Please note that this essay was written in 2009
Paul Graham, founder of Y Combinator, a technology incubator for early stage businesses, surveyed over 100 of his founders to try to determine what surprised them about running a business. The result is a fascinating essay that I suggest every aspiring entrepreneur read. In fact, it’s so good that I decided to comment myself on each of the patterns that Graham noticed. I also included some of my favorite quotes from the essay – things that I just couldn’t say any better myself. The first of which comes from Graham:
When I look at the responses, the common theme is that starting a startup was like I said, but way more so. People just don’t seem to get how different it is till they do it. Why? The key to that mystery is to ask, how different from what? Once you phrase it that way, the answer is obvious: from a job. Everyone’s model of work is a job. It’s completely pervasive. Even if you’ve never had a job, your parents probably did, along with practically every other adult you’ve met. Unconsciously, everyone expects a startup to be like a job, and that explains most of the surprises.
Side note: It’s been brought up to me that Paul Graham probably wouldn’t define us as a “startup.” He defines startups as companies that are temporarily small with plans to go big. I don’t necessarily agree with that notion. I tend to call a company a startup if they’re starting small and attempting to innovate in an industry regardless of whether they go big or stay small. Either way, I see a lot of commonalities between “us” and “them”
1. Be Careful with Cofounders
One thing that surprised me is how the relationship of startup founders goes from a friendship to a marriage. My relationship with my cofounder went from just being friends to seeing each other all the time, fretting over the finances and cleaning up shit. And the startup was our baby. I summed it up once like this: “It’s like we’re married, but we’re not fucking.”
How do you find good partners? When I gave my two presentations at James Madison University, I got this question from both groups. My partners and I were lucky. We all went to the same elementary school together. Growing up, we all knew each others’ brothers and sisters and cousins. We weren’t best friends and we didn’t all stay in touch through college, but when we came back together there was a level of comfort in knowing each person’s background.
Most people don’t find partners like this. The way that most successful partners come together is by working together. If you’re looking for a partner and you’re in college, look at your fellow classmates. Who have you worked well with? Who has complimentary skills to you? Entrepreneurship classes or clubs where you start a mini-business in college are also great places to find partners. The important thing is that you actually work together before committing. Lots of people – and I mean almost everyone – are bullshitters. You can weed out the bullshitters pretty quickly when you do real work together.
I think that’s somewhat obvious. The not-so-obvious thing is figuring out what your potential partners want from a business. My partners and I all value a building a great lifestyle over becoming rich. We value working on something we believe in over becoming rich. We value doing things that we believe to be morally and ethically correct over becoming rich. That’s why we’ve bootstrapped our company. That’s why we’ve grown fast but not as fast as we could have grown.
Not everyone feels that way. That’s OK. Taking outside investment is OK. Trying to be a billion dollar company is OK. But if one partner wants that and one partner doesn’t, you’ll have a problem.
2. Startups Take Over Your Life
Running a startup is not like having a job or being a student, because it never stops. This is so foreign to most people’s experience that they don’t get it till it happens.
Like most first time business owners I was naive to this. When I left my job I figured I’d just work the same amount of hours but on my business instead of someone else’s business. It doesn’t work like that. Crazy things happen – your heater fails, you find out your accountant is ripping you off just before taxes are due, your server goes down and the guy that manages it doesn’t care, your server magically stops working on New Years Eve, or a customer rips you off for $6k.
It’s not always bad though. When sales are up you have to work more to fulfill orders, manage inventory, and answer customer questions. When you’re excited about a new project – like we were with the new Detailed Image site – you work every waking second.
Once you figure this out you’ll realize to work the rest of your life around it. You can still find time for hobbies, friends, family, and significant others. It’s just a little different than it is for people with regular jobs.
3. It’s an Emotional Roller-coaster
This was another one lots of people were surprised about. The ups and downs were more extreme than they were prepared for. In a startup, things seem great one moment and hopeless the next. And by next, I mean a couple hours later.
The emotional roller coaster that you hop on when you start your own business is unlike anything you’ve likely experienced elsewhere. If things are going bad, you start to question everything about your life and your business. If things are going good, you feel invincible. Sometimes even the most even-tempered of us can go feel both of those things several times over the course of a day. The more you grow, the lows become a little less, but there’s also more variability in your day because you’ve got more customers, more suppliers, and more employees that can throw a wrench in your plans.
4. It Can Be Fun
I’m surprised by how much better it feels to be working on something that is challenging and creative, something I believe in, as opposed to the hired-gun stuff I was doing before. I knew it would feel better; what’s surprising is how much better.
The lows suck. But the highs, oh the highs are unlike any other high. I’ve noticed that I spend less time on the hobbies that I used to get highs from – riding roller coasters, playing intense games of Madden, playing competitive sports, or planning crazy sports trips across country (my buddies and I once went to two NFL games in one day…one in St. Louis and one in Indianapolis). Instead I tend to get my adrenaline fix from our business. And it feels even better because it’s a productive high. I’m building something I believe in. Something that improves the lives of my partners, our employees, and our customers.
5. Persistence Is the Key
I’ve been surprised again and again by just how much more important persistence is than raw intelligence.
If you can find a way to stick to your business and adapt based on the feedback you receive from your customers, I can almost guarantee that you won’t fail. If you do fail, it’ll be because there’s some other extreme deficiency in your business. But most businesses that fail just give up too early. If you’re customers hate your product or service, adjust it until they like it. It’s an iterative process. It’s OK if you need to take a part-time job or do some consulting work on the side. We’ve changed course more times than I can count. Those discussions are never easy, but we’ve never once questioned whether or not we should keep going.
6. Think Long-Term
One reason founders are surprised is that because they work fast, they expect everyone else to. There’s a shocking amount of shear stress at every point where a startup touches a more bureaucratic organization, like a big company or a VC fund. That’s why fundraising and the enterprise market kill and maim so many startups.
Let’s say you have an e-commerce site like Detailed Image. Think about this – if you get five new customers a day for three straight years you’ll have 5,000 customers. Five isn’t that many. You don’t need a hundred different marketing tactics, just one or two. You can talk to each one individually. You can help them with their orders. You can listen to their feedback.
In a lot of ways, that’s how we built the DI customer base from the ground up. We sponsor a very select group of car forums that have users that are obsessed with taking care of their cars.
Now that’s a very basic example. Your business will probably grow in a lot of different ways, from referrals to search engine traffic, and many more. But it underscores a very important point – build with the long term in mind. Not next week or even next month. Find a way to build your business and your systems so that they’ll grow over a period of years.
7. Lots of Little Things
Most hacker-founders would like to spend all their time programming. You won’t get to, unless you fail. Which can be transformed into: If you spend all your time programming, you will fail
If you and I were to have a short chat about what I spend my time doing, I’d tell you all sorts of cool things like program our websites, plan future projects, improve the operations of our warehouse, and run my blog. It’s exciting stuff.
But at one time or another I have done (and probably will do again) the following around our warehouse:
- Scrub our toilet
- Sweep the floor
- Count inventory
- Unload shipments
- Pack customer orders
- Build shelving units
- And of course – clean up the bird shit that piled up outside of our shipping dock until we pestered the industrial park to remove the overhang where they lived.
And at times I’ve done a lot of monotonous computer tasks (i.e. data entry). You can’t act like you’re better than anything. If you’re business needs it, you have to find a way to get it done. Often times that means doing it yourself, especially in the beginning.
8. Start with Something Minimal
Build the absolute smallest thing that can be considered a complete application and ship it.
Seriously. Launch as fast as possible. Do the absolute minimum that it takes to get a product or service to market. Question everything. Do you need business cards? Do you need office space? Do you need employees? Spend as little money and as little time as possible. Everything will change once you have your first customer. Worry about scaling when it becomes a problem. Once you’ve iterated your product or service to a point where customers really love it, it’ll become self evident how to do that. Reader Jakob wrote me with a perfect example of how to start a profitable business with minimal effort.
This is also one of the reasons that I prefer to bootstrap a business (at least at the start). Bootstrapping forces you to question everything. With a million dollars in your pocket you might not be so prudent.
9. Engage Users
The surprise is generally positive as well as negative. They won’t like what you’ve built, but there will be other things they would like that would be trivially easy to implement. It’s not till you start the conversation by launching the wrong thing that they can express (or perhaps even realize) what they’re looking for.
No one cares about your business. They don’t. People are bombarded with marketing messages all day long. If you happen to find a few users/customers, make sure you listen to what they have to say. More importantly, make sure that you make it easy for them to say what they feel. And regardless of what they say, make sure you take the time to promptly thank them.
10. Change Your Idea
Fast iteration is the key to success.
Once you get that initial base of customers, you can’t be afraid to change your product or service (or your company as a whole) if that’s what’s necessary. Great businesses constantly reinvent themselves. We’ve had to do it several times. We went from a web-app, web consultancy, e-commerce company to solely an e-commerce company. We fired our clients and scaled back on our websites to focus solely on our e-commerce sites, primarily Detailed Image. Now that DI is in a good position, we’ll have opportunities to re-invent ourselves again and take some chances in some other industries.
Steve Blank said during a Stanford Entrepreneurial Thought Leaders class that the average start up goes through 2.3 business iterations. Each iteration you change your fundamental business strategy. I don’t know how one goes about getting that data, but it seems true to me based on what I’ve seen and done.
11. Don’t Worry about Competitors
Companies that seemed like competitors and threats at first glance usually never were when you really looked at it. Even if they were operating in the same area, they had a different goal.
This one is really hard. When I first started SportsLizard, I stalked every single competitor. If they came out with a new feature I panicked and changed my plan. Do the exact opposite. Force your competitors to react to you. How do you do that? Innovate based on what your customers tell you and what will work best for your business and not what your competitors do.
With Detailed Image, we barely pay attention to our competition. I don’t get their newsletters and I generally only check their sites when I want to know how they price a product. But they pay attention to us. They often react to our new site features or marketing initiatives with something similar of their own, even if it’s not what’s best for their business.
12. It’s Hard to Get Users
I had no idea how much time and effort needed to go into attaining users.
Like I said, no one cares about your business. Most people only have a few sites that they’re really active on. Sites that are part of their everyday lives. It’s really hard to start a new site and crack that routine.
You need to tell everyone all day long. You need to email a hundred bloggers sometimes just to get one response from someone who is interested enough to maybe write a post about your site. This is where that persistence really comes in. This isn’t natural to most first time entrepreneurs. It isn’t something you deal with at most jobs.
The one thing that’s helped me get over this was realizing that when people reject your business they’re not rejecting you. They might not even be rejecting your business. You might have just caught them on a bad day. Or during a busy week. Sometimes you’ll get the breaks and sometimes you won’t. Just don’t take it personally.
And as mentioned earlier, make sure you engage the users you do get. Especially in the beginning.
Oh, and since it’s so hard to get users, make sure you celebrate when you do. One of my fondest memories is when iPrioritize registered it’s 2,000th user. I remember grabbing a beer and just reflecting how much work that was. I had no marketing budget and I was able to get 2,000 people using my (very average – I can admit that now) to-do list application all by myself at age 23.
My partners and I celebrate the big milestones with a night out. We treat ourselves to a nice dinner – on the business. Well worth every penny.
13. Expect the Worst with Deals, 14. Investors Are Clueless, 15. You May Have to Play Games
In retrospect, it would have been much better if we had operated under the assumption that we would never get any additional outside investment. That would have focused us on finding revenue streams early.
These are the three that I know the least about.
We’ve never sought out angel or venture capital, but we have established a moderate line of credit with our local bank. It was a PAIN IN THE ASS. We’re profitable. We’ve grown fast. But since we’re an online business and none of us own houses (i.e. have assets the bank would want if we went under), the bank was only willing to give us a very small line, with most of it backed by the SBA. When we doubled in sales from 2008 to 2009, we asked for an increase and were basically laughed at. We went to another local bank who said it wouldn’t be an issue…and then proceeded to change their mind. We basically gave up and continued to self-finance everything, even if it slowed our growth a bit.
Be prepared to get jerked around by people who have absolutely no idea how your business works.
I encourage you to really evaluate whether or not you outside money. If you do, make sure you know what you’re getting into. Raising money can be a full-time job in and of itself. It can take a long time. And when you finally get it, there are strings attached. Go in with your eyes wide open. Talk to as many seasoned entrepreneurs, bankers, angel investors, and venture capitalists as you can.
16. Luck Is a Big Factor
If you think about famous startups, it’s pretty clear how big a role luck plays. Where would Microsoft be if IBM insisted on an exclusive license for DOS? Why are founders fooled by this? Business guys probably aren’t, but hackers are used to a world where skill is paramount, and you get what you deserve.
I re-connected with our co-founder and former partner George on MySpace while I was living in Connecticut. I signed up because I was having a hard time meeting people in my new town. This led to us hanging out when I came back to NY, and eventually starting a company together.
I got the idea to start SportsLizard after I failed at starting an eBay business selling sports collectibles.
I only decided to learn how to program after taking a information systems class in college that I badly didn’t want to take.
We probably would have run out of money had the negotiation for our first warehouse in August 2007 not fallen through over $50/month. Sales were slow that winter. We barely survived moving into our current warehouse in February 2008.
Just a few of the examples where luck has worked in our advantage. If you’re persistent, work hard, open yourself to opportunities, and treat people with respect, you’ll get lucky too.
17. The Value of Community
This is one of the reasons I like being part of this world. Creating wealth is not a zero-sum game, so you don’t have to stab people in the back to win.
Starting a business isn’t a common thing. Starting a web business when you’re in your twenties is even less common. Everyone can wrap their heads around someone who starts a restaurant or a bar. Almost no one can wrap their heads around someone who leaves their job to develop a web app.
The good news is that there is a lot of support out there. Young tech entrepreneurs tend to stick together. Online there are blogs and communities (check out the Brazen Careerist for a good start). I’ve developed several very good friendships with other business owners across the country through blogging about my experiences. I’ve made it a point to meet up with many of them in the offline world. We always bond instantly because we don’t meet many other people like us.
Which leads me to my most important point – online support is great, but you need a local community that can support you. People who understand your business and you can have real honest discussions with. I have one fellow business owner who I regularly meet for coffee. Another who I have lunch with every few weeks. I cherish those meetings because of how much support we’re able to give each other. Even if you live in a small town, find a way to get to know at least one or two business owners.
18. You Get No Respect
In social settings, I found that I got a lot more respect when I said, “I worked on Microsoft Office” instead of “I work at a small startup you’ve never heard of called x.”
Most people – friends, family, significant others, random people you meet – will think you’re crazy. If they happen to understand your idea, they’ll probably think it will fail. We’ve been very successful, but I still feel like most people don’t take our business seriously. Like someday we’ll grow up and get real jobs. That’s why having a supportive community is so important. You need it to balance out everyone else. Believe me, it’s much easier to just tell people “I’m an engineer and I work for [company everyone’s heard of].”
19. Things Change as You Grow
Your job description as technical founder/CEO is completely rewritten every 6-12 months. Less coding, more managing/planning/company building, hiring, cleaning up messes, and generally getting things in place for what needs to happen a few months from now.
There are so many different stages of running a business. During each one your life will be discernibly different. For us, it began with the startup phase where we were trying to define ourselves. Then there was this race to profitability where we knew what we wanted, but because we moved into our warehouse and expanded, we weren’t profitable. Then once we were profitable, there was the first hire. And refining some of our business processes. And now figuring out where we want to go from here. It’ll never end – it’ll just keep changing.
The good news is once you hit profitability (or ramen profitability I should say) and you can make a stable living, a lot of the pressure comes off.