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First Time Founder Gotchas

Tony Scherba
November 29, 2012

We work with startups all the time and being developers based right in downtown San Francisco get to see A LOT of companies start up.

Subsequently we also see A LOT of companies not quite make it off the ground (aka fail). Looking at these retrospectively and abstracting out the general problems (computer science) we can start to notice patterns emerge. This article is meant to simply highlight some of these observations. Think of it as a form of early-stage gotchas.

Don't hide your idea.
The most obvious and painful thing that blocks people from actually starting their company is that founders, for some reason, have a tendency to hide their idea. The fear is that somebody will steal this brilliant idea and build an awesome company out of it. Having this thought process is incredibly harmful because these founders don't allow themselves to test their idea and let it take a life of its own.

Quite the opposite of having people sign NDAs and be secretive about the company, what founders need to do is tell the entire world about it. By the entire world I literally mean the ENTIRE WORLD. As a founder it is incredibly important to let Planet Earth know what you are trying to do. Contrary to what is pumped through the media, the world is full of people, companies and investors that want to help startups, especially ones that have great ideas. Anybody that is successful in business knows that good businesses are vehicles for anyone involved to generate wealth.

At Yeti we actually joke about whether we will actually get any work when somebody comes to us and make us sign an NDA. Many other reputable development shops we know will actually turn people away that try to start a business relationship off with an NDA.

Tell the world your idea and then the world can help you, you can't do it alone. If you move into a neighborhood and immediately put up a huge wall, people are probably not going to be your friend and in the world of startups, you need friends.

Don't confuse legal issues as business issues.
Everyone will tell you when you start a company about a legal horror story or two about a company they know. This is generally in the form of Intellectual Property or Equity disputes but in the next sentance they will quickly say "but I'm not giving you any legal advice here." This is probably the most frustrating part of starting a business. Most of the people telling you this will never have actually started businesses. When you talk to the people who have they will ask you "who are your customers?"
Legalese in startup businesses is massive and can take pretty much an infinite amount of time and money. It is incredibly easy to get sucked into this trap because we naturally want to protect ourselves and prepare as much as possible before we take on a huge risk. Many new companies equate legal with business when in reality it provides protection. Over preparation can kill businesses if they don't have infinite funds and time (hint: you don't).
You will never be 100% prepared, get out there, get a product, get customers, get users, get funding, get it done. Always protect yourself but if you get hit by legal action I can basically assure you it is because your company is successful. When these disputes get press, it's because they are happening to successful companies and generally are the equivalent of speeding tickets. Nobody is honestly going to sue a startup with no money.

And because you're probably used to it.... this is not legal advice.

Don't forget about how you get money.
As a startup, no matter how large of contracts you've signed or amount of money you've raised, you don't have steady revenue. Don't act like you do. It's very easy when startups have early success to make justifications to completely unnecessary expenditures. Part of running a business is spending money, but as a startup it's very important that every dollar leaving the company's bank account is directly contributing to bringing dollars in.
It seems very obvious but in actual practice it gets lost between all the different things that the company NEEDS. This has been a very important lesson that, being bootstrapped, our company has had to learn quickly but as a small seed funded company its harder for the founders to grasp this concept early on and quite often this leads to failure as they learn all too fast that money is in short supply and there's no way of getting any more.
The forms of unnecessary expenditures comes in so many forms its hard to list. It's important to note that I'm not saying to be stingy. Companies need to spend on things like employee happiness, travel, marketing, legal, etc but if you follow the general guideline of only spend money on what brings in money your company will always have enough cash in its account to survive.

Don't be indecisive.
This is probably the most important lesson any startup can learn and one that nobody really ever talks about. The entire ecosystem of entrepreneurship revolves around making decisions and it is actually something we are never really trained or told how to do. Its scary and will keep you up at night when you are unsure but at the end of the day startups are about people and the decisions they make.
The reason its hard is that there is never 100% certainty in any decision a founder will make. Especially the first and most important one. Should I commit myself to this? A good decision can make or break your company but if founders don't make them at all then they will never even start.
These decisions often take the form of deals, from co-founders to customers to employees to landlords to vendors, you will never get anywhere as a founder if you can't make a deal. The first deal you will have to make is probably the best example, each founder has to give up a piece of 100% with very little certainty of what the future holds. 10-50% of something is infinity times better than 100% of nothing (I'll leave you to the math).
There are entire classes taught at business schools about corporate strategy and decision making. You don't have to be a rocket scientist to actually make smart business decisions though. As the founder of the company it is incredibly important to look at decisions (specifically deals) in two lights; value and risk.
No matter the business, the goal will be maximizing value and reducing risk. Decisions are never black and white however and the best value option sometimes carries large risk. As an entrepreneur it is important to understand this and really analyze these in the decision making process (if you have the time).
In a startup increasing value is incredibly important. This is what VCs bet on. What many startups don't realize is that choosing the path that carries the least risk might actually be harmful to a startup which is relying on an increase in value. Quite often the least risky option is simply not making a decision and staying comfortable.
Being indecisive will stagnate the business. Startups need desperately to increase in value if they are to be successful. Making risky decisions is inherently one of the joys and terrors of what you signed up for as a founder. Get over it and make them.

And lastly all of this advice is in vain if you don't follow one more...
Don't be stupid. Constantly take a step back, look at what you're doing, be sure you're spending time effectively, doing something you love and something that is meaningful.

Tony Scherba is a CEO + Founding Partner at Yeti. Tony has been developing software since high school and has worked on digital products for global brands such as Google, MIT, Qualcomm, Hershey’s, Britney Spears and Harmon/Kardon. Tony’s writing about innovation and technology has been featured in Forbes, Huffington Post and Inc. At Yeti, Tony works on strategy, product design and day to day operations, hopping in and working with the development teams when needed. Follow Tony on Twitter.

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