swombat.com on startups

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swombat.com daily articles for founders all posts
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founders library

More recent articles of mine can be found on danieltenner.com

Swombat.com is no longer actively maintained, but all the posts here are still available for your use. The original objective was to regularly summarise and comment on the best articles for founders each day, as well as occasionally post our my own thoughts and advice, so that you could read the most useful articles while focusing on building your own startup. As most of the articles in the founders library were selected to be "evergreens", I hope you still find them useful!

Here are 10 quality posts from the Founders Library:

Friday, 10 June 2011 Cheapium instead of Freemium

Under the moniker "cheapium", Jared Brown proposes a simple and useful idea:

Freemium is the most popular business model among web startups and it's broken. Freemium is a money burning business model (...)

Cheapium works by offering basic features for a nominal cost, usually a dollar or less, while charging a premium for advanced features. This can be in the form of a one-time or recurring fee. Cheapium creates a low, but not trivial, barrier to entry. All users in the system are paying. It might sound like a small difference but this has several advantages over freemium.

It's a very good point. As Jared points out later, price is not just a signal, but also a selector. The people who are willing to pay even $1 for your app are often a different set of people from those who are willing to pay nothing.

Case in point (as anecdotal as it might be), when browsing the App Store, I tend to look mostly for paying apps. I'm willing to pay for the right app and unwilling to spend my time on an app that probably isn't right for me.

Be sure to read through the whole article for Jared's other thoughts.

If you read this far, you should follow me on twitter here.

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Saturday, 25 February 2012 A simple point that shouldnt need to be made

Chris Dixon:

It would be great to think that in the startup industry, people would realize that today's junior person could become "big time" tomorrow, and that you should therefore be meritocratic and respectful to everyone. But that's not my experience.

In my experience, people who look down on more junior people in the startup industry are either douchebags, or outsiders. Everyone in the industry understands that where someone is today is often uncorrelated to where they will be tomorrow, and acts accordingly.

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Wednesday, 02 March 2011 Tools to find available startup domain names

Duane Jackson of UK online accounting software KashFlow, lists some useful tools for finding a good domain name:

Dot-o-mator to create domain name suggestionsWord Matcher to find words that follow a certain patternBulk checkers to check domain name availability in bulkOutsource the worry to someone else (personally, I'm dubious about that method)Domai.nr to find quirky, TLD suggestions for your domains

A useful list to keep bookmarked for next time you need to do this.

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Thursday, 09 January 2014 Perils of founder fighting

Mark Suster advises us to bring in third party counselling/coaching when there are founder issues:

If you struggle through similar issues - which means nearly all of you - please consider how and when to bring in help, to embrace mediation. It's hard to be open with your co-founders without somebody helping to broker the conversation. In many cases it's easier if this person isn't a board member or VC unless you have an extremely close or trusting relationship with them. You want to be able to be open without your board members losing confidence in your future.

My suggested approach is to do this much sooner. By the time previously hidden (or previously nonexistent) major founder disagreements come out in the open, it's too late to bring in the doctor. It helps, for sure, and if you can find a good mediator, trusted by both parties, then definitely bring them in. But the time to act is now when there are no problems.

Quoting my own article on the topic:

There are a number of subjects which seem almost embarrassing to discuss when things are going well. For example, "What if one of us decides to pull out?" Your first reaction to this topic might be "What? We're barely getting started, and already we're talking about what happens if one of us pulls out?"

The reality is that people's life circumstances change through time. They get married, or decide to leave the country, or get engrossed in a different pursuit, etc. Many things can get in between a founder and his start-up. Similarly, many things can go very wrong with a start-up. When those things do go wrong, or when one of the founders decides to pull out, is not the time to discuss these things. You need to discuss them with a clear head when no one is thinking of pulling out and the business looks healthy and hopeful.

Discuss those things early, following the steps in my article. It's easy, if slightly odd, at the beginning. Then you won't have to start thinking about bringing in a mediator when the shit hits the fan.

If you read this far, you should follow me on twitter here.

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Monday, 11 June 2012 What kind of startup should you copy?

Stefano Bernardi offers some advice to those who want to follow the way of the Samwers Brothers and build businesses by copying successful US startups in their country:

Please do not clone Pinterest. Do not clone Instagram. It will not work. Not matter what Pinspire and co. want you to believe. Cloning social startups is extremely hard as you face the same growth problems of the American startup, in a market with fewer early adopters and many more monetization challenges.

Instead, clone startups that have one of these characteristics:

Highly regulated markets (e.g. payments);Deeply local startups (e.g. ways to connect you to local businesses);E-commerce niches that are still empty in your country;B2B startups.

Interesting article. Read more here.

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Thursday, 24 February 2011 Solving the chicken and egg problem

Another good article by Vinicius Vacanti, this one focusing on how to keep the first 1,000 users, particularly when your service suffers from a chicken-and-egg problem of needing users to attract users.

Vinicius proposes a few approaches:

Focus on a niche (it's easier to saturate a smaller niche and then expand to more niches)Become a super user (in other works, fake it)Wow users (provide a level of service that won't scale past thousands of users, but will wow your initial users)Get them to invite their friends (a variation on the niche idea)Create the other side of a two-sided marketplace business to attract one side.

The key is to be willing to offer the kind of extraordinary service that won't scale up (though in some cases, it can), and to be willing to do things, like emailing every new user personally, that would not be practical at scale, because you really need those first users to stick.

On your way to millions of users, don't forget you have to get 1,000 happy users first.

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Wednesday, 16 November 2011 Experienced entrepreneurs preserve equity

The oft-repeated wise saying is that you should only give someone X% of your business if they will increase its value by more than X%.

This is a bit of a trap, though, because it does not convey just how scrupulous you should be about doing that maths. "John is a great guy, I'm sure having him on board will increase the business's value by at least 5%, probably much more!" is a likely computation in the mind of the inexperienced founder.

One common trait between experienced entrepreneurs, as compared to the rookies, is that they treat equity like the blood, the lifeforce of the business. They only give it away grudgingly, to those who can prove beyond the shadow of a doubt (with either a large pile of cash, or measurable results), and in the smallest amount possible.

So, when hearing that piece of wisdom, what it really means is that you should only give X% of your business to someone after they have demonstrated beyond any doubt that they increase your business by more than that - not based on a guess.

Another interesting note is that one of the big reasons why freelancers do not want to be paid in equity is that any founder that has not yet learned to keep all their equity to themselves is unlikely to amount to anything (at least in this particular business venture).

Of course, the VC game described in this article changes things slightly. There, the input of the investor is measurable, and there are rules to optimise that process and tricks used to mess with valuations. Keep your wits about you, and don't fall for thinking that the sorts of equity stakes thrown around in the entertainment show "Dragon's Den" are anything to do with reality in the startup world.

If you read this far, you should follow me on twitter here.

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Thursday, 23 December 2010 Take a pay cut to work at a startup

Ellen Beldner, referring to an earlier article which suggests you should raise debt from your employees by paying them less than market rate, comments that the amount of shares per dollar invested (in the form of a pay cut) is lousy compared to other investors.

That's a good point, but it's ignoring a number of other factors:

Risk Analysis

If you're going to analyse risk in this way do it properly. Guess some probabilities of huge exit (say 1%, if you really believe in this startup), moderate exit (say 20%), and failure (say 79%), and calculate the risk-adjusted returns on your investment (i.e. multiply each probability by the return associated with it).

Then decide based on that and your risk appetite, and the risk-adjusted return, not based on "other investors are getting a better deal". Of course they're going to get a better deal: they're putting in millions of dollars (in the VC's case) or, alternatively, they bet everything into the startup when it was just an idea and the risk profile was much worse (in the founders' case).

Lifestyle factors

Also factor in the kind of lifestyle that the startup will offer. This heavily depends on the startup's culture, but don't ignore that factor. For some people, the alternative will be working for a large corporation, which will result in a very different lifestyle.

Career development

Working at a startup will not only allow you to learn things that you wouldn't learn while freelancing or working at a large corporation. It also allows you to meet people that you wouldn't otherwise bump into. It is not uncommon for the founders or investors of startups which previously employed you to invest in your startup, when you decide to start one.

Passion

Compared to a market rate job at a large corporation, the right startup can give you the opportunity to work on a cool product that you can really be passionate about. I would add that, unless you feel that the product is that awesome, you probably shouldn't work on it.

Your current situation

Your current financial situation is also a factor in the decision. Of course, if you have a mortgage and three kids, you probably won't be interested in below-market-rate jobs at a startup. You simply can't afford to make that "investment".

But not everyone is in that situation. If you're 24, single, still in the student mindset (i.e. willing to live in a shoebox on a shoestring budget), and want to get the best out of your job, rather than have it grind your soul out of you in exchange for a bit more money, working at a startup can be a great experience.

In conclusion

Numerous factors are relevant when choosing whether to work at a startup. The pay cut is just one of them.

On the other side, if you're running an early startup and you can't get people to work for you at below market rate, you should ask yourself whether there's something fundamentally wrong with your idea that makes it so unappealing.

If you read this far, you should follow me on twitter here.

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Wednesday, 25 May 2011 Dont solve problems that you dont have

When building software, there's a mistake called "over-engineering", which consists of building many features that you don't really need because they make sense within the grand design of your code. Most of those features end up not being used, but the complexity that the programmer added to the codebase remains for a long, long time.

The same thing is true for businesses. It's easy to over-engineer your product, to dream up countless features that are obviously necessary for the product to pick up. But, as with software design, most of those features won't be useful, because you don't really know what your users will use.

Here's another great article by Jason Freedman, that makes this point:

(...) if you let those big fictitious plans infect your product development process, you're in a lot of trouble. Product development is about figuring out the single most important problem that exists right now and doing that and only that.

Jason proposes some tips for how to avoid this:

Read Getting Real.Break features into V1, V2, VX - where V1 is only the bare minimum that you need.Do things that don't scale (like contacting every new customer personally or signing people up manually).Create hypotheses (we've covered this before).Use link-testing as trial balloons - i.e. before you build a feature, build a link to it and see how many people click on it.Track your speed of experimentation to make sure you're keeping your eyes on the ball.

If you read this far, you should follow me on twitter here.

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Wednesday, 09 February 2011 Dont let your rock stars do the customer support

The UserVoice blog makes a good point here, that when it comes to customer support, you don't want an exceptional performance, you want a steady, reliable, friendly performance:

Here's what makes a good support person:

A prompt responseA friendly attitudeA willingness to listen, understand, and think critically before responding

(...)

So as fun as they are, let's all stop looking for our very own Jack White and start enabling our team to make customers happy. That's what matters.

It's a reasonably point, but it's worth adding that rock stars have their uses in business too. The person who showcases your latest product in front of an audience of thousands should be a rock star, not a "prompt, friendly, listening" type.

And if you yourself are the inconsistent type who works until 8am and then doesn't answer emails for 2 days, make sure you join forces with someone more steady, rather than strangling the habits which give you your obsessive productivity.

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