StartupForLess

[14] Startup Lessons Learned While Climbing Kilimanjaro - Part 1 (by Denny K Miu)

2009-09-22T00:01:00-07:00

Editor Profile - Denny K Miu was the Founder and former CEO of two companies, Gigamon Systems and Integrated Micromachines (now Touchdown Technologies). Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

Kilimanjaro is a non-active volcano located inside Tanzania near the Kenya border. It is the tallest mountain in Africa (19,331 ft from sea level and 15,100 ft from its base). Although it is the fourth tallest mountain in the World measured from sea level (after Mount Everest at 29,028 ft, Cerro Aconcagua of Argentina at 22,841 ft and Mount McKinley of Alaska at 20,320 ft), it is in fact the tallest "free standing" mountain.

Kilimanjaro also has the additional distinction that among the tallest mountains of the World, it is the only one that is "non-technical" meaning that it is accessible to novices (like me) requiring no mountaineering skills and safety equipments. In other words, anyone could walk up to the summit provided that they are reasonably fit and possess extraordinary determination.

Shown above is a video excerpt taken from a well made IMAX movie (which you can purchase from Amazon for less than $5). I highly recommend this DVD if you are interested in learning more about Kilimanjaro.

On the other hand, in retrospect, this DVD doesn't quite convey the full spectrum of the actual climbing experience. The following is another great video - shot three years ago by members of the same expedition group, International Mountain Guides, that my son and I had joined, taking exactly the same route as we did. In this much less polished amateur video, you get to experience the physical exhaustion, constant heavy breathing and the occasional cussing.

This two-part article is part of my ongoing series on startups, entrepreneurship and bootstrapping, talking about lessons that I have already written extensively in the past but now re-learned through a completely different context. In this Part 1, if you could bear with me, I would like to first describe my journey to the roof of Africa.

We climbed using the so-called Machame Route which takes six nights and seven days, transversing a total walking distance of 40 miles and a vertical elevation gain of 13,438 ft (2.6 miles). Now, to put things in perspective, for those of us who live in or are at least familiar with the Bay Area, this is exactly the same lateral distance if you were to drive from the Oakland Airport to the San Jose Airport. Also, the total elevation is similar to six times the height of Mount Hamilton (tallest mountain overlooking the Silicon Valley).

So in some way climbing Kilimanjaro is very similar to an extended hiking trip, just more demanding, if you discount the extreme cold and near absence of oxygen during summit and lack of toilet facilities and showers throughout the trip.

DAY 1 - We left our hotel in the morning and were driven to the Machame Gate by noon which has an elevation of 5,900 ft or 1,800 m (bottom left corner of the above map). This was our last contact with civilization. The mountain is actually a well guarded national park. No one gets in and out without government permission. And the park authority enforces a "leave no trace" policy which basically means that we bring everything we need into the park and we must bring everything back out when we leave, leaving nothing behind. This turns out to be an important part of the overall challenge.

There were fifteen of us in the group, all from the States, including our lead guide, Andy Politz, who had previously climbed Mount Everest seven times. Andy was travelling with his teenage son and his best friend, both had lots of climbing experience. In addition, we had four local guides who each had climbed Kilimanjaro more than 150 times (they said they had stopped counting after the 100th).

Then there were forty-nine porters of different skills - three were cooks, four were stewards (serving us hot meals and taking care of our personal needs) and six more had enough experience that they also acted as rescuers. The rest were to carry provisions and to set up and tear down our tents when we travelled from camp to camp.

For this trip, we each had two duffle bags, one we left behind in the hotel and one was carried by the porters who also needed to carry their own equipment plus everything we need for the next seven days (food, water, fuel, tents, lawn chairs, etc.). We each carried our personalized necessities (camera, energy bars, toilet paper, Purell, additional jackets, etc.) plus adequate water (2 liters) for the day.

On our first day we climbed straight up for more than five hours for a total distance of six miles. We gained about 3,900 ft, going through essentially an extensive rain forest. The trail was muddy and slippery allowing us to fully appreciate the functionalities of the various pieces of recommended climbing gears including gaiters and trekking poles.

Our camp is the Machame Hut which sits at the edge of the rain forest and the beginning of the next climate zone (there are a total of four zones before we reach the summit). Upon arriving the camp site, we also witnessed our primitive toilet arrangement which was basically a hole in the ground used every day by the incoming groups, until someone decided to dig a new one. Coming from a third world country, knowing how to squat was the one survival skill that I had that other team members did not.

DAY 2 - Today is similar to Day 1, trekking more than six hours for a total distance of five miles and gaining another 2,400 ft. When we entered our second camp which is called the Shira Hut (upper left corner of the above map), we were at an elevation of 12,000 ft (3,720 m). The terrain was very different from Day 1. Instead of rain forest, we were now in the so called Heath zone.

All through the day we enjoyed great scenery, seeing all kinds of unusual plants and vegetations. We crossed a small valley walking along a steep rocky ridge which was covered with heather. When the ridge ended, the route turned into a river gorge which we had to cross. Then we had to climb another hour to reach camp which was on top of the gorge. On the way up, we saw porters rushing down with large water bottles. They were busy preparing our dinner (keep in mind that we left the last camp before they did).

DAY 3 - Today we had the first taste of the challenges ahead. We learned first hand the concept of "scrambling" which was slightly less demanding than hardcore rock climbing and required no safety harness. We also had to climb down which turned out to be much more difficult than climbing up (more exhausting and more dangerous). At above 12,000 ft, breathing was becoming a challenge and simple chores such as climbing up a vantage point to take better pictures required noticeable effort. Fortunately none of us experienced headache which would have been the onset of altitude sickness.

We were on the trail for eight hours walking only a short but difficult three miles (including a break for hot lunch brought to us by our ever endearing porters). We climbed 2,500 ft up but 2,000 ft down, reaching our third camp, the Barranco Hut (middle of the above map), which had an elevation of 12,800 ft (3,900 m). Along the way, we passed the Shira Plateau and the Lava Tower (at 14,950 ft). We went through two climate zones, starting with the Moorland and ending with the Alpine Desert. It was a good day for group pictures.

By the way, in the past, from Lava Tower, the most demanding route to summit Kilimanjaro was to climb straight up from the west side of the mountain (called the Western Breach). However, in 2006, there was a rock slide accident causing death of three tourists and serious injury to numberous local guides and porters. As a result, this route was closed (a minor fact that I did not disclose to my wife until we returned).

In any case, today was the day that I finally realized how physically unprepared I was for this trip (even though I had been training nominally for six months). I had given up on keeping with the rest of the team and simply walked on my own pace, accompanied only by the trailing guide. Enthusiasm had gradually morphed into apprehension.

DAY 4 - Today was more of the same but several times more difficult, climbing between huge rocks that were almost vertical. It was a six hour day for another three miles. Interestedly we gained no elevation at all today, having to climb 985 ft up and 985 ft down, reaching Karanga Valley which was our fourth camp (bottom right of the above map). By mid-day, it was obvious that I was having a hard time keeping up. Our lead guide was concerned enough that he fell back and became my personal trainer.

I was told that the most important challenge for high-altitude climbing was breathing. By the time we reached summit, the available oxygen would only be about 50% of where we started. So basically breathing meant more than just real-time oxygen consumption but also taking reserve for the future.

Andy taught me about "pressure breathing" which breath by pursing the lips and blowing out forcefully one or more times. By emptying the lungs, the idea was that fresh oxygen would rush in making the process more effective and efficient.

In addition to breathing, there were also essential techniques such as balancing of the poles and locking one knee after another so the weight of the body is rested properly ("rest stepping"). Also, one must learn to "trust his boots" so you can balance properly on loose rocks and "think ahead" such that your unlocked leg could reach for the next strategic spot. Finally, the key is to slow down the pace but keep a consistent pace (taking very small steps but similar size of steps each time).

In other words, there were six and seven things that I must learn to do if I were to survive the rest of the trip. By the end of the day, I knew what the steps were. I just didn't know how to do them all at the same time.

Day 5 - Today was the day before summit and we had to reach high camp which was Barufu Hut located at 15,090 ft or 4,600 m (center right of the above map). We were told that it would be an easier trek (at least compared to the last two days). We just need to climb 2,295 ft, for a total distance of three miles which would take about three hours.

When we reached high camp, we would not sleep overnight (which was dangerous at high altitude, we were told). Instead, we would rest, eat, hydrate and get ready to summit at midnight. I was determined to make the best use of today; it was my last chance.

So after breakfast, instead of falling behind the rest of the team as I had done in previous days, I decided to give myself a headstart. It turned out that Andy had the same idea and had already asked one of the local guides to walk with me. As we left the camp at Karanga Valley, it is clear that this would be another tough day. The only good news was that we only had to go one direction which was up.

As I walked behind the guide, I started to practice my rhythm ... left foot down, stop, breath out once, lock my knee, breath out twice, lift right foot, take a small step, find a rock, land, rotate my hip, lock my knee, etc. I also walked very close to my guide, using his back to block my view so I didn't have to search for the top (which was very far and devastatingly discouraging).

Also, I discovered a trick which was to look up just enough so that I could identify a rock about five paces in front of us, look down again to concentrate on my breathing and when I finally saw the same rock under my foot, I would look up again to find the next rock.

So on and on I go and I was making progress. At first, the guide was looking back constantly to be sure that I was following him. Then after awhile, he just kept moving since he could hear from my breathing that I was behind. Then all the sudden I realized that I wasn't thinking anymore, I was in fact doing all the right steps in the right order and I wasn't struggling any more. I was just climbing, one foot at a time.

I was so incredibly happy that I started crying, so much so that my Maui Jim sunglasses was fogging up. The guide also noticed something strange. He turned around and saw that I was sobbing and I was trying desperately to wipe off my tears (at 12,000+ ft, the sun was very strong and I couldn't just take off my sunglasses). He was sure that I had gone mad.

He immediately dropped his backpack, took out his portable blood oxygen meter and put it around my index finger. Then he took it off, wipe my finger clean and try it again. He still had the same look on his face and he started to walk behind me. He flagged down the next incoming group, spoke to another local guide in Swahili and came back with a different meter. Then he did the same test again. Afterwards we looked at each other and I said, "What?" He said, "You are perfect! Your blood oxygen is fine."

We were both so happy that we hugged each other and started dancing. At 13,000 ft, that had to be quite a sight.

After a brief rest, we continued. By now, I was more confident and I proceeded to climb all the way to camp without stopping. We were there more than 30 minutes before any one else. When the rest of the team finally showed up (including my son), they were quite impressed. By now I was reasonably assure that I could make it to the top, all i had to do was to start early and finish late.

Unfortunately my euphoria didn't last. While having lunch at Barufu Hut, I learned that when we reached summit the next morning, we would only stay there for no more than 10 minutes. In other words, the plan was to leave at midnight, climb to the rim of the volcano in time for sun rise, rest a little, continue to climb to the summit, take a few pictures and get off the mountain as quickly as we could. And we had to get off the mountain together, otherwise they would have to divide up the guides, the rescue porters and the medical equipment which was not something that they liked to do.

So I had to come up with a different plan. But there were no other plan. Either I climbed to the top or not. I could do it. I knew that. I just couldn't keep up.

The engineer inside my head told me that if I couldn't change my objective, I would have to loosen up the constraint. So I went to Andy and said, "I want to start at 10:00 pm."

Andy said OK.

So at 9:30 pm, my guide came woke me up at the tent and took me to the mess tent. There they had hot coco and biscuits which they asked me to eat. Then the guide took out his backpack which was empty except for a portable oxygen tank. He took my backpack and put it inside his, which contained my water supply, my camera, toilet paper and my enormous goose down parka (which we were told not to wear until the coldest part of the climb, i.e., right before the sun came out).

At 10:00 pm, we left camp and as I passed my tent, I leaned over to where my son was sleeping and whispered, "I love you ... see you at the top."

DAY 6 - The first two hours of the summit climb was uneventful. It was obvious that this was going to be a very tough day, probably tougher than all the previously days combined. Basically we had to climb 4,000 ft for about 3 miles to reach the rim (twice the height at twice the inclination as the day before).

After reaching the rim which would take six to seven hours, we would climb another hour to hour-and-a-half to reach the summit (which was only 450 ft higher than the rim but another mile-and-a-half more climbing in extremely high altitude). So up until midnight I was doing pretty good. I was putting everything I had learned in practice, taking small steps and breathing properly.

The scenery was magically. Whenever I looked up, There were stars everywhere. I could see the lone mountain with its snow cap reflecting off the full moon. At first, I didn't even have to turn on my head lamp. The moon light was more than enough to guide me.

It was cold, however. It was already freezing when we left camp and the temperature continued to drop as we climbed. But I had two pairs of wool long johns, two summit-series fleece jackets (with wind-proof zippers) and a Goretex wind-breaker with hood. I also had fleece pant as the liner, water-proof padded ski pant on the outside, two pairs of wool socks, gloves and leather mittens, a scarf, ear muffs, face mask and ski cap. I was warm enough. And I still had my parka in my backpack.

Then my back started to hurt, just the muscle in between my shoulder blades. Carrying my own water had been tough on my back. In the last few days, the first thing I did when I arrived camp was to go inside the tent, take couple of Ibuprofen and lied flat on my back. But leaving at 10:00 pm meant that I never had a chance to relax my back. And now I was paying the price. I also forgot to bring my pain medicine.

The pain had gotten so bad that I could not walk anymore. So I sat down on a rock hoping that the rest of the team would catch up. I figured someone would have the medicine that I needed. As I sat I started to hallucinate and I started to feel really cold. So I knew I had to continue to climb in pain to generate body heat or I would die. I had no choice but to catch up with the team further up.

So I continued to climb and later on, seeing a row of head lamps, I could start to see them slowly coming up the hill. But I couldn't stop to wait and I needed to continue to climb. It took another three hours before we finally met up and it was the longest three hours of my life.

When we met we happened to meet at the mid-point (about 17,000 ft). Sure enough, someone had the medicine that I needed. I took them quickly and sat on a rock as the rest of the team passed me by. I was completely exhausted. I saw my son at the end of the line. He was determined to get to the top.

After the team left, I lost all will to continue. I figured I had achieved what I had come here to achieve. Helping my teenage son get this far and knowing that he had an opportunity to go further on his own was enough. I didn't need to climb to the top. So I turned around and told my guide that I was ready to get down. He was visibly happy, in fact, a little too happy.

In the last few days, I had learned more about our porters and our guides. Almost all of them are from the local Chagga tribe. They are proud people with a strong work ethnic. Not needing to climb to the top actually does not give them much pleasure. They are warriors and they would rather help their clients achieve their goal. So there had to be something else.

Being an inquisitive mind (even at high altitude), I had to probe. So we started talking and quickly I was told that there was actually a bet among the guides that I wasn't going to make it to the top! So it wasn't a big surprise that I asked to return.

I thought about it and I said to myself that it would be silly for me to do something to spite others. I clearly was not all that sure myself that I could make it to the top. However, now that we were at the halfway point, perhaps I could continue and turn this into a geometrical exercise.

So I said to my guide, "I don't want to get down yet. But I am not sure I could go all the way up. We still have time and I can still climb some more. So why don't we cut it in half. I will continue but you let me know when we get to the three-quarter point. Then I will make another decision and we could either come down from there or cut the remaining distance in half once again."

So off we go and now the temperature really started to drop. I took out my parka to keep my body warm but after a while, my fingers and my toes started to feel like they were frozen since they were the most exposed. Behind my face mask, I could see tiny icicles forming around my nostrils. In fact, when I took out my water bottle I was drinking ice slushes, which was kept inside a thermal sleeve, wrapped around by a pair of spare wool socks and inside two backpacks. My son later told me that his multifunction wristwatch had recorded a minimum temperature of -20F or -29C! That's cold. My freezer at home is only set at -8F!

Besides the cold, each step was getting harder and harder. I felt like there were no oxygen in the air. At one point, I had to breath out five times after each step to get enough oxygen into my lungs and after every five steps, I had to stop and breath out ten to fifteen times before I had enough strength to continue.

Then around 5:30 am, the sun came out and we reached the three-quarter point. It was beautiful. We were on the east facing slope above the cloud and the only visible features were the bright sun and Mount Meru in the distance. The cloud was so thick and so steady that I felt like I could just walk between the two glacier peaks.

With the sun coming out, the temperature started to rise. I also noticed for the first time that my guide had very little clothing. So I took off my parka and gave it to him as a gift (which costed more than a month of his salary). Instead of carrying my jacket on his backpack, he now carried it on his back. Everyone was happy.

After some rest, I decided to continue. But we were still pretty far from the top. Another three hours went by and I could finally see the rim. Now after every step, I had to rest so I was fighting for my life one step at a time. But I could see people standing on top including a few from our group. I even thought they were waving at me.

The last 100 ft was just brutal. I was no longer climbing rocks but on lava sands. I would take a forward step and would fall back two steps. My guide measured my oxygen level and he was worry. I was not oxygenating.

He finally said we didn't need to get to the summit which was called Uhuru Peak. If I could get to the rim I would have reached Stella Point and I would still receive my Tanzania government issued official certificate. So he suggested that I took some oxygen and just climbed to the rim. He said only one out of two people ever made it this far. I don't need to stay there very long. Just long enough to take some pictures to prove that I was among the 50% of tourists who successfully climbed to the top of Kilimanjaro.

But I said I wanted to do this on my own. If I had wanted oxygen, I would have done it long ago. But after trying another ten minutes, I still wasn't making progress so I said "screw it" and asked him to hook me up for oxygen. Then I figured since I was now on artificial life support, why not get some more artificial help. I was proud but I was also practical. So I asked my guide to call down some of his friends.

I finally reached the top with three guides, two holding my arms, one on each side and one holding the oxygen tank.

It was not what I originally had in mind. But I reached the roof of Africa. It took me eleven and a half hours, but I made it.

By the time I caught up with my breath, I realized that everyone in my group made it to Stella Point but only nine out of the fifteen made it to the Uhuru Peak. My son was among the nine and he was the only one with no prior climbing experience. Everyone was proud of him, especially me. We waited for everyone to come down, took some pictures together and we went down the mountain in a hurry.

Getting down Mount Doom was even scarier than coming up and I had to have lots of help from the rescue porters (for the first 2,000 ft, they lifted me by my arms and practically carried me down but that's another story). By the time we reached our next camp which was Mweka Camp, we had descended 8,340 ft. It was 8:00 pm when I walked into camp, two hours later than everyone else. I had been on my feet for twenty two hours climbing one kind of rocks or another.

DAY 7 - The next day after breakfast, we hiked for another three hours, through the rain forest once again, for another four miles and down another 5,100 ft to the Mweka Gate, our exit from the Kilimanjaro national park.

By now I was a veteran climber. My blood was over-saturated with oxygen so at least for one day, my 53 year old body was keeping up with my 35 year old mind.

In Part 2 of this two-part paper, I will talk about the lessons that I have learned in climbing Mount Kilimanjaro that are relevant to entrepreneurship. Stay tuned.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[13] How to set SAIL in a Tsunami (by Denny K Miu)

2009-05-11T00:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

For humility sake, I often like to remind myself of an interview on MTV where the beautiful hostess asked a famous entertainer how he came to decide to rap as his chosen art form, to which he answered, "Had I know how to sing, I would have preferred to be a singer."

Typically would-be entrepreneurs think of entrepreneurship as a rational choice. My own experience is that most of us (if not all of us) chose to be an entrepreneur only because we didn't have a better alternative. If we could hold down a job or if we were able to be happy working for someone else, we would never strike out on our own.

Entrepreneurship is inevitably our last resort.

In trying to understand the still unfolding financial tsunami, I find myself reading lots of articles (often written by someone who has never been an entrepreneur) explaining why now is the best time to start a company and if someone were to be laid off, it might actually be a "blessing-in-disguise."

I disagree ... I think it is a blessing for anyone to have a paying job right now.

As I have written in the past, I have started two companies in the past (LoveMyTool is my third). I started my first company when I was denied tenure as an Assistant Professor at UCLA and I started my second when I was fired by my first. In both cases, the career change couldn't have happened in a worse economic climate but I made the best out of what I had.

However, as bad as the economy was in both cases, it was a lot better than what we are experiencing now. From an entrepreneur's perspective our economy is still in a free fall and it would be irresponsible for anyone to predict a bottom when all we could witness is a slightly decreasing terminal velocity.

On the other hand, a few of us are giving up on job seeking already and are starting to entertain entrepreneurship as a viable option. To those who are determined to make it work, I offer you my emotional support and the following advise on how you might set SAIL (Simplicity, Agility, Intimacy, and Leverage) to maximize your chance of survival.

By the way, while I might hope that things would recover soon, I have also learned painfully that "Hope is not a Strategy." Realistically all struggling entrepreneurs should forget about achieving success in the next few years; it would be quite an achievement already just to survive.

1) Product Simplicity

To survive, you must think simplicity. Do not try to change the World. In a difficult time such as this, entrepreneurship is all about job creation (creating a paying job for yourself).

No need to look too far or too long term. Whatever you do, do not attempt to "fly a new engine with a new air frame."

In other words, if your business idea is a new product, don't try to force a change on consumer habit. And if your idea is a new distribution scheme, don't try to use it to introduce a new service. Do something very modest that requires little investment (in time and in money) but can uniquely leverage your lifetime experience and hard-earned Rolodex.

A good example of a simple business idea is LoveMyTool. I believe we have accidentally discovered a unique business model and in the long term can be exploited to market any tools (e.g., clean tech tools), and not just network monitoring technologies, i.e., we could grow to be a substantial "narrow-cast" media company.

But that grandiose idea would have to wait. Right now it is important that we ensure our survival by building upon a single idea which is to create "an open forum to self-publish 'upside-down' press releases."

Normally, vendors hire expensive marketing professionals to write press releases that start with a description of the company (a world leader), the management team (experienced A-players), the product (paradigm shifting inventions), the functionalities (do more with less), the problems, the targeted customers and finally a testimonial from an industry expert.

The problem is that no one reads press releases anymore. Everyone has learned to tune them out (especially Google).

LoveMyTool was built upon a simple idea, to flip the press release format on its head.

All of our articles start with a testimonial and instead of featuring the product, we first feature the "advocate", someone who truly "loves" their network tools.

We discover that most readers would take time to read an article if it was written by someone whom they consider their peer.

Our experience tells us that this is the optimal way to engage. Once we cross the threshold, we have earned their undivided attention and we could pull them in to read about the problem and the product.

The last thing that customers care about are the world-class management team and the well-funded company, in exactly the opposite order of a normal press release.

So LoveMyTool is a simple idea. It is not even an invention. We didn't invent new contents. We didn't invent new distribution techniques. We just introduce a new genre ("Advocacy Marketing"). And so far it has proven to be enough to sustain a new business (thereby keeping us employed).

2) Operational Agility

To survive, you need to forget about your vision. Instead, you must have "peripheral" vision.

Forget about coming up with the perfect idea that would untap a billion dollar market. You wouldn't be around long enough. Instead, "be crappy" but be real.

You can't afford to waste your dwindling unemployment benefits or expand your limited personal savings in conceptualizing anymore. You must act now. It is time to launch your business and get yourself into an operational mode. Once you start, you will need to learn to take punches (and there will be plenty) but at least you have a platform to keep learning and keep adapting.

It is too easy to think of the current downturn as just another economic cycle and that in time, we will recover, returning us to our glory past. Instead, you need to think of this as the end of a 60-year cycle.

It is no lost of irony that Ford will emerge as a stronger auto company that GM. Sixty plus years ago, by inventing the modern day consumer credit system and allowing post-war consumers to take home a brand new car in exchange for a lien on their future earnings, GM was able to leapfrog Ford (which was still depending on the "living within your means" lay-away self-financing system).

Similarly, exactly sixty years ago, head communist Mao Zedong stood on top of Tien An Man Square and proclaimed that the Chinese people had risen. Well, more than half a century later they have finally lifted themselves by their bootstraps, ironically not by their ideology but by manufacturing low-cost consumer products that the Western World seem to want and by reinvesting their earnings in foreign debts to lower interest rate and to pop up the demands (sort of like the Opium War in reverse).

All of that is coming to an abrupt end.

Like most of us, I am convinced that as a country, the American people will reinvent ourselves and reinvigorate our economy. But I am also convinced that the future would look nothing like the past.

Therefore as an entrepreneur, there is little return on investing on our past but great deal of possible return on investing on our future. And the only way to benefit from the future is to be part of the future and to be part of the solution.

So either you jump in or you don't jump. But if you choose to jump, it is best that you jump in with both feet.

In the case of LoveMyTool, we are in a constant learning mode. Little did we know when we first started, that we could emerge as the meeting place between open source tools and commercial tools. But as soon as that opportunity presented itself, we embraced and we became an enthusiastic supporter of Sharkfest, helping to bridge the divide between the two Worlds.

We also learned the importance of videos and in particular, how to recreate the customer experience typical of a sales meeting, by combining live footage with PowerPoint presentations (LMTV).

We have lots more to learn and we will continue to be agile (both in recovering from our mistakes and in adapting to new opportunities). So must you.

3) Customer Intimacy

To survive, you need to "think inside the box" and your priority should be to keep a few customers extremely happy.

This is counter-intuitive because normally our job would be to keep a large number of customers moderately happy (to grow sales while controlling cost).

My point is that it is OK to aim high, but in a down market such as this, it is best to shot low.

Focus on your current customer base and make sure everyone is happy. And I mean everyone. Do not compromise on quality of customer support and if you must sacrifice on quantity, do so proactively.

The reality is that the cost of acquiring a new customer is extremely high in a down market because customers are not spending (or even disappearing) and your competitors are out there doing exactly what you are doing competing for the same oxygen.

A perfect defense is your only offense given that the cost of losing a recurring customer could be extremely high, possibly a death sentence for your fledging company. In short, ignore your competitors and focus exclusively on your existing customers.

Again, in the case of LoveMyTool, we currently have six or seven paying sponsors, helping us to pay our bills and to compensate our writers. Among our sponsors, it would be fair to say that not all of them appreciate us equally. Some appreciate us more than others and some are providing more exclusive contents to the site than others (e.g., Anue Systems which publishes frequently).

Our path to success is very simple. Keep our friends close and our best friends even closer.

4) Financial Leverage

To survive, you must leverage. Don't spend any money unless it is absolutely necessary. Whatever you do, don't spend your own money paying other people's salaries. At this moment, entrepreneurship is about job creation only if it is to create a paying job for yourself. Now is not the time to be a hero.

I had five partners in my last startup and before settling on the final team, I had recruited another five partners that I had to invite out. In retrospect, the only thing that the remaining partners had in common was that they all had working wives.

One important benefit of starting a company in a down market is that there are lots of people who are also out of work and some of them (e.g., those with working wives) could actually afford to work for free (in exchange for a piece of the action).

So be generous, invite them to be a partner and give them a chance to enjoy potential future upsides in exchange for taking some upfront risks. In other words, give someone else the same opportunity to create a paying job for themselves.

Keep in mind that the most immediate benefit of working for yourself is that you get to make your own mistakes. But it also means that you have no one else to blame but yourself (which in my experience is actually quite liberating).

The above is what I have learned in the last fifteen years as a struggling entrepreneur in minimizing mistakes (Simplicity, Agility, Intimacy and Leverage). I hope it helps.

Happy SAIL'ing and good luck to everyone.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[12] Entrepreneurs Do It For Love (by Denny K Miu)

2009-03-28T00:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

The most common question that aspiring entrepreneurs ask, especially during time of economic downturn, is the following.

"Is this a good time to start a company?"

My experience is that there is no good answer to this question. Anytime is a good time to start a company because paradoxically, for a struggling entrepreneur, anytime is a bad time.

When the economy is doing well, everyone is doing well and as a result, there are a lot more competitions for your customers' limited resources. Similarly, when the economy is doing badly, as it is now, few entrepreneurs could afford to start companies. That's the good news. The bad news is that customers are really struggling so you must have an exceptionally compelling solution that could save them money and help them survive before they would listen.

So essentially the World conspires against an entrepreneur irrespective of the economy. Yet it has never stopped anyone from trying.

So in a sense, it would be as if you were asking, "Is this a good time to fall in love?"

And that in a nutshell is my own experience in starting companies. As an entrepreneur, it is important that we focus on making money (make money, then make meaning). But on a personal level, it is really a love affair. If you are not married, then starting a company is like your first love. But if you are already married, as I am, then starting a company is like having an affair (while remaining completely faithful).

And the love that you seek is not just about your idea or your passion in making your idea a reality, but also in your relationship with your founding partners. It is obviously possible to start a company by yourself. But it is more typical to start with partners. My experience is that to be successful, you will need multiple co-founders because it does take two to sustain a fire (and often a third one to light it).

So if you are thinking about starting a company, then you need to start by looking for the right partner. That should be your first love.

Obviously you need to have a business idea as well. But the initial idea is more like an excuse to start a meaningful conversation. Once you find the right partner, your idea would evolve or you might find that your partner has a better idea. Or that it might happen that all of your collective initial ideas would turn out to be wrong. But you are successful anyway in spite of these setbacks because you have the right partner.

In summary, the process of finding the right co-founders and in struggling with them to formulate the initial business idea is very much like the dating rituals. The following are lessons that I have learned (some of which I actually learned from dating).

10. Stop Practicing Alone

One of my favorite scenes from my collection of Woody Allen movies is the one where after sex, his date compliments him on how great a lover he is. Allen smiled with confidence and uttered, "I practice a lot when I am alone."

Very often, as entrepreneurs, we prefer to practice alone. We will do everything and anything possible to avoid confronting our worst nightmares. Our excuse is that we are not ready. Our business plan is not ready. Our elevator pitch is not ready. Our prototype is not ready, etc.

To succeed, you need to learn to embrace rejections. Get in front of anybody and start talking. Listen while you talk so you can benefit from their reaction. This is true with finding a customer. And it is true with finding a partner. You don't need a working prototype to engage customers and you don't need a bullet-proof idea to start a company.

The only way to get a date is to ask. The only way to start a company is to act.

9. Diversify Your Gene Pool

You would never date your brother or sister. Why? Because incest is not only immoral, it is biologically suboptimal. So why would you start a company with your family? And by the same token, why would you start a company with your friends?

Starting a company together is the quickest way to destroy friendship. Starting a company with family (or hiring family into your company) is the surest way to alienate your business partners. So don't do it.

In fact, you need to take this one step further, which is to avoid partnering with people who are just like you. Find someone who has different skills and different temperament. If possible, find someone from different cultural background and ethnicity.

It turns out that diversity is really important for success. Ultimately, your co-founders are the ones who would protect your proverbial back and the more that they bring to the table (that are not already on the table), the better. Ironically, the converse is also true which is that the less that you have in common initially, the less baggage that you each would bring to the partnership.

8. Two Bagger is not an Option

A two bagger is someone who is so ugly that if you decide to sleep with them, you would have to put a bag over their head and a second one over yours in case theirs falls over.

This is not an option when you are looking for a business partner. There are no shortcuts in starting a company (i.e., no one night stand, no quick fixes). As an entrepreneur, you don't need to "like" someone to have a business relationship with them. It is not an ethical violation to pretend to like.

You just cannot pretend to "respect".

So when you are looking for a co-founder, make sure you respect them. If you truly respect them, you can learn to like them.

Entrepreneurship is a learning experience. Through constant struggle, you will gradually broaden your horizon. You will learn to appreciate people with different skills and experience and people who react differently to the same situation. This is all part of the journey.

So try to read beyond the book cover and not to be too judgmental too soon. If you insist on partnering only with people whom you like initially, then you will deprive yourself the opportunity to learn from people who are different from you.

But respect is different.

If you don't respect someone, you can never work with them (at least not for long). Turning a blind eye (or putting a bag over your eyes) will not help you. On the other hand, over time you could still lose respect for someone whom you respect initially. But that's a different problem (like the song says, "Breaking up is hard to do").

7. Don't Complain About the Fleas

An old Chinese saying goes, "If you choose to sleep with the dogs, don't complain about the fleas".

We all have fleas. If we were perfect, we wouldn't need to be entrepreneurs.

My experience with forming a partnership is that your first meeting with your potential partner is your best. Look deep into their eyes. If you think the person is right for you, you go on. If you don't, you move on. It is just like dating. It is very instinctive and you need to learn to trust your instinct.

My own observation is that relationship never gets better after the first meeting. It only "feels" like it is getting better because you are more invested in the relationship and you have become more accommodating to each other.

In that sense, partnership is very much like marriage. It requires commitment. You need to invest and you need to constantly build values. When you stop building, you stop caring.

It helps if you put your company first. Separate your personal life from your business life and separate your personal needs from your business needs. When you are with your partners, focus your collective energy on how to build the company together. That way you don't go out of your way to look for imperfection and over time, the fleas (yours and theirs) will stop annoying you.

6. Be Sure to Protect Yourself

There is a difference between being protected and being paranoid. Having an adequate understanding of the law and the liabilities doesn't mean that you should surround yourself with legalese at all time. Not protecting yourself legally is obviously irresponsible but over-protecting yourself is counter-productive.

My best advise from a friend who is a successful entrepreneur is that "legal issues that are unimportant to you when you are successful are the same as those that are unimportant to you when you are unsuccessful."

In other words, when engaging a potential partner and when working with your co-founders through the initial process of formulating your company, you have to pay extra attention to how you are protecting each other legally, both in cases when you are successful and in cases when you are not.

But interestingly, there tends to be a symmetry.

For example, a minor difference in ownership would not matter that much materially if the ultimate return is on the order of millions. Obviously, it matters even less if the return is zero. So I tend not to spend too much time counting the last chickens as long as the division is fair enough for everyone.

However, ownership needs to be earned so it matters a great deal whether or not there is a vesting schedule for the Founders' stock and for how long. It matters a great deal how you can discharge a partner if they don't perform. This is true if the partnership is a success and interestingly even more true if the partnership is a failure (since you would need to restart the company with different partners).

In short, keeping a profolactic in your wallet is considered good planning but showing off that you have a month worth of supply would most likely be considered bad taste.

5. Stay Away from "Virgins"

The best time to date a virgin is when you are one. It is counter-intuitive but it turns out to be true for startups too.

The issue is one of expectation.

You would think that if two entrepreneurs goes into business and neither one has any startup experience, it would be a disaster. Well, on one level, it is since they would end up making plenty of mistakes together. But if they could grow together and get through the trials and tribulations together, it could work as long as they remain a good team. Silicon Valley has lots of such legends, Steve and Steve, David and Jerry, Larry and Sergey, etc. It is puppy love, it is glorious and it can work.

On the other hand, if an experienced entrepreneur were to partner with an inexperienced one, you would think that it is a match made in heaven, sort of like Lieutenant Dan looking after Forrest Gump, and vice versa. It turns out that it doesn't always work.

It is difficult to have a peer relationship when it is unequal (keep in mind that Lieutenant Dan had to lose his legs and Forrest had to become an accidental celebrity before they could become partners). I am not saying that it would never work. I am just saying that I have seen it work better in a mentoring relationship, or one where there is clearly a senior/junior power sharing arrangement.

Having been through the various stages of entrepreneurship, I would say that I am a much different person now than I was then. When I was young and inexperienced, I had nothing to lose and any success would have been a good success. I could take risks. Now I am much more reserved and calculating. It is not a bad thing. It is just that I have more to lose and I am looking for more. Simply repeating my last success is not going to be satisfying enough anymore.

I would make a horrifying partner for my younger self.

4. Forget About Your Ex's

Most of us are not virgins for the same reason that most of us have fleas.

We have history. We are who we are because of our own experience in terms of successes and failures.

We are a victim of our own experience. We don't have a choice.

On the other hand, one of the reasons why we need partners is because we want to benefit from their past experience but at the same time, we also don't want to be a victim to THEIR experience.

This is a tough balancing act and it is one where we could really learn from our dating experience.

As usual, when the situation presents itself, we should feel free to talk about our past and what we have learned because it is a way to share and to be open with a potential partner. But we shouldn't become over-obsessive with our demons because it is a real turn-off.

Everything I know about entrepreneurship I learned from my dad who taught me how to ride a bicycle. Just because we fell once already doesn't mean that we wouldn't fall again. Similarly just because we fell on the left once doesn't mean that we will fall on the left again. The past might be prologue but it is still the past. Life is constantly changing, especially for a startup.

In short, it is best that we keep an open mind ... don't explain, don't complain ... and focus our eyes on the road ahead and the possibility we could build together.

3. Don't Sleep with Strangers

There are no more "perfect" strangers, especially not in our professional life. Through Internet, our life is an open book. We could always find somebody who knows somebody. With Facebook and Linkedin, everyone can create a profile and a collection of friends and colleagues who can vouch for our integrity, experience and performance.

But as House M.D. often says, "Everybody lies".

Everybody lies not in the sense that they propagate untruths, but that it is human nature and it is much more convenient to communicate the positives. Having been a Professor for nine years, I know exactly how unreliable recommendation letters are and how grades are inflated in exchange for a matching rise in student evaluation.

Everybody lies.

This level of convenient truth might be adequate if you are recruiting an employee for an established company. For startups, you need to do more.

The most important skill in a startup is the ability to listen and it is surprising how poorly people could listen, especially among those who know how to talk (i.e., salesmen or CEO's).

Often I tell the ancient story of old man Chu who was ordered by his young King to persuade a neighboring King to allow them safe passage, without which their retreating army would surely die. Through an intermediary, Chu was granted a brief meeting the next morning. To everyone's surprise, Chu went to sleep early in the evening.

By midnight, the King woke him up to ask him what he had planned to say that would convince the other King. Chu said he planned to say nothing. All he needed to do was to show up and listen. Chu was convinced that the other King would be up all night deliberating with his court on what he would want in return for such favor.

And this is the case with startups, ability to listen is very important when we are talking to potential customers, potential investors, potential employees, etc.

Over the years, I have picked up a few techniques that have served me well in punching through the veneers of most potential partner candidates, to be sure that they have the necessary listening skills.

One technique is when I meet with potential partners, I would often stay uncharacteristically silent in the middle of a conversation.

For those who likes to talk but unable to listen, this would drive them crazy. The more I stay silent, they more that they want to fill in the gap.

Another technique is to stop someone abruptly in mid-sentence and start talking. Those who can listen would stop immediately and those who can't would insist on finishing.

As House M.D. also says, "The eyes can mislead, the smile can lie, but the shoes always tell the truth ... "

In summary, it is very important that you refine your own techniques to discover the attributes that you think are important. Spend enough time to dig deep and to understand your potential partners before committing to each other (because again, "Breaking up is hard to do").

2. Try Different Positions

The early stage of a startup is akin to a hunting party. There are no permanent positions. Everyone does what they are good at and what they are best equipped to contribute. Everyday there is a new challenge and everyday a new posse is formed to slay the beast. Mistakes are made and lessons are learned.

Be flexible and try out different positions. It is part of the fun (in sex or in startups).

1. Finally, Stop Focusing on the "Orgasm"

The days when you can flip a company in a matter of months are long gone and even if our financial systems are to recover, those days would not return.

Therefore when you start a company, you need to be prepared to be in it for the long haul, building it from scratch and if you are lucky, eventually growing it to be a sustainable company. What this means is that the quality and integrity of your partners and the love and respect that you have for each other are that much more important.

"Is this a good time to start a company?"

Not really, the next decade will be brutal. But it has never stopped anyone in the past. All it takes is to jump in with both feet.

See you on the other side. Good luck everyone.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[11] High Tide Low Tide (by Denny K Miu)

2009-02-11T00:01:00-08:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

I grew up in Macau, a small island town south of Hong Kong, 60 miles on the opposite side of the Pearl River delta. While Hong Kong was a British colony, Macau had belonged to the Portuguese. Macau was about one-fourth of the size of San Francisco but with about the same population. Unlike Hong Kong, Macau never had much of an industry except for gambling and prostitution. But outside the few neon-light streets frequented by Hong Kong tourists, Macau was actually a place of natural beauty and a fun and safe town to grow up.

I have great memory growing up in Macau, including the time when my younger brothers were too young to hang out with me and my weekly recreation was limited to visiting my father's barber shop by myself.

It was typical for Asian children to go to school for five and a half days. So every Saturday, I would come home around noon, finish my homework and my household chores, and before dinner, walk unescorted for about twenty minutes to the busy part of town.

My father was one of the eight or so barbers who worked in this small shop. I remembered him as a team lead of sort since he was always the one closing the place and counting money for the shop owner. Usually when I arrived, I would sneak in quietly and sit on the long leather sofa to read the latest comic books. I would wait there until he was all done with business. My dad would then summon me to climb on top his high chair and I would always be his last customer getting my weekly trim.

Afterward we would go out for a simple dinner and watch a movie together. Since I wasn't allowed to make noises during the show, the high point of our evening together was always our conversations after the movie when I would ask my father all kinds of questions and he would explain pieces of the plot to me. It was fun because it was as if I got to watch the movie a second time.

It was also fun because we typically walked along the seashore enjoying the scenery and the breeze. After the nice walk I would ride on the back of my dad's bicycle to go home together, bringing leftovers as token gifts for my young brothers and my mom.

The one thing that had made a strong impression on me during those wonderful father-and-son walks was the tide. I understood very early the difference between high tide and low tide.

When it was high tide, everything was wonderful. The sea smelled delicious and the breeze felt soothing. People were happy too, especially the fishermen.

When it was low tide, the feel was completely the opposite. You couldn't see the moon reflecting off the water anymore. You smell death all around you, not to mention the sewage. No one was enjoying themselves. No one was making small talks. Everyone avoided eye contact and walked quickly to get away from the sea.

The other thing that struck me the most about the tide was the fishermen, what they did during both high tide and low tide.

High tide was harvest time for them. They started their days early and they sold their catch on the streets at night. Their kids are happy too. They loved playing on dry land in the alleyways, buying treats and toys with money that they had. But interestingly, I noticed that the women were busy too, sun-drying octopus and anchovies, clearly preparing for a time when they would have less.

Then when the low tide came, the fishermen would be even more busy. They were busy repairing their fishing nets and they were busy putting their fishing boats on tilts, so that when the tide returned which it would always, they wouldn't find themselves stuck in the stinky mud.

This is probably the single best life lesson I could ever have learned as an entrepreneur, that there are cycles in business. As a result it is natural that things look very different when you are up and when you are down.

Throughout my professional career, I have learned not to take things too personally.

When things go well and my company is making money, I try not to let the compliments get to my head. Likewise when things don't go well and my company is losing money, I try not to let the criticisms go near my heart.

When the economy was doing well just a few short months ago, like the high tide in Macau, it was understandable that everything would smell delicious and feel great. It was understandable that everyone around me were happy. But deep down I knew that even though I was the CEO, I had very little to do with our success. We were lucky because we happened to be in the right place at the right time.

But I was also worry, extremely worry actually. Like the fishermen in Macau, I knew high tide would not last forever. Like the fishermen in Macau, I wanted to put aside some of our catch when they were still plentiful.

I worried about the founders team. What would happen to the company if one of us got sick. How would I find a replacement when I could no longer offer them founder stock.

I worried about potential competition. What would we do if someone figures out the 20% feature set that 80% of our customers actually need so that they could build a less capable but much less expensive product that would be good enough to do the job. What would we do if they put some eye-candy graphical front-ends around an otherwise identical product such that their solution is much easier to use.

I worried about the economy. In all my years in America, 2008 was the first election when neither the sitting President nor the Vice-President was running for re-election. 　Who would prevent the economy from free falling when it was everyone's vested interest to ensure that we are in a recession (which was just starting in 2007 even though the economists haven't officiate it yet).

Most importantly, I worried about our company culture and our command structure. Having been through a downturn once before, I knew how important it is to be able make necessary but ultimately unpopular decision. I was also haunted with my own experience that a vessel with multiple captains would lose speed during high tide but could lose lives during low tide.

In the end, I chose a path of least resistance which was to cash out. In retrospect, I am glad that I trusted my instinct and took the opportunity to enjoy early retirement.

Clearly the economy has taken a turn for the worse lately and it is not an overstatement to say that we are in low tide.

And it is understandable that things don't smell as nice as it once did. But it is important to remind everyone that the importance here is not just that you have to survive the downturn but that you have to be well prepared for the eventual recovery.

We must once again learn from the fishermen of Macau. If you don't properly prepare your team and lift it off the mud, then when the tide comes, not only will you miss another fishing opportunity, but that you would drown by your own misery.

In closing, one other thing that I have learned from the tide is that when the recovery comes, which might take quite a few more years if not a decade this time, it will come not as a rebirth of the dead but as a genesis of the new. In other words, the rotten fish that you found between the rocks would never lead you to your next catch no matter how much the water rises.

Moreover, the changes that are happening before our eyes are fundamental, long-lasting and most likely generational.

For example, the World will surely be quite different now that Americans have to learn to save more and spend less (such that even if you build them they might not come) and the Chinese starting to spend more and save less (such that they will not be able to nor would they be willing to continue to subsidize our debts).

In short, the opportunities of the future will have no resemblance to the opportunities of the past.

Good luck everyone.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[10] A Bridge (Loan) to Nowhere (by Denny K Miu)

2008-11-10T00:01:00-08:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

Today is yet another momentous day, one of many more to come to be sure, with a historic meeting in the White House between our sitting President and our President-elect. If Mr. Obama were to receive advise in the form of the legendary three envelops from Mr. Bush, I am sure all three would say "Blame Your Predecessor".

This would be an important message for all struggling entrepreneurs to remember in the next two to three years, which is that there is little motivation for the incoming administration to fix the current economic problem in a hurry. Mr. Obama is smart enough to take this opportunity to think longer term, to address deeper issues and to solve them just in time for re-election while blaming everything on Mr. Bush for as long as he can.

In other words, this is one more reason to believe that the current economic downturn would get a lot worse for a lot longer, which is particularly painful for entrepreneurs with a company that is not yet profitable or only recently profitable.

On the other hand, ironically, there is no better time to "start" companies.

My last successful company was started in the summer of 2003. By 2005, we had a product ready for market and the customers were buying again. So we lucked out because once the economy recovered, we were the only game in town. We had the market opportunity all to ourselves and didn't see any competition for at least three more years.

In retrospect, being in the darkest part of a long dark tunnel was the least logical but the most strategic place to start digging.

Recently I received quite a few emails from aspiring entrepreneurs who are wondering how they would fund their ideas in such a bad economic time (potentially with a bridge loan from angel investors to prove out their concept until the VC's are ready to invest again).

The short answer is "you can't get there from here".

As in 2003, the VC's are basically in hibernation right now (more like deep freeze) and the wealthy individuals who would normally provide angel funding no longer feel wealthy since they don't even know when the market would hit bottom.

As in 2003, your best source of funding is NOT from Friends, Family and Fools, but from your co-Founders, both in terms of sweat equity and working capital.

In retrospect, instead of chasing money, we did the right thing in 2003 by focusing relentlessly and exclusively on our product and our potential customers.

We spend every hour and every minute thinking about why our customers would buy our product and worry about how to convince them to buy from someone who had no money and no track record. This left us with no choice but to focus on an unsolved problem that was burning a hole in their pocket and one that could be solved within our meager budget.

Knowing that we had paying customers (if we could just deliver) was the black hole that was pulling us forward and giving us faith to struggle in total darkness.

My advise to my (first-time) entrepreneur readers is to forget about VC's, focus entirely on your customers and to start to think like a bridge builder. Building a "profitable" business should be your end goal whereas fund raising is just the means to get there.

In other words, go back and identify your paying customers. Don't think about eyeballs and pageviews. Think about how to build a modest business and bring it to profitability, with basically free labor from your co-Founders. Leverage as much as you can and spend as little money as you can.

Only then think about the potential angel investment as that last plank that you need to acquire to finish the bridge that would take you past your end goal.

To put it bluntly, do not think of the angel investment as a bridge to VC's, but think about how you would bootstrap your business with your sweat and tears, get it off the ground on your own and when the economy starts to turn around (which would take at least two years), if you still need money, treat any angel investment as a bridge to your final success.

One of the chapters of my upcoming book is entitled "Marketing is to sell shit that you don't have". The idea is that both marketing and sales are sales. They are not separate departments. Marketing for startup is to sell "concepts" which are temporary placeholders for the actual solution. If you are ready to take orders and you are ready to ship, it is sales. If you are not, it is marketing.

As entrepreneurs, you are always selling, selling to potential angel investors, selling to potential early employees, selling to potential channel partners, etc.

And the selling process is all the same. And it almost always comes down to risk mitigation. In other words, the emphasis here is not just to explain the benefits if everything works out exactly according to plan, but also to explain the potential pitfalls if things don't work out and how you intend to deal with them.

So in that sense, to succeed you must treat everyone as your investor, not just your angel investor. Everyone who is willing to help you to achieve your dream is in fact making an investment (just not always with money) and it is your job to quantify the risk for them in great details so that they can make their own informed decision.

In my experience, the trick in "fund raising for startup" is to "make the hard stuff looks easy and make the easy stuff looks hard".

For any venture, the hard stuff is the technology stuff and for entrepreneurs, it is natural that you would want to talk about the technology because that's what excites you. Ironically, if you can solve the technology problem then the easy stuff is to fund the venture. To succeed, you must turn the funding problem on its head.

Your job is not to tell a story catered to the angel investor but to tell a story to the investor that is catered to your customers (i.e., the perfect head fake).

If you could convince your potential angel investor that you know how to convince your customers why they should buy, rent or lease your product, then you could back out the rest of the story to show how you could make money. If you do that you have a fighting chance to convince someone to make an investment. Otherwise, you are basically asking for "A Bridge (Loan) to Nowhere" which would never happen in a down economy.

Good luck.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[9] Now is Not the Time to be An Optimist (by Denny K Miu)

2008-10-13T00:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

The stock market rebounded almost 1,000 points today. The worst is over, right?

I know how important it is to stay optimistic and as entrepreneurs, we are by natural an optimist. But having survived the last economic downturn and seeing what I have been seeing lately which clearly indicates that this downturn is going to be much worse, much boarder and much more sustaining, my advise to fellow entrepreneurs (especially those who are CEO’s) is that “don’t be an optimist”.

This is the beginning of the beginning. It will get a lot worse for a lot longer. My previous experience is that “just because you think it couldn't possibly get any worse doesn’t mean that it will get any better”. If you are a CEO running a startup, whether your company is profitable or not, now is the time to cut at least one-third of your workforce and make sure you have enough cash in your bank to sustain two to three more years of burnrate.

If your company is not yet profitable, then burnrate is simply equal to your fixed cost. If your company is recently profitable, think about what happens if your revenue suddenly goes down to zero. Keep in mind that just because you sold $1M last month doesn’t mean that you will get a $1M worth of incoming cash. What if your customer doesn’t pay, or if they decide to pay in 60 days. What if an entire sector of your customer base disappears overnight.

And if you rely on third-party resellers as your distribution channel as most startups would, the problem will get much worse. These guys have no line of credit. They can only pay you when they get paid which would in the best case scenario, add another three weeks to your receivables. Keep in mind that chances are that your suppliers will start to demand cash upfront. So you will get squeezed on both ends. Things can get really nasty really fast and now is the time to make drastic cut.

Unfortunately cutting fixed cost means cutting headcount. In other words, now is the time to lay people off. It is a very tough thing to do, especially for inexperienced entrepreneurs. But as the CEO of your company, your responsibility is to your shareholders, not your employees and not even your customers. Also, by cutting now, you could improve the chance of saving jobs for the remainder of the team.

In summary, what I have learned is that as the CEO, “your most valuable asset is your money, not your people”. I have learned this lesson the most painful way possible. It is the best advise that I ignored. Let it not be yours.

Read here, here and here for similar advises from other experienced entrepreneurs.

Click here to read other chapters of Denny's 2nd Book »

[8] Why We Must Bootstrap to Succeed (by Denny K Miu)

2008-06-17T00:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

Back in April, there was a gathering of successful and aspiring entrepreneurs called Startup School (SUS). I didn't attend but I was able to watch it live on Justin.tv and follow up when the presentations were posted on Omnisio. I enjoyed the forum very much. I didn't learn anything particularly new, but I was extremely happy to hear the same important messages repeated by the same important people, and to the right audience.

As an entrepreneur, I felt the best presentations were those from Paul Graham, Paul Buchheit and David Heinemeier Hansson (DHH).

It is as if these three successful entrepreneurs have conspired to weave a unified tapestry for the rest of us to enjoy. And if I were to summarize their collective wisdom in three seconds, it would be the following ...

"Make something people want ... don't ignore but try to understand [people's] advise ... listen [mainly] to yourself ... the secret to making money ... is to ask for it."

I believe this event had marked the tipping point of an ongoing narrative on the need to bootstrap among Silicon Valley entrepreneurs. So much so that immediately after the event, DHH and his colleagues posted two thought-provoking articles, one on why we might not need to be in Silicon Valley anymore and another one on why we should focus on starting a business and not starting a startup, which had generated quite a bit of interests and commentaries on YCN (here and here).

My own experience with starting and running startups is that time has indeed changed. I am not saying that time has changed so completely that the old model (using VC money to start companies) does not exist, I am just saying (humbly) that a new model has emerged that allows entrepreneurs to bootstrap meaningful companies achieving sustainable revenues, starting with their own money and their sweat equity (and more precisely, avoid taking VC money).

Entrepreneurship is all about wealth creation and it should be a conscious choice. As entrepreneurs, our goal is to maximize our returns and minimize our risks, and my experience is that ultimate success has a lot to do with impedance matching. Should we match the impedance for the VC's, which means big exit, big risk, big team and big funding? Or should we try to match the impedance for the entrepreneurs, which calls for modest exit, modest risk, modest team and modest funding?

The following is my argument for seizing "a medium slice of a medium pie".

Where is the love? VC's provide capital but entrepreneurs no longer need lots of capital to build meaningful companies.

Once upon a time, it took real money to build companies. We needed substantial amount of money to pay people outside the company (i.e., vendors and partners) to help build custom hardware and to write custom software.

We also needed to pay people inside the company since we had to fully staff a team of highly paid professionals in order to complement the cave dwellers (i.e., engineers) whose job was to create, with outdoorsmen (marketers/salesmen) whose job was to "peddle".

We also needed support staff including CFO (to manage money) and HR (to manage people whom we hired with money).

In other words, we needed money because we needed people. No one took money from VC's and leave it in the bank to earn interest. Instead, we took money and put it into people's pockets to pay for their efforts (lots of people's pockets, both inside and outside the company).

And we were told by our investors to do so as quickly as we could ("Go Big or Go Home").

Much of the previous successful market opportunities were to create infrastructure technology (Ethernet, desktop computing, etc.) for improving the distribution channels in order to make them more efficient in delivering hard goods.

Building companies therefore meant realignment of molecules and photons. No one could afford to do that on the cheap, resulting in a very high upfront cost for starting companies. We never dreamed of bootstrapping. Even if we did, bootstrapping was just a tactical means to a strategic end, which was VC funding.

We lived by a single golden rule: Those Who Had The Gold Made The Rule.

So with VC's dictating the rules of the game, there were few plausible ways of building meaningful companies except to go after billion dollar market opportunities, "dynastic" opportunities as one of the SUS speakers would like to say.

Now Comes Narrowcasting ... Niche is the New Black

Today, the same opportunities still exist, but with search engines, video/audio aggregation sites and social media portals of all variety, it is now possible to deliver specialized products and services to a smaller group of customers while making money ("narrowcasting").

Billion-dollar market opportunity is no longer an absolute requirement for entrepreneurs determined to build meaningful companies.

Also, new market opportunities have emerged which focus on making distribution channels more efficient to deliver information and entertainment, not just hard goods. And we need a lot less money to reorganize packets and bytes.

Interestingly, with support from the open source community and vendor-neutral third-party web hosting facilities, we can now provide extremely customized products and services using low-cost, off-the-shelf "un-customized" building blocks (i.e., no need to spend a lot of money to pay people outside of the company to do specialized things).

Entre-sumers ... Eating Our Own Dog Food

In addition, consumer patterns have changed dramatically in recent years and a new generation of entrepreneurs is now at the best vantage point to visualize what their peers need and want. So this is not about solutions looking for problems or problems looking for solutions. It is about creators of solutions being also the consumers of solutions ("entre-sumers").

There is no need to gamble lots of money and wait to see "if the dog would eat the dog food". Entrepreneurs are the "alpha" dogs. We are our own "surrogate" customers and if we succeed in building what we need to make our own life more efficient, there would be plenty of "beta" dogs to follow.

So we don't need a lot of money to "supersize" the company anymore. Not only do we not have to subsidize the livelihood of many people outside the company, we don't even need to subsidize many people inside the company, except a few co-Founders.

In other words, even if we were to take money from VC's, it would be to fill our own pockets. But who needs that? Entrepreneurs should be in the game for long-term capital gains, not ordinary incomes (that's what ordinary jobs are for). If we don't need to get paid, then we can afford to make our own investment.

Determined entrepreneurs are those who bootstrap their companies through the R&D phase by forgoing salaries. In fact, by recruiting a small group of like-mind co-Founders to completely fill out the team, and convincing each to not take salaries, we are essentially making our own "pre-tax" investment, leveraging many-to-one.

In summary, since we don't need to put money in anyone's pocket (including our own), we don't need to raise lots of VC money. We might need a few tens of thousands of dollars (or even up to a few hundreds of thousands of dollars). But no one needs a few millions or tens of millions to build a company.

Does that mean we don't need VC's? No, not at all. We do need them. I am just arguing that we don't need them to provide initial "R&D" capital. After we have a working product and a workable revenue model, we can then go to the VC's to provide "working" capital to grow the company.

On the other hand, often we can even bootstrap the company to the point where we are generating sustainable profits. Then it is a seller's market. It is quite easy to find late-stage VC's to buy off shares from the founding team, taking money off the table but yet allowing the company to continue to grow.

I have written extensively about my own experience with VC's. I do not think of VC's as being either good or evil, just being appropriate or inappropriate. In other words, taking money from VC's should be a choice.

My own preference is to bootstrap companies in order to maximize our chance of success and to maximize our own net worth. Then when we have a viable company and we need growth capital, we don't need to find them. The VC's will find us.

My Successes in Bootstrapping

In the past fifteen years, I have started three companies. The first company was a "dynastic" play and required tremendous amount of capital. After bootstrapping for a few difficult years, I was able to secure substantial amount of VC funding. However, as with most startups in the late-90's, we "failed" to succeed before the bubble burst.

My second company is completely bootstrapped. The six co-Founders were "entre-sumers". We were building a product that we ourselves would have consumed (solving our own problem). We were the perfect "surrogate" customers. We took no VC money. We took no salary (for three years). When we were ready for product launch, we went out and secure a modest amount of working capital from a single angel investor.

We also focused on a modest opportunity with a product that addresses the needs of a well-focused segment of the high-end enterprise customers. The market size is hundreds of millions, not billions but it was more than good enough to create several multi-millionaires.

We knew exactly who need our product and we know exactly how to get to them. We didn't build a supersized sales channel. Instead, we rely on our partners to co-market our product and we create an eco-system where everyone can thrive ("narrowcasting").

My second company is now doing extremely well, profitable for nearly three years and growing in double digits. The VC's are kicking down the door wanting to buy a piece of the action. I took the opportunity to start my early retirement and I am now "on a break", having the time and space to ponder and to experiment with my third startup.

My latest opportunity is LoveMyTool which was started about a year ago. It is an online advocacy community for both open source and commercial network monitoring tools.

Obviously we are doing narrowcasting since we are focusing on a very small but active community. On the other hand, once again, we are entre-sumers meaning that we are solving a problem that we have experienced throughout our professional career (which is how to get access to enterprise customers who have substantial spending authorities but little time and bandwidth).

Today is an important day for LoveMyTool since it is the first time that we have paying sponsors. We welcome NetQoS and NetScout, both of which have felt that we have built an important enough venue for them and for others that they have committed financial supports in order to encourage original and quality contents from a growing list of authors and industry experts (Sake Blok, Tony Fortunato, Tim O'Neill, Mike Pennacchi, Scott Turkow, etc.).

This is an important beginning but obviously only the beginning.

In summary, I am a living example of how bootstrapping can and does work. My cumulated experience is that as entrepreneurs, postponing fund raising with VC's for as long as you can and minimizing R&D expenses by not taking salaries is the best way to create wealth for ourselves and our family.

Good luck to y'all.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[7] Why We Must Embrace Rejection to Succeed (by Denny K Miu)

2008-04-18T00:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

I have spent the last fifteen years starting and running two startups. Currently, I am "on a break" to finish my book, Survival Guide for Bootstrapping Entrepreneurs, and to experiment with LoveMyTool, an online community for open source and commercial network tools. In the past, I often find myself participating in a social-bookmarking and discussion site, Y Combinator News (YCN), where I constantly learn new things about entrepreneurship.

For those of you who are not familiar with the distinction, YCN is different from YC (Y Combinator), with the latter being an incubator for startups catered mainly to the younger generation of entrepreneurs with web-based opportunities (what I call "Entre-sumers"). YCN is an open forum run by YC, but anyone can participate.

As with many, I consider myself an YCN enthusiast but merely an YC groupie. This article was inspired by the 2008 YC summer contest and resulting discussions at YCN, including the extreme emotions experienced by most entrepreneurs during fund raising.

In particular, I will focus on rejection — not just accepting it, but embracing rejection.

Most smart engineers prefer to avoid rejection by spending more time on developing technology or products and they want to get it as perfect as possible before presenting it to a potential partner, customer or investor for critique.

My experience is that entrepreneurs don’t learn much from positive feedback. We learn a whole lot more from negative feedback. Entrepreneurs who avoid rejection are essentially depriving themselves of important “learning moments”.

Actually entrepreneurs do not purposely avoid rejection. Our primary focus is to seek validation, from our peers and from our mentors (in time also from our customers).

In our mind, rejection is merely an undesirable outcome, which we unfortunately tend to take very personally because we think of it as a failure and a painful reminder to be more prepared the next time around.

But rejection is not a failure.

To understand rejection, we must first understand the need for validation. And to understand validation, we must first understand the need for acceptance.

There is no better blueprint to understand the complexity of emotions of a young entrepreneur (I was one once) than to examine a first rate essay recently posted by Danielle Fong, who was rejected by YC. The article is entitled “One Response to Rejection” and has generated quite a bit of commentary on YCN.

“ … We had poured startling effort into building our product … entirely toward a single goal. Getting into YCombinator … We’ll get in. We’ll make sure of it … The letter arrived silently … They’re wrong! And we don’t need them anyway … They have no more dominion over truth than the rest of us … For years I’ve contemplated PG’s word as philosophy … He is a hero … YC isn’t what I know of it … And we are not what any others … can ever hope to judge us … Upon rejection … [it] took hours to move past the looming question: ‘How are we deficient?’ … looking back, there are perfectly valid reasons for skepticism … It is so easy to take rejection as a challenge to ourselves … We are unproven.”

In this 10-second summary of a rather long but extremely well-written article, we are witnessing a roller coaster ride of emotions experienced by entrepreneurs during a typical funding cycle, which ranges from excitement, determination, accomplishment, relief, apprehension, denial, reasoning, acceptance and ending with re-commitment, all of which are anchored around a much deeper human desire to be accepted into a worthy community (not unlike the desire of a caveman wanting to be inside a cave).

It takes a lot of courage and personal strength to write such an article and the author is obviously someone of tremendous intelligence (entering college at the age of 12 and starting her Ph.D. in Plasma Physics at Princeton at the age of 17). She has my utmost respect and admiration.

But I have to wonder.

My own experience as a struggling entrepreneur is that startup is not a career choice. Starting a company is very different than winning a science prize, getting accepted into a top rate University, or being on the Dean’s list.

My experience is that entrepreneurship is, in fact, a character flaw. Entrepreneurship is not something that can be rationalized and easily explained away. Entrepreneurship is a deep desire to create and destroy at the same time. It requires simultaneous distain for authorities and respect for past artisans. In fact, if I thought there was a cure, I would have taken the blue pill.

But if one were to accept entrepreneurship as what it really is, then there is a much less immediate need for acceptance and validation (except in the marketplace). The end result is that we would have a very different perspective on rejection, that rejection is not an undesirable and unavoidable side product, but in fact part of the journey.

To me, rejection is a tonic, much like the tonic that my mother had forced me to drink when I was a little boy. Whenever I was sick, my mom would go to the herbal shop and bring back a mix bag of medicine that looked like broken tree branches (and occasionally insect casings). She would boil it for hours and I had to drink it.

The taste was indescribably bad and what made it worse was that she would boil it again, and I would to drink it the second time. For some reason, we always had to drink it twice (first time to cure and second time to inoculate, I guess).

What I learned is that rejection and criticisms are similar. You have to drink it twice. The first time is very bitter and our body and our soul would reject them because they taste awful even though we know that they are supposed to be good for us. Then we have to boil it again. At night before we go to sleep, we would need to calmly recount the events during the day and ask ourselves a simple question,

“What were they trying to tell us by rejecting us? What is it that they are seeing that I am not seeing?”

And it is amazing how much we learn when we take down our guard and when we listen, not just with our ears but with our heart.

In summary, not only do we need to get over rejection, we must embrace rejection.

For entrepreneurs, rejections are learning moments.

Engage rejection early. Any chance you can, get in front of people who are not your family or your friends and get real feedback. If they say nice things to you, it just means that they don’t care enough to criticize you. Get them to care. Do the best you can to listen but understand that no matter how much you think you are listening, you are not because your intellect is doing its best to reject criticism in order to protect you.

Whatever you do, don’t regard rejection as a personal failure. It is not personal.

Embrace it. Go home and embrace it again. It doesn’t taste any better when you confront it the second time but at least you are in a better mindset to be able to absorb the much-needed medicine.

Good luck.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[6] You Don't Need No Permission (by Denny K Miu)

2008-04-11T12:01:00-07:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

Almost two decades ago, for my first startup, I was fortunate to have found a successful but semi-retired former VC as a Board member and a mentor. As I learned more about his background, I discovered that my low-key friend was actually quite famous and had made seed investments in Sun Microsystems and a few other pioneer semiconductor and networking companies in the late-70’s to late-80’s.

One day I asked him how he managed to find these choice companies, almost all of which had become the pillars of Silicon Valley. He smiled and said, “We were lucky”.

I believed him. Many successful entrepreneurs and investors were successful because they were at the right place at the right time. It helps too that when the right opportunity presented itself, they also had the right skills, right experience, right circle of acquaintances and the right financial resources.

So I ask myself, “What made him so lucky in the past?”

And more importantly, “Would I ever be so lucky in the future?”

I was 15 years old when I immigrated to San Francisco. Back in those days (early 70’s), the dominant retail outlet was Sears Roebuck, which sat high on the hill on Masonic and Geary. I remembered every Wednesday, Sears would take out a full-center-page ad on the Chronicle, advertising all the items that would go on sales the coming Sunday.

And that was how people consumed. If my dad needed a new circular saw, he would wait for the Sunday sales. And if he had bought the tool a week earlier at regular price or if he had missed the sales by one day, that was just too bad. And if he had brought it home and didn’t like it, that was also too bad (unless it was defective which never happened since everything were over-designed and were made in America).

Today, the same store is occupied by an Office Depot and a Best Buy, both struggle to compete with Costco (which is only two miles away and has more parking). Today, if I need anything, I would search online, read all the reviews, and check to see if they are available from Costco. If they are not, then I check Best Buy, and so on.

The point is that I can buy anything anywhere at any time. If the item goes on sale the next week, I can bring the receipt back to the store and be refunded the difference. If I don’t like the item after using it, I can get my money back with no question asked. If I throw away the original packing material, it is not a problem. If I have lost the receipt, it is also not a problem. They would gladly look up my membership number and would know immediately when and where I had bought the item.

The point is that this dramatic change of consumer pattern over the last thirty-five years was completely enabled by technology. As an investor, my VC friend was lucky because he was presented with ample opportunities to invest in an unlimited number of innovative companies, each of which was to invent one particular building block for the emerging infrastructure. All he had to do was to trust his instinct in picking the right team and mitigate his risk by spreading the investment around.

So that was his luck. Where is mine?

I believe the trend hasn’t stop. The trend continues and is in fact accelerating. But instead of making the distribution channel more efficient for physical goods and making it easier for the consumers to spend discretionary money, we are now making the distribution channel more efficient for information and entertainment.

When I first came to United States, we didn’t have cable, we didn’t have satellite, we didn’t even have VCR or DVD (although we had a one-button remote). Instead we had a choice between VHF and UHF. For all practical purpose, we had only three TV channels. Ironically, this was called broadcasting even though the channels through which information was distributed were indeed very narrow.

But the idea was that since the distribution channels for information were so few and so limited, they had to “cast” the information to a broad base of audience in order to make money. So there were no customization and no targeting. Information and entertainment were created for the consumption of a mass audience and no one had any choice but to cater to the least common denominator.

Today we have the opposite; we have narrowcasting. With always-on Internet, search engines, peer reviewed aggregation portals and social medium sites of all variety, we have lots of channels (ironically “a series of tubes”). And it is possible for each of us to “cast” specific information to a very narrow niche of consumers and still make money.

So now the burden is not in gaining physical access into the channels, but rather in delivering information and entertainment that is both relevant and authentic to our target audience. Otherwise consumers would do the equivalent of channel “flipping” (with another one-button remote called the mouse), except now the choice is not between three channels, but perhaps between three million channels.

Recently, I wrote an article giving advice to the summer class of aspiring YC’ers. This week, the YC selections have been made and obviously lots of good candidates were selected and lots more were not.

So the question is what do you do next? If you were selected, what you do next is obvious and has already been prescribed by PG (or is it O.G.?). But if you didn’t get selected, then my guess is that most of you would continue anyway and chances are that you would be successful in spite of this minor setback.

Having had my shares of rejections as a struggling entrepreneur, I believe most of you would be wondering right now what you might have missed since you weren’t given a chance to be a member of the YC community.

So let’s have a discussion on what YC is. Because if you don’t know what YC is, then you wouldn’t know what you are missing. And if you don’t know what you are missing, then you wouldn’t know where else to look for the same support and benefits.

Interestingly, there has been lots of discussion among the YC’er on what YC is and whether or not it can be emulated, replicated, or extended into a different context.

YC is micro-loan program. Now don’t get me wrong. Everyone agrees that YC is not a VC and the value that it provides goes way beyond money (which by the way is very small amount of money if not a micro amount of money).

The point of this article is not to get into yet another argument about YC versus micro-loan. Although for your entertainment, I would submit the following, which is the mission statement of the Microloan Foundation:

“We provide … basic business training and continuing guidance … enables them to develop self-sustainable livelihoods …”

So in some respects, YC is a combination of a peer-support group, a boot camp, a finishing school, a spiritual guru, a den mother, a personal trainer, a career counselor, a dating service (for future investors), a therapist and a one-use ATM cash card. It is a glorious concept and I wish all of us struggling entrepreneurs were provided with such an opportunity.

But not having it does not mean that you cannot succeed because having it could not have prevented failure.

And that’s not even the true genius of YC.

To understand the true genius, we need to go back to the trend.

In summary, narrowcasting is the new trend. We can now deliver specialized products and services (i.e., information and entertainment) very efficiently and very cost-effectively to a small, well-targeted population and can make lots of money doing it.

The genius of YC is to understand that superimposing on this trend is another trend, which is that we are in the midst of a great intergeneration transfer of wealth (among the middle class), a widespread phenomenon that has never been seen in the Western world.

I am not going to make the same mistake that Hillary had made when she spoke at her daughter’s graduation which is to say something to the effect that, “you young folks have it easy”. No, not at all. I don’t believe that for a minute.

But I do believe that the younger generation have more resources and have more financial support from their parents and their grandparents than we did. And I do believe that the younger generation has more discretional spending power and at an earlier age than their predecessors. But at the same time, they are inundated with demands on their time and attention span so their need more tools and more filters, not less.

So in a nutshell, by natural selection and by design, the YC’ers are younger and are representatives of their own generation and their need is a harbinger of what’s to come in terms of evolving consumer behaviors.

Understanding these two synergistic trends, one on distribution and one on consumption, is where opportunity begins. And I believe the YC’ers are in fact “at the right place at the right time” and could reap potential financial successes far greater than those of my VC friend of the last generation.

Therefore the true genius of YC is how it empowers and how it provides a nurturing environment for the young entrepreneurs who are both top-notch technologists and the perfect “surrogate” consumer for their own invention.

In the old days, we would take a bunch of money from the VC’s, build a product, and when it is ready, launch and see “if the dogs would eat the dog food”. Today there is no need to do that.

By being both the entrepreneurs who invent the product and the customers who consume the product, this new generation of “entre-sumers” are themselves the alpha “dogs”. And if they execute properly, there would be plenty more beta dogs from their generation who would follow.

So this is in fact like the lion looking for courage or the tin man looking for a missing heart. If you have been selected by YC, they would have given you the gift that you already have. If you didn’t get selected, it is now up to you to find validation elsewhere.

But every validation along the journey is temporary, even one from YC. In the end, the only permanent validation is if the other dogs are in fact eating your dog food.

So if you didn’t get selected by YC, it is now up to you to seek the gift that you would have received which is that as an entrepreneur and a consumer, you have within your grasp the synergy of the two that would put you in the right place at the right time.

Now that the YC summer contest is over, you should take the weekend off. Enjoy it with your friends and family but by Sunday night, it is time to get back on the proverbial bike again and peddle like hell.

In summary, whatever you do, don’t get stuck in time. No one needs permission to start a startup, not even from YC. It is time to make your dream a reality. There are no more weekly sales at Sears. In fact, there is no more Sears, at least not on Masonic and Geary.

Good luck!

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[5] Team Building versus Bread Making (by Denny K Miu)

2008-03-20T00:01:00-07:00

Editor Profile - Denny K Miu is the Founder and former CEO of two companies, Gigamon Systems and Integrated Micromachines (now Touchdown Technologies). Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

It takes a lot to build a successful startup. You need to start with a good product idea. And if it turns out that your initial (or even subsequent) idea sucks, which is often the case, then hopefully you have the tenacity and credibility to continue to evolve your business such that you eventually come upon a good product idea. Then you need to build a good team. Finally you need good execution and good timing.

And that’s pretty much the order. In other words, if you start with a bad idea, then even a top-notch team can’t help you push a square peg through a round hole (without hurting something or someone). And if you have a great idea and a great team but bad execution, then good timing simply makes it more obvious that you have completely squandered your early-mover advantage (while wasting a lot of blood and treasure along the way).

Of all the elements that are important to the success of a startup, the most important human element is the CEO. A good CEO does not guarantee success of a startup but a bad one will undoubtedly contribute to its failure.

Most bootstrapping entrepreneurs (like myself) take the title of Founder/CEO.

A Founder is a shareholder of the company, pure and simple. However, one can be a Founder (especially a co-Founder) without being the CEO. Or one can be a CEO without being the Founder (which is theoretically possible but unlikely for a bootstrapping startup except at a later stage).

It is easy enough to figure out what it takes to be a good Founder, but what does it take to be a good CEO? Or more preciously, what does it take to be a good Founder/CEO?

Unfortunately I know a lot more about what it takes to be a bad Founder/CEO than what it takes to be a good Founder/CEO (which doesn’t stop me from writing as if I am the expert, for the same reason that not knowing how to build a successful startup never stops me from building them in the first place).

CEO is a curious title.

First of all, the position was not always required. In the old days, if you wish to start a company and you wish to incorporate in the State of California, you don’t even need to anoint a CEO. Instead, the law requires that you assign a Chairman, a President and a Treasurer, all of whom could be the same person.

This structure is simple enough to understand. The Chairman is someone who represents the Board of Directors, the members of which are elected by the shareholders (i.e., the owners of the business). The purpose of the Board is not to manage the business but to provide oversight. As a decision making body, the Board is capable of making only one decision, which is to hire and fire the President, who is a paid executive entrusted to manage the business on behalf of its owners and serve at their pleasure.

Along with the Treasurer, the President is an “officer” who is granted the mandate, in exchange for accepting the fiduciary duty, to protect the collective interest of the shareholders. It is this separation of responsibility between the owners and the managers that allows the corporation to have a legal personality distinct from those of its members (thus limiting the legal liability for its owners who own but choose not to manage the business).

In more recent time, CEO has become a much more common title than President. If someone is a President but not the CEO, then he/she is usually the President/COO, another executive and a fellow officer who also serves at the pleasure of the Board. In a startup, it is highly unlikely that you would have a President who is not also the CEO; if you do, you are in deeper trouble than you realize.

Before we could talk about what makes a CEO a good CEO in a startup, we need to talk about what a CEO does in a startup.

A CEO is someone who connects the dots.

As with mature companies, there are many dots in a startup, some outside the company (customers, vendors, resellers, partners, service providers such as lawyers and accountants, etc.) and some inside the company (investors, co-Founders, executives, employees, etc.). The difference here is that in a startup, none of these dots exist in the beginning and if they exist, they are not connected.

A Founder/CEO is someone who starts with a single dot, and successfully creates a constellation of connecting dots.

In a previous article, I have talked about dots that circle in and out of the company (namely VC’s). In a later article, I will talk about how to manage some of the external dots (initial customers). In the following, I will focus mainly on the lessons that I have learned in finding and connecting the most important dots inside the company (i.e., building the initiate team).

10. Take charge and take responsibility

Years ago I had an idea for a startup (one of many) and I traveled everywhere and talked with everyone about starting a company. One day I met an older gentleman who obviously had a lot that I could learn from and I was excited that he was willing to listen. But he told me that he was busy that day and asked that I returned the following week.

When I returned, he said he had studied my presentation and thought that it had potential. More importantly, he was interested in taking a closer look. Then he reached back to his bookshelf and grabbed my business card. He tossed it across his desk and said, “If you want me to help you, you need to change your business card. Why do you call yourself the VP of Engineering?”

I could feel my face rapidly getting red and I couldn’t be more embarrassed. I was obviously caught in a lie. I had never even been a manager, let alone being the VP of anything. This was awful.

Then to my surprise he said, “You are not the VP of Engineering, you are the CEO. If you don’t believe in yourself, how do you expect others to believe in you? Don’t waste my time if you are not willing to take charge of your dream. If you think you don’t have what it takes, you can wait. There is nothing wrong with waiting. You can always find someone with more experience but you can never find anyone who is as passionate as you are with your dream. If your dream is important enough to you, then you need to take charge and make it happen.”

That was my first lesson (and many more to follow) where I learned that building a company and building a team have a lot in common with making bread. No one makes bread by talking about it or by reading about it. Breads are made because someone is willing to take charge. Standing around waiting for a potentially more qualified bread maker to come to your rescue is not how breads are made.

In building a company and building a team, you have to commit and you have to take charge. On the other hand, just because you commit and you take charge doesn’t necessarily mean that you will build a viable company, let alone a successful one. But bread never makes itself. The first step in successful bread making is to plant yourself firmly in front of the workbench, take charge and make it happen.

However, taking charge is not the same as taking responsibility.

As the Founder/CEO, you are both the owner and the chief executive.

In fact, in the beginning of the startup, being the Founder means that you own 100% of the company but at the same time, you are also its first employee. Interestingly, these two distinct roles provide two different and potentially conflicting sets of responsibilities.

As an owner, your responsibility is to yourself and your family. There could be any number of reasons why as an individual you are motivated to start a company: wealth, fame, power, and satisfaction being just a few possibilities.

Your motivation often extends beyond your own needs to include the needs of your family: your spouse, your children, your parents and your siblings, etc. As the sole proprietor, there is nothing wrong with building a company solely for the benefits of your family, not to make money for the shareholder (i.e., you) but for example, to be sure that your kids have a meaningful outlet to fulfill their potentials.

On the other hand, being an executive means that you have accepted a fiduciary duty and the mandate to protect the interest of your shareholders. Obviously if you continue to own 100% of the business and your goal is to build a “family” business where the interest of your company and the interest of your family coincide, then there is no conflict.

But if your purpose is not to build a family or a lifestyle business and your goal is to recruit a team consisting of co-Founders and early key employees who are NOT family members, then you need to be conscious of the potential conflict between your personal responsibilities (as an owner) and your fiduciary responsibilities (as an executive).

Without getting into the specific legal definition of a fiduciary, basically as a CEO, you must NEVER put yourself in an orbit where your interest and your duty could potentially collide. In fact, as a CEO, you must always serve the interests of your shareholders, subjugating your own preference for those of your shareholders.

In summary, as the Founder/CEO, your duty as the “executive” always comes before your personal responsibility of being the “owner”. As a fiduciary, you must never find yourself in a situation where you have to choose between your family and your company; if you do, you must choose your company over your family or you must resign.

Moreover, your state of mind is irrelevant here; that is, it does not matter much to your shareholders whether you have any ill intent or dishonesty in your heart. What matters is that you are both in fact and in “appearance” serving the interest of those who have granted you the mandate.

Doing any less would mean that you are violating the trust of the most important people in your universe, which are those who have entrusted you and have joined you in building your company, i.e., your team; thereby forcing them in the future to do something that they don't like to do, which is to catch up to your sin and make you pay (dearly) for your shenanigans.

The bottom line is that people are smart, you can fool some of them some of the time, but you can't fool enough of them enough of the time to help you build a company. Eventually enough people would come to agree that you are a fraud and a hypocrite, and you could no longer convince anyone of quality to be part of your team.

This sounds simple and easy in theory but it turns out to be extremely difficult in a bootstrapping startup. If you choose not to bootstrap, chances are that you are starting your company with someone else’s money (e.g., VC money), then the relationship between your role as a Founder and your role as a CEO is very clear from the beginning (and if it is not clear, the VC’s will no doubt make it very clear for you).

When you bootstrap, it is all about survival and everything becomes more ambiguous. When things get tough, you might gradually have to ask your spouse to take care of the finances while you are busy concentrating on product development or sales. Or you have recruited a few co-Founders and one (or even two) of their daughters happens to have skills that you need and they are willing to work for free (or for very little).

My point is that in a bootstrapping startup, you will inevitably find yourself on a slippery slope where everyone around you have become a partial owner of the business (which by the way is a good thing since they would be highly motivated) but as owners, their primary responsibility is to their family, not to the company. If they are owners and they behave like owners (as opposed to behaving like executives), then there is no reason why they can’t continue to put priority on taking care of their own needs and the needs of their family.

As the Founder/CEO, you must set an example. Your must reverse the priority and put aside the fact that you are the Founder and concentrate on being the CEO, i.e., “chief” executive. You must always remind your fellow executives (who are also owners) to put the interest of the company before the interest of the individuals. You must never allow anyone to put themselves in situations where they have to choose between the company and their family. You must never hire your own family into the company and you must convince your co-Founders to never hire their family.

In other words, you must convince everyone that they are also a “fiduciary”, that they do in fact share the same mandate to manage the business on behalf of the shareholders in exchange for a total dedication to protect their “collective” interest.

Unfortunately, in my most recent startup, I have completely failed to anticipate this slippery slope. It was a mistake that I could have avoided had I have more experience. I consider this my most egregious personal failing in my journey as a Founder/CEO. I do not regret but as always, I am embarrassed. I have learned and I have moved on.

In summary, your job as the Founder/CEO is to connect the dots. To succeed, you must take charge and you must take responsibility.

Much like a bread maker, you are in charge of finding the right raw ingredients, convincing them to join and to be part of a fledging startup, performing the magic touch so that the individual constituents can mend and become one, and ultimately taking responsibility (but not necessarily the recognition) for providing a financial exit for everyone so that they can share the fruit of their labor.

The last point is particularly important. If everyone eventually receives a financial reward, all is forgotten. If not, every mistake you have made along the way as the Founder/CEO will come back to haunt you.

9. Start with common but high quality ingredients

When VC’s talk about building team, they talked about recruiting A players, with the idea that A players would recruit more A players whereas B players would recruit only C players, etc.

First of all, it is never clear to me what A, B and C means it comes to people. Having been an academic for nine years, I believe I know what A, B, and C students look like and I doubt that the classification has any relevance in a startup.

First of all, my experience is that there are two kinds of A students, the first kind are nominal A students who on occasion receive A+'s and the second kind are really B+ students who on occasion receive A-'s.

The A+ students tend to be extraordinarily smart. Some of them are genetically smart and interestingly, most are also extraordinarily generous. They don’t worry too much about competition and they don’t mind others in their class also receiving A’s, doing well along with them. In other words, they have no problem sharing oxygen.

If you could find someone like that who is willing to become your co-Founder, you are a lucky guy. You should build a company around them even if their talents have nothing to do with your original product idea. You can always find a different idea but it would be a long time before you could find such an exceptional individual again.

However, while the A+ students are high quality, they are also uncommon. So don’t plan your life around that.

The B+ students who work hard to get A’s are smart as well but they tend to be very competitive and in comparison less generous. In other words, they are passionate but not necessarily compassionate (like me). My experience is that they tend to carry more emotional baggage and they are high maintenance (like me). They are good team leaders, but bad team players. In other words, they play only if they get to build their own team. The good news that they are also uncommon so it is unlikely that you will have so many of them to choose from that you have to worry.

My point is that if you are trying to build your company using only A students/players, you might as well forget it. You can’t find enough of them and if you do, you will be spending your time herding cats. So whenever you could find one, it is an exception and if utilized properly, they can make a huge difference. But they are both a bug and a feature.

B and C students are much more common and ironically, they are also much more common among your customers. I hope this does not come as a shock to anyone. But being more like your customers is a very good thing in a startup.

In any case, many A students that I knew when I was a faculty member would make very bad entrepreneurs anyway because they just don’t have what it takes and they have nothing to offer beside their academic records. So my experience with picking team members has less to do with A, B and C but rather on their desire to make a difference in their own lives. And the desire has to be so strong that they are willing to “eat raw meat off of live buffaloes.”

In short, in the beginning of the startup, you cannot afford to have team members who are willing to accept status quo. So instead of ABC, I pick them according to the four R’s.

The first R is Rebellious. In the beginning, you want to be surrounded with people who have a burning fire in their belly and are willing to take some chances to make a difference. They must want it so badly that they are “willing to do whatever it takes for as long as it takes.” By the way, age and experience have nothing to do with being rebellious. Even an old guy like me can still be rather rebellious.

The second R is Respect.

The following was what I wrote on a plaque for my first startup.

“Entrepreneurship is all about creative destruction. Entrepreneurs exist for one purpose and one purpose only which is to destroy status quo, complacency and mediocrity, thereby giving renewal to excellence. But the successful entrepreneurs are the ones who actually respect the environment that they do determine to destroy. Without respect, they can never levitate themselves by the forces embedded in their hearts. Without respect, they can never learn from the mistakes of their elders. And without respect, they can never stand on the shoulders of the giants who marched before them.”

A rebel who shows no respect is no entrepreneur.

The third R is Responsibility (or willingness to take responsibilities and determination to fulfill them).

The last R is Resourcefulness.

Being resourceful is very important since by definition money is always tight in a bootstrapping startup. Money that you don’t need to spend today is simply money that remains in your pocket (so you can spend them for a better purpose tomorrow). To these days, I still open envelops to search for loose paper clips and I still print on both sides of papers before throwing them in a shredder.

But being resourceful is also important in a different respect (perhaps even more important than saving money). In the beginning of a startup, during the product development phase, it is all about solving problems. Those who are less resourceful tend to solve problems by beating them into submission. Those who are more resourceful tend to solve them by avoiding them in the first place.

Guess who can get the product out of the door fastest.

8. Introduce the ingredients methodically, mix them up gently and gradually, micromanage every detail until there is texture

Building a team is not the same as collecting action figures. You don’t need one of everything and you definitely don’t need to display them all at the same time.

Timing is very important in team building and members have to be introduced to the team at the right pace and at the right order (just like making bread).

In the past, I have followed a simple three-step procedure when recruiting potential team members.

I first imagine myself in a room meeting this person for the first time and suddenly it is completely dark. I ask myself if I would step away from the person, step towards the person or stay where I am. If I step away from the person, then something subconscious in me is telling me that I don’t trust this person.

In startups, it is all about trust and trust is in fact a far more important currency than even money. But trust in a startup has a different meaning than trust in everyday life.

I am not talking about trust as in trusting someone hoping that they won’t stab me in my back. But trust as in if I were to ask a person if they could catch me as I am jumping off the baloney during a fire and they say yes, do I trust that they are in fact capable of catching me? And do they even know what it means to catch someone in free fall reaching terminal velocity?

So by trust, I am talking about trusting a person’s judgment and their abilities. When you are building a startup, you need to trust that when someone agrees to a schedule or proposes a budget, they are in fact doing so knowing what they are capable of delivering and understanding the consequence if they don’t.

Hope is not a viable strategy in a bootstrapping startup.

Having that trust from day one is important and it is best that you rely on your instinct. In summary, life in a startup is like a marriage and your first meeting with a potential team member is your first date. If there is something about a person that makes you uncomfortable, it is best that you go home alone that night. Someday you will find out why but it is best to safe than to be sorry.

If the person passes the first test, then I proceed to the second test which is to ask myself if the person has the skills that I need. And it has to be skills that I need NOW, not tomorrow. People are smart and they are flexible and they can learn. So the temptation is to bring in smart people and figure it out later.

This works great for Google which collects Ph.D.’s by the hundreds to build a brain trust. But for a bootstrapping startup with lots of moving parts, having a smart person wondering around hoping that they find their own spot is a luxury you cannot afford. So if they are not the right person now but they have a skill that you think you need down the road, just keep them interested but don’t bring them into the team.

Bringing the wrong person into the company at the wrong time is not only bad for morale but unfair to the person since they are not given a chance to show what they can do.

The last test is the most important test. If your instinct tells you that the person’s judgment can be trusted and that they have the right skills, you need to ask if they are at the right moment in their life to join a startup? So it is a timing issue. If the answer is no or even maybe, forget it and move it. You can’t convince someone to join a startup; they have to do it on their own. You can encourage them, but you can never make them.

So my experience is that sometimes you need to throw the fish back into the water. Find some excuses to tell the person to go away, even if they have the right skills. If they take your advice and in fact go away, then their heart is not in the right place to begin with. If they jump right back into the boat, then the fish is meant for you to catch.

So in summary, when you build a team, not only is quality important but timing is as well. And that’s both timing from the company perspective (do they have the skills that we need now even though we have no money to pay them) and from the potential team member perspective (am I really ready to put my hand in a piranha tank). There has to be a perfect match.

Once you bring a new person into the team, play close attention to their interaction with the existing team. Now is not the time to be a hands-off manager (if you don't feel the lumps between your fingers, you are not making bread). Even if the person is highly experienced, they could be inexperienced in this new environment. If two team members never work together, they need to gain each other’s respect. If they have worked together in a previous job, they might have to undo some of their previous baggage.

You job is to be a fly on the wall and the listener and interpreter of all conversations, listening to all sides and making sure that everyone is communicating properly, using the same language and using the same meaning even if they are in fact using the same language.

The key to gradually developing texture in the early stage of a startup is to let everyone knows that it is OK to have arguments, but only arguments on the assumptions, not on the conclusion. In other words, let everyone have a say on why we are doing what we are doing but once everyone agree, then they have to learn to live with someone else's decision, even if they feel strongly that the solution is suboptimal.

On the other hand, if someone makes a mistake. It is your job to remind everyone so they don't do it again and others can learn. You do that with humor but you do it publicly. Most managers prefer to criticize in private. Fragile people don't survive long in a startup. Everyone needs to learn to have thick skin. So I typically criticize people in public, make it clear that there is consequence.

But I also make it clear that making mistakes is not a sin. It is often best to do it wrong and apologize than to do nothing at all. In fact, I often explain that once a mistake is made, it is like putting money in the bank because we don't need to do it again. There is no bad decision in a startup, just decisions that are executed badly. A startup is like a small child. Making mistakes is part of the growing and maturing process, painful but necessary.

The following are more lessons which are equally important but somewhat self-explanatory. It is best that I leave them to your imagination to maximize entertainment values. Good luck.

7. Hands must be firm but never harsh

6. If you spill, clean up the mess quickly & continue

5. Once there is texture, simplify the message and emphasize consistence

4. Focus on success criteria and stop micromanaging

3. Must know when to stop, stand back and let it rise on its own

2. Keep a constant eye but don't let them know that you are watching

1. If it doesn’t rise, start over & hide the mistake

--Denny--

Click here to read other chapters of Denny's 2nd Book »

[4] Make Money Then Make Meaning (by Denny K Miu)

2008-01-08T00:01:00-08:00

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

When I first started teaching at UCLA, I had the good fortune of sharing a tiny office for ten days with a Professor Emeritus who was finally on his way to permanent retirement. Joe had officially retired twenty years ago but intellectually he was still very active (writing books and advising students). He kept a very low profile and was more or less ignored by the rest of the Department. Even the secretaries didn’t know his name.

Once he retired as a Professor, Joe was no longer a voting member of the academic senate and therefore could not champion anyone’s promotion. He told me that was when he found out how few friends he had in the Department. In retrospect, this was also the beginning of my nine-year journey to fully appreciate Henry Kissinger’s comment that “the reason why there are so much politics in academia is because the stake is so low.”

Joe and I got to know each other really well in those two weeks. We shared a small wooden desk (I would transfer my stuff from cardboard boxes into an empty drawer the minute that he finished vacuuming it out) and we would walk across campus to have lunch every day (but only to the student cafeteria, Joe hated the Faculty Club). Joe was as old as dirt and was the only person I knew (then and now) who survived concentration camp during the Holocaust.

Joe was like an older brother to me (even though he was the same age as my grandfather), taught me everything he could think of about surviving in academia. In particular, I loved his jokes. They were not only funny but were insightful and also full of wisdoms.

The one I still think about almost daily is the one about a Monk, a Priest, and a Rabbi, who gathered together to talk about religion and finance, and how they resolve arguments …

First came the Monk who simply said, “Material is immaterial to us. Every year we take the offerings and we throw them up in the sky. They land where they land and the poor will find them somehow. It is Karma, no argument is ever necessary.”

Then the Priest said, “I wish it was that simple for us. We have expenses, pillows for the worshipers, stained glass windows, flour for our bakery, etc. So we have a system. Every year we do financial projections. We calculate how much money the Church needs and how much we can afford to give away to the poor. Based on that, we draw a circle of a precise radius and we throw the money up in the sky. What lands inside the circle goes to the treasury and what lands outside goes to the needy. It is a wonderful system, eliminating many arguments.”

Finally the Rabbi spoke, “We believe in the wisdom of the Almighty. We take our money and throw it up in the sky. What God wants, he keeps. What he doesn’t, we keep. We never had any argument.”

And that in a nutshell summarizes the myth and reality of bootstrapping entrepreneurship.

Bootstrapping entrepreneurs do startups because we want to make money.

Whoever says that it is about “making meaning” has obviously never missed a payroll.

Like Mao said, “A revolution is not a dinner party, or writing an essay, or painting a picture, or doing embroidery.” Entrepreneurship is about the new violently overthrowing the old and it is never an abstract exercise. In doing what we do and asking others to follow, entrepreneurs affect people’s life and the life of their families. And we affect them profoundly. Not only do people get hurt, but we are constantly reminded that at the end of the day, no amount of meaning can replace money when it comes to buying grocery and paying medical bills.

I was not always this practical. Once upon a time, I was turned down by a VC (one of many) and years later when I caught up with him, I asked him why. His answer was remarkably simple. He said I had told him that I personally didn’t care about making money, that I was in it to build a great company and to bring good to society. So he figured if I didn’t care about MY money, then chances are that I wouldn’t care about HIS money. So why should he invest (he obviously did not remember my eloquent speech about making meaning).

Since then I have learned that building a successful startup requires the perfect alignment of many people’s diverse interests and desires. To motivate people, we need to understand what drives them. People are driven by many things: money, fame, power and destiny. The last one is particularly powerful which Steve Jobs understood well when he asked John Sculley if he would join him in changing the World or if he would rather spend the rest of his life “selling sugar water.”

I have learned that an entrepreneur’s never ending job is to align moving vectors. To succeed, we must figure out what rocks our hearts, our minds and our souls, providing our constituents with what they need and what they want. So clearly helping others make meaning is an important part of our repertoire.

But as the company grows and as more and more people are brought together, I have learned that the only thing that everyone has in common would be money. So my experience is that from the beginning, as an entrepreneur, we must focus entirely on making money and when we are successful in making money, we will be making meaning as well (because it is so damn obvious). But if we focus on making meaning, chances are that we won't make any money and even if we do, everyone would still argue over what meaning is.

Therefore as entrepreneurs, not only must we focus on making money, we must focus on making money for ourselves. Only when we care about OUR money, would others entrust us with THEIR money (and their sacrifices). And this is not rocket science. Like the Rabbi, when it comes to money, we should simply trust that everyone would be smart enough to figure out what they want. What they don’t want, we keep. And we keep as much as we can.

So this chapter is about making money and to bring home the point, about how to financially structure a startup such that we can make the most amount of money. And I try to answer the first question first which is “Should we form a C-Corp, S-Corp, or LLC? Which one is best for bootstrapping entrepreneurs, netting us with the most amount of money to take home (to our family) while giving us adequate protection and maximum flexibility?”

There is good money and not-so-good money.

As entrepreneurs, it is important to remind ourselves that like cholesterol, there are two kinds of money. There is one kind of money that is generated when we create “value” and then there is another kind that is generated when we create “valuation”. But unlike cholesterol, the distinction here is not necessarily between good and bad but between good and appropriate.

Any money that is generated from operations is good money. I live by the old saying that “Every unexpected problem in a startup can be resolved with the timely arrival of a PO.” Getting a purchase order and delivering the goods should be everyone’s focus and should be discussed and celebrated at the top of every company gathering.

To quote yet another well-known communist, “It is glorious to get rich.” It is glorious because making money from operations means our customers have finally validated that our products or our services provide intrinsic values, so much so that they are willing to pay for them at a price higher than our cost to provide them. There is no better meaning than this in making meaning.

It is also important to remind ourselves that Gross Margin is not profit and as a startup, we should never apologize for high gross margin (not even to our customers). If it costs 10 cents to build something that the customers are willing to pay a dollar for, then we have created 90 cents of values. In a startup, what quickly eats up the 90 cents is R&D. The higher the gross margin, the more we can afford to reinvest in R&D and the higher the value that we can ultimately provide to our customers.

On the other hand, entrepreneurs can generate money by selling part of their company to investors (i.e., raising equity money from VC’s). What makes an entrepreneur a bootstrapping entrepreneur is our realistic view of what value VC money could bring. We should never demonize VC money as much as we should never romanticize VC money.

Some bootstrapping entrepreneurs actually believe that we should never take VC money. I believe differently. I don’t believe VC money is either good or bad. That’s a false choice. I believe as an entrepreneur we take VC money when it is appropriate and we don’t when it is not.

I have learned to live by a simple rule, what I call “Conservation of Single Malt”. If I don’t drink too much celebrating the closing a VC round, then I don’t need to drink too much commiserating when I find myself having to raise another one.

I would encourage all aspiring entrepreneurs to NEVER think of VC money as R&D money. Instead, bootstrapping means that we have to be the ones to provide all necessary resources for R&D by not taking salaries for months (if not years) and by not paying anyone else for months if not years (including early employees, vendors, lawyers and accountants) . By not taking salaries, we are essentially making pre-tax investment and by asking a few other co-founders to not take salaries, we are leveraging our investment many to one.

I have learned that the only way to bootstrap a company until we have a ready product is to invest our personal money (don’t ever borrow money from your parents or your friends, and never from your 401K). If you can’t afford to dip into your own pocket, and if you can’t find a few co-founders who could afford to dip into their own pockets, then you have no business calling yourselves bootstrapping entrepreneurs.

Life is brutal, especially that of an entrepreneur.

On the other hand, VC money is working capital and bootstrapping entrepreneurs approach VC’s when ALL we need is money.

And there is even the possibility that we might never need VC money because we can generate enough working capital from operations. And that would be great. But when we do accept VC money, we do it only once. We take enough money from VC’s to bring the company to profitability (sooner rather than later) and we treat the VC money as if it is the last money that we are ever going to need or to get. You have one shot and one shot only. To do otherwise would be irresponsible.

Unfortunately, there are a lot of myths surrounding entrepreneurship, much of which is from people who have never failed as entrepreneurs. Such myths distort the true values of VC money to entrepreneurs.

For example, we often hear people talk about how if we don’t take VC money, we would be stuck with a large slice of a small pie. But taking VC money means taking higher risk and you might end up with not just a small slice but a small slice of a non-existent pie.

I am all about keeping a moderate slice of a moderate pie.

Another example is how people always talk about if we don’t take VC money, we might be stuck with a life-style and not a “real” company. That’s just bull.

Why would I put up with the rejections, humiliations, and hostilities if it wasn't for the change of life-style.

In summary, it is important that we keep all of these in mind and in balance when we structure our startup. We need to think about how to maximize our net worth while leaving us with the most flexibility in case we need to later raise money from VC’s, in case we are ready to sell the company, and even in the unlikely case that we would take the company public.

Bootstrapping entrepreneurs’ instrument-of-choice is an LLC.

A lot have been written about LLC (Limited Liability Company) and how it is different from a S-Corp or a C-Corp. All it takes is couple of Google searches and some late night reading and you will know everything there is to know about the subject. Therefore, the following is not meant to be a replacement for such essential exercise and it is not even to dissuade you to from hiring an attorney. It is mainly to share my personal experience, which is that LLC is a much better instrument for starting a company than forming a corporation (from the standpoint of making mo' money for an entrepreneur).

LLC is an interesting hybrid between a corporation (S or C) and a partnership.

Legally LLC is not a corporation but more like a partnership. But it is an effective shield for limiting your personal liability the same way that a corporation would, yet at the same time, doesn’t require the declaration of a liability-bearing General Partner which is what you have to do with a Limited Liability Partnership (LLP).

Also, from the customer perspective, an LLC sounds a lot like a corporation so it doesn’t have the stigma that comes with an LLP (people think of dentists, doctors and lawyers when you present them a business card that says LLP). Just like LLP or a S-Corp, an LLC is not a taxable entity so losses and profits can flow directly to the partners (no double taxation).

On the other hand, unlike an S-Corp, the profit and loss can be distributed anyway that is agreeable to the partners and not necessary according to the percentage ownership, which is very convenient. Also, LLC has no limitation on foreign ownership or ownership by another corporation (until it became AT&T again, Cingular was a LLC jointly owned by SBC and BellSouth).

All it takes to form a LLC is an operating agreement, which is not even a legal document and does not need to be filed. So you don’t need a lawyer to do what is basically common sense and can be done in plain English. So be sure you spell out the ownership structure of the LLC (there is no reason why it has to be equal among the founding partners but there is no reason why it cannot be, so whatever is agreeable to all partners is fine).

But be sure to spell out the circumstances when a particular partner is deemed non-contributing and therefore can be invited out by the rest of the partnership. Also, spell out what happens to his/her shares if any partner was to resign, to be terminated (with and without clause), incapacitated or death (either work-related or not).

So a typical solution is to give everyone four years to vest. Everyone must agree that any unvested shares can be repurchased by the remaining partners at the original price. Also, make sure that everyone agrees to a right-of-first-refusal and a co-sale arrangement so that if one partner decides to sell his/her vested shares, everyone else has the right to either buy the shares or to sell part of their own vested shares to the same buyer at the same time.

Furthermore, make sure you put a price on the shares so that everyone writes a check and buy the shares outright (which can be very low so that the total is on the order of a few hundred dollars). This is very important because once the stock is purchased, you have started the clock for capital gain. Keep in mind that these are 1244 stock which means that if you keep them for five years (which you most certainly would since that’s how long it would take to build a company if not more), then only half of your capital gain is taxable.

There are other benefits as well but the most important one is that if you ever leave your own startup, you can walk away with property that you already owned and you don’t have to worry about Alternate Minimum Tax (AMT), which would kick in if you exercise your still worthless options but there is paper gain.

On the other hand, for working capital, ask everyone to put in the cash as an interest-bearing loans so that when the company starts making profits, you can get the money back without any tax consequence.

Also, even as a LLC, you can elect to file your tax return as a S-Corp. This is important. The IRS has stipulated that any gain from a LLC (for active members) is considered personal income and therefore subjected to 15.3% self-employment tax. However, the laws are well established for the much older S-Corp in that you can pay everyone a nominal stipend (which is subject to self-employment tax), but then at the end of the year, you can declare any residual gain as dividend, which is not subject to self-employment tax.

Finally, if you ever need to take VC money, they will want to bring in their own high-paying lawyers and they will want you to form a C-Corp (in Delaware). By then, you can do a tax-free transfer between assets of the LLC and shares of the new company. The VC’s are going to put a vesting schedule on your new shares, which you will need to negotiate. But hopefully by then you have some leverage (like customers and profitability) and you can negotiate from a position of strength.

Finally, when you become successful as an entrepreneur, you will find that taxation will become your biggest cost item. The worst case scenario is that the government wants 15.3% for self-employment tax, 35% for Federal, 9.3% for State (of California) and 8.75% sales tax on any money that is left over that you want to spend. That’s a whopping 68%. If you are serious about maximizing your net worth and intellectually honest about making money for yourself and everyone else, there is no better place to start than here.

An an old friend once told me, "Everyone will eventually become a conservative, but they must have something to conserve first."

In conclusion, truth be told, I am still the same person that I was fifteen years ago when the VC turned me down. Personally I still don't care much about money and I am in it to build great companies and to bring good to society. But I have learned is that what I want as an individual is irrelevant. As an entrepreneur, we must accept responsibility. To truly make meaning, we must start by making money. And we must start by focusing on making money for ourselves and our families. Only then will we earn credibility with our employees and our shareholders who rely on us to make their money.

Good luck.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

Click below for additional comments from the Y Combinator community.

Here and here.

Continue reading other “Startup-for-Less” posts by Denny K Miu »

[3] What I Learned From My Dad Who Taught Me How To Ride A Bicycle (by Denny K Miu)

2007-10-25T00:01:00-07:00

Editor Profile - Denny K Miu was the founder and former CEO of two startup companies, Integrated Micromachines (now Touchdown Technologies) and Gigamon Systems. Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

In earlier posts, I have written about my experience as a startup entrepreneur, both from the standpoint of how to make your company successful and how to maintain a good relationship with your investors.

Here I focus on an unfortunate part of the journey which is how to recover from a spectacular failure. Please note that I am writing from the perspective of a Founder/CEO which is a very unique breed. If you are a Founder but not the CEO, you can blame the CEO and move on. If you are the CEO but not the Founder, you already know what to do. Being a Founder/CEO means that you have no other marketable skill and when you fail, you're on your own.

The following is what I learned from my recent journey which I dedicate to my dad from whom I continue to draw inspiration.

10) Get up and get up now

This seems obvious and logical but in my experience, getting up quickly after failing a startup is never trivial.

One important difference between “crashing-and-burning as an entrepreneur” and “falling while riding a bike” is that for the former the chain of events tends to be very drawn out (over months if not over years), very painful, very costly, very emotional, very public, involves a lot more people (some innocent and some not so innocent) and could even be self-inflicted (making it that much more humiliating).

So my experience is that after the downfall, I was unbelievably exhausted, both physically and emotionally, which unfortunately tended to cloud my judgment and drive towards misbehavior. But fortunately for me, I had the benefit of a strict old-world upbringing and I could hear my dad’s stern voice demanding that I get up from the dirt. If it weren’t for that, I would have preferred to just lie there and enjoy the warmth of the sun.

Also, because of the large number of people and the variety of people involved with the failure of a startup (especially a VC-backed startup) and the dynamics between different participants (between co-Founders, between Founders and investors, between Founders and employees, etc.), it is never very clear whose fault it is that the company ultimately failed or what could have been done to prevent the catastrophe.

The truth of the matter is that everyone share responsibility for a startup’s failure and there are no innocent bystanders, not even the seemingly powerless employees. So it helps to remember that startup is not a spectator sport and everyone was an intimate player. But the Founder/CEO is the self-appointed captain and therefore must take the ultimate responsibility for a sinking ship (or a falling bike). So it doesn’t really make much sense to go around pointing fingers for your own fall.

On the other hand, by nature, as individuals with reasonable intelligence, most entrepreneurs are inundated with self-doubts and introspection (which is true even during time of success). So your head would be ripe for an implosion (as was mine). You would have many unanswered questions. Is startup for me? Is the failure due to my own inexperience or just bad timing? Or is it that I had bad advice or that I was surrounded by incompetent people? Is my family ready for me to do startup again? Can I even afford to do it again, now that I am completely broke and have to start paying back all those personal loans?

Fortunately I had a good teacher and I knew that in one respect recovering after the failure of a startup is very similar to recovering after a fall while riding a bike, which is that I must first decide if I want to ride again. In another words, I must first make a binary decision, which is whether or not I want to continue to be an entrepreneur. If I believe that being a successful entrepreneur is in my destiny, then there is no point of crying in the dirt. But if I believe that I don’t want to be an entrepreneur again, then I can do whatever I want and heck with what other people think.

Again fortunately in my case, and I suspect it is true with many fellow entrepreneurs, I was totally unemployable. No startup CEO would ever hire a failed CEO knowing that I am not a follower and I was just buying time. Or that if I were to stay, I would never be completely loyal and that I might even have ambition to compete for the top job. On the other hand, even if I don't join a startup, I also know that if I were to take a non-CEO job working for a big company, life would be so miserable for me anyway (and worse for the one who hired me) that I could never stay there for very long.

So not having any reasonable alternative made it much easier for me to make a binary decision. As I said to my wife, “I have to do this (again). You knew I had a disease when I left the comfort of academia to start my first company. But now I am convinced that the disease is terminal and there is no possible cure, therefore I must start my second.”

So there you have it, after crashing your startup, you really only have two choices. Your first decision is the most important one if you were to eventually recover from your failure. Either you walk away from being an entrepreneur forever and never look back, or you stop crying and get your butt off the ground and start riding again.

9) Check your bike before you ride again

Chances are that besides your career, both your family and your health are in need of some long-overdue repairs. Now is a good time to catch up. Think of your family, your health and your career as the three legs of your three-legged stool. If you wobble on one but solid on the other two, then at least you have a fighting chance. Don’t try to restart your career if you don’t have the physical endurance or if you don’t have the support of your family.

Take some time off. Eat well and exercise regularly. Spend time with your family and tend to their needs. They are much more robust than you give them credit for. Typically your family has simple desire; they are happy when they see that you are happy. And you can be truly happy only if you believe in your own destiny and re-engage quickly to work towards achieving your dream. If you have any doubt, now is the perfect time to walk away and blame it on a broken bike.

8) Keep your eyes on the road

There is an old saying in Chinese, “If the mountain is without tigers, even monkey can be king.” In other words, don’t take your failure too personally. My experience is that success has a lot to do with our environment and other contributing factors that are completely beyond our control (what we sometimes call bad luck or bad timing).

If I think of my own journey one startup at a time, it was a miserable failure. But if I think of it as a piecewise continuous journey that happens to have multiple rest stops, then my life as an entrepreneur has been a spectacular success.

As entrepreneurs, we need to be both retrospective and introspective in order to effectively learn from our mistakes, but it is just as important to keep your eyes on the road and focus on the opportunities (and potholes) ahead of you. Keep looking back helps no one and will surely make you fall again.

7) Don’t touch old wound, just let it heal

Failure sucks and it sucks because you have irreversibly destroyed lots of relationship and you have caused profound pains to lots of people including their families. You also have lost substantial amount of other people’s money and no one will ever forgive you for that, no matter how much they tell you otherwise.

So there are plenty of wounds even though they might not be physically visible. These wounds are too raw to be touched so soon. Stay away from your former colleagues and your former investors for as long as you can. Don't try to make it up to them and don't try to shift responsibility to make yourself feel less guilty or less embarrassed. Whatever you do, don’t make it worse. You have already done enough.

Go make new friends. Try to do your next startup with different people. Go find a new team and new investors. Find new market opportunity. The old one is dead; no need to beat on the proverbial dead horse. It is time to move on. Move across the street, move across country. Give it time. Give it distance. Time might heal wounds but time does not remove scars. Only success can remove debilitating scars.

6) Don’t complain, don’t explain

Whatever you do, don’t start a Blog immediately after you fail. Don’t try to make yourself look smart. Don’t try to rationalize your failure. Talking about failure doesn’t make failure go away. It just opens yourself to saying things you will surely regret in later days. If you inadvertently discover you have a knack for standup comedy, then give up being an entrepreneur.

In Silicon Valley, people say we romanticize failure. It is not true. Americana does not tolerate failure. We just don’t overly penalize people who fail because we also enjoy seeing the spectacle of them rising from the ashes. The only thing that we hate more than a loser is a sore loser. Be careful with what you say. No one remember what you say, but they most definitely remember how you say it (especially if you whine).

Therefore, instead of talking, you would be much better served if you just shut up and peddle like hell. Now is not the time to seek fame. With success, you will have fame. It is much more fun to do a Blog when you fully recover and share your hard earned experience from the vantage point of sweet success (as I am now). Otherwise people would make the obvious observation that you are nothing but a wannabe.

5) Don’t get into other people’s way and don’t wish for other people’s fall

When we do startups, we don’t just leverage. We levitate. We “will” our startups into existence. And we defy all laws of physics by tapping into the positive energy of our surrounding. We create opportunities; we don’t destroy.

You are now at your most vulnerable and deflated stage of your life. You don’t have any money. You don’t have any friends. Your reputation is in complete ruin. As a result, you can’t afford to be negative and you can’t afford to be surrounded with negative people. Not having the ability to be constructive doesn't give you the license to do destructive. Whatever you do, stay away from bad Juju.

Now is the time to be positive and to levitate yourself. Now is the time to fill your head with positive thoughts.

Be careful with whom you hang out with. Unfortunately, you need to stay away from other failed entrepreneurs, at least for now. And in particular you need to stay away from people who hold a grudge on you or whom you have a grudge with. Don’t get mad; don’t even try to get even. With success, you can get them all.

Misery breeds misery and success breeds success.

4) Don’t over-compensate

Just because you fell on the left last time doesn’t mean you will fall on the left again. Most entrepreneurs over-compensate by learning their mistakes too well. If they failed because they had too much money, they will try to do the next one bootstrapping. If they failed because there wasn’t enough understanding of the market, they will try to do the next one with a bunch of salesmen.

You need to learn from your past but you need to keep in mind that every opportunity is different. Time does not stand still and the rest of the world will not wait. Don’t be a victim of your own experience.

3) Try not to carry extra baggage

Entrepreneurs do startup for a variety of reasons. The successful ones tend to do it because they want to change the World. But keep in mind that company building is a team effort so you need to bring a lot of people together and properly align their interest. But everyone is different and everyone does things for different reason. Some do it for fame. Some do it for money. Some do it for power. Some do it for satisfaction. Some even do it because they have no other choice (like me).

As an entrepreneur, you need to understand that as you start to bring more people together, the intercept of their overlapping circles of interest will get smaller. In the limit the ONLY thing all of them would have in common would be money. Every body wants money (and each want a little bit of something else). So regardless of what you as an individual might want, as the Founder/CEO, you only job is to make sure that you concentrate on making money. Everything else is extra baggage.

With money, you can now satisfy their other needs (give them more power, give them fame, etc.). But if you can't bring your company to a moneymaking mode and your company is forced to shut down because your VC's won't give you more money, then no fancy auxiliary benefit is enough to make up for the difference.

Having a great lifestyle is no substitute for having a sustainable life.

2) Learn to ride alone

Entrepreneurs are never lonely; they are constantly surrounded by people (especially when the company is successful). But entrepreneurship is a solitary business. You don’t really have any peers. From talking to other entrepreneurs who have failed, the one thing that we can agree on is that we all wished that we had listened more to our own instinct.

It turns out that entrepreneurs are different in that they are better in parallel processing and they can do free association better than anyone else. Like hungry dogs in the wild, we are a unique breed. Sometimes we forget or we choose to ignore that differentiating difference.

Whatever you do after you fail, don’t lose your confidence in yourself and for goodness sake, don't dumb down and don't allow yourself to be domesticated. There is no guarantee that just because you try again, you will necessarily succeed. But if you fail again because you have elected not to trust your instinct, then you are screwed for eternity.

1) Get ready for the next fall

Just like riding your bike, you will fall more often and you will fall harder when you THINK that you know how to ride. Whether you are a successful or a pre-success entrepreneur, you will surely fall again. But if you are afraid of failing, then you have no business being an entrepreneur.

My final advise has to do with another old Chinese saying which is that “Grass survives the heaviest of rock.” The emphasis here is “grass”. If you put a rock on a flower, flower will die. If you put a rock on grass, grass will find a way to survive.

I happen to believe entrepreneurs serve an important societal function. We are here to overcome tyranny that inevitably emerges with unchecked free-market capitalism. But that doesn't give us the right to think that we are “entitled” to special consideration.

We are not entitled to anything. We must not think of ourselves as flowers that deserve sunshine and nutrients. We must accept that we are the lowest form of beings, or we won't find the courage and the clarity to survive.

As I learned to say in America, as entrepreneurs, your ass is grass and the world is your lawnmower. So don't go looking for “love” in the wrong places (except from your family).

In summary, as a failed Founder/CEO, you're absolutely, unmistakably and unmercifully on your own. Good luck.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

Check below for some very helpful comments shared among entrepreneurs on how to survive founder burnout.

Here & Here

[2] How to Turn Your VC into Your Worst Enemy (by Denny K Miu)

2007-10-04T00:01:00-07:00

Editor Profile - Denny K Miu was the Founder and former CEO of two startup companies, Integrated Micromachines (now Touchdown Technologies) and Gigamon Systems. Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

TEN YEAR JOURNEY

Prior to starting Gigamon in 2003, I had started another company and prior to that, I was a faculty member at UCLA. I left academia in 1995 because I was interested in “learning” to become an entrepreneur. Being a technologist, I knew I was a “problem-looking-for-a-solution” but I was determined to find a market for my patented technology.

Since I already knew how to apply for grants from government agencies, I didn't want to fund the necessary commercial product development with potential SBIR contracts. Instead, by learning, I naively had in mind that what I was going to do was to learn to build company from scratch with other people’s money (i.e., VC’s money) because that was what I thought VC's are for.

So essentially I have spent the next ten years satisfying my own curiosity and struggling to figure out what VC (venture capitalist) is all about. In the process, I have raised $65 million in four rounds of VC funding but burned through all but $3 million before I was fired from my own company in late-2002. There were human costs as well.

Between April of 2000 and April of 2001, I grew the company from 8 to 163 employees (interviewed and hired every single engineer) but subsequently had to lay off 130 over the next eighteen months (I could still recall their faces). I remember one layoff was executed just days before 9/11. The same VC’s who complained that I didn’t hire engineers fast enough in 2000 were the ones who cursed me for not terminating them fast enough in 2001.

I believe I did the best I could. When the second plane crashed into the South Tower, I remembered my first thought was “I should have laid off two-third of the company, not one-third.” In retrospect, my gravest mistake was keep thinking that since things could not be any worse, they must be getting better. They did get much worse and eventually they did get better. But unfortunately for my 130 employees, the economy turned around in 2004, not 2002 (Lesson #1 – Entrepreneur cannot afford to be a pessimist but CEO cannot afford to be an optimist).

Over a span of ten years, I have seen NASDAQ rise and fall together with my own paper net worth (to a high water mark of $30 million in late 2000 corresponding to 10% of the post-money valuation of my money-losing startup, the funding of which included an unprecedented $25 million strategic investment from Cisco - enough to pay off the national debt of Iceland in 2000).

I had spend years not taking salaries alternated with months when I was so well paid that I could afford to fly first class. At times, things were going so badly that I had to take out a second mortgage on my house to make payrolls and then at times, things were going so well that I had to fight with my fellow investors to invest more of my own money into the company in order to increase my potential upside (with Cisco as an investor, everyone was confident that a multi-billion dollar acquisition was imminent).

In early 2000, I had VC’s calling me early in the mornings and late at nights to try to convince me to take their money. In late 2000, I was such a rock star that I had one VC (who remains a friend) inviting my wife and I to travel to South of France to dine with their limited partners because I had delivered one of the best IRR (on paper) in the history of their fund.

But aside from 2000, I had been turned down unceremoniously in over 300 VC meetings and most VC’s thought that I stink so badly that they wouldn’t even return my calls. And to top off the comical scale, in 2000, I actually had swarms of VC’s scorning me for NOT taking their money but fortunately by 2001, they were thanking me profusely for doing the same.

In other words, VC's have been my best friends and my worst enemies, in ways that are not always within my immediate control. In the process, ironically, I have come to respect Venture Capitalist as a profession, which I believe is the least understood if not the most misunderstood. And I am convinced that mistakes I have made with VC’s (eventually turning many of them into my worst enemies) were a result of my inexperience as a CEO compounded by a total lack of understanding of who VC's are and what they do for a living.

LESSONS BEST SERVED COLD

I also believe that I will make the same mistakes again (or at least some of them) because I believe an experienced entrepreneur could never be an entrepreneur again if they truly learn from their past - a man who has been bitten by a snake once and thinks that all fallen tree branches could be snakes would never walk the forest again.

In particular, I believe if I were to be a successful “serial” entrepreneur, I must ignore the many mishaps of my past for the same reason that if my mom (or any mom) did not love her offspring (or their startups) so unconditionally and unselfishly, and was not physiologically capable of shutting out memory of labor pain, I would most certainly remain the only child.

In other words, similar to the central character from my favorite movie, Momento, I believe I am destined to suffer from irreversible short-term memory loss. Therefore, just in case, I believe I would benefit greatly from markers that are thoughtfully left behind in previous journeys to remind myself of any impending hidden dangers in future paths.

It is with this in mind that I summarize my lessons in the following, in hope that in the future they will forcefully “remind” me of what I have learned and in doing so, prevent me from unnecessarily turning my friends into my enemies. It is also my hope that perhaps these same reminders could even help others who share a parallel journey as a fellow entrepreneur.

10) VC is not a content provider

Remind myself that a VC is NOT an entrepreneur (they might be one once but as a VC, they should not be one now). An entrepreneur is a “content” provider similar to a painter who puts ink on a clean sheet of paper or a writer who conjures words out of the empty ether.

As entrepreneur, our job is to “will” our creation into existence.

One successful VC had told me, “We don’t MAKE deals, we DO deals”. This turns out to be the best advise I ever received from a VC. VC’s are not here to MAKE something happen when it is not supposed to happen.

Creating something from nothing is our job and it is a lonely job.

Do not get discouraged when a VC tells me that I have a dumb idea. Chances are that they are right and it is a dumb idea but why should that stop anyone. Luck has so much to do with success anyway. Initial idea almost doesn’t matter, dumb or otherwise. To do a startup, one just needs to get started and make adjustment as reality presents itself.

The dumbest mistake I can make as an entrepreneur is to get discouraged when a VC tells me that my idea is dumb or even worse, believe them when they tell me that it is not. If I have to believe anyone, believe in myself. That way, at least when I lose everything I have (including my money, my family and my reputation), I wake up knowing why.

Ironically, having such determination is the requisite first step to establish friendship with a VC.

9) VC is not a service provider

A doctor is a “service” provider, so is a lawyer and an engineer. But they are not entrepreneurs. Anyone can be an entrepreneur but they must not have the mindset of a lawyer, an engineer or a doctor.

First of all, there are always more than two sides to an issue and often the right place is to be is in the middle - an option that a lawyer does not have. Also, there is not always an answer to every question; or if there is an answer, it might not be unique. So waiting for perfect data to arrive at a perfect solution is a luxury that I don’t have as an entrepreneur. If that bothers me, then I should go back to being an engineer. Finally, as an entrepreneur, I often have to shoot my patient (and I have).

Therefore, to help build a successful startup, I need to identify a family of “service” providers, find the best-of-the-class and figure out how to utilize them, motivate them and pay them with money that I don’t have. To put it succinctly, I need all the help I can “beg”.

But a VC is not a “service” provider. While entrepreneurs are “content” providers, VC’s are simply “capital” providers. With capital, I can buy quality service from “service” providers whose job is to provide quality service (no more begging).

This can get very confusing because VC’s seem to always go out of their way to tell me how they would add values. But they don’t really add values the way I normally think of “service” providers adding values. VC is fundamentally someone who is willing to provide working capital when no one else will. Therefore, I must remind myself that VC’s are smart people and it is difficult for them to stay in the sideline, so it is logical that they talk a lot about adding values (as if they were “service” providers or even “content” providers).

Remind myself that one time I asked advise from a VC (over sushi lunch) who was a successful entrepreneur and a successful early-stage VC and his answer was the most honest and the most insightful, “The hardest thing to get over as an investor for a startup, having come from an operational background, is the sense of impotence.”

In other words, to put it harshly, VC’s who insist on adding values is an overhead that I as an entrepreneur might not be able to afford. And if I inadvertently mistaken the VC's inherent desire to stay in control with a genuine offer to provide service, I will surely turn a friend into an enemy.

8) VC is not a banker

Remind myself that while VC’s are “capital” providers, they are not bankers. Another successful VC had told me that “the difference between a banker and a VC is that a banker will give you money when you don’t need money but a VC will give you money when ALL you need is money.”

In other words, in a perfect world, if an idea from an entrepreneur is not ready for funding, VC's should simply tell them to go away and come back when it is ready. But the problem with VC’s is that they don’t know how to say NO.

Remind myself that while their instinct might tell them that I stink, their intellect would convince them that they might miss out on the next Google. So VC’s will never actually tell me to go away. Instead, they will hover around and keep me at a sniffing distance until they are convinced that I will never get funded by one of their neighbors. Simply put, the only way that a vulture would ever leave a carcass alone is if they are absolutely convinced that no other vulture would touch it.

Therefore, as an entrepreneur, I need to understand that lack of a definitive “no” is very far from a “yes” and it will serve me best to ignore the smoke screen and just go away until I am ready to return. To do anything different would be akin to pushing on a wet noodle, or forcing a pig to dance. Not only would it be a huge waste of effort, but it will surely annoy the heck out of the pig who could potentially be a very good friend.

On the other hand, entrepreneurs need to learn that while VC’s know that they are not a banker, they behave like one anyway.

Having participation rights on liquidity event basically turns their investment into a bank loan. That is, they get to “double-dip” and when the company is sold, they get to skim their principal off the top (often at a multiple and with mandatory accrued dividend which is basically usury) before getting a percentage of the remaining proceeds pro rata to their equity ownership.

Remind myself that with friends like that, I could hardly afford enemies.

7) VC is not a company builder

Remind myself that VC knows that they are not here to help build companies or to serve customers. They are here to ensure timely execution towards a financially successful exit, sooner rather than later.

So to protect themselves, VC's would demand draconian financing terms because if things don’t go the way they want, they would have no problem gaining control of the company and changing guards abruptly (i.e., firing me) to ensure a timely exit.

So however much I might romanticize that VC is my friend, there is a limit. And as they say in the old country, every banquet must come to an end. So I need to constantly remind myself that for an entrepreneur, the ends might not always justify the means.

Remind myself that even as a friend, VC's will always put their interest ahead of their “principle”.

6) VC is not an investor

Remind myself that VC’s know that they are an “agent” no different than any other agent who gets a cut on the transaction.

Whereas I am expected to put in my body-and-soul and my angel investor to invest their own cash, VC is all about making use of someone else’s money.

So unlike us, their financial interest is coupled with their professional interest, i.e., their career WILL come before mine. If they are not a partner of their firm, their personal goal is to make partner and and if they are not a managing partner, then their focus is on raising the next fund and becoming managing partner.

As a “friend”, I am expected to help in every possible way to advance their career. Doing less will surely strain our friendship.

5) VC is not a Board member

Remind myself that VC’s know that while they occupy a Board seat, their primary objective is not to fulfill their fiduciary duty. VC does not sit on Board to protect the interest of ALL shareholders. VC is there strictly as a portfolio manager and their job is to protect the interest of their investment.

In other words, no matter how many times they tell me that they are my “friend” and my “partner”, the truth of the matter is that they already have friends and they already have partners, they are in their firm and their interest comes before anyone else.

Challenging the VC's on this important priority will quickly turn a friend into an enemy.

4) VC is not a smart risk taker

Remind myself that while the financial interest of VC’s might align with that of an entrepreneur, they are not identical. VC's portfolio is much more diverse than mine.

Therefore, it is not enough that I succeed; I must succeed big enough to make up for their other losses (or losses by other partners of their firm). In general the VC's and their partners are willing to take much greater risk than I alone since in the eyes of the VC’s senior partners, succeeding small is as bad as failing big (“go big or go home”).

So by taking money from VC, I actually increase my own risk profile and force my financial outcome to be binary, either big or nothing (which is very unnatural since I typically prefer to take a more measured path mitigating only calculated risks). Therefore, I must remind myself that with VC’s as my friend, the probability of a zero outcome is now quite real.

One VC had told me, in an attempt to convince me to take their money, that “Money is like gasoline, the only time to complain about having too much is when you are on fire”. Well, guess what, I have learned that you indeed invite self-combustion when you are surrounded by nothing but volatile fume (which explains the ugly patch of scars on my back).

3) VC is not a problem solver

Remind myself that VC’s do not want me to run to them when the company is in trouble since they don’t have the operational experience or the technical knowledge (or the time) to solve my problem anyway. However, while there are plenty of people (including me and especially me) whom they can blame for company failures, there is no one to blame for surprises when they are grilled by their own partners in the Monday morning partners meeting.

Therefore VC's expect me to inform them when there is the first sign of trouble so that they can start to proactively manage the expectation of their senior partners. To do otherwise would be considered unworthy of our friendship.

2) VC is not a miracle worker

Remind myself that 5% of the VC’s make 95% of the money, therefore I am competing with 95% of the dogs for 5% of the meat; since none of their general partners and limited partners expect miracles, neither should I. Remind myself that a VC who boasts about their successes is tantamount to an engineer who boasts about their manufacturing yield after they throw away all the bad parts.

1) VC is not a paying customer

Remind myself that success of the company has nothing to do with success in raising VC money; remind myself not to listen to anyone except my team, my customers and my own instincts.

Remind myself that financial success is about generating cash from operations. Once I can do that, then I am in control of my own destiny and I don’t have to listen to VC’s anymore. But if I can’t generate net cash on my own and I am spending THEIR money to make up for the losses, then I better LISTEN because there is no worse source of pain for an entrepreneur and no worse enemy than an unsupportive VC who is on my Board.

This is why I should always remind myself to never turn a VC from a “friend” into an “enemy”, and this is the single most important lesson I have ever learned (I suspect this is what those illegible characters tattooed on my forehead are all about).

Good luck.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

Some interesting blogs from current and former entrepreneurs sharing their thoughts on venture capitalists ...

A Thousand Startup Flowers, in Continuous Bloom = The Destruction of Venture Capital - by Dave McClure

“Now i'm not saying venture capital is evil or bad here... i'm just saying they exist because the market is not very efficient. And because it's not efficient, capital is VERY VERY expensive. And because VCs get hits on average WAY worse than baseball players, VCs are VERY VERY risk averse.”

A Unified Theory of VC Suckage - by Paul Graham

“There's a reason VCs are the way they are. It's not so much that the business attracts jerks, or even that the power they wield corrupts them ... VCs are like car salesmen or bureaucrats: the nature of their work turns them into jerks.”

The Hacker's Guide to Investors - by Paul Graham

“... what separates the great investors from the mediocre ones is the quality of their advice. Most investors give advice, but the top ones give good advice.”

Real entrepreneurs don't raise venture capital - by Jason Calacanis

“Venture capital money is highly combustible, and it can either propel you to heights of unimaginable fame and glory (Google, EBAY, etc.)—or it can blow up in your face and destroy you (Kozmo, WebVan, etc.).”

Fixing Venture Capital - by Joel Spolsky

“VCs do not have goals that are aligned with the goals of the company founders. This creates a built-in source of stress in the relationship. Specifically, founders would prefer reasonable success with high probability, while VCs are looking for fantastic hit-it-out-of-the-ballpark success with low probability.”

How I Learned to Stop Waiting for Investors and Start Building Companies - by Peter Ireland

“Venture capital brings with it tremendous pressure to create a liquidity event but this frequently results in bad decisions being made to launch products too early or enter into the wrong markets ... the venture capitalist’s knee-jerk response to every problem faced by a portfolio company is to fire the founders and evade any personal responsibility for bad decisions.”

The Top Ten Lies of Venture Capitalists - by Guy Kawasaki

“... so if you think it's hard to get a 'yes' out of venture capitalist, you should try to get a conclusive 'no.'”

An Introductory Guide to Startup Funding - by Benjamin Yoskovitz

“You’re about to get into bed with someone, you might want to check what they have under the covers ... Make sure you’re comfortable; because your investors are going to be major influencers on your company’s success.”

[1] Why Startups Fail and Why We Should’ve Too (by Denny K Miu)

2007-09-13T00:01:00-07:00

Editor Profile - Denny K Miu was the founder and former CEO of two startups, Gigamon Systems and Integrated Micromachines (now Touchdown Technologies). Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.

Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.

Two years after we launched our product in May 2005, my previous startup was able to acquire our 150th customer. Our sales continued to grow organically, from new customers as well as from existing ones who kept coming back for more. In addition, we announced that we had achieved profitability for six consecutive quarters.

By all measures, Gigamon was a spectacular success which was all that more remarkable consider that we had taken no VC money. Like so many entrepreneurs before us, the six co-Founders of Gigamon built their company the old fashion way. We bootstrapped the product development effort by dipping into our own pockets (or more accurately, our wives’ pockets) and by not taking salaries for two years; and after the product was ready, we secured minimal but adequate amount of working capital from an angel investor and not take salaries for another year.

Having spent the last decade and more as a struggling entrepreneur, I understand all too well the twin irony of accidental genius and reluctant warriors; nothing out-performs good execution like good fortune. In all honesty, the fact that Gigamon had taken no VC money was not part of my original financing plan. Between the summer of 2003 and the fall of 2004, I must have visited nearly 50 VC’s, all of whom had turned me down. So my company succeeded in spite of my initial failing.

Keep in mind that I was not unfamiliar with raising VC money (I raised $65 million for my previous startup) and I was mentally prepared that 2003 was probably the worst time to raise money (having just endured the rolling catastrophes of Asian financial crisis, Y2K, dotcom bomb, telecom burst, stock market crash, 9/11 attack, war in Afghanistan, SARS, launch of the Iraq invasion, outbreak of avian flu, etc.). But the uniformity and the abruptness of how I was turned down by every single potential investor I spoke with still startled me.

Obviously I respect the VC’s decision and I believe they have made the right one. I was not spiteful nor do I have any need for vindication. I believe VCs have an important place in our financial eco-system (as a financial instrument, their successes ultimately contribute to our 401K’s) and I respect their profession. In fact, if deem necessary and appropriate, I would have no problem taking money from VC for my future startups.

It is just that in general, I find it much more educational and rewarding if I refrain myself from demonizing others and instead focus my energy on learning from my own failures as well as from my successes (accidental or otherwise).

So in that spirit, over the last four years, I had spend much awaken hours soul searching and I have summarized what I learned in the following which were the top three reasons why we were turned down by the VC’s and why we should have failed as predicted had it not been for the good timing of the ever changing market and the enduring quality of its team (intelligence, integrity and inventiveness).

Top three reasons why VCs were convinced that we would have failed:

1) We did not have a rock star CEO
2) We were all engineers
3) We contradicted Gartner

1) We did not have a rock star CEO

Experience really matters in a startup.

This explains why VC’s prefer to bank on an experienced CEO in a startup, particularly if the Founder/CEO has a successful track record and is touted a “Serial Entrepreneur”. The reasoning is simple. Although past success does not guarantee future performance, it does make it easier for the VC’s to quantify the probability of success. Since the VC’s business is to reduce unknowns and the unknowables, avoiding inexperienced and ineffective CEO’s is a no brainer.

However, as it turns out, experience is important but judgment is too, and everyone can be a victim of his/her experience (which ironically could often cloud their judgment). Much of a startup’s success and much of the difference that a CEO can bring to a startup have to do with his/her ability to make the right decision (at the right time). But there are two kinds of decisions, one that is life-and-death and one that is not.

Life-and-death decision is very easy to make. And this is where experience comes in. It is really just real-time signal processing and pattern recognition. Anyone who is capable of trusting his or her own instinct tends to make the right life-and-death decision. But making the right life-and-death decision is like avoiding a car accident that never happens. Your only material reward is that you get to live.

Decisions that are not life-and-death are much more difficult to make in a startup. They are actually much more important to the success of a startup. So the question is how does a startup CEO go about making the right non-life-and-death decision. It turns out that there is no such thing as the “right” decision. In order to make the “perfect” decision, one has to have “perfect” data. In a startup, having perfect data (or even the right amount of data) is a luxury that we could not afford.

Typically, in a startup, there are two ways to compensate for the lack of perfect data. One is to wait for more data and one is to seek consensus. In my opinion, both kill startups. CEO who procrastinates hoping to get incremental data is as deadly as a CEO who jumps to the wrong conclusion before enough data is in. Similarly, a CEO who is afraid to make tough and unpopular decision and hides behind the shield of consensus will almost always lead a startup to the proverbial cliff.

It turns out that in a startup, it is not about making the right decision but about making the decision right. In other words, it is about the CEO truly accepting the awesome responsibility of being the ultimate “Decider” while refusing the temptation of being a dictator (avoiding consensus is not the same as avoiding consultation).

In other words, a CEO must have conviction or there is no way to lead a company. But a CEO must know the difference between “temporary” conviction and “permanent” conviction. Lack of temporary conviction will kill a startup but so would permanent conviction (as Stephen Colbert once said, “Staying-the-course means doing the same thing on Wednesday as you did on Monday no matter what happens on Tuesday.”)

So being a successful CEO in a startup requires experience but it also requires good judgment.

And good judgment has to do with when and how to build up creditability with the team and the shareholders, and when and how to cash in your political “earned” capital to mobilize the company behind an unpopular decision that you have made based on imperfect data. More importantly, good judgment has to do with maintaining a positive feedback loop to constantly “re-up” your credibility with your constituents so that you do not inadvertently over-extend your “reserve” because you can be sure that you will need them again (and again).

Unfortunately for Gigamon, I was not a “Serial Entrepreneur”, but fortunately for them, I was a “Serial First-Timer”.

While I did not have a successful track record since I had not made any money for my former VCs (in my last startup), I was stubborn, I was hungry and I was experienced.

In summary, experience is necessary for a startup but not sufficient. On the other hand, paradoxically, as I have learned the hard way, as a CEO for a startup, having a strong will to succeed and the tenacity to follow through on difficult decision is sufficient but not enough. You need a little of both (and a whole lot of luck).

2) We were all engineers

A startup has the same set of constituents (employees, customers, vendors, etc.) as any other companies and what ties these disparate pieces into a puzzle is a marketable and revenue-generating product (or in case of startups, the pursue of a marketable and revenue-generating product).

But interestingly from the VC’s perspective, the startup itself is their product. They are interested in the company’s product (as a means to an end) but ultimately they are only interested in the company **as** a marketable product. But unlike our customers who consume our product, VC is like a channel partner since they do not consume but rather they resell.

VC purchased a sizable piece of a startup at a very low price with the pure and simple intent of reselling it at a very high price (sooner rather than later), hence the importance of an “exit strategy”.

So it is reasonable that when a VC makes an investment, they look for an A-Team consists of Founders who can help build and sell a product but also those who can help build and sell a company. So it bothered many of them that the six co-Founders of Gigamon were just a bunch of engineers (or former engineers who knew only to sell products but not companies).

Fortunately for us, there has been very little market demand for the VC’s product (i.e., no liquidity and no exit for startups). Therefore, had we built our company based on the assumption that we would have a quick flip, we would have failed miserably because we would have either run out of fuel or run out of runways.

So we did the right thing (and the only thing that we knew how to do) which was to act as our own “surrogate” customer and built a “Swiss Army Knife” data access switch for “out-of-band” network monitoring that we wish we had in our previous career. It turns out that being our own “surrogate” customer was the most important ingredient for our success.

My fellow co-founders of Gigamon had worked in the network monitoring side of the networking business for many years. They knew about their customers' pain first hand because as a monitoring tool vendor, they knew how hard it was to deploy their own products. So in a sense, they were frustrated that their ecosystem was broken and the Gigamon switch was their dream tool.

Had they not been long-time veterans of their own industry (which they help built in the past 20 years), we couldn’t have gotten that important insight by just talking to our customers. Customers know what to object and what to improve when you present them with an imperfect product but not when you present them with a perfect PowerPoint. Henry Ford had said that if he had listened to his customers, he would have built a faster horse because that was what his customers wanted.

It is sort of like Steve Jobs and his iPod (and iPhone). It is hard to imagine how things could have become what they are had Steve not been a music fanatic (not just a fanatic). Steve didn't rely solely on his customers neither to define his dream toy. Instead he listened to his heart because he believes he was the perfect surrogate customer.

And that was what we did. We listened to our hearts (even though we were just a bunch of engineers).

3) We contradicted Gartner

Fund-raising for a startup is an art form and a process. From the VC’s standpoint, the process is about establishment of credibility and mitigation of risk.

An experienced CEO would know how to “do the dance” and would engage potential VC’s in a proper spatial and temporal sequence (i.e., first meeting to get to know each other and to do a soft sell, second or third meeting to meet the team and lay down some measurable markers, a few more meetings to update on progress punctuated with right amount of dissonance to be sure that everyone knows that you are shopping but still keep everyone within arms length so that no one would accuse you of being promiscuous, etc.).

The last thing a CEO needs is an unknown introduced by a third party. In 2003, we had such a bombshell.

Gartner released a report stating that IDS (intrusion detection systems) was an obsolete technology and would soon be replaced by IPS (intrusion prevention systems).

An IDS is an “out-of-band” passive appliance that sits on a SPAN port or a TAP and “listens” to activities in a network (it is equivalent to a surveillance camera).

An IPS is an “in-line” active network element that can shut down illegal activities much like a firewall (equivalent to a security guard with gun and real bullets).

The point was not which was better, or whether or not Gartner was right (it turns out that IDS/IPS are apples-and-oranges and Gartner was wrong, or at least misguided). The point was that we had a reputable analyst firm making a bold statement that “out-of-band” solutions would be replaced by “in-line” solutions.

In other words, in the eyes of the VC’s, our proposed product which was a data access switch to facilitate “out-of-band” monitoring was at best a temporary bandaid since they rightfully inferred from Gartner’s assertion that there would be no long-term demand for “non-intrusive” network monitoring and therefore no possibility for the Gigamon product to gain a meaningful and permanent footprint in the emerging enterprise networks.

Now the problem was not just that the CEO was non-performing or the team had limited skills, the problem was that our vision was wrong.

This posed a dilemma for us.

On one hand, we knew in addition to other industry experts, our customers were contradicting Gartner as well. As battle-scarred veterans, we understood that not only was it important to sell solution and not technology, it was important to sell solution to solve customer problems that fit within the constraint of their “current” job description (in other words, the lowest hanging fruits are the ones where your customers can buy your products without fundamentally changing their career).

In summary, IDS and IPS were two different product categories targeting two different sets of customers. The customers that we were talking to were monitoring people who would only buy monitoring products. When an IDS becomes an IPS, it is no longer monitoring and would be purchased by a different team with a different budget (in fact, one could argue that IPS would never be a permanent footprint since its functionality would ultimately be absorbed by the firewalls).

On the other hand, we had to wonder because Gartner is smart people and how could they be wrong.

So we spend the next six months architecting a product that would allow IDS to become IPS by letting an attached passive appliance send back “kill” packets into the network. We conjured up a beautiful concept that we called “asymmetric” switching. When properly implemented, our switch would act as a cross-connect in the forward path to deliver replica traffic to the monitoring tools and when needed, would behalf as a packet switch in the reverse path so that we could deliver the payload back into the originating network element in order to shut down an illegal conversation.

However, the problem we had was that we didn’t have any money. So to survive (and to avoid going back to our wives for more money), we decided that we had no choice but to go to the market with only “half” a product and to introduce the “backflow” feature only after we have made some sales. Had we had money, we would have preferred to stay stealthy and take another eighteen months to fully develop the ultimate killer product.

At the beginning of 2005, as soon as the beta unit of the “crippled” product was ready, we took it to our first customer and it was a gigantic hit. The customer loved it and wanted to buy one right away even though it was preproduction and it was the wrong color (black, not orange). We were excited and since it was such an easy sell, we needed something else to talk about so we started to talk about the next feature release which would turn our product into a “bidirectional” switch.

Then the most unthinkable thing happened. The customer stopped us mid-sentence and told us that he would only buy our product if we could guarantee that we would never implement the “backflow” feature. So we asked him why. And his answer was astonishing. He told us that Sarbanes Oxley has changed everything.

With SOX, network monitoring has become tantamount to financial auditing and an important tool of his corporate arsenal to ensure adequate “Internal Control” as required by Section 404 of newly enacted regulation. Just like an auditor who had to do their job off of a “copy” of the book, not the book itself, our customer had to do their job on a “copy” of the packet and not the packet itself.

So the customers actually “needed” a one-way valve and could not have purchased our product if there was any possibility that we would disturb the production network. In other words, for the same reason that if an auditor were to have their finger prints on the actual book, he would be disqualified as an auditor, our customer was told that by his bosses that if he could touch the network, he was no longer monitoring.

How ironic could it be that not having VC money to build the perfect product as championed by Gartner was the primary reason for our success.

What we lack in vision we made up in peripheral vision.

--Denny--

Click here to read other chapters of Denny's 2nd Book »

Check below for some very insightful comments from readers across the World.

Also, some interesting blogs by VC's sharing their thoughts on why startups fail ...

Entrepreneur Issue! Why do many startups fail? - by Sid Mohasseb

“Too much Brilliance: a lot of companies fail because the market is not ready for the innovation yet and the entrepreneurs focus on their vision as opposed to what the customer wants or needs – they continue to miss the mark by listening to themselves more than listening to those who pay.”

Why Startups Fail - by Theodore F. di Stefano

“Why do startups fail? The answer is amazingly simple and can be reduced to three main causes: lack of working capital, a poorly conceived business model and a poorly constructed business plan.”

Why Startups Fail - by Steve Tobak

“Most startups fail ... the most common cause is that they develop technology and not products. Lots of people confuse the two terms, but the distinction is critical in startups.”

The 18 Mistakes that Kill Startups - by Paul Graham

“If you look at the origins of successful startups, few were started in imitation of some other startup ... It seems like the best problems to solve are ones that affect you personally. Apple happened because Steve Wozniak wanted a computer, Google because Larry and Sergey couldn't find stuff online, Hotmail because Sabeer Bhatia and Jack Smith couldn't exchange email at work.”