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Do It Again!
Eugen BacicChief Scientist
Cinnabar Networks Inc.
March 19, 2003
© 2003 Eugen Bacic
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Who I am, What I did, Why I’m Here
Eugen BacicFounder TexarComputer nerdWorld renown IT security expert Raised $20M in 3 rounds across 4 yearsHired 100 peopleHad a blastThis is my [cautionary] tale
The Life of an Entrepreneur
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Life of an Entrepreneur
Desire to build a company to be proud ofWork with interesting people on interesting projectsChange the world in some wayMake a differenceBuild something coolRealize a dreamGet rich? Maybe. It's nice to dream…
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Life altering event
You won't be the same afterwards20 minute intervalsTravelStressFriends Need to go in knowing the odds
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You Have to be Prepared
It is so much more difficult than you can imagineExtremely tiringNo one will understandYou better have an understanding family, they have no choice but to put up with you!Joy ride…
HeavenHellFind out at the end…
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Timeline for a Start-up
IdeaBusiness PlanDog & Pony showsInvestment / FinancingStart-up!
Now the real work begins
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Now that you have the money …
Hiring & firingSetting up the company
LabsOfficesFinancialsSuppliersLandlordsetc.
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Endgame:
Three Possible OutcomesFailureSaleIPO
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Endgame: Failure
Easy to figure outEveryone losesShares become worthlessAsset saleIP? Who knows, different for each deal
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Endgame: Sale
Two types:Multiple of invested amount
Good all aroundEveryone wins
Sale at LossBad all aroundEveryone losesYou lose for sureInvestors are first up for any value that can be extrudedCreditors and employees, etc. are at the bottomSimilar to asset sale
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Endgame: IPO
VCs and other big investors win bigFounders may win someEmployees get someIf you get really lucky (and big) everyone gets really rich (see Microsoft)Least likely scenarioIt’s the dream scenario
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At the End…
Would you do this with those folks again?
Yes? regardless of outcome? Congratulations!
No? Why were you in business with those people in the first place?
Highlights, Lowlights, & Dynamics
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Highlights of a Start-up
90% or more of start-up companies failNo slack for successEverything has to go rightMistakes will be made
They use up slackThey are inevitableIf they use up too much slack (and goodwill) you're toast
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And This Life is Hard
No matter where you are on the curveOdds are lousy90% still failIf you're not profitable you're at the mercy of investorsCustomers have no pityDid I say 90% fail?
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And Even When …
You think you have everything you needExternal forces can cripple you
Adoption ratesThe BubbleThe Market
Texar did better than mostLasted 3 years from financing4 years from product inceptionPart of the technology lives onToo far ahead of the curve
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Focus is Paramount
Focus, focus, focusAlways ask:
Will this help you succeed?Will this materially affect our chance of success?How many customers will we lose if we opt to do X?
None? okLots? don't do itWill it gain customers do it
Constantly question deviations
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Revenue is King (again)
Longer it takes the worse it'll bePartners are Crucial
Get good partners earlyCan't guarantee success but bad partners can guarantee failureUnfortunately, you can't easily determine who is a good partner and who is a bad oneHence: end bad relationships early
Partners facilitate revenue generation
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Group Dynamics
Everyone must be focused on the same goalsEveryone is a critical resource!
Engineering MarketingSalesFinanceProject managementPersonnel…
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One For All …
Everyone pitching in where neededNo one is deadwoodIf they won't play for the team, get rid of themYou have to be brutalThose on the bus need to be willing to do what's necessary for the companyIf someone is in it for themselves they'll be disruptive –toss themCompany first all of the time
Business is not about fair
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Sharing the JoySharing the Pain
Trials and tribulations are sharedHighly likely that if a few go down, we all go down
We have tied our fortune to a single boatWe do have all our eggs in one basket
Yes, it’s risky – not everyone is cut out for thisEverything is very energeticEveryone is empoweredDecisions are made at all levels all the timeNeed to trust everyone to do the right thing
Building the Company
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“Evil Necessities”
SalesMarketingFinance OfficerProject ManagementProduct ManagementProfessional ServicesR&D / EngineeringQuality AssuranceAdministrative Staff
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Hiring & Firing
Most crucial thing you’ll probably every doNeed to hire only the bestIf it’s not a slam dunk, don’t hireIf you have to fire someone, do it as soon as possibleThink hard about hiring friendsThink doubly hard about relativesAlways think: value add
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Sales
Sales people are crucialIf you can’t sell, hire someone early who canHold them to numbers and promisesKeep good salespeople and toss the restHow can you know a good salesperson?
Easy… let me count the ways…
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Marketing
Do you need it?What do you think?
Now I’ll tell you what I think…
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Finance
Money is kingIt’s precious, treat it as suchDot Coms blew hundreds of millions eachBe brutally honest:
Do you need that gizmo?Can you do it more cheaply?Are you as frugal as possible?Where can you realistically cut costs?
You really need a good Finance Officer
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Product Management
Crucial liaison between techies, management, and customersPrecludes need for professional servicesA good one is literally worth their weight in goldThey are rarer than emeralds
If you find one, don’t let them go!The good ones are easy to tell – once you’ve experienced the bad ones, that is ;-)
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Project Management
Founders usually aren’t process drivenProcess is crucialToo much is deadly, so is too littleNeed someone who is a detail personMust be sufficiently technical to understand what’s going onNeeds to be able to develop a process for development and for deliveryWill work with QA and Sales and later, PS
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Professional Services
You will need it …But the question is when!
Not early on:What are they servicing if the product isn’t done yet?What value add are they giving you?What can they do that R&D or QA staff can’t do as well?Be frugal, be cheap, every dollar you save is an extra minute of life…
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R&D
Hire the bestCan’t? Don’t hire anyone
Why?R&D makes or breaks a company
More on this laterTechies need to be controlledControl must come via respectRespect comes only from those that have done it before
Never put a sales guy in charge of R&D!
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Development vs. QA
50:50 effort You need good QA people and good QA toolsDon't listen to those that say otherwiseTools to assist QA-development loop increase productivity and limit costFirst to market is still crucialSenior vs. Junior QA resourcesQA Manager
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Quality Assurance
Need to continually raise barQuality may be your only differentiatorAs a small company, if your quality sucks you won't have buyersYou are not MicrosoftTrying it out on the customer will inevitably backfireRemember: "Their bug is our bug!“Never put a sales guy in charge of QA!
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Administrative Staff
Admin AssistantIf you want to get work done, hire one earlyIt’s simple economics:
Engineer @ $100k photocopying is badEA @ $35k photocopying is betterEA sending it to Business Depot is best ;-)
SchedulingTravelLogisticsDealing with and coordinating staffing, etc.
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Administrative Staff … 2
Other positions of interest:ITHRComptroller
Which do you think you need?
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What about Executives
VCs will want to install executivesBe wary:
Not all executives are worth itBig company executives Start-up executives
Running it yourselfInstalling additional senior staffIs it ever time for an external CEO?
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Structure of the Company
Don't fixate on titlesUse them for outward facing necessities
CEO, CTO, Director, etc.Keep your organization flat
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In the Beginning …
Initially you’ll need:CEO/PresidentSr. SalesR&D and QA headsProduct ManagerProject ManagerAdmin (Executive) AssistantFinance OfficerR&D and QA teamsIT Admin
Business & How to Lose It
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Annoy a User –Lose a Customer
Surprising how easy it is to lose a customer:Slightly distracting "cosmetic" defectToo many steps in common taskMildly surprising UI interactionUnexpected error messageBrowser, OS, file system, compiler problemsBad internet weather
You need to make it easyUsers use computers in ways computer scientists would never fathom
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Things Everyone Does Wrong
Competing with the wrong competitor Not doing the little things competitors doUnderestimate how long things will takeBelieve you’re smarter than the competitionHow long can it take?Lose focusGet it to work on only certain hardware Assume developers will flock to youNot thinking like a business
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Ease of Use
Very importantThink Mac vs. WindowsGetting customers/users is very hard, you can't afford to lose them.Easy for whom?Assume nothing!
assume the customer hasn't read the manualmake it as fool proof as possibleassume they'll do stupid things and plan for it
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Going Off the Chosen Path
Once you've picked a path stay on itEschew anything that doesn't add to the user experience and that the user will pay for!
Don't waste cycles on "cool" Start-ups are smallFocus on what needs to get doneKeep focusEven so you'll go off on tangents, but at least you'll do so less often
If it isn't core to the company's business, toss it
Puritanical Techie-ism
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KISS
Choose a platform and stick to itThink it through and choose a platformIf you need to use something exotic, hide it initially
Use as many standards as possibleTry to foresee and use forthcoming standards
You may end up betting the company on them,Anything with XML is a safe bet
Build only when necessary
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Product Functionality
Useable or disgusting ? So long as it works!Focus on customer needsMake it work, fix it laterIf customer can't use it in his environment he won't
Worst case is always:Loss of saleLoss of reference accountPeople talk
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Think Things Through
Latency through networksLatency through firewalls and VPNsPlan on large numbers
It should scale earlyCustomers won't wait for you to get it to scale later
Think about this and come up with a solutionThink hundreds or thousands of users/computersThis will (usually) be a key differentiator
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Leverage
Leverage free performance upgrades:Improved VMsImproved serversBetter hardware
Do whatever it takes to keep yourself in the leadThink about it and be prepared to go there when necessary
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Rules of Optimization
Rule 1: Don't Optimize.
Rule 2 (for experts only): Don't Optimize, yet.
VC Speak
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Investors
Self fundingAngelVenture capitalistsFriends and family
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Valuations
You wont' own a huge percentagePre moneyPost moneyCrunch downDown roundsInfluencers:
Cash flow positive as quickly as possibleRevenue positive Barriers to entry
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Your Dream
Does it fit with your visionwho cares: customer pain = revenue
Nerds are rarely right (unfortunately)Are you likely to be right first time, no; 3rd time? yupValidated by competitors
competitors are a good thingvalidates spacemakes VCs happyencourages new money, etc.gets marketing going – magazines talk about it
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Darth Vader: Venture Capitalist
I find your lack of faith disturbing.No one will stop us now.I am altering our deal. Pray I don’t alter it any further.The Emperor is not as forgiving as I am.Don’t fail me again.Perhaps I can find new ways to motivate them.I’m here to put them back on schedule.
The Obvious
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Some Things Should Be Obvious
Make sure your product is actually used by customersCall and checkOffer helpAsk if they have ideas for new featuresBend over backwards to ensure customers use itYou'll lose money on the first N transactions
Who cares!You want customers that gush over your productThey won't if they don't use it
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Love the End-UserBe the End-User
Eat your own dog food : Be that End-UserEnd-user experience improves the productEnd-user experience provides credibility to:
Bank onIndustry ragsPotential customersInvestorsPotential partners
Your biggest fear should be shelfware
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How to Do Things Right
Pick the right application early onStumble upon it if necessaryListen to those strange, crazy ideas, they usually come from customers who have problems
solving those problems = salesso long as you can equate the solution to an ROI
Try ideas on potential customersMake sure they get it FAST
Easy, right?
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If Possible: Sell a Platform & an Application
But what about focus?VCs say choose one or the otherNot usually necessaryObviously depends on the applicationApplication has bigger market potentialPlatform is a steady source of revenue
Investors will be schizophrenic on this subjectSell the platform as a licenseFind ways to leverage what you've builtDon't be afraid to sell to competitorsThink "lock in"
Hard to sell infrastructureBut if customers buy the infrastructure you really have them
Questions?
