When I was recruiting our lead product person to join Indinero, he had already prepared himself to tell me he wasn’t interested. His reasoning had nothing to do with the idea, the team, or anything related to the business. He was just scared that our expectations of him would far exceed what he was capable of, when we were actually on the same page all along. Since then, he’s been tremendously helpful to the company.

How often do you hear of personal relationships not working out? In almost every case of a breakup, it’s that the expectations were off. The guy wanted a casual relationship, the girl wanted more. It’s very instinctual, but most people just don’t communicate these things. So when the guy starts talking about what he wants in his next girlfriend, the girl’s shocked to find out that he hadn’t even considered her for marriage. What a disaster…

Not only should expectations be set, but they should be higher than what you’re personally expecting. It’s like financial planning – you have your “ideal scenario”, but in the back of your mind, you know you’ll never hit those benchmarks.

Set high expectations, expect low results. Then you’ll never be disappointed again!

You’d be surprised, because many people don’t. Especially here at Berkeley. The debates between two sides of an issue aren’t because our students are open-minded, but rather because there’s diversity. With so many college-aged students on a single campus, it just so happens that there are multiple sides of the debate. But it doesn’t make any of them open-minded, educated, or enlightened in any way. You’re also probably thinking, “Isn’t a political discussion a good way to end a friendship?” My answer is absolutely, and that’s why I think it would make for an excellent interview question. Even if the candidate was a Zionist Jew, I would argue the Palestinian perspective just to put their pride in check.

I first thought about this when I was in a model United Nations session. I was watching my colleagues representing other nations debate among each other, argue about issues without a goal and without a premise. Had they never learned the tactics from “How to Win Friends and Influence People”? I saw from a first-hand perspective why the UN doesn’t seem to get anything done. People leave just as ignorant or educated as they were coming into the assembly. People argue their stances, boost their egos, claim victory, and do very little to actually help the situation. And it’s ironic too, because everyone coming into the model UN wonders why nothing useful ever gets done.

Which makes me think that it’s not so much an issue about policies and actions… it’s about the method by which we negotiate and resolve conflict with each other. The most important part of this being, “does the other side even attempt to listen to and understand my perspective?” Have you ever been in a situation where two people were in a political debate, and you could tell that the person who wasn’t talking was only thinking about what they would say next in rebuttal? It’s good entertainment, but no conflict resolution. This directly applies to the business world – if you’re negotiating something, even as simple as an employee’s salary, can you think about the other person’s feelings, needs, and concerns?

I’m not saying that talking politics is the best way to see if a candidate is any good, but I do think that it’s a great way to screen out people who aren’t open to learning and listening. I’ve started to run this test on friends too, because it tells me how good of a listener they are, and how much they care to understand alternative perspectives. Business gets very personal very fast, so put your people to the test before you bring them on your ship.

Everything I do for Indinero is about reducing its risk of failure. Everything. I hire people who are experts at what they do because their chance of doing a better job is higher than mine. I’m charging for the product upfront because it ensures that we’re spending time on something we will make money from. I helped win us a grant from Lightspeed Venture Partners to show my team that we thought things through well enough for institutional VCs to give us money (and, of course, to have money). But in order to get that money, I had to show Lightspeed that we already had an established team. So basically, in order to have one, I had to have the other. It’s an endless cycle of risk reduction. Team + Capital = Startup. No team = no capital = no startup.

Throughout my summer at Lightspeed Venture Partners’ office, I learned that investors were risk-averse too. Their entire business is based on investing in the least-riskiest companies, and that seemed counter-intuitive. But it makes sense. Investors have a finite amount of time to spend with their portfolio companies, a finite number of investments they can make each year, and their job is to ensure a decent payoff for their investors. (yes, can you believe it? institutional investors have investors too) And this means precisely one thing for the entrepreneur seeking venture financing: Everything you do pre-funding should attack the things VCs think about when determining the worth of your company.

Investors like traction. They like a seasoned team, they like paying customers, they like CEOs who come from technical backgrounds, they like young founders, and everything that means that their colleagues won’t criticize them for making a bad investment. Yes, your company probably won’t need money and probably won’t have trouble finding investors if it has all of the above, but it doesn’t matter. The fewer risks there are in your company, the more likely you are to get an investment. And this comes to prove my point that investors are for the most part risk-averse.

Lets take a step back. In order to reduce my risk in life (to maximize my personal happiness and fulfillment), I need to build a great company that makes money. And to achieve that, I need to reduce risk for myself, for my (possible future) investors, and obviously for the team members who execute on this dream. People who work at startups have an interesting mindset. They enjoy independence, they like the idea of being an entrepreneur, but they want to come in at a stage with significantly less risk. For example, telling people that Lightspeed Venture Partners gave us money immediately changes the way they look at us, because it sounds like we have our heads on straight. Which means that there’s a forever ending cycle of risk reduction: I have to reduce risk in my company enough for customers to signup at a rapid pace, which reduces the risk enough to bring on good investors, which therefore reduces the company’s risk enough to hire smart talent, and the sum of all of these things will hopefully make us a low-risk, successful company. Phew.

Don’t get me wrong. Starting a company is a risky endeavor, but succeeding comes down to mitigating all of your risks for failure. Instead of writing down a list of things that you should do, start a new list called “things that will lead to my company failing.” And on the top of that list will probably be “running out of money.” Then take each line-item, figure out how to address it, and then you know exactly what you should be focusing your time and energy on. It’s a different way of startup management, but it has completely transformed my company’s culture for the better. Remember – before your company has the chance to make billions, the CEO should eat and sleep risk reduction.

The first thing to keep in mind is that for most internet companies, competition is irrelevant. As our friends at Zoho.com say, “… if there’s anything I’ve learned from my years in the tech world is that companies don’t get killed by competition, they usually find creative ways to commit suicide.” Zoho is right, and we remind ourselves of that everyday here at Indinero. Chances are that your web startup will run out of funding, a co-founder will leave, or your inability to create a useful product will lead to the destruction of your own enterprise. And if you’re able to get past those first barriers to entry, then I’ll allow you to think a little about your competitors.

Now lets say that your company has an infinite cash runway, your company is capable of building a product, and you know that it won’t commit suicide anytime soon. Even then, competition shouldn’t be your primary concern. If you created a list of all of your competitors, 90% of them could probably be crossed off your list of concern because of their inability to innovate quickly. And of the remaining 10%, plot them on two axes: who is innovating, and who are you losing potential business to. You’ll find that more often than not, no competitor is on the top right of the graph. It’s often a big company (in our case, Intuit) that we’re losing business to, and we know that they’re not innovating at the pace that we are. More nimble startups, on the other hand, often make for good inspiration! Their mere existence, even if they have a better product than you do, does not mean that they’ll be the reason for your failure. Keep in mind that your company will probably commit suicide in a creative way, and you’ll never have the opportunity to evade the startup competitors you fear.

One valuable lesson I learned back in my middle school days was that having lots of competition was a good thing: I was in the web hosting space, which was and still is notorious for having terrible service providers. The rules I listed above applied to web hosting 5 years ago in that 90% of the competition was irrelevant, and many of the big players weren’t doing anything particularly creative. There was an obvious pressure to do more than just provide diskspace and bandwidth to clients, which means that companies that couldn’t keep up were able to fail earlier in the process. If anything, these failed companies should thank the competition for having saved them time!

So the next time you think of a business idea, embrace your competition and build your offering around unique things that your “big rival” isn’t doing, and will likely never do. And if a friend or investor asks about your competition, you’ll know precisely how to respond.

1) When users pay, they’re more serious about using your product. Instead of just going in to take a look, they’ll take a more proactive stance on applying your product to everyday life. As a paying customer, they’re also more likely to offer you valuable feedback that will change the way they use your product.

2) The cost per user is high – it costs us money to download data from bank accounts and credit cards. Charging our users immediately addresses this problem.

3) When you charge money upfront, people are more likely to convert and pay for your service. We talked to a few companies that switched from “no credit card upfront” to requiring that you enter your credit card from day 1. They recommend that we charge upfront to increase our conversion rate.

4) We’re not sure if freemium is the right way to go. By charging money now, we can always implement a free plan later. If we started off as being a free service, it would turn people off if we ultimately changed our minds and went back to the premium-only model.

5) When raising angel/VC money, it helps to say that our company is earning money. Not having a freemium model got us closer to being able to make that claim.

But to be clear, these are just our preliminary thoughts. We may eventually have a freemium offering, but we’ll be focused on building our paying user base for the time being. Many businesses prosper on the freemium model, and we’re just not convinced that it’s fit for what Indinero wants to achieve.

For a little background, I founded Indinero back in March with co-founder Andy Su. In a nutshell, it’s software that helps entrepreneurs manage their finances easily. (Indinero is the Mint.com for Businesses) Our original mission was to make it easy for entrepreneurs to not only keep tabs on their expenses, but also to help them intuitively understand their finances. We got our first big break in April, when Lightspeed Venture Partners wrote us our first check. Getting the money wasn’t as “lucky” as I enjoy making it seem… it was a planned process, and we spent many hours trying to convince Lightspeed Venture Partners that we were worth funding for the summer. This included building a product, sending them our first screenshots, and having my connections reach out to lightspeed partners to give recommendations. I’ll repeat the most important thing again – they gave us money because we had built a functional prototype.

Fast forward a few months. In July, Indinero was chugging along with many alpha testers and promising feedback. Building a product for small businesses isn’t easy, and we knew that raising more money would help us grow. With the goal of more funding in mind, we decided that the smartest thing we could do to convince people of our worth was to sign up of our first paying users, with the goal of relaunching a paid product on August 1st. We missed the deadline by a few days (programming’s a bitch), but today we finally signed up several paying customers.

Having paid customers does way more than just prove investors that you’re onto something: It forces you to think about building a product that people will actually pay for. As a programmer, you’re forced to leave the confines of your comfy office to talk to prospective customers. You figure out what they want, what their pain points are, and you make it work. Something else changed, too: When we told people that we were planning on charging for our service (and that “free” wasn’t on the menu), we were taken more seriously. People treated us like a legitimate business, and it further pushed us to make something useful.

Working towards building an internet service with revenue is like an endless spiral of goodness: it makes you build a good product, which makes you money, which makes people treat you more seriously, which makes you want to work harder, which makes you build a better product. I highly recommend that more people try it.

In my selfish ploy to get your feedback on Indinero, I’m giving out 50% discounts to the first 100 entrepreneurs who are willing to be guinea pigs for new ideas and features. More info here.

I recently returned from a Taglit-Birthright trip to Israel, which is a free trip that brings young Jews ages 18-27 to Israel on a 10 day journey to observe history, culture, and current-day industry. It was the most exciting 10 days of my life, and I want to draw some parallels between Israel and software startups. Israelis have incredible passion, resourcefulness, and persistence, and personality traits that resemble a startup that’s doing everything it can to stay afloat.

Let’s start with passion. Israelis have an incredible love for their country — something that I’ve never seen in America in the 19 years that I’ve lived here. And I think it comes down to one thing: Israelis understand and care about the cause they’re fighting for, and that’s merely the right to exist. And to take this a step further, all Israelis are drafted into the army. No “normal” person in the states would want to join the army. From my uninformed perspective, it seems like the U.S. Army recruits primarily from poorer neighborhoods, and that most of our country’s leadership didn’t have the opportunity to serve. In Israel, every political leader has served as a solder, so there’s this incredible unity that immediately reminds me of a tech startup. The founding CEO did everything from marketing outreach to coding the core product, and it’s understood that the CEO isn’t just “making orders.” Compare this to a big company, where the CEO may or may not have any technical experience, and makes strategic and product decisions that the programmers don’t understand. Reminds me of America…

Next, Israelis are resourceful like no other. Paul Graham from Y-Combinator says being a good startup founder comes down to being “relentlessly resourceful“, and Israel was just that. When I visited Tel Aviv, they were celebrating their 100th year of existence. Just 100 years ago, Tel Aviv was nothing more than sand dunes, but the immigrant Jews built it up to being the second most populated city in Israel (after Jerusalem), and is now dubbed “Silicon Wadi” because of its incredible hi-tech scene.

Another great example of relentless resourcefulness comes from the 6 day war: Israel was being attacked by 5 1/2 armies on all sides, and in a fight for their survival, the government raised over $30M from Jewish Americans. In fact, if it wasn’t for Israel’s relentless resourcefulness, the nation wouldn’t be around today. And the same thing applies to web startups: as an entrepreneur, you need to leverage your network in ways you haven’t before.

I’ll finish this off with persistence. For thousands of years, Jews have been persecuted merely for being Jewish. And at last, they have a country that they could go home to. I compare this to entrepreneurs getting up from failed businesses. Even if things don’t work out, you keep on going until you build something that’s truly great. Ignore the naysayers, and do what’s needed to ensure the success (and survival) of your enterprise. And that’s precisely what the Jews did with Israel over the past century.

But I think there’s a lot more to this thing called “freemium” than meets the eye. It’s distinctly different from offering a free trial or a free sample. The biggest problem with freemium is that the conversion rate from free to premium is utterly low — some say that the average conversion rate is 3%. But in the companies that implement freemium business models well, I see that they attack one thing that customers can’t argue with: an actual, urgent need. By doing this, they’ll assuredly increase their conversion rate and customer satisfaction. In case you forget, here’s a checklist that you can post on your wall:

The key is in acquiring users who are looking for a potential solution to a problem, and may or may not pay depending on what they need. But when they have that urgent need for your upsell, they’ll gladly pay. Here are two examples of companies that understand freemium:

VistaPrint.com is best known for “selling” free business cards. I first heard about them when someone gave me a business card that said “Made by VistaPrint.com” on the back of it. I ordered my first batch of free cards, paid for $5 shipping, and I was a happy camper. The poor souls from VistaPrint made practically nothing off my purchase.

Two years later, and the week before my first TED Conference, I knew that I had an urgent need for business cards. So surely enough, I went back to VistaPrint to get my “free” cards. But fortunately for them (and unfortunately for me), they understood that freemium models work best when the customer has an urgent need, and they showed that in their shipping prices. I got free cards from them before, so I knew they were good. But I needed a new batch within 72 hours, and VistaPrint made a nice profit from the rushed shipping costs that I paid them. Take a look at their pricing breakdown for free business cards:

I think the key here is that VistaPrint spent less time worrying about features that would be “nice to have”, and more time on selling me something that I absolutely needed to have, and something I’d obviously be willing to pay for. Props to them!

Another company that’s done a great job at freemium is PBworks.com. (formerly known as PBwiki). I worked there last summer, so I had a lot of time to think about why their model works so well. Firstly, the company targets so many different demographics: individuals, students, teachers, companies, conferences, engaged couples, people trying to lose weight, among others. But most of these users will never pay for PBworks, because they don’t have a need to. And even if there were “cooler” features that PBworks could offer, these users probably wouldn’t pay. As a student using the product for personal use, I remember ignoring the upgrade button on the top right of the screen, and using PBworks as far as free would take me. In fact, I still have a personal wiki I use for taking notes in class, and I see myself as the type of user who’d never want to pay for premium features.

But now I run a company, and we love our PBworkspace. In fact, I think I’m addicted. But my colleagues and interns are too. And while I’d still do anything possible not to pay for “cool-to-have” premium features, PBworks is smart enough to make me pay for its service because I need it. There were two things that they could do: cut me off after I made too many edits to my wiki, or heavily encourage me to pay when I’d have a clear need. They chose the latter route.

This is precisely why the “per user” model is so powerful. You get the benefits of a full-fledged product, but you only pay for what you need. For the first 3 users, PBworks is free, but when I bring in more people, I have to pay $8/user. Which is a relatively small cost to pay for something that I’ll probably need to have. Take a look at their pricing structure. Note that I omitted the free plan.

What’s interesting about this is that the difference between the “Professional” and “Professional Plus” plans is trivial. We normally expect the most expensive plan to have 20 baller features that the others don’t have, just to convince you to pay for the more expensive plan. But PBworks isn’t that naive: they realize that as long as you have a need for more than 3 people to collaborate on a wiki, (which is pretty much every organization out there), you’ll pay for the product out of sheer need. And the difference between their “Professional” and “Professional Plus” plans shows their understanding of this too: Some organizations need to have 24/7 live support, and they’re willing to pay for that.

But at the end of the day, when the organization’s decision maker needs to figure out which PBworks plan to purchase, it isn’t comparing featuresets between plans. It’s about selecting the one plan that solves the needs you have, and PBworks and other enterprise software companies such as Freshbooks and Salesforce do this well.

So ask yourself, “where is the actual need?” With VistaPrint, the need comes down to getting business cards in a timely manner. With PBworks, the need is when an organization has more than 3 users on a wiki. For Indinero, my current company, the need is when a company has more than 2 bank/credit card accounts that they need to keep track of. By thinking about “what the user needs” rather than thinking about “what a user sees as cool features to have”, you’ll be taking full-advantage of the beautiful thing called freemium.

Speaking of smart marketing, VistaPrint decided to give you guys a 25% discount on all products, and an 80% discount on premium business cards. For a product that I’ve actually paid full-price for, I highly recommend them. If you run into another company with a unique business model, please send me a tip at jessicamah (at) jessicamah.com.

“You cannot plan innovation. You cannot plan invention. All you can do is try very hard to be at the right place and be ready.”

This goes back to what I wrote about a few days ago. People try to carve out their perfect path to success, but there’s only so much that one could do. Lead a fulfilling and exciting life, and amazing opportunities will come your way.

Back in the fall, I was talking to Cal Newport about an upcoming book he’s writing, and came to realize that the exciting things from my life came my mere desire to do fun things; not from my “selfish” attempt to actually further my career. As a student, I felt that my job was to do anything and everything to grow as an individual, and attending class was far from efficient in achieving that task.

I don’t usually enjoy blogging about my “personal life”, but I thought it’d be nice to do something different. Many of you have asked me to give a more personal touch to my blog, so here it is: a short list of some cool things that happened to me this year, and the incredible people I have to thank:

- Just a year ago on May 17, I graduated from Simon’s Rock, the Early College, with my Associates Degree. I first went to Simon’s Rock to leave the boredom of high school, and to get a jump start on my career. If it wasn’t for my freshman-year roommate insisting on going to Berkeley one day, I’m not sure if I’d follow in her footsteps.

- Over the summer, I landed a gig at PBwiki (now PBworks.com) as a summer web developer, and had the time of my life. The founder, David Weekly, has since become a close friend and adviser for my current company. If it wasn’t for a referral from a blog reader, I wouldn’t have landed that incredible opportunity.

- In my first week as a student at Berkeley, and in the first Discrete Mathematics class, I met a cool guy named Andy. We were the only first-year students, and the TA told us that we’d better make friends if we planned on surviving the class. Fast forward a few months, and he’d eventually become my best friend and co-founder for internshipIN and our latest company, Indinero. If it wasn’t for the blunt TA, I’d still be looking for that perfect partner.

- In February, I went to my first TED Conference in Long Beach, CA. In the 5 days I spent there, I grew more as a person that I ever have before. If it wasn’t for meeting a random TEDster on the beaches of Jamaica, I’d never have gotten an invitation to go.

- In April, my company landed a $35k grant from Lightspeed Venture Partners. If it wasn’t for a random emailing from Berkeley Alumni who told us (and other students here) about the summer program, we’d still be looking for money.

This past year has been filled with incredible serendipity, and the excitement in my life is more-or-less fueled by it. None of these fantastic things happened by directly looking for them, but rather by putting myself in the the right place to be exposed to the right people. Most of the great things on my list stem from having gone to Simon’s Rock, and by living as exciting a life as I possibly could. And If it wasn’t for high school being so crappy, I wouldn’t have had the motivation to apply to college early.

Human life is so dynamic that there’s no good way to plan for good things. People ask me all the time, “how did you get invited to the TED Conference?” And the only honest answer I could give is “by living the most exciting life that I possibly can.” People are always focused on achieving the next logical step in their education or career, but that often prevents them from doing exciting things that would indirectly get them closer to achieving eventual success.

For example — As a high school student, if I actually cared about going to college, I’d focus day and night on my school work. But by following my philosophy of “living the most exciting life possible,” schoolwork failed to meet my criteria. So I did the most exciting thing I possibly could do, and that was to start a company. One year later, I got into college. And the admissions people looked specifically at my botched attempt to run a company while attending school, and accepted me half way through my 2nd year of high school.

Sure, my theory of life doesn’t always work to further your career, but at least it promises you this: You’ll grow tremendously as an individual, and live an exhilarating life. And if you have just that, I can guarantee you eventual success.