SoCal CTO

Selecting a Web Development Company

2013-04-09T17:35:00.001-07:00

I've written before about finding Web Development Firms in Los Angeles. What I didn't discuss was how you should go about selecting the right company. I just got an email asking about exactly this:

I'm with a new company that needs some software built, but doesn't need (or have the resources for) a large staff of software developers. They've been in talks with some consulting companies, but don't quite the know the criteria for evaluating them and things like references(and where to get them).

So here are some thoughts on selecting the right firm.

What Do You Need

It's critical to know what kind of skills you really need. Different firms will have very different skill sets:

Do you need user interface design? Graphic design? Do you have the basics already defines and just need it to be fleshed out? Or are you starting from scratch?
Do you have the functionality defined?
Do you have some complexity around algorithms, database?
Do you have scale issues now or later?
Are there particular technologies or platforms involved?

You will find firms that are design/interface heavy and light on development. Others that are heavier on development. Some will have some specific skill sets. You may find that you want a combination of these skills and want to look at finding them in different people/firms.

Most of the rest of the post is going to focus more on finding development rather than design firms. If you need user interface and/or graphic design, that's a slightly different selection process. Some of what I have below applies. And you will want to make sure you see what the particular designers have done, samples of their work product, their process, etc. Make sure you know who will be doing the actual work.

Selection Criteria

Here is what I would be looking for:

What have they worked on? Who worked on those projects? Are they still at the firm? Have they worked on projects that are similar to your project? Have they used the technologies that are involved in your project? And make sure you see those projects.

Don't be swayed by big name firms or other kinds of name dropping. I (and TechEmpower) have worked with IBM, HP, Xerox, etc. That says something. But it's quite different working for large firms than it is with startups. Make sure you know exactly what the company did on each project. And they should not get to count items in their portfolio that were done at another company/job - yes, that's quite common, especially in new firms.
Quality Result. Make sure that what they produce looks and acts right. See it in action. Some developers just don't quite get that you need to produce a quality result. That said, don't be fooled by things that look really cool when you need functional results. You are looking for someone who cares about the look, but you are hiring the development firm for it's development skills not its graphic design skills.
Are they asking good questions? You should be getting an estimate for the work effort before you get started. Do not fall into the trap of Startups and a Common Misunderstanding in Agile Software Development. To provide you an estimate, they will need to ask you a bunch of questions. It's shocking to me that many firms will not ask questions. They will give you a quote. Run away. They are either not seeing the questions that need to be asked or not interested in finding out what you really need so they can provide a reasonable estimate.

By the way, there was somewhat a trick question above "Do you have the functionality defined?" You may think you have it pretty well defined. But show it to a decent set of developers and they should be able to make your head swim with all the things you've not considered.
How good is the company's own site? They shouldn't be showing you that they don't care at all about looks and content on their own site. But if their site is really gorgeous, that means they are good at design, not necessarily development.
How many full-time W2 employees do you have? How many contractors? Where are they located? (have you seen the offices?) What are the skills of employees vs. contractors?
What's their process? How do you know if you are on track with development? How is testing handled? What are the review periods? What's my responsibility in the process?
Are budgets and deadlines hard or soft? What percentage of their projects launch on-time and on-budget as compared to what they estimated up front? How do they achieve that result?
How do you communicate? Is there a project manager? This can be both good and bad. Some project managers get in the way of effective communication. Have conversations with the point person and make sure you will be comfortable with them and that they will add value to the process.
What do they do after the web site is launched? Do they help with transition to in-house or other developers?
What's the plan for hosting and support?
Do they have repeat or long-term clients?
References. They should be willing to share references. But you may also want to get in touch with people at companies that they have been showing you as part of the portfolio. You can find and reach them through LinkedIn.

Problem Signals

All of the following are signals to me that there may be risks/issues:

Not asking questions.
Not asking you what your plans are for mobile.
Recommending Flash.
The firm is less than two years old.
The firm is smaller than 10 people.
The firm is completely virtual.
They didn't ask you some of the questions in: 32 Questions Developers Should Ask a Startup Founder.
They have the lowest price out of several vendors several of which come in at roughly the same higher price.
They believe there's no maintenance after launch.
They don't seem to care about you or your project.
You are feeling like you are being sold.

Making Sure You Are Ready to Begin Building Your MVP

2013-04-02T16:15:00.001-07:00

I'm presenting Making Sure You Are Ready to Begin Building Your MVP next week at Coloft (Details/Registration). I'm going to be looking at aspects like:

Things to consider before building your MVP
Features often overlooked when documenting an MVP for developers
Understanding important metrics you want to measure
Risks and challenges in developing an MVP.

It should be a fun evening with lots of interesting conversation. This post will provide links to participants as well as to readers.

What's Going to Go Wrong

A lot of founders don't really understand Lean Startup principles. They look at the following high level definition of Lean:

and they interpret that as write up an executive summary with your ideas and hand it to developers to build. What's going to go wrong? Well I often get the unfortunate call from startup founders where all kinds of things have gone wrong:

Built the Wrong Product
Poor Product Quality - Code is really bad, full of bugs, missing critical features
Doesn’t Scale Past a Couple Users
Not Protected – Access to Code, Rights on Code

MVP Homework

Why are you building your MVP in the first place? See Investors, MVPs and Evidence of Traction.

Have you conducted Problem, Solution and Feature Interviews with customers?

Have you Documented Your MVP for Your Developers?

Have you looked through Things You May Have Forgot in Your MVP and provided answers to these?

Do you have a Technical Advisors: Every Web/Mobile Startup Must Have One?

Don't be fooled by a Common Misunderstanding in Agile Software Development.

While You Are Building Your MVP

Look for the following Symptoms of a Weak Development Team. Correct your course quickly. And when you have Poor Software Developers - Pull the Plug Early.

Learn how to test and possibly use testing and load tools. See: http://www.softwareqatest.com/qatweb1.html

Additional Resources

Web Framework Performance - Startup Founders Need to See These Numbers

2013-03-28T10:31:00.001-07:00

In Web Framework Benchmarks, there are some very interesting and surprising numbers around the performance of various web frameworks. Startup Founders really need to see these numbers. And I hope you are not running on Cake PHP when you see these numbers.

Many of us are putting more into the front-end and having the application logic and back-end exposed through JavaScript (JSON) APIs. In some ways, this frees us from worrying as much about the specific framework that's being used. I've found myself looking mostly at talent and time to market. But these numbers are causing me to pause a bit and really think about the choice of framework in terms of performance.

In looking at these numbers, seeing Cake PHP at 500x slower, Ruby-Rails and Django at 50x slower really surprised me.

I was also surprised by the performance improvement on dedicated hardware as compared to EC2 instances of roughly 10x.

Important Implications

Well I'm currently working with startup founders on their systems in JRuby, Django, PHP and Java.

Several of these are B2B applications with relatively smaller audiences. I'm feeling okay about our choices of frameworks that are slower and will cost more in terms of hosting and managing growth. The availability of talent was an important factor.

However, startup founders who are building applications that have:

Large Audiences - consumer facing
Complex Processing - examples: Matching, Social Network Analysis, Compatibility Scoring, etc.
Database Intensive

need to consider going with a higher performance solution. Most startups do not get a chance to move from one framework to another. It takes a lot of time and effort and the result is that you get to go through a whole new set of bugs only to get back to where you started but with a faster, more scalable application. Think about twitter - but they had lots of money.

Often we justify building an MVP in whatever framework is fastest to build or where we have resources that know that framework. You may get into the market, but just know that you are going to pay the price when you start to get traction.

Investors, MVPs and Evidence of Traction

2013-03-11T14:15:00.001-07:00

Yesterday, I was talking to a startup founder about their MVP and they said something that finally got me to write this post:

"I have a few investors interested but they want to see a product."

In Building Your MVP as a Non-Technical Startup Founder, I mentioned that before you build your Minimum Viable Product (MVP), you need to be really clear on your purpose.

In most cases, when you are building your MVP, you are trying to prove out certain startup metrics such as:

Cost of Customer Acquisition
Conversion Rates / Pricing
Viral Coefficient

in order to get those numbers in front of investors so that you have evidence of traction and can show that you can begin to build out more of the real product and begin to scale the business.

It is almost never the case that you are building an MVP to "show" to an investor the product itself. Yes, the investor may literally have said to you:

"That is something I'd seriously think about investing in when you have your product built."

But the reality is that they don't mean that. Two aspects to this:

You can let an investor see your product via a mockup or clickable prototype.
If you do build the MVP and show it to them, they will ask you about your metrics. They really want metrics, not a product.

A Mockup is Enough to Show the Product

Most investors can look at a mockup or clickable prototype and have a pretty good sense of the product. They may wonder if it can be built technically, but I (or other CTOs) can answer that question without building any code.

Cases Where a Mockup is Not Enough

There are a few cases where mockups or clickable prototypes may not be enough:

Usability, interaction design, etc. For example, the iPod won not because of better features and functions. It won because of interface, ease of use. To get an investor excited about another MP3 player at the time, they would have needed to play with the interface. That said, you likely could have still come up with some cheaper way than building the iPod.
Results of Algorithms. Often you can't tell if something like a search engine or matching algorithm is really going to have better results until you use it. You may have to build something out to show it working for someone to evaluate whether it really works better than what else exists.

I would guess that this represents less than 5% of startups.

Investors Really Want Evidence of Traction

So you built your MVP; you bring it to the investor; you demo it; and I will guarantee they will ask you:

"So how many users do you have?

How much is it costing you to get users?

How much are you making from your users?"

And other similar questions. Yes, they are happy that you have your product built and that does make it much more investable. But now that you have a product, you should be able to show that people want to and/or are willing to pay to use it.

Bad News? Not Really

At first you may be thinking that this is all bad news. Wow, now Tony is telling me that not only do I need to build my MVP, but I need to actually show evidence of traction. That's an even tougher hurdle. Yes, that's correct. Sorry, but that's the reality.

However, the good news is that for most investors, you can certainly change the question and get a lot more information without ever building the MVP. The real question you should be asking is "When I've built this product and show you the following metrics, would you invest?" The "this product" will be a well formulated mock-up or clickable prototype. If you don't have that, then you will naturally let the investor off the hook by saying, show me the product.

I actually think you can push the conversation pretty far with most investors and a few good mockups. No, you won't know if you will really get a check - most investors are hard to actually get a check from - but you will have a pretty good indication.

Bottom line is that before you go and build your MVP:

Define your MVP really well on paper and Document Your MVP for a Developer
Do Your Homework Before You Develop Anything
Make Sure You look at Questions Developers May Have Forgot to Ask a Startup Founder
Figure out the Evidence of Traction you really need
Get a Technical Advisors: Every Web/Mobile Startup Must Have One
Test all of this with Investors

Additional Sources

How Much Traction is Enough for Investors?

But never forget that traction is necessary, but may not be sufficient, to lower the risk perception of investors, and assure an investment. The quality of the team, and overall financial health are equally important, as well as how your offering compares to competitors.

Now that You've Got MVP, It's Time to Think About MVC

You can't raise money on achieving an MVP. Investors demand more than that.

As Steve Blank likes to say:

A Startup Is a Temporary Organization Designed to Search
for A Repeatable and Scalable Business Model

The unfortunate reality is - an MVP is not the above! Yet most of the newly minted entrepreneurs I've met think their job is nearly done when they've found MVP - they think they can go build a pitch off their early MVP and raise money!

A startup does require MVP but it is much more than just MVP. The problem is that MVP means early adoption of product and its features, maybe even some who will pay. But it doesn't tell you how many people will do it in the long term and whether this can support the company (the people and operations within) that is behind it.

What The Heck Does “Traction” Really Mean To A VC?

Great analysis from John Greathouse:

Do You Speak VC? A Beginner's Guide to Investors

How to Speak the Language of Venture Capital

Building Your MVP as a Non-Technical Founder

2013-02-13T07:34:00.001-08:00

I did a presentation this week at Coloft that looked at how Non-Technical Founders can go about getting their MVP built. It had a passionate group of 50 people attending. I promised to do this post as a follow-up to the session to provide additional links and information. It should also give a sense of what I covered to people who were not there.

Here is the outline of the talk and some links from prior posts that talk to the issues that I discussed in the talk.

Purpose of an MVP and Defining the Right MVP

I've really not talked as much about this in my blog even though its hugely important. I generally hear the following as reasons for founders building their MVP:

I need it to get investors interested (NOT VALID)
I need it to see how early customers use it to get feedback (RARELY VALID)
I need it to test/prove aspects of the product such as (VALID)
- Cost of Customer Acquisition
- Conversion Rates / Pricing
- Viral Coefficient

My claim is that the first bullet, although extremely common, is a misguided reason to build the MVP. Investors my tell you that, but what they can look at your product on paper and tell what it does and they will understand if it can be built. Once you build it, they will now ask you about the key metrics that they need proven in order to see if you really are a good investment.

The second bullet, getting feedback from customers is most often not valid either. Again, putting something down on paper (wireframes, graphic comps) and getting feedback from potential users can tell you most of what you would learn from a working MVP. There are a few cases where you somewhat need to see the system operating to have a sense of the value. Examples might be a recommendation engine, search engine, matching engine or something with a complex interface. Even with these, you will have paper-tested your MVP, but the reality is that customers will not be able to assess the value to them until they actually use it.

The real reason to build an MVP is to do early tests of key Startup Metrics for the business. To prove/disprove a hypothesis. One of the questions in the session was "How do you know what to put in your MVP?" Once you have the metrics defined, it focuses your effort.

Ways to Make Your MVP More Minimum

We spent quite a bit of time talking about a complexity scale and the kinds of resources you can viably use at different levels of complexity.

Simple MVPs get built with less the 3 Programmer Months worth of effort (that's 3 months a single programmer working full-time). More complex MVPs are going to be 12+ Programmer months. There are some MVPs that are unavoidably complex. eHarmony for me fell into that camp. We needed the matching algorithm. Many MVPs can be made to be very simple.

Paper Prototype or a Smoke and Mirrors Prototype - you can just build something on paper or even just one that you can click through and get a lot of the feedback you need.
Fake Site - you can have what looks to be a real site, even take "orders" but not actually have anything able to run it.
Leverage Existing Platforms or Third Party Products - you want to test your social network, grab Drupal and whip something together, or even just use a hosted service.
WordPress - we spent quite a bit of time talking about how you could do a lot with WordPress to provide simple forms of lots of functionality. WordPress is pretty easy to hack. And the back-end is something that a non-technical founder can manage. We end up using WordPress a lot as the marketing front-end of our web sites.

The bottom line is that you should first look to make your Minimum as Minimum as possible.

Here are some important and relevant posts that relate to the topic of defining the right MVP. The "Questions" post is probably the most important.

What Do you Need to Get Your MVP Built

From the graphic above, you can see the kind of resource you might need to be able to build your MVP. If you are on the lower complexity end, the key is defining small chunks of work that can be done quickly by a developer. If you do not break it down into small pieces, its hard to make progress with part-time resources, freelancers, etc.

Equity-Only CTO and Equity-Only Developers
Technology Roles in Startups
Want to Know the Difference Between a CTO and a VP Engineering? (someone asked specifically about this)
Hiring a CTO for Your Startup

Founder / Developer Gap

I've spent a lot of time on the Startup Founder Developer Gap and knowing what you need in terms of a Startup CTO or Developer.

In this talk, we spent most of our time on Technical Advisors: Every Web/Mobile Startup Must Have One and how they should be helping you:

Specify the right things to be built.
Third party products are used appropriately.
Structure development contracts appropriately or directing the in-house team appropriately.
Plan for past the initial MVP.
Review the code being built.

Finding and Selecting a Technical Cofounder / Developers

Development Challenges

Technology Choices

Choosing a Programming Language and Framework for Your Startup

Finally, if you made it this far, then take a look at: Free Startup CTO Consulting Sessions. I'm always happy to try to help startups figure out how to go after creating their MVP.

Startup Mentors

2013-01-02T07:15:00.000-08:00

I've had several Startup CTO Consulting sessions recently where it became apparent that the Founder needed help with the business and product as much or more than the technology. I suggested that they should look for someone like me, but on the business end. Then we discussed how they could go about finding this startup business advisor.

Then I got an email that asked:

I'm leading the marketing efforts for an early-stage startup. I recently completed an MBA, which I feel gave me a good basis in the fundamentals of building our brand from the ground up. However, I often wish that I had someone more experienced both in marketing and working in a startup environment that I could go to for advice. Do you have any suggestions for how to find a good mentor?

Great question and I believe that just like finding a Technical Advisor for your startup is critical, finding a good mentor is critical.

Mentor vs. Advisor

Generally when I talk about startup mentors and advisors, I distinguish them in terms of:

Mentor focus is You:

The marketing person above is looking for someone to help them with their personal challenge. They want someone who understands their current role and can help them be successful there. They will also be concerned about how this leads to their next role. They may open doors to the next role.
Advisor focus is Your Business:

The startup founders need help with the business and I'm advising them to find an Advisor who will focus more on the business then on them as a person. They likely want someone who knows the industry and can open doors that can help the business.

These are not mutually exclusive and good mentors and advisors get into both.

Finding Potential Mentors

You are looking for someone who is

A couple steps ahead of you in progression
Have worked in similar roles in similar kinds of companies
Local to you

For example, I'm looking for a marketing professional who's worked at a couple early-stage startups ideally one of these is B2B selling to advertisers and is located in Los Angeles area.

You should begin asking at networking events and people you know in the startup world.

For me, I'd use LinkedIn. The challenge is that LinkedIn is not that great with finding people who were at early-stage startups. So the way I would do it is to find examples of specific startups that have grown up locally and who marketed similar to how you plan to market. Then you search for the people who were in marketing there early on. Likely they've progressed, so it may be a pretty natural fit. This can take some work, but its worth it.

This also avoids a common problem that will sometimes happen when you go the networking route. People will suggest folks who are high profile. They regularly speaks at conferences, used to work at Google, and have other similarly impressive aspects to their background. That may sound good, but that doesn't make them a good mentor.

Have they worked in similar kinds of situations? Most of us are not Google. An early-stage startup is a different animal. From Why Every Startup Founder Needs a Mentor - And How to Find One

Don’t just fall in love with someone’s reputation, perceived celebrity or name. Identify someone who could be directly relevant to what you want to do, or who is pursuing a similar vision. And someone who is likely to have the time and the inclination to help you.

Mentor Progression

To me this is a complex problem, it's a bit like dating/marriage. You are the person who wants to commit but you have no idea if the other party is going to be willing to commit to you.

I don't believe that you should go out saying to a potential mentor that you are looking for a mentor. While that's open and honest, you know how it works out if you bring up commitment too early. And I'm not alone. In How to Find and Keep Your Ideal Mentor:

Once you’ve identified an ideal mentor, you need to create the relationship that houses the mentorship. Here’s a little secret about finding mentors — nobody has time to mentor you. And they probably lack interest initially. If you’ve ever sought out mentors, you’ve probably found that many of them were reluctant to make the commitment and ran when they heard the word “mentor.”

So, where do you start? For me, its coffee?

Can I buy you a coffee and talk to you about my challenges?

Or in the case of the LinkedIn outreach:

Hi John,

I'm leading the marketing efforts for StartupRoar, an early-stage startup that sells to B2B advertisers. We are doing well, but have some interesting challenges.

It looks like you were in a similar kind of role at XXX and you likely had some of the same challenges.

Would you be open to getting together for coffee and talk about my challenges and how you addressed them before?

Thanks,

Tony

If you are working on something interesting and you ask nicely, there are a lot of people who are willing to have the conversation. And sometimes that grows into more conversations.

If you've talked to a bunch of people and no one is willing to get coffee with you, then that's a sign that you are working on something that's not interesting or you've not done your homework.

At the end of your first coffee, if things have gone well, I like to say

This was great. I really appreciate your time. I've got a lot of great ideas and things to do. Would you be open to getting together again at some point as I continue down this path?

That's right, you begin to set up your second date right at the end of your first date.

Accelerator / Incubator Mentors

Most accelerators and incubators have a long list of potential mentors. I'm a mentor at Start Engine and Founders Institute LA. I want to warn you that just because you are going into one of these programs doesn't mean you will find a mentor. It means you have easy access to people who could become a mentor. You still have to do the work of connecting with these people and turning them into an actual mentor.

In Startup Mentoring, The Socratic Way, Fred Destin tells us:

The faster you can get past the pitch phase ("let me convince you that my idea is great")to the constructive phase ("let me exchange with you to make this thing better"), the more benefit you will both derive from the interaction.

I've been in lots of conversations where the founder is just pitching me. This happens a lot at the incubators / accelerators. I'm thinking I'm in the meeting trying to help. All we get are pitches and most often there's not opportunity for a startup to say, "I could use some help with X."

We all have challenges - lots of challenges. Be open about your challenges, especially when you are talking to a potential mentor.

You still need to tell them about your challenges and start with a meeting/coffee.

Let me stop here, because if you are in a program like this, then just go over to Ben Yoskovitz's post How to Maximize the Value of Mentors in Accelerators.

Do Your Homework

I worked on a startup project with Stedman Graham and when he was doing a presentation for a group of teachers, he said something similar to this CNN interview that really stuck with me:

Everybody's equal because we have 24 hours. The question becomes, "What do you do with your 24 hours?"

He's talking about making life choices, but anyone who's worked in a startup knows that there are always a million things to do and we constantly make choices about where we will spend our time.

The same is true of your advisors and mentors. So show respect for their time by doing your homework before you ask them questions.

I wrote about this a long time ago in Questions Before You Ask. In that case, I was talking about the homework you should do before you reach out through LinkedIn for a question.

There's a ton of information out there, so if you have a particular situation, make sure you've:

Searched for Answers
Keep a List of What You've Found
Read through What You Find
Compose What You Find Into a Preliminary Answer
Figure Out What the Real Question Is
Ask the Real Question

If you are asking your mentor questions that shows you've not done your homework, you will likely lose access to that person's time. They will push you to do your homework the first time. The second time, say goodbye.

Additional Resources

Document Your MVP for a Developer

2012-12-19T09:45:00.001-08:00

I was talking with an early-stage founder who has a product vision and wants to get a Minimum Viable Product (MVP) built. He is not a technical person, but is somewhat web savvy. He wanted to get input from me on what he's doing, and he wants to begin to ask developers what it would take to build his product. I asked some of the same questions I ask in my Free Startup CTO Consulting Sessions and then I get to a very common conversation:

Me: Do you have specs?
Founder: Ummm ... <embarrased look> ... what do you mean?
Me: Product definition, use cases, feature list, wireframes, comps, really whatever you have.
Founder: Umm ... <still embarrassed> ... what format would you and the developer want that in?

I'm never trying to embarrass someone. I know how it feels. It's the same as when I've created financial models and then have it reviewed by a hard-core CFO, sophisticated investor or similar kind of expert. And in the case of defining mobile/web/software, there is even more variability in terms of form and format.
So, I promised this founder to do a post talking about how you go about create specifications of your MVP.

First Relax

Before you begin reading all of the stuff below, it's going to be new, different, confusing. You likely are writing your first one of these. Don't stress over format. Don't stress if you are doing it right.
This should be an iterative process with advisors and customers providing feedback on the product.
Conversations with a technical advisors or possible developers should be iterative.
In fact, let me provide an important warning:

If you create these documents, don't have input from a technical resource, take it to a development shop and they provide you a price. Go find a new technical resource.

So, just get down what you can in a form that works for you. I don't expect you to provide all of these things. Part of what I like to find out is where you are relative to capturing these things.

Business Concept

The key first part of the conversation with a developer is having a good capture of the business more broadly. The business canvas model is a good short list. Or you can have a pitch deck. You might also have a business plan, marketing plan, financials, competitor analysis or other kinds of background document.
Ideally you are also able to say what you are really trying to prove to get to the next level. For example, if you are trying to determine viral coefficient (see Startup Metrics), then the focus should be around those aspects of the MVP. It's important to know where the business is today and what you are really trying to achieve.
Quite often these things get old quickly. It's fine to send out documents that have older information. Just make note of it in the document and/or in an email when you send it. Seeing the evolution of thinking is not a bad thing.

Customer Development Notes

I'm assuming founders are having customer development conversations. It would be great to get notes and summaries from these. See also: 12 Tips for Early Customer Development Interviews, 12 tips for customer development, tips for customer development.

Prioritized User Stories

Define the customer problems and beginnings of the solution through user stories (see user stories, user story). Prioritize these stories.
Examples:

Product Feature List

Create a prioritized high level product feature list (see Product Backlog). Make sure you look at 32 Questions Developers Should Ask a Startup Founder to spark possible additional features. Make sure you keep focused on your key business drivers and prioritize the features aggressively based on those drivers.
Examples:

Functional Details

For the higher priority features, begin to capture additional level of detail of those features particularly focusing on the behavior of the application. See User Story is Worthless - Behavior is What We Need although you don't need your behavior description to be as formal as what is presented. Really this begins to be a Functional Specification. Developers don't need everything to be fully documented. Rather are just looking for more detailed description of the features/functions.
Examples (these are going to be more detailed than you need to get to at this point):

Wireframes, Comps, Clickable Prototype

Create wireframes for a few key screens that sketch your concept using a tool like Balsamiq.
Send across any graphic designs you currently have.
If you happen to have a clickable prototype, that's great. That's fairly uncommon.

Additional Resources

Here are a bunch of additional resources

You should definitely look at Steve Blank's book and review his blog.

Technical Advisors: Every Web/Mobile Startup Must Have One

2012-12-10T06:59:00.000-08:00

I did a presentation recently for a graduate class from The Founder Institute around getting online/mobile products out the door. I LOVED it because, the presenting part was over quickly and we got into specific issues that the founders had in terms of getting things built. It was like having a bunch of mini-Free Startup CTO Consulting Sessions all in one room. But what was interesting to me was that I found myself recommending that each of them should have a technical adviser.

Why? Roughly, they needed to make sure:

Specify the right things to be built.
Third party products are used appropriately.
Structure development contracts appropriately or directing the in-house team appropriately.
Plan for past the initial MVP.
Review the code being built.

This is exactly the kind of thing I'm doing as a Part-Time CTO or Technical Advisor for startups. It just didn't dawn on me how common this need is. And it made me come to a new realization:

Every early-stage web/mobile/online startup should have at least one technical advisor, probably two.

There are two kinds of advisors that are commonly needed.

Strategic Technical Advisor

Look at the business and determine what's going to make sense from a development perspective in the short-term, longer-term.

They need to be able to know the key Questions Developers May Have Forgot to Ask a Startup Founder, figure out where/when/how to bring on development talent (Hiring Developers Before Product/Market Fit? , How to Hunt Programmers for Your Startup - A Field Guide), how to manage development resources (Startups and a Common Misunderstanding in Agile Software Development, Poor Software Developers - Pull the Plug Early, Symptoms of a Weak Development Team), choosing technical frameworks (Choosing a Programming Language and Framework for Your Startup), and other aspects of making broader choices about what will get developed, how it will be built, and making sure that you ultimately deliver the right stuff at the right time.

I was very worried for several startup in the room. They were making some significant choices that were going to have lasting impact on their company. Why do this without the right technical advisor? Would you create contracts without an attorney?

Tactical Technical Advisor

There's also a tactical level for technical advisors. We are producing the right functionality, but is the code that's being produced the right product? Is this something that's scalable and extensible? This kind of advisor should be looking at the code on a fairly regular basis to make sure that the team is building the right thing. This is important whether you are outsourcing or building it in-house. If you are outsourcing, then this person will also be protecting you from issues like being able to access the source code and making sure can bring it in-house at a later time. Do you really have control of the development? If you don't have this kind of person and you are not personally looking at the code, then you don't really have control.

There are some technical advisors who can do both strategic and tactical, but its common to find a tactical advisor separately.

CTO Founder - Do they really still need a technical advisor?

I know relatively few people who are good at both a strategic and tactical level. Most early-stage, in-house teams needs to be hands on developers, not strategic. It's rare to find a person who is good at both strategic level thinking and is still a rock star, cranking out code. Early-on, bring people on who can produce volume. You can get strategy level on a part-time basis. I've talked about this before in Startup CTO or Developer. Is this person a CTO or a developer? Likely they will have gaps in one or the other. Get an advisor to help supplement where there are gaps.

By the way, do you know that most development teams use peer review of code to help ensure good development practices. Who's doing that for your CTO?

Where Do I Find a Technical Advisor

You are looking for part-time people in these rolls so you often are finding people who already are employed somewhere else. In Los Angeles, I have easy access to a bunch of potential strategic technical advisors through the LA CTO Forum. If you need a strategic advisor, contact me and I will connect you with someone from the group. Another avenue is looking for CTOs/VP Engineering via LinkedIn. It's going to be a numbers game to find the right person that way, but still quite doable.

Tactical advisors are also going to be already developing or leading development full-time at a startup. They will have the title Lead or Manager. They should only be a year or two removed from full-time hands on. Ideally they have experience with your full technology stack, but in some cases, having them learn about best practices will be necessary.

Compensation

This is going to depend on the specifics of the work. When advisors need to jump in and spend significant hours on a particular issue, then likely cash compensation is going to be required. If it stays at a few hours per month, then using something like Founder Institute's FAST agreement probably makes sense. Just make sure its clear what the expectations are going into any engagement.

Why Investors Should Demand This

I quite often get a call where a founder raised $150K of initial money and has spend $120K on in-house or outsourced development and the software is 90% done. But they are having a tough time getting it all the way done. As I mention in Symptoms of a Weak Development Team, the number one reason I get calls relates to an old software engineering adage:

The first 90% of a project takes 90% of the time. The last 10% takes the other 90%.

In the case of these calls where the initial money has mostly been spent, it can be very tough to recover. Most often the failure is both a result of the founder not doing the right things and because the developer over-promised and failed to ask the right questions. Having a strategic and tactical advisor can greatly reduce the chance that this is going to happen.

What's funny is that once software has been built and you move from Seed to A or B round, I often get calls by investors about reviewing the existing product to see if it has reasonable quality and if the team is going to be able to continue to produce going forward. Why a Seed level investor doesn't insist on a technical advisor, I don't know.

Bottom line - if you are an early-stage startup with online or mobile technology as part of your solution, you ABSOLUTELY NEED a technical advisor.

Find and Talk to other Startup Founders of Similar Startups

2012-11-19T09:34:00.001-08:00

One of the recommendations I make all the time to startup founders, is to find other founders who have tackled similar problems as yours and talk to them about how they solved these problems.

As an example, I'm working with two sets of founders who are both going to be dealing with Getting Started with a Two-Sided Market Business - they are variants of two sided markets, but have similar characteristics. They have both chosen to launch first in a particular geography. Because their audiences are different, they will take very different approaches to how they do their geography specific launch strategy.

My suggestion to both of them is that they should talk to founders (or maybe early employees) who have launched startups with similar characteristics. You should consider:

Audience
Product
Strategy
Business Model
Competitive Set

You probably can't talk to someone at a direct competitor (although ex employees may work), but it is generally easy to find parallel businesses. Who has launched a similar kind of business? Ideally they've launched these fairly recently.

So who has launched businesses with local focus initially? Well, there are going to be a ton of these. Come up with various ideas. Ask around about others. But let's just say you came up with Groupon as one of them.

First Stop CrunchBase

Here's the link to the Groupon Profile on Crunchbase. Here's some interesting things I can find:

You can find Founders listed here. Former people can be a wonderful source of information as well. See below for tracking down these folks through LinkedIn.

Acquisitions and competitors can often yield startups that took similar approach to how they rolled out, had some success. Worth looking through these for some interesting parallels. Again look for founders. And save names of of companies that match your criteria.

Second Stop LinkedIn

Advanced people search in LinkedIn is a beautiful thing.

In this case, I'm looking for:

Company - put in the related startup
Title - "founder" or "marketing" or nothing

You will come back with some very interesting folks. My suggestion would be to not necessarily target Groupon itself, but more of the competitors and acquisitions. In some cases, you can target people who were at one point at Groupon and now have founded something else.

Once you've found some people, now its time to reach out. I've talked about this before in LinkedIn Conversations. Here are the keys:

Show that you are real and serious. Funded is a good word to use. As is being specific about your issue.
Be brief.
Ask for a brief conversation.
Don't use the words "pick your brain"

As an example:

Hi Joe,

I'm the founder of an pre-launch, funded startup that will be doing a couple local launches to get early traction and determine whether our business model holds. We have some ideas on how we will launch this. It looks like you've been through this exact thing before for a parallel kind of business so I'm hoping you can help me.

Would you be open to a brief conversation around this?

Tony

I like to send these directly, but will do it indirectly through an intermediary when necessary.

CMO CTO COO Equity and Compensation

2012-11-14T07:03:00.001-08:00

I was just asked about a particular startup situation (seed stage, CMO hire, non-founder) and particularly what compensation and equity is appropriate. I know a lot more about CTOs specifically CTO Salary and Equity Trends 2009-2011, Visualization of Startup CTO Equity and Salary Data, Startup CTO Salary and Equity Data, but I've previously written about the issues with Equity for Early Employees in Early Stage Startups.

To find the equity numbers that were relevant for the particular person here, I went back through my prior post and looked at

Wilson Sonsini and DFJ Gotham Ventures

The Option Pool Shuffle

Employee Equity How Much

How much equity for investors and employees?

Seed Stage Compensation

What are typical compensation numbers?

Quick & Dirty How-To: Employee Stock Option Allocations

Lead Developer to CTO at a Startup

2012-07-23T07:05:00.001-07:00

I received a great question via LinkedIn:

I'm the founding engineer and working hard to launch my startup. I seem to encounter a lot of people who want to attach a CTO label to me as I'm the only programmer on the founding team of three. While I do fill that role at the moment, I'm a little hesitant to refer to myself as a CTO as we still haven't launched a product, acquired a single user, or turned or a penny in profit. I also recognize that while I am the first technologist on the team, I will not by any means be the last and I'm hoping that subsequent hires will be people I consider brighter and more talented than myself. This leads to a set of questions:

What is the role of a CTO in the early stages of a company, and does that role change later on as both the company and that individual matures?

What can I do to best equip myself to step up when the need to officially fill this role arises?

How will I know when the need has arisen?

I've previously addressed the role of a CTO in early-stages in my post Startup CTO or Developer. It specifically answers the first questions about role and how it changes as the company matures. For example it includes the following kinds of things that a CTO should be addressing, but that may not be part of the expectation, time allocation, etc. for a Lead Developer:

How much will it cost to build what we need to build? How can I control costs but effectively get stuff developed?
How can we phase development to balance cost, features, risk, etc?
What options do we have? How do we balance those options? What makes the most sense for us?
Given likely market changes, how will we design and build so that the systems can respond to marketplace changes?
How do we need to structure the systems to get ahead and stay ahead of the competition?
What are the biggest areas of technical risk? How can we address this risk?
What technology research is required?
What technologies will we use? What existing systems will we leverage, what programming languages, software development methodologies, web application frameworks, revision control systems, etc.?
What other kinds of systems will we likely need? Accounting? Reporting?
What are the important security considerations? How do we balance concerns vs. cost?
Where are the likely future integration points with other systems?
What areas of the application are likely sources of scalability issues? What kinds of spikes in traffic could we have? How will we address these without significant cost?
How are we going to manage the product roadmap? Make sure we make short-term progress, but not at the expense of longer-term objectives?
What do we build in-house or outsource? What parts might we do off-shore, on-shore, in-house? What does the staff need to look like over time? When will key hires come on?
What other kinds of capabilities such as graphic design, user interaction, product manager, QA will we need? Who will do that? Who’s responsible for what portions?
How will we find and interview developers?
How do we motivate and manage developers?
What do we need to do to make sure we can survive technical due diligence by investors and partners?
What specific technical innovations might make sense?
What can we build that might be protectable?
What metrics are going to be the key startup metrics and how do we get those metrics without too much cost?
Where and how will we host the systems? What’s our purchase, licensing, SaaS strategy?
What other CTOs can I ask about complex questions to see how they’ve addressed these issues?

If you are a Lead Developer now and want to grow into a CTO role, there's some good news and bad news. The good news is that many of the founders that I talk to who are trying to find the lead developer want someone who can grow into the CTO role. The bad news is that there are a couple of things working against you making the transition.

Startups tend to focus on immediate development needs, getting product out the door, and are often short-sighted. Then the Founder/CEO and the investors wonder why the above questions are not being addressed. They attribute it to lack of knowledge and skills rather than focus. Result => "We need to bring in a CTO."

Startups either grow or die. If the startup lasts into a few rounds of investment, the rounds get larger, and the team grows. A skills gap will emerge. The lead developer who's used to leading a team of 3 will have a much different job trying to lead 40. In fact, it's likely the case that it's better to keep the lead developer leading a small team to get product out the door. It's also the sad fact that there's often a desire to bring someone in who has a bigger reputation and likely experience with larger startups that have gone through M&A or IPO. Again, both of these will lead to => "We need to bring in a CTO."

There are definitely cases where the lead developer grows into a CTO. However, I will say that there are MANY cases where the initial lead developer does not turn out to be the CTO of the series C/D startup.

What can you do to position yourself to make the transition?

Here's a dirty secret about most startups. Unlike some larger, more mature organizations, most startups don't spend much time or effort helping grow their employees beyond the immediate needs of the startup. Whatever the startup needs in the near-term is what the focus will be. When they recruit you, they should tell you about what you will learn, but it will be focused on technologies and skills that they immediately need for the success of the business.

In the world of startups, it's critical that each person takes responsibility for managing their own career.

But that's most often not the case. In How to Level Up in Your Career as a Startup Software Engineer, Pete Soderling points out something that's a bit of a dirty secret in the world of startups:

Many startup software engineers don’t take proactive steps to manage their careers.

Learning, Networking, Mentors

From the question, this person is clearly looking at the issue of how to grow into this role. Likely one of the bigger challenges is simply not knowing what you don't know. Towards this, I believe you need to seek out continuous learning opportunities.

If you are the senior most development leader, often there are organizations locally that you can get into where you can meet peers. Here in Los Angeles, it's the LA CTO Forum - a private, invite only group of 250+. The brain power of this group is amazing. And it's quite common for people to get together outside of meetings to discuss issues they face and/or to seek a kind of mentoring relationship. Finding an informal mentor or two would be a great way to be able to continue to focus on this and make sure you are caught unaware.

This group may be a bit unique, but in every geography there are lots of industry and technical organizations where you can seek out similar kinds of people. You could even use LinkedIn. I believe you will find lots of CTOs quite willing to help you as a mentor.

In addition to networking, I would suggest that formal learning is a great idea. This can take the form of a local university, online courses, going through relevant books, etc. The key here is to begin to avoid technology specific content and instead focus on management skills. This is likely your bigger gap.

If you are seeking to ultimately be the CTO of a larger startup, it may make more sense to join an existing larger startup and learn from that CTO. The size of the startup makes a huge difference in terms of the challenges the CTO faces.

Make sure you are continuously looking at the business and customers. Get in front of customers as often as you can. Engage heavily on the business and product.

Allocate your time differently so that you focus on the issues that a CTO will be looking at:

strategy
communicating options and influence rest of leadership team
build/grow/direct/motivate team
financials/budgets

You'll note that a lot of the skills and focus of a CTO are around communication, business, management, team. This is often a major factor in determining that transition.

I'd be curious what other advice people have.

Startups and a Common Misunderstanding in Agile Software Development

2012-06-26T08:01:00.000-07:00

I've done four Free CTO Consulting Sessions in the past month with startup founders who all had run into variations of the same problem. They didn't feel they had visibility into timelines and costs for development of their software. They couldn't plan their business. Investors and early customers were becoming worried about the ability of the founder to deliver.

In three of the cases, the founder was finding that the software teams (1 in-house, 2 outsourced) were delivering relatively well in the short-run. The teams involved didn't seem to be exhibiting many of the Symptoms of a Weak Development Team. The primary problem was that there always seemed to be a lot more that needed to be accomplished such that the big picture of what needed to get built was going very slow as compared to expectations. As one founder put it:

We keep iterating over relatively the same features and functions. We are finding and fixing bugs. Making small changes. But I'm now 4 months in on a release that was supposed to be done in 2 months. And we are not even moving yet on the the next big release that I have to have to get my next round of funding.

In the fourth case, the founder was getting ready to sign a very large contract, but they didn't feel they had much visibility into what was going to be delivered. Instead, what they had was a contract that promised Agile Software Development with Rapid Iterations and an incredibly vague list of features. My belief is that you shouldn't sign that contract. You are just setting yourself up for problems. Actually, you are setting yourself up to be in the situation of the two founders that had outsourced. They had both signed similar contracts and I'm not sure what's going to happen because clearly the outsourced developer is not delivering on the contract in terms of big picture features and functions.

In all four cases, I would claim that what's at fault is a common misunderstanding in Agile Software Development. In particular, there's a tendency among many people executing an Agile process to focus on the short-term (Sprints, Iterations) and to forget planning and other big picture aspects. There are many different Agile Software Development methodologies, but just about all of them have a strategic level element that focuses on the larger picture of the product.

Below are some pictures of Agile Development and you'll notice that each has a starting point of the big picture.

No matter what a developer implies or acts like, there is planning in their Agile methodology.

Of course, what's really at issue here is:

How much time/effort should be spent defining things that are farther away in terms of development?
How do we avoid continually iterating on a small set of product features/functions and lose progress on the bigger picture?

Level of Detail

So how deep do we need to go on features that are farther in the future? Enough to have an estimate of the scope of the item. I can hear the groans from all my fellow technical folks - we hate estimating things. So why do I say this. If you can't estimate it, then it's not defined well enough and you are just punting on getting it defined. I'm not saying the estimate has to be exact, but a reasonable range is needed.

I'm okay with splitting functions off into near-term and future. A classic example might be "reporting" as a feature item. What probably will happen is to define some early reports that will have more specific estimates. Then as it gets into the distant future (12+ months out), it can be much fuzzier.

Why do I need this? We are trying to establish the big picture over the next 6 months. And we are using them to set expectations around what's going to happen in terms of the product. If we don't force ourselves to the level of an estimate, we can't really do that and we'll have big time misunderstanding on what's going to get done.

For most early-stage startups the list of product features that are under consideration for a 6 month (or even a 12 month) period is not that big. We are likely talking about an effort of 4 hours to 2 days. In all four of the cases that sparked this post, the founder and the developer were willing to just put a single bullet item on a list (yes, "reporting" was a line item on one of them - ouch) that could have wildly different expectations and they clearly had not estimated these things. In three of the cases, these were in contracts! Of course, even for the internal development team, this is pretty much a contract with your founder.

You don't need a lot of documentation of these items. I personally like the Product Backlog type approach, but with more functional description than user stories (that can be more open to misunderstanding by developers). For example you might be capturing these first in user stories and then into a feature level spreadsheet that link back to the user stories.

You can also look at:

http://www.mitchlacey.com/intro-to-agile/scrum/the-sprint-backlog

and there are tons of examples out there. You will notice that all of them contain high-level estimates along with priorities. This level of understanding only takes a few hours of time to get through. Yes, it might be hard work, but you need to do this or you are setting yourself up for the kind of long-term misses that this post is about.

Unfortunately, there seems to be lots of confusion out there around this issue. Part of this is confusion on terminology around various Agile methodologies and terminology. But a big part of the problem is one of attitude. A great post, Joe Little starts with acknowledging that Scrum and Agile proponents often downplay upfront planning.

... drowned out by Agilists saying "why do you want to do up-front planning?"

... all we 'scrumers' hate up-front planning

Joe points to reasons why proponents of Agile may try to avoid upfront planning including that things will change, so the initial dates/budgets are quickly wrong. But Joe then goes on to point out why it's needed even with the negative attitude that Agile developers may bring:

Help the business make decisions
Team can see bigger picture and understand the tradeoffs
Helps scope down early releases
Team understands the whole project
Leads towards Re-Planning

Also, take a look at:

The bottom line here is that neither the developer nor the founder/business owner should be willing to dodge upfront planning and getting to the estimate level.

Endless Iteration

The other problem that is being experienced is that each week the teams are setting the priorities to focus on bug fixes, small changes/new features around the same basic feature set and not getting to the next set of product backlog items.

Okay, so part of this is a function of the quality of what is being built. If there are a lot of bugs and each bug fix is causing new bugs, then it could be back to a Weak Development Team. In these three cases, I would say that while I would have expected fewer bugs coming through the process with better development of test scripts, the overall symptoms were not horrible. Most of the "bugs" were edge cases that were not really thought about until after the product was pulled together.

The bigger part of this was that the business owners were defining additional features and functions that were needed now that they saw the system running. In two cases many of these were coming from customers using early releases. Some of these changes were important, but the critical question that I raised was:

What is the priority of these items vs. your product backlog items?

Many of the incremental changes and quite a few of the bug fixes were lower priority than moving on the product backlog.

Why were they stuck in Endless Iteration?

They had not accounted for the maintenance and support that comes with release. If you start with an unrealistic picture of what's going to happen as you begin to release, you are going to create a big disconnect between your initial plan and what happens in practice. As a developer, certainly as a CTO, you need to account for setting those expectations appropriately.
They had not gone through a Re-Planning effort - mostly because they really didn't do any upfront planning. If you look at Joe Little's last point about the value of upfront planning, it's setting you up for Re-Planning. In these cases, not only did they have an unrealistic picture of what was going to happen once the software was released, but they continued with their pattern of not planning. So instead of asking the priority of small changes vs. product backlog, they just sat in an endless iteration / maintenance mode.

I would also say that by starting into a process where you don't do big picture planning as you should, it shouldn't be a surprise when you are not making progress against the big picture. You've established that the big picture is not as important as small increments and the team will align with that model.

Los Angeles Startup Events

2012-05-22T08:22:00.001-07:00

I recently posted about the Increase in Early-Stage Startup Activity in Los Angeles. In that post, I mentioned how one of the signals is the big increase in number of startup events and the number of attendees at those events. I realized that it has been a little while since I posted about the Los Angeles Startup Community and so needed to update my list of startup events that will be out of date almost before I finish publishing it.

SoCal Startup Event Calendars

The following three sources are great at finding a lot of the startup events going on in Los Angeles and SoCal:

Even with all of those, they still often don't have all of the different meetings, especially smaller events listed. So, you may also want to go look at:

Los Angeles Startup Events

Here are some of the events and meetups that I've spoken at, attended or at least interest me. Of course, given the size of this list and having kids, I really can't attend a lot of these. So, if you happen to read this and want to meet me, just reach out directly.

Startup CTO Speaking

2012-05-21T08:47:00.000-07:00

Over the past several years, I've done lots of presentations around a wide variety of topics. I was recently asked by an organization, "Tony, what topics can you cover?" I realized that I've never captured topics that I've covered (I'm always willing to look at other topics), nor have I put up my speaker bio. So, here goes:

Dr. Tony Karrer

Over the past 15 years, Tony has been a part-time CTO for more than 30 startups. Most notably, he was the original CTO for eHarmony for its first four years making him partly responsible for more than 4% of the marriages every year. He's also led significant technology projects for a very impressive list of companies including Citibank, Lexus, Microsoft, Nissan, Universal, IBM, HP, Sun, and the list goes on.
Tony has a Ph.D. in Computer Science and taught computer science for 11 years. He is a frequent speaker at trade and industry events.

Select Startup CTO Speaking Topics

Making Sure You Are Ready to Begin Building Your MVP

So you think you're ready to start building your Minimum Viable Product (MVP)? Many non-technical founders miss documenting key features when communicating with their development team. In this presentation, Tony Karrer, a well known CTO for early-stage startups including eHarmony, will take you through the keys points you should consider before building your MVP such as: Features often overlooked when documenting an MVP for developers; Considerations when implementing social features; Understanding important metrics you want to measure; Risks and challenges in developing an MVP.

Building Your MVP as a Non-Technical Founder

Are you a founder who’s got a great concept and needs to get the product built? In this class, Tony Karrer, a well known CTO for early-stage startups including eHarmony, will take you through the keys to successfully getting your mobile/web product built.

Technical Advisors: Why Every Startup Needs Two, How to Find and Work with Them

After talking with several hundred startups over the past few years, there is a clear need for technical advisors to help specify the right things to build, make sure development is done right, plan past the initial MVP, review what is being built and generally cover gaps in the technical strategy and tactics. Tony takes startups through the why and how of technical advisors. Don't do a startup without them.

Ten Lessons from Working on 30+ Startups Over the Past 15 Years

Tony looks back over his experience working with startups and extracts elements that have led to success or failure. Many of the factors are not obvious and include building mystery to drive margin, why boring B2B companies often win but are challenging in other ways, how bootstrapping wins, integrating metrics from the start and many other similar lessons.

Startup Feedback Panelist

Tony has participated on many panels where he can provide real-time feedback to startup founders. Startups provide introductions and Tony and fellow panelists provide feedback in real-time. These are exciting and fun experiences for everyone involved.

Evolving Role of Social Networks for Startups

In this talk, Tony traces the evolution of how startups have leveraged social networks and social media as part of their solutions over the past ten years. Tony provides specific models and suggestions for how startups can leverage social networks for viral growth yet maintain their independence so as not to limit themselves long-term.

Matching for Startups

Having been involved in eHarmony from the start, Tony has naturally consulted with startups who are making matching a core aspect of their product including matching for social networks, careers, clothes, jobs, projects, college, tutoring services, doctors, service companies, investments, and many more. As the web has led to exposure of every increasing numbers, people need ways to filter the possible options. In this talk, Tony looks at where and how matching algorithms can be applied to give significant value to startups.

How Startups are Winning by Wiring into 3rd Party Services and Data

Probably the biggest change over the past 15 years in working with startups is the availability of 3rd party services that can be leveraged as part of a solution. Its common for startups to think about services like hosting/computing, storage, analytics, maps, email delivery and tracking, and eCommerce. However, there's really been an explosion of services over the past few years that gives even greater leverage and opportunity. Possibly even more interesting is the rapidly growing data sources. In this talk, Tony first looks at the landscape of 3rd party services and data. Then, he explores how several startups have leveraged those services and data in interesting ways. He ends by looking at how this might help startups in the room.

Why Software Development Goes Bad So Often and What You Can Do About It

Most likely you've heard the staggering statistics on failure of software projects with different reports showing 28% success rates. Tony is often called in after projects have reached a critical situation to try to help fix the problems such as blown budgets/schedules, poor quality code, never quite getting the last 10% done and other symptoms. Unfortunately, for startups, the situation is often dire. Development dollars have been spent and the system is not going to be able to be used for the business.
As a Startup, you have one shot. What are you going to do to reduce your chance of problems and maximize your chances of real success? What is the root cause of all of these problems? How do you know if you may have issues? What parts Agile addresses and the big problems with Agile for early-stage startups?
This presentation may make the difference between success and failure in your startup.

Metrics-Driven Startups

Virtually every startup has a model that has critical aspects to it that will make or break the business. What is our lifetime customer value and how can we drive that up? What does it cost to acquire a new customer? What is our viral spread coefficient?
The key for most early-stage startups is to understand the core metrics for your business, ensure you have visibility into those metrics, and then optimize the business around those metrics. In this talk, Tony talks about the importance of these metrics for you and your possible investors, how startups typically gather these metrics without spending a fortune on reporting, and provides examples from eHarmony and other startups that may surprise you.

Stupid Things Founder Say - How to Work More Effectively with Techies

Software developers and other technical people are part of a very interesting club that has its own language, very specific rules, secret handshakes and, yes, they definitely talk behind your back and laugh at things that you say. Unfortunately, once you've lost the respect of your technical team, it makes it hard to get work done and frankly becomes frustrating. If you are not part of the club and don't speak the language, how can you work effectively with them?
Tony has been bridging that gap for 15 years with companies of all shapes and sizes. In this talk, he helps you understand what you might be doing wrong today and how to change things to work with techies more effectively by understanding their motivation and getting yourself smart enough on critical items.

Startup Surge in Los Angeles

2012-05-14T08:47:00.001-07:00

Ben Kuo just posted on SoCalTech:

Are the good times for startups back?

That seemed to be the mood running through the cloud at the more-than-sellout crowd at the Fairmont Miramar in Santa Monica Thursday at the first LA Demo Day. At the event, the enthusiasm for startups was palpable. The crowd of more than 1,500 spilled out into hallways, and would-be investors were turned away from the doors, as a crush of entrepreneurs, investors, service providers, wanna-be entrepreneurs, and others looked to be part of the surge of startups emerging in Los Angeles.

Certainly it feels like there's been a recent surge in Startup activity here in Los Angeles and as well nationally. My two big data points are:

What's happening in the Los Angeles Startup Events such as popular events like LA Demo Day.
Increase in the number of inquiries I've been getting for: Free Startup CTO Consulting Sessions and/or other similar kinds of inquiries.

It has gone from 2 or 3 a week about a year ago to more than 5 per week.

A lot of this action is early-stage startups and it's not clear to me how all of this will shake out given how hard it is for VCs to raise capital right now.

Are others seeing this as well?

CTO Salary and Equity Trends 2009-2011

2012-04-18T09:00:00.008-07:00

Todd Gitlin of Safire Partners - a go to resource here in LA for recruiting C-level positions at startups - was nice enough to compile some data again this year (see last year's Startup CTO Salary and Equity Data and Equity for Early Employees in Early Stage ). Even better, my good friend and data visualization guru Steve Wexler of Data Revelations was able to create visualizations of the data.

Here's a live version of the data and below it is a bit of analysis of the trends.

I'm showing snapshots below. I would be very curious to get reactions to what people find in the live data.

CTO Salary and Equity Comparison

My guess is that most people who come here are going to be Founders, CEOs and CTOs who want to compare salary and equity of the CTO Position in their organization vs. their peers. Or they are looking at Hiring a CTO and want to see what salary and equity ranges look like.
Well the easiest visualization to use is to go to the Benchmarks Tab.

You then make selections around aspects like Founder Status, Job Title, Headcount, Revenue, Development Stage, Capital Raised, Funding Round, etc. If you get too specific, then the counts will get very small and may not be the best comparison. You can also enter salary and equity data to see where you stand.
As was pointed out in last year's post, generally there's as companies get older, have more funding, revenue, headcount, maturity:

Salaries go up
Equity percentage goes down

Trend #1 - Sizable Salary Increases

I've been talking for a while about the increasing demand for CTOs the past few years and a similar challenge in finding developers in Los Angeles. What I had not realized is that this had translated into escalating salaries for CTOs and VP Engineering. I was expecting that over the past few years, the pressure on VCs maybe had translated into lower salaries. It has not.

I tried slicing this a few different ways, but in virtually every case the trend is clear. CTO salaries are escalating quickly.

Trend #2 - Early Stage Companies Lower Salary and Higher Equity (for Founder CTOs)

The one exception to Trend #1 seems to be for Startup CTOs at earlier stage companies. If you look at the year-over-year trends from 2009-2011 for companies that have raised less than $10M:

and another chart that is only startups with Seed or Series A according to development stage:

To me this is a very interesting set of trends that I would not have guessed without seeing the data.
Anyone else a little surprised? Or seeing something else that's interesting?

Hiring Developers Before Product/Market Fit?

2012-04-02T07:52:00.000-07:00

Using my StartupRoar as a radar, I came across a great post by Gabriel Weinberg Do you really need a full-time hire for that?

Hiring seems to be the preferred use of seed funds (by investors and founders), whereas I'd prefer a focus on customer acquisition.

....

The problem is you don't yet have product/market fit, and until you do, you don't really know what to build. And that should be the focus of the founders -- to find the special fit that will make your company take off. When product vision is truly clear, then it makes sense to execute it, and hiring follows.

In the mean time, if you need some extra help, get some contractors to test out specific things. You may end up hiring these people eventually and you'll know more about them when you do.

I'm not sure I'd carry the argument quite as far as Gabriel does, but I completely agree with his central premise. When I talk with early-stage companies, often the discussion starts with them asking me about Hiring a CTO for Your Startup, or Finding a Technical Cofounder for Your Startup or How to Find Programmers for Your Startup. In other words, they come in asking for help with sourcing and hiring. These companies are very early-stage and definitely have not shown product/market fit. Far from it.

In many cases, during my Free Startup CTO Consulting Session with them, we discuss where they are in in the process. They are very early. They need to determine product/market fit. They need to conserve cash.

The startup founder is definitely not ready to hire a CTO. And in most cases they are not ready to hire developers either.

Instead, what they should be considering is how to bridge the Startup Founder Developer Gap and exactly what they need in terms of Startup CTO or Developer.

They most often really just need either a Part-Time CTO or Technology Advisor, and then some combination of hiring and/or outsourcing (on-shore or off-shore). The Part-Time CTO or Technology Advisor will be able to help make that determination.

Of course, there's still hard work to be done to as the bad news is that its hard finding good Web Development in Los Angeles and certainly its tough Finding Developers Here in Los Angeles.

Great post Gabriel!

Finding a Technical Cofounder for Your Startup

2012-03-12T11:00:00.001-07:00

I've recently received several emails from people looking for a technical cofounder for their startup. I promised I would write this post with some thoughts and ideas on the topic. Here's an example of that kind of email.

"I'm looking for a partner / cofounder who can not only head the technical aspects and build a working model of the site, but someone with the connections to put a great development team together when we need it. "

Typically, this requires quite a bit more information for me to be able to respond and provide real help. I've talked about that in lots of other posts, so you can visit some of these to help determine what you specifically need:

Key ingredients in the equation are:

How complex is the system? - Make sure you go through the 32 Questions Developers May Have Forgot to Ask a Startup Founder.
Do you have dollars to pay for development?

Okay, so now you have it narrowed down and have determined that you need:

Part-Time CTO or Technology Advisor to help guide you and close a bit of the Startup Founder Developer Gap, and
Equity-Only Cofounder Developer - the first real developer that will work for equity and produce the bulk of the application.

Of course, you will want to figure out a bit more about the specifics of what this developer needs to know vs. can learn. Your technical advisor can likely help.

Before you go out looking for your Cofounder, you should also be thinking about what will motivate them as I talk about in How to Hunt Programmers for Your Startup - A Field Guide.

The bad news is that Finding Developers is Tough Here in Los Angeles and even people willing to pay have a hard time finding Web Development in Los Angeles. Of course, you are looking for something a little different - a technical Cofounder. The bad news is that they can get a good paying job anytime. The good news is that likely is not what they want.

Where to Search for the Technical Cofounder

So where might you run into the right person? Here are some ideas:

In your company or other companies. Find the developers in your current company and other companies that you can get inside. Get to know the developers. Find out who is good. Ask your friends to do the same. Take lots of them out for free coffee, food, beer. Ask them about your concept.

Tech Events / Meetups - In Los Angeles, There are lots of Networking Events in Los Angeles and Southern California that are techie oriented. You should definitely hit up the Startup Weekend events as well. And look at StartupDigest.com for lots of startup oriented events.

Make sure you meet the people who run these events. They often can help a lot in navigating to expertise and to possible resources.

Student Groups - Go to the local university and find out what student groups there are for programmers. Ask around for ideas on where they hang out.

LinkedIn - This remains one of my primary tools. It's a bit hard to use to find a cofounder, but I would certainly go ask everyone I know to introduce me to programmers they know. And then use them to get to even more.

Twitter - You can run searches for various types of techie terms being used in a given geography. Follow them and reply to introduce yourself.

Befriend Recruiters - Most recruiters will not be happy I say this as they generally don't like talking to people in this situation, but they still often will have lots of ideas for where technical people in your geography hang out.

Sites - There are a bunch of sites out there aimed at this or similar issues. Most of them suffer from lack of activity, but it's worth a shot. Some sites to check out:

CoFounderNetwork.com
PartnerUp.com
Namesake.com - more of a social network, but still a good way to network
TechCofounder.com
Foundrs.com
Startuplinkup.com
Cofoundrs.com

You can try finding folks via

Oh, and often there are forums for particular technologies where you can look.

Here are a few perspectives on the topic of finding technical cofounders:

In Building a sweat equity team, Joel on Software tells us:

You simply need to network. Go to user groups. Go to tech (or other relevant industry) events. Refine your elevator pitch. Eventually you'll catch the ear, the vision, of someone who would like to jump on board, and has something you need in return.

A great post by Elizabeth Knopf , FounderDating: How I Found My Co-Founder where she breaks down the process much like how you think about a sales process. I'm focusing on the sourcing ("lead gen" on her slide) aspect.

In Please, please, please stop asking how to find a technical co-founder, Jason Freedman tackles this a different way and suggests how you "earn a technical cofounder" along the lines of:

Learn to Code
Build the Front-End
Test on Paper
Build a Following
Spend Some Money

Here are a bunch of other articles on the topic of Cofounders.

How Much Equity a Technical Cofounder Should Get

6 Ways to Find A Technical Co-Founder

Places to Find Developers in Exchange for Sweat Equity

How To Find A Programmer To Build Your Startup Idea

Bootstrapping a Lean Startup

Finding a Technical Partner for Your Startup

Finding Your Co-Founders

CTO Equity - Negotiation After Funding

Startup CTO Salary and Equity Data

Hiring a CTO for Your Startup

How to Hunt Programmers for Your Startup - A Field Guide

How I Found a Great CTO

We have a CTO, and so can you!

Why Your Startup Can’t Afford To Hire a CTO

Advice for CTO Founders: Don't Let Business Kill the Business

The Different CTO Roles

Why Your Startup Can’t Afford To NOT Hire a CTO

HOW TO: Hire the Perfect CTO

Finding a technical co-founder: You’re doing it wrong

How to find a technical Cofounder

Technical Cofounders are Overrated

A Minimum Viable Team is more important than a Minimum Viable Product

7 Startup Co-Founders That Can Lead to Conflict

What is the best way to divide up ownership in a startup?

Ten Steps in Choosing the Right Startup Partner

Lockboxer CEO: You Don’t Need A Technical Co-Founder To Start A Web Business

How to pick a co-founder

The Co-Founder Mythology

Finding Your Co-Founders

Spencer Fry — Picking Your Co-Founders

Do I Need a Co-Founder: The 90/50 Rule of Startup Founders

How To Work Better with Your Co-Founder

How Do I Know You Are Mr. Right (Co-Founder)?

Why you can('t) recruit a technical cofounder

AskBob: Where do I find developer cofounder?

Things to Avoid When Recruiting Co-founders

Finding Technical Cofounders Is Hard

Need a Technical Co-founder? Hire a Product Design Lead First

Nailing that elusive technical co-founder

StartupRoar Adds Personalized Subscriptions

2012-01-05T14:33:00.001-08:00

Aggregage, the platform that powers StartupRoar has added a powerful personalization engine. That means that the site now allows users to sign-up and have their content personalized based on their interests.

You can sign-up via the "Personalize Your Content" button on the right side of the interface shown to the right of the red arrow below.

By the way, I should point out that the four top articles on the site when I took the screen shot were all great:

The Long Grind Before You Become an Overnight Success- Vinicius Vacanti, September 12, 2011
Hacking Angel List | VentureArchetypes Blog: Seed Stage Capital- Seed Stage Capital, July 13, 2011
Hiring a CTO for Your Startup- SoCal CTO, April 27, 2011
Competitive Research 101 for Startups- Instigator Blog, August 30, 2011

It's what I love about the site. It always has great, fresh content from a wide variety of industry professionals. Every time I visit it, I find something that I missed that was really good content.

Now with personalization it's even better. The picture below gives a sense of what's happening:

Curators handle finding the best sources of content. The system then uses social signals such as those coming from Facebook, twitter, LinkedIn, delicious as well as clicks and views. These are compared to averages for the source and also looks at who is providing the signal, how often they signal things, how often they signal for that particular source, etc. Those aspects existed before and it does a good job of finding great content.

What's new now is that the site allows you to sign up and provide your Twitter and LinkedIn information. The site will look at your activity on these sites and the content of what you share. It will use that to find interests as well as to cluster you with other users who are like you based on interests and sharing. You can partially control your interests via the Subscription page as shown below:

This will change over time based on your LinkedIn and twitter activity. You can always visit and manually select interests as well. You can read a bit more here: Personalization Explained.

The system then can combine three pieces of information to figure out what will be most interesting to you:

Social signal score – are people in the audience finding it interesting
Topic match – does it match up with your interests
Like sharing – are individuals who are like you sharing this

The system uses these to both rank things on the site and to generate Daily and Weekly newsletters.

The reason that I'm most exited about this is that I partly use StartupRoar to make sure I don't miss things that is good content that is relevant to me. Now with personalization, it is even less likely that something will sneak by.

I also personally like the format of the new newsletter.

Give it a try and let me know what you think.

Registration Form Design with Facebook, Twitter, LinkedIn Authentication

2011-10-24T10:39:00.001-07:00

I continually face the challenge of designing and building registration / sign-up pages on a wide variety of different web sites and mobile applications. Back in January 2010, I wrote a post that's one of the most popular on this blog:

When to Use Facebook Connect – Twitter Oauth – Google Friend Connect for Authentication?

That post looked at when and why you would use Facebook, Twitter, LinkedIn, etc. as part of your registration and authentication mechanism. While some technical aspects in the post quickly changed (e.g., Facebook changed its data caching policy), many of the issues remain the same. It's definitely worth a read if you've not seen it before as background for this post.

Design Challenge

In this particular web site, we needed to get the user's email (and password). We also wanted users to provide information about twitter and LinkedIn to help personalize the application. At first it seems like this should be pretty easy to design - think again.

Here's a classic example that illustrates the issue - the sign-up page from Mahalo.

Mahalo offers you the choice of sign-up / registration via a host of social networks (powered by JanRain). They tell you the other option is to provide your email and password.

At the heart of this is two main advantages of having social network sign-up / registration.

Allowing the user to click on the Sign-Up / Register via a social network such as Facebook, Twitter, etc. means faster, easier sign-up and increases the likelihood of sign-up.
By having the user sign-in to twitter or Facebook, we can ask for permissions to tweet or post to their wall or other social actions on their behalf. We also can get access to their social graph.

For some solutions, it's sufficient to just have authentication via the third party, but in my experience it's pretty rare to have that be the only mechanism used during a sign-up process for a startup.

In my prior post, I point out two major downsides of relying only on registration via a third-party social network:

Multiple Social Networks. If there are multiple social networks offered, returning users may not be recognized if they click on a different social network. In other words, the first time I sign-up with Facebook. At a much later time or on a different computer (no cookies), I come back and try to sign-in with Twitter. The system won't recognize me.
Email Address. The other problem is that only Facebook currently allows us to grab an email address. If you want an email, you will need to either limit your sign-up to be Facebook only, or you will need to ask for an email address after their initial sign-up. In other words, you are likely still going to go through the registration that's on the right side of the Mahalo sign-up page.

This is exactly what Mahalo ends up doing. I signed into my twitter account and gave them permission. But now Mahalo must come back and ask me to either establish my account (New User) or sign-in as an existing user.

As a user, this feels a little strange. I first click on the register or sign-up button. I am presented with a choice of using a social network to sign-up OR providing my email and password. I choose a social network, but then I'm forced to put in an email and password anyhow. Huh?

I've tried a few times to design around this and do something else, but it doesn't really work out in practice. And you will certainly see this design pattern all over the place. Here's XYDO's sign-up box:

It's behavior is a little different, but also a bit funny. At first it seems like I can sign-up with Twitter or Facebook. However, if you sign-up with twitter, it puts a check mark next to it and leaves you on this page still requiring you to enter your name and email address. Even with Facebook, where you can get a name and email, it still needs to ask you for your user name and password.

StoreEnvy has a sign-up with Facebook option on it's first page. It grabs your email. But it still is left asking you for more.

Bottom Line

In our case, we were designing an application where we needed to get the email and password, but we also wanted to get users to authenticate with LinkedIn and Twitter in order to get information about them and their social networks.

At first we tried down the same path as Mahalo. We provided a sign-up page that had an alternative of signing up with a social network (twitter or LinkedIn) OR signing up by providing an email and password. However, we ran into the same problem as Mahalo where our second page was then asking for more social network information and the email and password. The confusion factor was just too high. So, we went back to a more basic design.

Up front, we have a well designed sign-up / registration form. You can see a bunch of great information on designing these forms in the following posts:

The second step of the sign-up process asks the user to authenticate to their Twitter and LinkedIn accounts. This is more along the lines of a multistep sign up using a progress tracker.

In our case, the steps are:

Step 1 - Get email and password
Step 2 - Get social network information / authentication
Step 3 - Confirm additional information

I personally think this is a more "honest" approach and makes it much more clear to users what is going on.

Customer Validation - 33 Great Articles

2011-10-06T12:31:00.001-07:00

I saw a great post from Tristan Kromer Pivoting on Investor Feedback a.k.a Beware of Mentors. It was a top post on StartupRoar on Tuesday. His basic point was:

If someone, including me, tells you something isn’t a great idea and there’s no market for it there are only two acceptable responses. Either:

"That’s interesting. I’m going to take that thought out into the field and validate it with my customers."

OR…

"You’re wrong. I’ve spoken to dozens of customers, I have a validated customer persona, built an MVP to test key behavioral hypotheses, and the data doesn’t back what you’re saying."

Today I had two conversations with early stage startups (see Free CTO Consulting). In both cases, I was the mentor telling the person that the idea, as I understood it was "not great." One was an enterprise software product. The other was a consumer play with possible viral growth. Neither felt like a slam dunk. Would it take more work to sell the enterprise product than they could make on it? Would the consumer one get traction and be viral? In both cases, my gut said that as framed it needed work.

In both cases, the founder and I brainstormed on ways to shift the product in order to get closer to what I perceived as something that would be great.

Neither had done enough customer validation to be able to say the second line that Tristan suggested. There certainly had not been enough validation of the concept as it stood. I would guess that most people who are providing feedback on your idea have a pretty good filter for what you have done to validate the concept. If you've not Done Your Homework, it will be obvious.

In both cases, the answer was that the founder would go to find other ideas, turn those into paper descriptions and validate it with customers. Customer Validation 101. And that's the first response that Tristan suggests.

Now some helpful articles on Customer Validation, Customer Development, Lean:

Equity for Early Employees in Early Stage Startups

2011-09-27T07:03:00.000-07:00

I was asked by a reader how much equity he should give out to early employees and to service providers in a very early stage startup. I'll get to service providers in a later post.

Founders vs. Early Employees

To help with this discussion, let me start with a definition of "early employee." Steve Blank divides the individuals associated with startups as:

Founders
Early Employees (Employees # 1-25)
Later Employees (Employees # 26-125)

The reality is that the definition of founder and employee is not clear. The first few people into a startup are on a spectrum of founder vs. early employee. Founders are likely not paid for a long time and have a sizeable equity percentage for early risk and having the concept. An employee is later, has a greater portion of compensation as cash, has lower risk, and generally does not bring as much to bear in terms of the concept.

Early Employee Equity is an Art

I somewhat agree with Fred Wilson in Employee Equity: How Much?

For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. Getting someone to join your dream before it is much of anything is an art not a science.

Equity Formulas

While it's somewhat an art, there has been a lot written about how you can look at equity compensation.
Paul Graham provides what is roughly the core formula for equity at any point in The Equity Equation:

You can use the same formula when giving stock to employees, but it works in the other direction. If i is the average outcome for the company with the addition of some new person, then they're worth n such that i = 1/(1 - n). Which means n = (i - 1)/i.

For example, suppose you're just two founders and you want to hire an additional hacker who's so good you feel he'll increase the average outcome of the whole company by 20%. n = (1.2 - 1)/1.2 = .167. So you'll break even if you trade 16.7% of the company for him.
Let's run through an example. Suppose the company wants to make a "profit" of 50% on the new hire mentioned above. So subtract a third from 16.7% and we have 11.1% as his "retail" price. Suppose further that he's going to cost $60k a year in salary and overhead, x 1.5 = $90k total. If the company's valuation is $2 million, $90k is 4.5%. 11.1% - 4.5% = an offer of 6.6%.

Of course, to be able to use this kind of formula, you will need to be able to determine how much impact the person will have and figure out a valuation. I've talked about this topic before in How Investors Think About Valuation of Pre-Revenue Startups, and CTO Salary and Equity Trends 2009-2011. You can also take a look at StartupRoar's topics: Startup Valuation, Pre-Money Valuation, and Early Stage Valuation.

Same Value for Sweat Equity as Investment Dollars?

Jason Cohen in How to think about cash vs. equity compensation (definitely read the comments) provides similar kinds of formulas. The key in his approach is that equity compensation should be viewed the same way that you view investment. In other words, the loss of compensation for the early employee as compared to market rate should be viewed as equivalent to the equity for that same dollar amount from an investor.

Logically, that's correct, but I personally would put a risk premium on equity compensation. I also believe that early employees should be bringing higher value than early investor dollars as they can and should contribute to the concept greater than an investor. They are partially rewarded by the increase in value of their equity. But their contributions raise the value for everyone. I believe that Paul Graham's core formula takes that into account.

Ben Yoskovitz gets to a similar point In Changing Equity Structures for Early Startup Employees:

The more that those first employees feel like founders in terms of their ownership, emotional attachment, responsibility and overall understanding of the startup process (including financing, running day-to-day activities, etc.) the better the startup will be.

David Beisel puts it another way:

Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.

Of course, all of that assumes that the early employee does make an impact.

Risk Premium on Equity Compensation?

While Jason Cohen suggests that investment cash and sweat equity should be viewed the same, quite a few people suggest that there should be a risk premium for early employees at early-stage startups. A risk premium is a multiplier that says that any equity compensation should be viewed as being worth less than cash for that employee because of the risk.

The risk premiums that I've seen vary widely with seemingly camps of:

None - like Jason
20-50%
3x - 4x

In a way, suggesting there should be a risk premium is just arguing over valuation and expected return. There's also the aspect that the equity that you typically get as part of equity compensation is behind other equity in preference and thus effectively has lower value.

But the more important rationale is raised in the following about why employees most often do not have significant outcomes even in fairly positive liquidity events.

Memo to CEOs And Founders: Share The Love

Consider the proceeds of a $50-million acquisition for a 100-person company that has raised $14 million with a typical liquidation preference:

Because of the liquidation preference, the investors get $14 million right off the top. The remaining $36 million is divided according to equity ownership.

Investors own 50%, and get $18 million, split between two firms

The two founders own 33%, and split $12 million

The 3-person executive team, including a CEO if one was hired, owns 10%, and splits $3.6 million. The team gets another $3 million as a severance payment or an earn-out, to sweeten the acquisition offer.

The remaining 95 employees split 7%, each earning $27,000. Unlike the founders, the employees have to wait until their grants vest, working at a company no longer of their choosing for two years.

Is it Time for You to Earn or to Learn?

You get 1%, you sell for $150 million and it’s in 3 years (e.g. you won the lottery). That’s an after-tax gain of $287,500 / year for 2 years. Not bad. Doh! Wait a second. Stock vests for 4 years. You didn’t get acceleration on a change of control? Sorry bud. We’ll have to either cut your earnings in half to $143,750 or you’ll have to complete 2-years at BigCo that bought you making the money spread out over 4 years so it’s $143,750 / year for 4 years.

The reality is that an early employee in a pre-funded startup that eventually raises a few rounds of capital will be diluted significantly, is down the line in preference, and will likely be locked up for a while to harvest it. And that's assuming that it's a fairly positive outcome. If it's anything less that positive, preferences will mean they get nothing other than what's required to keep them working if that's needed at the acquiring company.

Sample Equity Numbers

I personally always like to see some actual numbers rather than basing things on formulas. Because of the Art aspect of early employee equity, I had trouble finding much in the way of numbers for that specific aspect. I did find a few things for later points.
Wilson Sonsini and DFJ Gotham Ventures:

The Option Pool Shuffle:

Title Range (%)

CEO 5 – 10

COO 2 – 5

VP 1 – 2

Independent Board Member 1

Director 0.4 – 1.25

Lead Engineer 0.5 – 1

5+ years experience Engineer 0.33 – 0.66

Manager or Junior Engineer 0.2 – 0.33

It's important to note that this is all post Series A. If the company is pre-funding or only has a small friends and family seed round, then the numbers should go up from there based on expected dilution and greater risk.

You can also look at some data around this in Startup CTO Salary and Equity Data at some specific numbers at different stages

Where I Come Out

Again, like Fred Wilson says, early employee equity is more art than science. I would look at the individual involved and factor in:

Domain expertise
Connections
Experience with related ventures
Ability to make significant contributions
Replaceable - are there lots of other people out there who can do the same thing.
Part-time vs. Full-time - doing something on the side is less valuable

In other words, if I find someone who's willing to dive-in, who's going to significantly contribute to make the company a success and it would be hard to get anyone else, then I would provide significant equity, most likely an equity premium. If this is a junior level developer, then likely you can provide significantly less equity. The example numbers above bear this out.

Oh, and one last thing, make sure you figure this out upfront, you have it vest, you have ways to get it back, etc. There's a lot of advice out there on structuring equity compensation agreements. Go read up on that and do it right.

More Resources

There's a lot out there on this topic that's well worth reading.
Equity Compensation at a Startup is a Big Gamble

The bottom line is that you shouldn’t even think about joining a startup, stock or no stock, unless you believe in it and are ready for the adventure of your life.

Splitting Startup Equity for Your Piece of the Pie
Equity-Only CTO and Equity-Only Developers
CTO Equity and Compensation at Venture Backed Companies
Visualization of Startup CTO Equity and Salary Data
CTO Equity - Negotiation After Funding
What is the best way to divide up ownership in a startup?
How To Calculate Sweat Equity
Startup Equity For Employees
A VC: Employee Equity: How Much?
How to figure out what those VC terms mean for your equity
Make Sure Sweat Equity Vests
How To Allocate Founder and Employee Equity
Is Dilution Considered When Talking About Equity Ranges?
How much equity for investors and employees?

NDA Stealth Mode and Sharing Your Startup Concept

2011-09-20T07:26:00.000-07:00

One of the readers asked my opinion around sharing your startup concept:

My first question has always been - how do you protect your idea while shopping around for feedback, partners, developers, etc.? Especially if the idea could be whipped-up by a few 24-year olds in a few weeks?

Lots of thoughts here. First, if your idea really is something that a couple programmers can whip up in a few weeks, then you may not have much of a business here. But let's leave that aside for a minute.

My basic claim is that you MUST HAVE LOTS OF EARLY CONVERSATIONS. As Chris Dixon says in Why you shouldn’t keep your startup idea secret. He tells us you'll get the following benefits from talking to lots of people:

There are lots of benefits to talking to people. You’ll get suggestions for improvements. You’ll discover flaws and hopefully correct them. You’ll learn a lot more about the sector/industry. You’ll learn about competitive products that exist or are being built. You’ll gauge people’s excitement level for the product and for various features. You’ll refine your sales and investor pitch. You might even discover your idea is a bad idea and save yourself years of hitting your head against the wall.

Niel Robertson in The Stealth Mode: Trada’s Position on Staying Stealth captures the basic communication needs of early stage startups pretty well:

In the beginning there are three basic things every startup needs: experts to give you input on your product as you’re building it, users to help you beta test your product in a real-life setting, customers who will give you real money for what you’re building and take real risk in doing so. You need all of these people to bake the cake.

He left out capital sources, but it's still a pretty succinct list of the types of people / communication you should be having early stage.

What is Stealth?

What's also interesting in Niel's piece is that he defines Stealth Mode not as not having conversations, but rather he says it's not make public pronouncements. Seth Levine in To stealth or not to stealth says this pretty well:

There are varying degrees of stealth, ranging from companies that won’t tell anyone what they are up to, to companies (like the one I’m referring to)that don’t have a web site and haven’t made any announcement of their business intentions or funding but aren’t hiding what they are doing in daily industry conversations, etc.

The reality is that Stealth is defined differently in each case. What we are talking about is a spectrum of how you restrict early communications around your business:

Who you will talk to including the public / press / etc.
What you will convey in your conversations
What protections you will place on those communications

For example, you might decide that portions of your concept will be controlled more closely (a secret algorithm). This will only be disclosed when there is an NDA in place. But you will be able to convey other aspects freely, even publicly.

How Stealthy Should You Be?

This is going to be fairly specific to the company. I would suggest that it's best to be as open as possible. My general take is similar to Chris Dixon. In that same post Why you shouldn’t keep your startup idea secret where he argues to make things open, he defines only one group of people that you may want to avoid having a conversation with:

The handful of people in the world who might copy your idea are entrepreneurs just starting up with a very similar idea. You can probably just explicitly avoid these people, although by talking to lots of people your ideas will likely seep through to them.

I might also be concerned about taking my idea directly to a large, well funded competitor who is know for innovation. And I probably will not announce detailed specifics publicly prior to creating them. Beyond that, I want lots of conversations with experts, users, customers, VCs, partners, etc. I may decide to hold back some detailed specifics around algorithms. But generally I'm going to favor being open.

Since I fall into the expert category, my belief is that you should be pretty open with me. Startups that come to me and ask me to sign an NDA in order to get Free Startup CTO Consulting really are missing it. And getting into a discussion but not being able to tell me about your business also hurts you. "We are doing something in mobile advertising." Ummm ... "Good luck with that." What can I say.

I like how Mark Suster handles the question in 10 Marketing Lessons for Early-Stage Tech Startups. Definitely take a look at he suggests you balance the choices.

I also will point out that in the The 15 Mistakes of First Time Entrepreneurs:

9. I don’t want to share my idea because someone might steal it – the benefit of sharing is greater than detriment- investors won’t sign an NDA.

And there's more via StartupRoar in Stealth Startups including:

NDAs or Other Protection

So you decide you want to be able to share with experts, users, customers, VCs, partners, etc. in order to get the benefits that come from those conversations. You decide what you will convey in those conversations (and what you will not).

Again, relying on StartupRoar this time looking at NDA for Startups, I found some good stuff that you should definitely go through in more detail.

Startup Reality Distortion #3: The Fallacy Of the Non-Disclosure Agreement (NDA)

Don’t rely on an NDA to protect the truly “secret” stuff. It’s likely not going to give you the protection you think it is.

More more via StartupRoar in NDAs for Startups including:

Don't Lead with Protection

I want to close this with one bottom line thought. Please don't make protection of your idea a major topic early in conversations. This is much like condoms. You don't bring the topic up early in conversation. Condoms like protecting your idea can come up naturally later in the conversation. Instead go in knowing what you will share and won't share with this person. Try to be as open as you can, but be prepared when questions reach the border. Simply say that you have some secret sauce in that part of it and aren't prepared to share it. And make sure that does preclude you from sharing enough to make it an effective conversation.

You really should go read Brad Feld's Implied Suspicion Versus Implied Trust. It captures the typical scenario and some of the logic and emotion that goes along with early conversations.

Entrepreneur: Following is an email describing my idea. Since you won’t sign an NDA, you agree that by reading beyond this paragraph you are agreeing not to share my idea with anyone, forward this email to anyone, or discuss the idea without my consent.

....

Feld: You seem to be operating from a perspective of “implied suspicion.” I don’t work this way – I much prefer to operate from a perspective of “implied trust.” Since you clearly don’t trust that I’ll behave responsibly, then I don’t think I’m a good match for working with you.

Definitely read the whole thing.

Startup CTO Resources

2011-09-19T11:39:00.002-07:00

I've posted quite a few things on the topics associated with being a Startup CTO. I've tried to collect them together here as a starting point for this topic. And here are my CTO Speaking Topics.

Free Startup CTO Consulting Session

You can find more here: Startup CTO. And you may also want to review Startup Development.
If you are interested in this topic, I post on it frequently. You can sign up for free email updates using the subscribe box on the right side.

How to Hunt Programmers for Your Startup - A Field Guide

2011-09-14T07:38:00.001-07:00

This post is admittedly the outcome of a conversation with a few people over some beers. Some of it is a bit tongue-in-cheek and certainly we are greatly simplifying things. The people around the table included a bunch of us who would be prey in some situations. So, please take this in the spirit intended.

The conversation centered around a founder who's key question is "Where Do I Find a Developer for My Startup?" In this case, he had a pretty compelling idea, had very little money, and didn't have the capacity himself to build it. His goal was to find a programmer who would come in as an early partner and work as an Equity-Only Developer. The situation is pretty common it got us to riff a bit around how to get programmers to help him build out a proof-of-concept version for his startup. Along the way, this gradually turned into hunting programmers in the wild.

Before You Hunt - Be Prepared

But before I answer the core question, let me address a few up-front questions. Don't go hunting for programmers until you've answered these.

1. Have you done all you can on paper?

Do you have wireframes? Have you tested the concept with customers using paper? Have you signed some test customers? Have you tested what you can without development? Don't try to hunting programmers until you've pushed this as far as you can on paper and get early customers.

2. Do you know the relative effort to build your prototype or minimum viable product?

The relative size of the development effort will make a big difference in your strategy. There's a cutoff point once you reach roughly 3 person months of development time. At that point, you can't really just try to find someone to build it on the side, do equity only, etc. It needs to be funded to be successful. The grind is too much and too long if it gets beyond that size.

What do you do if you don't know the size? Ask a few CTO type people. Or ask me Free Startup CTO Consulting Sessions.

3. What are the key developer skills that are needed?

Is this a Wordpress hack? Is it big data? Deep algorithms? Have a rough idea of what you are looking for in terms of talent. Again, if you don't know you should ask people who will know.

4. Is this compelling to a developer?

Be prepared to sell this to the developer. More on this below.

In the case of the entrepreneur that was the genesis of this post, he had done a lot on paper. He had a few early customers ready to go. The size of his initial build was roughly 3 person months and it wasn't particular complex. It was a mobile app, so he ideally would find someone who had experience with mobile development or someone who could pick up a mobile framework. And generally, it seemed pretty compelling for a developer.

In this particular case, because mobile development is hot, it was pretty unlikely that this founder would find someone with experience with mobile development willing to jump on this. So, instead he was really looking for two people: (1) someone with experience who could spend an hour here and there guiding development, (2) an up-and-comer who wanted to get into mobile development. Did we just make his problem twice as hard? Not really. This will still work if you run into exactly the right person.

Getting to Know Your Prey

At their core, programmers are often motivated by a few specific things:

Solve a problem, create something neat from scratch - basically all of us technical people love to tackle problems. The beauty of programming is that you take a concept and turn it into reality with just typing some stuff into the computer. It's about creation. It's really an amazing beautiful thing.
Learn something new - most programmers love learning new technologies or solving new kinds of problems. They don't want to do the same old thing again.
Food and other Rewards - Programmers (like most people) love to be treated nicely. Most days, they toil away and no one really seems to appreciate what they do. If you buy them food (pizza, donuts, coffee) or free stuff (tech gadget, big monitor, t-shirt), they will love you for it far beyond the cost of the actual item.

There are also a few things that programmers really do not like, make sure you avoid these:

Salespeople / Being Sold - Does anyone like this? You are selling them, but be subtle. Ask for help. Enlist them. Don't sell them.
Pretending to Know More Than You Know - When people are speaking a non-native language, they often miss subtle things. I remember how my Swiss German colleagues would say "his English is perfect." No one who grew up in the US would ever say our English skills rise to the level of perfection. That's just too high and there's always more. It tips you off that the person doesn't quite get the nuance. Speaking tech to programmers is the same thing. Programmers will hear your little mistakes and if you pretend you "speak perfectly" - it will immediately lose respect with them.
Not Knowing Enough - Unfortunately, you also cannot get into a conversation with a programmer and not know the first thing about the technology. If you don't understand the basics about mobile technology, then read up on it. Admit you don't know the details, but at least get to a 101 level before you talk to a programmer.
Time Wasters - Don't talk too much. Stay on point. Only go social when they go social.

If you need more help on really getting inside the mind of programmers, two great resources are Dilbert and Foxtrot (the little kid is a budding rock star developer).

Find Your Prey

Urban Legend - Willie Sutton, the bank robber, is known responding to the question "why he robbed banks" by saying, "because that's where the money is." Turns out that's disputed, but it's still the basis for Sutton's Law.

Where do programmers hang out? The answer is that programmers are hard to find. They are generally less social creatures. They tend to cluster and don't like to talk to people who have lesser abilities (i.e., anyone who doesn't program).

Some places you can find programmers locally:

In your company or other companies. Find your dev shop. Find out who the programmers are. Visit your friends and ask them to bring you to their dev shop. Ask your friends to visit their dev shop/programmers on their behalf.

Tech Events / Meetups - There are lots of Networking Events in Los Angeles and Southern California that are techie oriented. In this case, looking for mobile developer events in the local area makes a lot of sense. But it would also be good to look for developer oriented events aimed outside mobile to look for people who might want to get into mobile. You should definitely hit up the Startup Weekend events as well. And look at StartupDigest.com

Make sure you meet the people who run these events. They often can help a lot in navigating to expertise and to possible resources.

Student Groups - Go to the local university and find out what student groups there are for programmers. Ask around for ideas on where they hang out.

LinkedIn - This remains one of my primary tools. It's a bit hard to use for this kind of request, but I would certainly go ask everyone I know to introduce me to programmers they know. And then use them to get to even more. You can certainly do this through Facebook as well, but I would use LinkedIn.

Twitter - You can run searches for various types of techie terms being used in a given geography. Follow them and reply to introduce yourself.

Sites - There are a bunch of sites out there aimed at this or similar issues. Most of them suffer from lack of activity, but it's worth a shot. Some sites to check out:

CoFounderNetwork.com
PartnerUp.com
Namesake.com - more of a social network, but still a good way to network
TechCofounder.com
Foundrs.com
Startuplinkup.com
Cofoundrs.com

You can lookup also on this Google spreadsheet: https://spreadsheets.google.com/...

You can try finding folks via

Oh, and often there are forums for particular technologies where you can look. In this case, these sites didn't pan out all that well for the entrepreneur. Part of the issue was that he wanted someone local.

Approaching Your Prey

Actually, before you approach any programmer, please keep in mind to use caution. Don't scare off your prey. Remember that programmers generally are skittish and don't trust outsiders. You are an outsider. If you come up to a programmer and just ask them to help you build your product. Game over. They will be thinking at that point - "How can I gracefully exit this conversation with my limited social skills?"

Instead think about what will motivate them. If we take the example that was the genesis here, the founder wants two types of people. He wants a person who knows mobile development pretty well who can help direct the action (the expert), and he wants someone who is a good coder who can learn to build out the needed mobile application (the developer). What will motivate these two people?

The first person (the expert) will likely be motivated by being involved in a fun, exciting problem/venture, lots of immediate rewards, not too much time commitment.

The developer will be motivated by getting involved in a fun, exciting problem/venture, lots of learning opportunity.

So, if I'm at an event that's full of prey, I will go around the room introducing myself to people (probably starting with the host) and roughly say:

"I've got a concept defined and some early customers, but I'm not sure if using a mobile framework, building native apps directly, or maybe even doing an HTML 5 app is the right way to go. Who should I talk to here who I can buy a coffee and tell them about my concept and get their input on the concept and especially on technical direction?"

This is intended to find the experts in the room. A few notes about this:

Make it clear that you've done your homework: I already have some people who want this, but I need to get it built.
Present up an interesting question: I need to figure out what my technical approach will be.
Show you also want their input on the idea.
You are willing to buy coffee, pizza as an immediate reward.

By the way, this works just fine if you happen to already be talking to the expert. By the way, if the person tells you that you should talk to a particular person then please say, that's great, "could you introduce me?" and start leaning to prompt them to start walking with you. Most often people are happy to do it and it helps with immediate rapport with the prey.

Once you are talking to a person who's been introduced as a likely expert, the language is pretty much the same as above, but you likely will get into a bit more detail and then ask them if you can get them coffee sometime. They likely will want to try to solve your problem right there (did I mention us techies like to solve problems). Resist this a bit. It would be much better to build more rapport with them.

When I'm looking for the developer, my approach is pretty similar.

"I've got a concept defined and some early customers and have someone who's helping me from a technical strategy perspective, but I'm looking for someone who's a good developer and interested in getting into mobile development."

More Resources

You can find a bunch more resources in this post: Startup Development

Title	Range (%)
CEO	5 – 10
COO	2 – 5
VP	1 – 2
Independent Board Member	1
Director	0.4 – 1.25
Lead Engineer	0.5 – 1
5+ years experience Engineer	0.33 – 0.66
Manager or Junior Engineer	0.2 – 0.33

SoCal CTO

Selecting a Web Development Company

What Do You Need

Selection Criteria

Problem Signals

Making Sure You Are Ready to Begin Building Your MVP

What's Going to Go Wrong

MVP Homework

While You Are Building Your MVP

Additional Resources

Web Framework Performance - Startup Founders Need to See These Numbers

Important Implications

Investors, MVPs and Evidence of Traction

Additional Sources

Building Your MVP as a Non-Technical Founder

Purpose of an MVP and Defining the Right MVP

Ways to Make Your MVP More Minimum

What Do you Need to Get Your MVP Built

Founder / Developer Gap

Finding and Selecting a Technical Cofounder / Developers

Development Challenges

Technology Choices

Startup Mentors

Mentor vs. Advisor

Finding Potential Mentors

Mentor Progression

Accelerator / Incubator Mentors

Do Your Homework

Additional Resources

Document Your MVP for a Developer

First Relax

Business Concept

Customer Development Notes

Prioritized User Stories

Product Feature List

Functional Details

Wireframes, Comps, Clickable Prototype

Other Documentation

Additional Resources

Technical Advisors: Every Web/Mobile Startup Must Have One

Strategic Technical Advisor

Tactical Technical Advisor

CTO Founder - Do they really still need a technical advisor?

Where Do I Find a Technical Advisor

Compensation

Why Investors Should Demand This

Find and Talk to other Startup Founders of Similar Startups

First Stop CrunchBase

Second Stop LinkedIn

CMO CTO COO Equity and Compensation

Lead Developer to CTO at a Startup

What can you do to position yourself to make the transition?

Learning, Networking, Mentors

Startups and a Common Misunderstanding in Agile Software Development

Level of Detail

Endless Iteration

Los Angeles Startup Events

SoCal Startup Event Calendars

Los Angeles Startup Events

Startup CTO Speaking

Dr. Tony Karrer

Select Startup CTO Speaking Topics

Making Sure You Are Ready to Begin Building Your MVP

Technical Advisors: Why Every Startup Needs Two, How to Find and Work with Them

Ten Lessons from Working on 30+ Startups Over the Past 15 Years

Startup Feedback Panelist

Evolving Role of Social Networks for Startups

Matching for Startups

How Startups are Winning by Wiring into 3rd Party Services and Data

Why Software Development Goes Bad So Often and What You Can Do About It

Metrics-Driven Startups

Stupid Things Founder Say - How to Work More Effectively with Techies

Startup Surge in Los Angeles

CTO Salary and Equity Trends 2009-2011

CTO Salary and Equity Comparison

Trend #1 - Sizable Salary Increases

Trend #2 - Early Stage Companies Lower Salary and Higher Equity (for Founder CTOs)

Hiring Developers Before Product/Market Fit?

Finding a Technical Cofounder for Your Startup

Where to Search for the Technical Cofounder