Design, Entrepreneurship, Economics and Software

Avoiding The Startup Stall-Spin:
Why Your Startup Needs Technical Cofounders

I’ve spent the last several years working with early-stage technology startups. More often than not they fall into one of these two categories:

1. They have an “idea” and are trying to raise money so they can hire somebody to help them realize it.
2. They already have some money and are trying to find a “technical person” who can “build it”

Let me say it now — if this sounds like you, you are probably already doomed. Seriously. Stop now and go back to middle management, or start your efforts over from scratch. If you stick on the current path you WILL fail. Here’s why.

Mercenaries Are Not Paid to Care

If you are trying to build something, you presumably care about it and think it is worth doing. (If you don’t really care about it but just think it can make money, you should stop reading my blog altogether.)

If you can’t make other people want to join your team simply on the basis that they like your vision (and like you) then you are going to be faced with “hiring” someone to “build” your vision for you.

And that person is not paid to care about your vision. Free agent programmers, while they may be consummate professionals and quality engineers, will most often build exactly what you tell them to build.

There are three major problems with this:

1. You probably don’t know what you want to build.
2. You will probably do a very bad job of describing what you want to build.
3. You will spend most of your capital building something that no one actually wants.

And when the “prototype is built” and the “programmer” hands you the keys, who is going to maintain the code? Who is going to make ongoing structural adjustments to reflect the needs of your customer?

How will you identify and collect the metrics that will inform your business decisions?

Most entrepreneurs give fuzzy answers here, like “we’ll raise money on the prototype,” or “we’ll hire someone once we have revenue,” or the most laughable answer of all, “we’ll outsource that.”

The bottom line is that there is no substitute for TEAM. And there are lots of creative ways to build teams, but it has to start on day one.

Why Entrepreneurs Fail to Build Teams Early

This one’s really simple: isolation, inexperience, and negative reinforcement from past experience.

Isolation: most novice entrepreneurs exist in some kind of vacuum, limited to their social circles from their previous jobs, schooling, or professional discipline. As an example, many smart “businesspeople” simply don’t know any good “programmers.” Good startup teams emerge from relationships that already exist. And if you don’t have relationships with people that can help realize your vision, odds are you also haven’t asked them what *they* think of the idea. That can be incredibly revealing and instructive.

Inexperience: novice entrepreneurs are, by definition, new to the game. They don’t know that founding teams don’t come from “help wanted ads” for “incredibly talented programmer who will build my crazy web service.” They simply don’t know. Memo: this is not how it happens.

Negative Reinforcement from past experience: Many entrepreneurs and experienced business people alike have exactly one idea of how to “find people,” and that is to “find someone” who can “do the job.” And since jobs are paid for by money, they assume that funding is important so the firm can “hire people” to “get the task done.”

The very idea of “hiring someone” sets the task up wrong. Here’s why.

As the “hirer” you’re making several statements:

• I think this “job” is worth exactly this many dollars and nothing more.
• I don’t give a @#&%& about your opinions — build what I want you to build.
• You are replaceable.

And when you do hire someone on these terms, you get what you ask for — someone who will leave you for something that pays better (and who probably left something else to go bleed you dry).

The Startup Stall-Spin

As a pilot, I sometimes use flying analogies. A stall-spin, if you have never heard the term, is a dangerous situation: the plane tries to climb upward too steeply, loses lift, then begins to fall, spinning nose-first straight down towards the earth.

Often in the fall the pilot will incorrectly try to adjust the wings to “steer” the plane back into control, but at that point there is almost no air flow over the wings and this action makes the spin even worse. The only correction the pilot can make is to adjust the tail rudder to stop the spin, and then the plane will begin to regain lift and maneuverability. Often a pilot will lose over 1,000 feet of altitude in a stall-spin correction and it is certainly dangerous; for a pilot that encounters a stall-spin without some training and awareness, it is very often fatal.

Entrepreneurs need similar training to avoid (and, less preferably, correct) the “startup stall-spin.” Here’s what it looks like.

1. Entrepreneur has some “idea.”
2. They get a programmer to “build it” at considerable expense.
3. It is released to the public and is met with lackluster response by the market.
4. Revenue projections are missed.
5. Morale suffers. Everyone from employees to investors to strategic partners suffer a loss of confidence.
6. Funds are depleted. Required product changes are delayed until funds can be secured.
7. Original mercenary programmers lose faith in the effort and may even badmouth the entrepreneur.
8. New programmers become reluctant to join the effort.
9. The project becomes toxic and burns and dies. Everyone loses money.

There is only one way to recover from this, and that is to correct the original mistake: instead of hiring mercenaries, restart the effort from scratch with a real technical cofounder.

And here’s the kicker: if you can’t find one, you’re going to fail. Also, if you don’t do it before #3 (dealing with lackluster market response by making modifications) you will also likely fail.

And here’s why: you can never hire someone who will care the way a cofounder will care. And if you can’t find a cofounder, stop — unless you can get to a point where you’re generating revenue all by yourself.

Many of you may be saying, “I tried to find cofounders, but it was hard.” And it can be. And I will address that in my next post.

Meantime, I hope you give some thought to the “startup stall-spin” and how you can avoid it. In an airplane, you try to avoid stall-spins by avoiding stalls entirely. It is no different for a startup. Because recovery from that error, while survivable, is risky — and terrifying. Only a solid team of committed cofounders can keep you out of trouble!

The BP Deepwater Horizon oil spill currently unfolding in the Gulf of Mexico is already the worst environmental disaster in American history.

On June 28th, the TEDxMidAtlantic organizing team is holding a day-long event to consider the current crisis along three axes:

• Mitigation: Understanding and alleviating the effects of the spill
• Alternatives: What might an oil-free future look like and how we can get there
• Policy: How global energy policy can help lead to a cleaner and more stable future

We are partnering with a broad array of organizations and agencies, including the World Wildlife Fund, National Geographic, National Public Radio, the United States Departments of State and Energy, Mission Blue, TED, and many others to assemble a program that we hope will lead to a better understanding of the present situation and illuminate a path towards a more workable future.

Admission fees to TEDxOilSpill will also help to fund an expedition to the Gulf of Mexico. Renowned photographers James Duncan Davidson and Kris Krug are heading to New Orleans next week to record the sights and sounds of real people, real landscapes, and the real issues facing the Gulf Coast at this critical time. And they will share their stories at TEDxOilSpill.

For those of us who are entrepreneurially-minded, it is hard to sit by and watch this horror unfold. We hope that by creating this forum, we are making a valuable contribution — one that will amplify the efforts of the many volunteers and professionals who have dropped everything to respond to this urgent and ongoing catastrophe.

I was seventeen years old in 1989 when the Exxon Valdez disaster appeared to be the defining energy crisis of our age. Unfortunately, I wasn’t able to make much of a contribution then. With this disaster, which is already many times worse, I am grateful to be in a position to advance the global energy dialog — even just a little bit.

Please join us and please spread the word about this event. We are on a short timeline and are organizing speakers, presenters, and partners urgently. You can also participate in the event, wherever you are, by organizing a TEDxOilSpill Meetup in your area.

Please email tedxoilspill@tedxmidatlantic.com, and visit tedxoilspill.com for more information.

Event Details

TEDxOilSpill
June 28th, 2010
Ronald Reagan Building and International Trade Center
1300 Pennsylvania Ave, NW
Washington, DC

Register to Attend

Pride, Passion, Talent on Display at Startup Weekend Seoul

I believe that Silicon Valley may soon be going the way of the floppy disk.

For the last two weeks I have been traveling around Asia with a group of tech entrepreneurs, on a trip called “Geeks on a Plane” organized by Silicon Valley investor Dave McClure. I took the same trip last year.

Why take a trip like this? The answer gets at some very real and seismic shifts taking place in the startup world that will be big news over the next few years.

Startups Cost Less

Ten years ago a successful Internet startup might require one to five million dollars in outside funding. Data centers, engineers, and software licenses were hot commodities and could easily drain a startup’s resources.

Now it is possible to get a startup to the point of testing it in the market — with real customers — for $25,000 to $50,000. This effectively removes VC’s from the equation at these early rounds and turns things over to angel investors. As angel investing becomes increasingly professionalized, success rates increase and more people become involved with it.

“Silicon Valley is a State of Mind, Not Necessarily a Real Place”

Pay attention to this one! This is a quote by Dave McClure and it captures what is happening perfectly. Everywhere you go, there are techies and entrepreneurs who follow the tech business scene, and they are all ideological peers.

Silicon Valley is all about embracing the idea that the world can be changed for the better, and that one can (ultimately) realize rewards by changing it. If you believe this, you are a part of Silicon Valley. What about that statement is related to place?

In Shanghai, Beijing, Seoul, Singapore and Tokyo I have seen first hand the buzz and excitement that comes from people who believe that they can engage with the problems of our world imaginatively and productively. And they are not moving to Silicon Valley.

3D Printer at Singapore’s hackerspace.sg

Place as a Strategic Differentiator

Not being in Silicon Valley is very helpful if you are trying to tap into developing markets like those in China, Korea, and Japan. It is also helpful if you don’t want to have to pay Valley salaries and sucked into the echo chamber there.

As an example, a skilled developer in Silicon Valley might cost you upwards of $120,000 per year; the same person in India would cost $12,000 per year and in Singapore they would cost $48,000 per year.
If you are trying to build a product to serve the Asian market, wouldn’t you rather base your company in Singapore?

Being in “a” place is more important than being in “the” place

It is widely assumed that internet technologies like Skype and email crush distance and make global distributed business possible. True, but there are exceptions.

Real creativity, trust, and ideation has to happen face to face. This is where the magic occurs. If you don’t spend time with people you can’t create.

New-technology tools can help with execution, but only after the team dynamics are in place; they are great for keeping people connected and plugged in, but suck at creating an initial connection.

Love your place. Find the other like minded souls who love your place and start companies with those people. The creativity you unleash in your own backyard is the most important competitive differentiator you have. No one else has your unique set of talents and point of view. Leverage it.

Every City is Becoming Self Aware — All at Once

I do not know of a city anywhere in the world that is not presently undergoing a tech community renaissance right now. This is a VERY big deal.

Every city in the United States along with Europe, Asia, and South America is now using the same playbook — implementing coworking, hacker spaces, incubators, angel investment groups, bar camps, meetups and other proven strategies that will have the effect of cutting off the oxygen supply to Silicon Valley.

Let me say it again: Silicon Valley is getting its global AIR SUPPLY cut.

For the last few decades, Silicon Valley has traded on the fact that people are willing to move there to start companies. The MAJORITY of valley companies are founded by foreign born entrepreneurs. What if they stop coming? What if they find the intellectual and investment capital that allows them to self-actualize in their home turf, where they already have a competitive advantage?

The fact that we have made it so hard for new immigrants to come to the valley and create startups just makes things that much worse. That is why the Startup Visa concept is so important if America – not to mention the valley – wants to keep excelling in innovation and the economy of ideas.

“Soul-crushing Suburban Sprawl” – Paul Graham

The Valley Kinda Sucks

Everybody says that the big draw to San Francisco is the weather. True, it can be pretty nice at times. But it can also be pretty miserable.

The reality is that the weather makes no f*cking difference if you are slaving away 26 hours per day on your startup; and the fact is that humans only really perceive changes in weather anyway: you’ll notice a nice day if it has been preceded by 10 rainy ones, or vice versa. Studies have demonstrated this. Look it up.

Paul Graham said it best, “Silicon Valley is soul-crushing suburban sprawl.” And he also suggested that places that can implement a bikeable, time efficient startup environment without sprawl have a significant competitive advantage over the valley.

Nearly every major city is becoming that place for its community of entrepreneurs. All at once.

So Why Travel?

It’s simple: to go to where the startups will be coming from. Investors who wait around for startups to show up in the valley are going to miss out on serious innovations and investment opportunities.

This means leaving the Lamborghini parked on Sand Hill Road and cabbing it to a gritty hackerspace in the Arab section of Singapore to meet the innovators who are building the future. And this is something that most investors think they are too good and too important to go do.

Fortunately there are scrappy, forward-thinking folks like McClure who are willing to go out there and embrace the future and begin the creative destruction the next wave of innovation will bring to valley culture.

Our challenges are too great to demand that innovation happen one way, in one place, with one set of people. Innovation needs to be systematized and distributed, and this is the opening act.

The Future of Entrepreneurship

I had a great conversation with Dr. Meng Weng Wong today, founder of Joyful Frog Incubator in Singapore. We pondered questions:

• In the future, will companies form teams and then try to get funding, or will entrepreneurs just gather, form ideas and try things?
• How do bands form? And are incubated startups just boy bands?
• Are we not always just betting on individual ability to execute?
• Doesn’t team (and execution) always trump idea?
• Is entrepreneurship a cycle? Shouldn’t exited entrepreneurs come hang out with first time entrepreneurs and try ideas together?

These are important questions in their own right, but the most important thing is that we are asking them. And so are people around the world. And it has nothing to do with Silicon Valley, the place.

Want in on the ground floor of this next wave of innovation? Understand the change that is coming and leverage it in your own backyard. Get involved.

Because I guarantee that in five years the Valley will be a very different place and that we will see thriving startup communities bearing real fruit in every major city.

Why go to the Valley? Good question.

Thanks to everyone for engaging in this conversation!

The American educational system deadens the soul and fuels suburban sprawl. It is designed as a linear progression, which means most people’s experience runs something like this:

1. Proceed through grades K-12; which is mostly boring and a waste of time.
2. Attend four years of college; optionally attend graduate/law/med school.
3. Get a job; live in the city; party.
4. Marry someone you met in college or at your job.
5. Have a kid; promptly freak out about safety and schools.
6. Move to a soulless place in the suburbs; send your kids to a shitty public school.
7. Live a life of quiet desperation, commuting at least 45 minutes/day to a job you hate, in expectation of advancement.
8. Retire; dispose of any remaining savings.
9. Die — expensively.

Hate to put it so starkly, but this is what we’ve got going on, and it’s time we address it head-on.

This pattern, which if you are honest with yourself, you will recognize as entirely accurate, is a byproduct of the design of our educational system.

The unrelenting message is, “If you don’t go to college, you won’t be successful.” Sometimes this is offered as the empirical argument, “College graduates earn more.” Check out this bogus piece of propaganda:

But what if those earnings are not caused by being a college graduate, but are merely a symptom of being the sort of person (socioeconomically speaking) who went to college? People who come from successful socioeconomic backgrounds are simply more likely to earn more in life than those who do not.

There’s no doubt that everyone is different; not everyone is suited for the same kind of work — thankfully. But western society has perverted that simple beautiful fact — and the questions it prompts about college education — into “Not everyone is cut out for college,” as though college was the pinnacle of achievement, and everybody else has to work on Diesel engines or be a blacksmith. Because mechanics and artists are valuable too.

That line of thinking is the most cynical, evil load of horse-shit to ever fall out of our educational system. Real-life learning is not linear. It can be cyclical and progressive and it takes side-trips, U-turns, mistakes, and apprenticeships to experience everything our humanity offers us.

The notion that a college education is a safety net that people must have in order to avoid a life of destitution, that “it makes it more likely that you will always have a job” is also utterly cynical, and uses fear to scare people into not relying on themselves. Young people should be confident and self-reliant, not told that they will fail.

And for far too many students, college is actually spent doing work that should have been done in high school — remedial math and writing. So, the dire warnings about the need for college actually become self-fulfilling: Johnny and Daniqua truly can’t get a job if they can’t read and write and do math. See? You need college.

An Education Thought Experiment

I do not pretend to have “solutions” for all that ails our educational system. But as a design thinker, I do believe that if our current educational system produces the pattern of living I noted above, then a different educational system could produce very different patterns of living — ones which are more likely to lead to individual happiness and self-actualization.

If we had an educational system based on apprenticeship, then more people could learn skills and ideas from actual practitioners in the real world. If we gave educational credit to people who start businesses or non-profit organizations, and connected them to mentors who could help them make those businesses successful, then we would spread real-world knowledge about how to affect the world through entrepreneurship.

If more people were comfortable with entrepreneurship, then they would be more apt to find market opportunities, which can effect social change and generate wealth. If education was more about empowering people with ideas and best practices, instead of giving them the paper credentials needed to appear qualified for a particular job, it would celebrate sharing ideas, rather than minimizing the effort required to get the degree. (My least favorite question: “Will that be on the test?”)

Ideally, the whole idea of “the degree” should fade into the background. Self-actualized people are defined by their accomplishments. A degree should be nothing more than an indication that you have earned a certain number credits in a particular area of study.

If the educational system were to be re-made along these lines, the whole focus on “job” as the endgame would shift.

“A sturdy lad from New Hampshire or Vermont, who in turn tries all the professions, who teams it, farms it, peddles, keeps a school, preaches, edits a newspaper, goes to Congress, buys a township, and so forth, in successive years, and always, like a cat, falls on his feet, is worth a hundred of these city dolls. He walks abreast with his days, and feels no shame in not ‘studying a profession,’ for he does not postpone his life, but lives already. He has not one chance, but a hundred chances.” — Ralph Waldo Emerson, Self Reliance, 1841

And so if the focus comes to be on living, as Emerson suggested it should be, and not simply on obtaining the job (on the back of the dubious credential of the degree), then the single family home in the suburb becomes unworkable, for the mortgage and the routine of the car commute go hand-in-hand with the job. They are isolating and brittle, and do not offer the self-actualized entrepreneur the opportunity to meet people, try new ideas, and affect the world around them.

The job holder becomes accustomed to the idea that the world is static and cannot be changed through their own action; their stance is reactive. The city is broken, therefore I will live in the suburbs. The property taxes in the suburbs are lower, so I will choose the less expensive option.

Entrepreneurial people believe the world is plastic and can be changed — creating wealth in the process. But our current system does not produce entrepreneurial people.

Break Out of What’s “Normal”

It may be a while before we can develop new educational systems that produce new kinds of life patterns.

But you can break out now. You’ve had that power all along. I’m not suggesting you drop out.

But I will say this: in my own case, I grew up in the suburbs, went to an expensive suburban private high-school — which I hated — where I got good grades and was voted most likely to succeed.

I started a retail computer store and mail order company in eleventh grade. I went to Johns Hopkins at 17, while still operating my retail business. Again, I did well in classes, but had to struggle to succeed. And no one in the entire Hopkins universe could make sense of my entrepreneurial aspirations. It was an aberration.

I dropped out of college as a sophomore, focused on my business, pivoted to become an Internet service provider in 1995, and managed to attend enough night liberal arts classes at Hopkins to graduate with a liberal arts degree in 1996. This shut my parents up and checked off a box.

I also learned a lot. About science. About math. About philosophy, literature, and art. And I cherish that knowledge to this day.

But I ask: why did it have to be so painful and waste so much of my time? Why was there no way to incorporate that kind of learning into my development as an entrepreneur? Why was there no way to combine classical learning with an entrepreneurial worldview?

Because university culture is not entrepreneurial. And I’m sorry, universities can talk about entrepreneurship and changing the world all they like, but it is incoherent to have a tenured professor teaching someone about entrepreneurship. Sorry, just doesn’t add up for me. Dress it up in a rabbit suit and make it part of any kind of MBA program you like; it’s a farce. Entrepreneurship education is experiential.

I had kids in my mid-twenties and now have moved from the suburbs to the city because it’s bike-able and time efficient. And I want to show my kids, now ten and twelve, that change is possible in cities. I believe deeply in the competitive advantage our cities provide, and I intend, with your help, to make Baltimore a shining example of that advantage.

I don’t suggest that I did everything right or recommend you do the same things. But I did choose to break out of the pattern. And you can too.

Maybe if enough people do, we can build the new educational approaches that we most certainly need in the 21st century. This world requires that we unlock all available genius.