneur is precisely and only one that has built a product that people use. And that requires many skills.

“You cannot call yourself a true geisha until you can stop a man in his tracks with a single look.” – Mameha, in Memoirs of a Geisha

If most people who call themselves entrepreneurs were tightrope walkers, they’d be dead. You can’t call yourself an entrepreneur; it’s like calling yourself a saint. ¹

Entrepreneurship is the last great adventure left in a society replete with the passive, predicated on consumption as a way to express belonging, status and generate meaning. The continents are explored; the mountains climbed. What can be thought has been thought: philosophy, music, visual arts are stuck in circular incrementalism. History is resolved; to be mainly political is to be silly. Only the perennially undergraduate sentimentalists think yet another book or painting or slight variation on a beat will make a difference to the human race.

To be an entrepreneur is the only of the creative endeavours not subject to some white-haired, claret-sipping nob jotting his disapproval in the elitist pages of some dead-tree journal consumed only by other sad middle-aged nobs bunched up in commuter trains on a grey London morning. They are the elite, but of what?

To be an entrepreneur is to make something people want. Preferably lots of people. Preferably lots of rich people. And then to take their money, which they earned through the labour of their own hands and heads, to make them pay as much as you are able to extract for the value you add to their lives.

This exchange in value is one of the most noble acts of civilization. In a sense, it is the pinnacle of humanity. It is value by creative endeavour, money earned, not extracted by tears or a pointed gun. It is a fundamentally moral act, diametrically opposed to charity or taxes.

And so of those of you who call yourself entrepreneurs in your Twitter by-lines, I ask: what have you made that people have wanted? What have you created today that they have lined up to pay you for? Whose yearnings have you addressed, whose cravings have you satisfied?

Until you can show me those people, don’t think of yourself as an entrepreneur, think of yourself as an adventurer reaching for the stars. And when you reach them, you don’t need to call yourself an entrepreneur.

They will call you one.

1. Paraphrased from Michael Longley, who said the same of poets.