August 29, 2007 by Akira Hirai
Entrepreneurs – especially software entrepreneurs – often overestimate the resources they need to launch their ventures. This problem can usually be traced to one of two causes:
The first cause is when the entrepreneur envisions building and launching something that should be Version 4.0 of their product to market, rather than a bare-bones Version 0.2. Do you remember what YouTube, Facebook, and MySpace looked like the day they launched? They were much simpler versions of what they are today. Jason Fried, founder of 37signals, makes a great case for Less as a competitive advantage.
The second cause is that many entrepreneurs – especially older entrepreneurs and those without technical backgrounds – do not realize that much of what they need is now cheap or free. Paul Graham writes:
“Startups will be ever more common because they’re now so cheap to start. In most of the startups we fund, the biggest expense in the first year is simply food and rent. It costs little more to start a startup than to hang around doing nothing. And instead of having to go work in a cubicle in some office park, you get to work with your friends on your own project. If you succeed, you get rich. Altogether it’s a pretty attractive prospect to someone in their twenties.”
In the end, many would-be entrepreneurs spend a ton of time trying to raise capital, when they really should focus on developing and launching their technology so that they can validate their market.
Of course, just because doing an Internet startup is relatively cheap and easy these days, it doesn’t mean it’s always a good idea. It’s still worth spending some time doing a feasibility analysis by trying to answer the Ten Big Questions.
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August 29, 2007 by Akira Hirai
If you are an entrepreneur, then Paul Graham is somebody you should listen to. You can read his essays at http://paulgraham.com/articles.html. Here are just a few of my favorite passages:
“What matters is not ideas, but the people who have them. Good people can fix bad ideas, but good ideas can’t save bad people.”
“Financially, a startup is like a pass/fail course. The way to get rich from a startup is to maximize the company’s chances of succeeding, not to maximize the amount of stock you retain. So if you can trade stock for something that improves your odds, it’s probably a smart move.”
“There is more to setting up a company than incorporating it, of course: insurance, business license, unemployment compensation, various things with the IRS. I’m not even sure what the list is, because we, ah, skipped all that. When we got real funding near the end of 1996, we hired a great CFO, who fixed everything retroactively. It turns out that no one comes and arrests you if you don’t do everything you’re supposed to when starting a company. And a good thing too, or a lot of startups would never get started.”
“Once you’ve got a company set up, it may seem presumptuous to go knocking on the doors of rich people and asking them to invest tens of thousands of dollars in something that is really just a bunch of guys with some ideas. But when you look at it from the rich people’s point of view, the picture is more encouraging. Most rich people are looking for good investments. If you really think you have a chance of succeeding, you’re doing them a favor by letting them invest. Mixed with any annoyance they might feel about being approached will be the thought: are these guys the next Google?”
“There is nothing more valuable, in the early stages of a startup, than smart users. If you listen to them, they’ll tell you exactly how to make a winning product. And not only will they give you this advice for free, they’ll pay you.”
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July 31, 2007 by Akira Hirai
We’ve seen hundreds of spreadsheets, and frankly, some are just painful to look at. In our experience, an excellent model is both “correct” and “user friendly,” and typically exhibits the following characteristics:
- Generates useful insights that the intended audience(s) can quickly grasp
- Engenders confidence that the model is working as intended
- Easily understood and manipulated by its intended audience(s) without requiring extensive modeling experience (e.g., all assumptions/inputs are segregated and identified, rather than buried within formulas)
- Easily modified and maintained by its owner as the underlying conditions change
- Focuses on the big picture and gives priority to the most material aspects of the business by employing numerous simplifying assumptions and by relegating details to separate but related sub-models
- Based on reasonable and justifiable assumptions
- Based on logically correct economic and financial principles
- Avoids errors of implementation, such as incorrect or overly complex formulas
Quite often, it is difficult for the author of a spreadsheet to look at their own work objectively and decide whether or not it meets these criteria. When in doubt, have a colleague perform a thorough audit of your work before showing it to your intended audience.
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