Back then, most people couldn’t swim, so they would hire a small boat and a driver to take them across the rivers. The winter snows were melting and the river was violent, but the passenger had no idea how bad it would be until they were out on the water. He was clutching the edges of the boat in terror as the ferry driver calmly wove between the currents and the rocks.
Once on solid ground, the passenger marveled at the driver’s calm and asked how he could possibly remain so at ease when death was on the line. “Well, I can swim,” he replied.
I think of freelancing (or any flexible money-making skill) the same way. Your startup might not work out, the boat might tip over. But knowing you can happily survive a capsize (as opposed to ending up in debt or in a job) helps you recover faster from mistakes and make smarter decisions (without the influence of undue stress) while the company is still afloat.
The sources of worry change over time (e.g. from your own financial security to that of your employees), but in the early days, personal risk is at the top of the list. Although it may not seem very scalable or flashy, learning how to make a bit of money on your own terms is a hugely useful startup skill.
The typical wealth narrative is accumulation-decumulation, which means you work to build up a pile of savings and then, once the pile is big enough, stop working it and start slowly spending it (e.g. 3-5% per year).
The previous generation achieved this as a career man, whereas now we jump between a number of companies. Paul Graham has even said that the startup journey is just a compressed version of this narrative (possibly with several restarts). The tactics have been updated, but the broad goal is the same: retirement.
The bootstrapping community switches the wealth narrative from accumulation into income streams. To collect a salary of 60k from your savings, you would need 1.2m in the bank (assuming 5% interest and no draw-down on the principal). Or alternately, you could set up an small business which generates 5k per month in profits.
There are risks in both cases, so you still need to diversify (multiple investment categories, multiple income streams). But it does seem true that building an income stream will tend to require far fewer years than accumulating a huge pile of cash.
Despite various problems with the book, Ferris’ 4 Hour Work Week brought the wealth narrative of lifestyle design to the mainstream. He asks why we don’t just start doing what we’re dreaming, instead of postponing it until a future when our age may not allow us?
The compromises may be less optimal from a career perspective, but you could also argue that pleasure today is worth considerably more than pleasure at 65. So if you want to surf and sail every morning, you’ve probably got some options between remote working, entrepreneurship, and extended sabbaticals that would get you to the beachfront.
In the amusingly titled How to Get Rich (highly recommended), deceased hedonist Felix Dennis says that the only real different between being super-rich and upper-middle-class is that the super rich never have to be at a certain place at a certain time. In other words, you control your ‘where’ and ‘when’.
In a twist of irony, the moderately rich tend to be even more constrained by time and place than the poor. The golden handcuffs keep their hold for as long as you care about gold. Taleb (and various others) point out that to remain free, you must avoid becoming not just a servant, but also a master.
While do still need an income stream (the hobo lifestyle seems to have lost its romantic allure), controlling your time and place seems like a good goal for most of us. Still, the opportunity cost of giving up certain jobs can seem awful high. The question to remember (which I believe came from Godin), is: “What is this salary costing me?” It’s possible that you’re trying to get rich by giving up the main thing being rich actually gets you.
Mark Cuban recommends a very different approach, which is to clear your high-interest debts and then sit on all your cash. Don’t invest it, don’t try to beat inflation, don’t put it in the stock market, and certainly don’t put it in anything longer-term than that. Just sit on the cash.
The logic here is that even wealthy people can have a difficult time pulling together a pile of cash overnight, so if you’re able to, you’re uniquely able to swoop down on the best deals the world has to offer. With a pile of cash at your disposal, you aren’t looking to get 10%, but rather to wait until you can get 10x. We’ll call this approach keeping an opportunistic surplus. The Tropical MBA guys discussed this in more depth on a recent podcast.
One other small twist, which can apply to all the above, is that some people seem to be waiting for the perfect opportunity (the big idea, the foolproof investment, the perfect job), whereas others are constantly scanning for small, achievable goals and using them as stepping stones when and if they become available.
Choosing which wealth narrative to believe in is an interesting question, since it forces you to think about what makes a good life, which is a question we typically postpone via busyness. As Ferriss pointed out, everyone thinks they want to spend their life sitting on a beach with a Mai Tai, but if you actually try it, you’ll be bored out of your mind by day 10. The stuff we think we want while we’re working ends up being quite different to what we actually want when we control our own life. Anyway, I’m sure there are other wealth narratives I’ve missed — I’d be keen to hear if you’ve seen any others that resonated.
In my first company, I tried to act extroverted, because I thought that’s what good leaders did. It was exhausting and counter-productive. I’ve found a more comfortable way of working and wanted to share a few thoughts and resources that have been helpful to me.
The back-thumping, rapport-building, steak-and-strippers salesman is just one of several styles, and it’s not even the most effective. In fact, it tends to be actively harmful if you’re developing long-term relationships (like in large sales, long-term partnerships, and fund-raising). For all the research on this, check out SPIN Selling by Neil Rackham.
The turning point for me was realising that it’s okay not to have all the answers. People hate when you go in with the shiny presentation and the hard pitch. Rather, being willing to set aside your ego and ask lots questions is the single most important thing you can bring to the table. I didn’t have to be sleezy and I never needed to sell people something they didn’t need. Instead, I just had to spend the time to deeply understand their problems. If you want to go deeper into question-asking, I wrote up my learnings in The Mom Test.
And finally, not all sales is created equal. I’m pretty comfortable in a meeting these days, but I’ll never be happy making cold calls. Knowing that, I’ve spent extra effort getting warm intros and inbound leads. You don’t need to fight every battle or live up to someone else’s standards of what a classic salesperson looks like.
I like YC’s attitude on pitching to investors: it doesn’t matter how awkward you are, as long as your startup is good enough. And if your startup is bad, the smoothness of you (and your pitch deck) are irrelevant:
The one point I wanted to make before we get started is, we actually don’t spent a lot of time at YC focusing on this. The main reason is the best way you can make your pitch better is to improve your company. If you have traction and your company is doing well, these conversations are like… the investors want to see you succeed. So if you remember anything, it’s make your company better and your pitch will be easier.
PG wrote a great essay on how to convince investors which goes into a bit more detail. And to see how simple a good investment pitch really is once your company is good enough, check out the video below (timestamped to ~20:50).
When you feel like you’re being judged on some sort of performance, it can be kind of weird. But once you realise that you’re just trying to mundanely explain what you’re up to (and will be judged on the numbers rather than your level of zazz), it gets a lot less mysterious.
The myth that leaders are charismatic comes from the fact that MBAs are charismatic. And the reason isn’t because that makes them better leaders, but rather because due to a historical quirk, that’s what business schools select for. Plus, people who talk more are perceived as more intelligent, but that doesn’t correlate at all with better results. In team scenarios, a loud leader tends to clobber the expertise of his or her group rather than utilise it. And within the high-power corporate world, the self-promoters do tend to get the promotion.
In Good to Great (which I don’t really recommend as required reading for startup founders), author Jim Collins remarks how surprised he was to find that all of the top performing companies her reviewed were led by introverted, unassuming leaders who made great use of their team’s skills rather than their own. Quiet by Susan Cain touches on the rise of the myth and gives a summary of the data throughout the first few chapters
Having an office is probably my least favourite part of having a company. It took me an embarrassingly long time to realise that:
I don’t need to be in the office all day
The office doesn’t need to be open-plan
Nobody else needs to be in the office all day
Fun around the water cooler is not a required part of the workday
I went to an extreme and my current business is fully remote with no office, but I recognise that’s not always possible (and expect we may need an office sometime soon as the team grows). But now that I know what I need, I no longer fear it. I’ll work by myself when I’m working on focus tasks and join the others when necessary. I won’t worry about putting in face time. If I have an office, I’ll put a couch in it so I can have a quick nap when I’m feeling drained. This is how many of us work effectively at home, and yet we willingly throw it away as soon as our business starts succeeding.
There are certain drawbacks to the office setup mentioned above, which is that sometimes people won’t be around when you need them. So we need to deal with remote working at some level. The golden principle comes from Remote by 37s (which is a fun read but not exactly groundbreaking beyond this one key point).
Remote is a first class citizen.
This means that if you’re going to do any remote working, then you need to take it seriously enough that those working away from the office don’t become marginalised. For example, if decisions are made during an impromptu meeting, then the thinking and results need to go into the chat log or dropbox for remote team members to review. And you need to be willing to spend a little money on good tools like a reliable conference calling setup (we just use freeconferencecalls.com, which is surprisingly robust for small teams).
Being remote-friendly (for some portion of the time) is probably the biggest way to improve life for introverts, whether that’s you or your team. Incidentally, I’ve also found that it helps the team get away from an urgency-driven culture and keep everyone focused on longer-term priorities.
Some uncomfortable situations where charisma matters are too valuable to pass up (e.g. networking event with tons of potential customers or partners). In those cases it’s useful to be able to pretend for a while. My favourite book on this is The Charisma Myth by Olivia Cabane. While/ the subtitle makes it sound like cheesy positive psychology, it’s fairly data-driven in the way it breaks down the myth that charisma is a born-with-it-or-not sort of in-built trait.
Instead, charisma is judged based on a few behaviours which are relatively easy to mimic. Turns out that the divide between “pretending to be charismatic” and “being charismatic” is far more permeable than most would have guessed.
When I know I’m out of my depth, I keep a close eye on my reserves of willpower. If I start feeling drained, I’ll head outside for a walk and a coffee, or go find a quiet nook and make myself look unapproachable with headphones and a book. If you haven’t read it, I highly recommend the excellent Willpower by Baumeister and Tierney (even if you’re already sick of the constantly overused marshmallow experiment results).
Startups are kind of weird-looking to begin with, and as a founder, you’ve got the incredible opportunity to mould it even further into exactly what you want it to be. You don’t need to act like some other company just because they’re famous. If the mainstream way of doing things isn’t for you, try something else. You’ll be happier for it, and you may be surprised how many other people on your team appreciate the change as well.
“It’s like driving at night in the fog. You can only see as far as your headlights, but you can do the whole drive like that.”
That’s an E.L.Doctorow quote about writing a book, but it applies equally well to startups. We’ve got to resist the temptation to gather all the answers up front. But it can be scary.
I think of it like an improv actor or an off-slope skier. Neither one knows exactly what they’re going to get themselves into, but they’re happy to push off anyway. They trust their skills to read the situation and act on the fly.
A new founder needs to get comfortable with the same ambiguity. Fortunately, our situation in startups is way easier because when we see a thorny situation up ahead, we’ve still got time to pull in our friends for a bit of a sanity check, or to go find the books that will teach us the missing skills. Lots of the stuff that seems scary up front can only be sorted out once you’re en route.
I was stressed out, obviously. Some meeting had gone badly or our stats weren’t good enough. The guy I was talking to had been a professional gambler before getting into startups (less volatile, he said). He told me something that stuck:
> You’re gonna go crazy if you count your stack every day.
What he meant is that a day isn’t enough time to see a real correlation between what you’re doing and the results you’re getting. There’s too much variance. You can play well and do poorly, or vice versa. If you look at the results too often, you’re eventually going to let the outliers talk you out of playing the way you know you ought to play.
Let’s say you get slaughtered in an investment pitch. Maybe your company sucks, or maybe the investor was having a bad day or is just a grump. Results like this can spook you. But one meeting isn’t enough to know. Better to emotionally file away the results and review them after a couple weeks when you’ve got a bit more data to work with.
You can get fooled by the positive outliers, too. Finding one incredibly enthusiastic customer does not necessarily imply that you’ve nailed it (though it’s certainly a step in the right direction).
You want to tally your winnings (and losses) every so often, of course. That’s how we learn. In the poker world, that was every week or two. Just maybe give yourself permission not to get so stressed out by the ups and downs in between.
This is just a story, not advice, but maybe there’s something relevant. At year’s end I’ll be trading away my location independence for something better.
It’s been a fun stretch. Barcelona was my HQ but I figured there was no good reason I couldn’t travel and work from elsewhere as well. In doing so, I drank tea with prostitutes in Kiev, was stood up for dinner by the Slovenian president, wrote the first draft of my book from a hut in Bavaria, got to whack the gavel at the UN, watched the northern lights from an outdoor hottub in Iceland, and played chess with an old man in Hungary whose only English seemed to be “another shot” and “I win”. Meanwhile, the business has grown solidly and started paying [actual] dividends.
Then why give it up?
For some folks, a successful business is a goal. For others (myself included), the business is just an enabler. If you see your business in this way, then you would prefer that it keeps doing its thing regardless of whether you are working or not. Tech businesses theoretically get this for free once the product is built, since most websites can do their thing without you being on call. But unlike my previous businesses, this one scales with people. And once it outgrew the founding team, we hit a wall. The solution to scaling people is “culture”, which is just a way to spread how the founders work and make decisions to the rest of the team.
Our founders have a history together, so we already knew how everyone worked and remote was fine. But our first hire didn’t, so it wasn’t. Top-tier potential hires have slipped through our fingers simply because we didn’t have a good way to train them. “Just come to Bulgaria for a few weeks” isn’t as compelling as I had hoped.
So hiring is one big reason. Before throwing in the towel, I looked at other companies who have succeeded. A couple solutions exist. The first is for the location-independent founders to hire where they are and spend the first 4-6 weeks co-working with the new employee before traveling elsewhere. You can also do the opposite and bring the new hire to the founders for a month or two. The other approach, unique to the tech world, is to borrow the open-source culture. If the whole team is used to working in that way, new members can plug straight in and may not even realise this is an issue for other companies.
A related problem we hit is partnering with other companies (which is important for us). Even if we could fix all our internal issues, we still need to flex toward the our partners’ ways of working. For example, we’ve set up our comms so we can be away from internet for a week or more without negative effects. But the companies we partner with probably aren’t in the same situation. Plus, starting and deepening a partnership requires trust, which requires facetime.
On a somewhat unrelated personal note, I also suspect vagabonding is a bachelor’s life. Good fun while you’re aligned with it, a bit of a drag otherwise.
With all that in mind, we (i.e. myself and you the reader) are faced with a lifestyle trade-off. Remember we said that businesses are enablers for the things we really want? If our goal is to travel the world and get boozed up in exotic places, then we may as well do it now, even if it caps our business’ growth. Just complete the sentence, “After I sell my business, I can’t wait to…” and then find a way to integrate that with what you’re already doing.
For me to give that up, I’m basically saying is that I think getting my business to the next stage will give me more net happiness than the Mediterranean cafe lifestyle (punctuated by travel binges). Which is obviously a personal choice, but for me it’s right, at least for now, since I’ve started valuing the time to be creative and/or idle more than I value adventure. And I believe that by putting myself where our company can benefit most, I’ll be able to work more efficiently in the short-term (creating more free time) and will be able to grow the team that frees me in the mid-to-long-term.
Happily, I’ve also learned a couple things. Barcelona is great (assuming you live in Raval or Gracia and avoid everywhere else). Travel is easier than you think, even if you’re working. You can get a business pretty far even when it’s a total mess behind the scenes. There’s a strong startup scene in mostly every major city in Europe, so you can stay in the community even if you’re in Malmo or Reykjavik or Tallinn or Sofia or Budapest or wherever.
As a founder, you can get a pile of money in one of four ways:
You generate profits and keep some (dividends)
The company becomes valuable and someone buys the whole thing (acquisition)
It gets very big and very valuable and you go public (IPO)
An investor buys some of your shares directly from you, generally as a small part of a larger funding round (taking money off the table)
Within the second category, there are 3 types of acquisitions which each behave quite differently:
The company has failed, but manages to sell off something of value (patents, team, etc) on the way out (asset sale or talent acquisition)
You’re making solid revenue (e.g. $5mm/year) and someone buys you to add that revenue to their portfolio (revenue-based acquisition)
You’re “strategically” important in a battle between titans and one of them pays an exhorbitant sum ($100mm+) that is hugely disproportional to your apparent value (strategic acquisition)
Revenue-based exits (the middle option) are interesting because they are largely under your control. If you can get to 5 million a year in revenue (which is hard but doable), then you can sell the company. Specialists exist who can reliably sell businesses like these for a multiple of their revenue or profits (your accountant will know one). The value multiple varies by industry and is increased by positive factors (e.g. companies that can run without founder-involvement or which have a premium brand) and decreased by others (e.g. all your revenue comes from one big customer). These exits are what drive the SME world, but we don’t hear about them because there’s no juicy story for the press.
On the other hand, we hear about strategic exits all the time because they seem to make no sense and are a fun story. For example, Whatsapp being worth ~$20B? But that price tag is a bit of a red herring since it assumes that there’s an intrinsic quality of Whatsapp which makes it worth that. But in a strategic exit, you want to think of the startup’s value as a percentage of the acquirer. Whatsapp isn’t worth $20B; it’s worth 20% of Facebook. If Facebook was only worth $50B instead of $100B, then Whatsapp would have been worth half as much as well.
Imagine that Facebook and others (e.g. Google+) are jousting for position. Facebook has the advantage of having the best social graph and the highest engagement, which is very hard for someone else to break. But Whatsapp has both the graph and the engagement, which means that if Google acquired it, it could be used as a weapon to attack Facebook. Alternately, Facebook can buy it first to extend its lead. So there’s a bidding war between these big players to see who values the playing piece more. Same deal with Amazon buying Twitch; it had nothing to do with Twitch and everything to do with Amazon wanting to win against Netflix.
Most big ($100mm+) acquisitions follow this pattern. The numbers look absurd compared to a startup, but they’re relatively small when you look at the playing board on which the startup is sitting. That’s where the “strategic” bit comes from.
Unfortunately, the nature of strategic exits means they’re completely outside of your control. If you want to go big like Whatsapp and friends, then you have to get very lucky to be the key piece in an important game that much bigger players are engaged in. You can increase your odds by having insight into the market and its future, but you can’t plan an exit like this. Even if you succeed at everything, you’re still likely to be denied your prize.
While it isn’t exactly breaking news, the reliable path is still to focus on revenue and profits. Not a lot of people think about revenue-based exits, so I guess I hope spreading the word can help finish off the myth that bootstrapping equals small and unambitious. As John Mullins showed in The Customer Funded Business, you don’t need to choose between being bootstrapped or being big; you can bootstrap your way to scale as long as you’re choosy about your business model. And with the availability of revenue-based exits, you don’t even need to delete your bookmark for private islands for sale.
Lean Startup punts on the question of how to choose an idea by claiming that first, the founder “has a vision”. But where does it come from? And what makes a good vision as opposed to a bad one?
Effectuation, on the other hand, directly tackles the question of the idea. If you haven’t heard of it, it’s based on the only proper academic study into what makes repeatably successful entrepreneurs successful. Here’s the low-down:
Effectuation’s goal: A reliable path to a good business (but probably not a billion dollar one).
Core assumption: Much of the “common wisdom” surrounding entrepreneurship is just myth based on a few high-profile outliers; the data shows a better path.
In a nutshell: Successful entrepreneurs don’t pick an arbitrary vision and then figure out how to get there; instead, they look at the resources they already have—people, partners, skills, expertise, credibility—and figure out how to use them to attack an opportunity that isn’t fatally risky and which they can go after right now.
To look for Effectual ideas, ask yourself which resources you have:
Who are the people who would help you, even for a small (but important) favour?
Which companies take you seriously enough that they might partner?
Which industries do you know or have credibility in?
Which important skills do you have (or have access to)?
Now, which opportunities or goals might you go after by combining those resources? They’ll look very different from the sort of ideas you get when you sit down to “think of a startup idea”, because they’re anchored in you.
There’s more to Effectuation, including shifting goals, multiple simultaneous goals, and a propensity toward early partnerships. The authors are a bit academic, but there are some real jewels in there. The comparison is a bit unfair, since Lean Startup and Effectuation solve different problems, but I’m currently finding the latter to be a more critical piece of building a business than the MVP-style stuff we typically bang on about.
I hear this question a lot, and I don’t know the answer. But I’m currently going through it myself, so maybe you guys can help me ;)
Some time ago, I decided there was an opportunity for a niche product to help self-publishing authors promote and sell their books.
Based on what I’d learned from the microISV folk (e.g. Patrick McKenzie, Rob Walling), I fired up Google Keyword Planner to investigate. I couldn’t find a strong set of keywords to go after, which was somewhat disappointing. There’s a bit of interest in how the industry generally works, but then it tapers off quickly.
The biggest search category is around “how to publish a book”, but if you investigate, most people are looking for how to get vanity published by someone with a brand, rather than to get help doing it themselves. And even that doesn’t offer too much to work with:
Still, despite the bleak search landscape, I liked the macro trends. 3 million titles were self-published last year. The number of titles launching each year is increasing at close to 500%. The market share of self-published titles (currently at about 5% of the total book market) is increasing by 80% year over year. And in some Nordic countries, 1 in 5 adults launches a book.
My thesis was that I could attract authors with good marketing advice, lock them in with a free landing page for their book, make it beautiful enough that they promote it instead of their Amazon page, and then take an affiliate cut when people purchase. If a book is moderately popular, the cut can get decent (for example, the affiliate cut on my book is $100–200 per month).
Of course, the wrinkle is that this model depends on the author being able to drive traffic, which most of them can’t.
Given the lack of reasonable search terms, I just went with the goofy name of Hey Look a Book. It’s missing all the bells and whistles it could have, but the core features work well and the conversion rate is strong.
So now I’m sitting on this side project and wondering whether to put more time into it. There are maybe 20 authors who “use” it, but since it’s a set-and-forget product, that doesn’t mean much. I’ve explored a tiny bit of content marketing via the self-publishing subreddit (5k subscribers) and saw good-enough results that I’m convinced it could get me to the next stepping stone.
But I question the fundamentals… Is the candle worth the flame? I have no experience with niche products like this, so I’m lacking any of the benchmarks that tell me whether it’s worth pouring some more time into or just leaving idle.
What do you guys think? Do I walk away or does it have legs I’m not seeing?