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The zero-cost entrepreneur

This article was originally posted on swombat.com in December 2011.

If you try to sell things to businesses (as I do in the context of GrantTree), you’ll notice a split in the mindset of people who run companies.

“Can I have it for free?”

Some people are unwilling to pay for anything. No matter how appealing the product might seem, how tangible the benefits it brings, how proven, safe, secure, universally lauded the product is, some people will try to get it for free, and not buy it if they can’t.

Even if you’re providing a service (which, as I’ve argued before, has immediate tangible value in most people’s minds), they will ask if you can do it for free. Or at a 90+% discount. Or maybe you can get paid later.

In the worst incarnation of the zero-cost entrepreneur, you find people who will offer you shares in their business in exchange for your work. I call this one the worst, because I feel very strongly that founders should treasure their shares like the precious life-blood they are. Also, as previously pointed out, experienced entrepreneurs know the value of equity and preserve it. If someone offers you shares in exchange for your work, they obviously don’t understand the value of their own equity – or perhaps they just think their equity is worthless. In either case, their equity is indeed mostly worthless.

This zero-cost entrepreneur mindset is more likely in young businesses by new entrepreneurs, than in later efforts. As a business grows or an entrepreneur acquires experience, a seemingly magical transition occurs. Most businesses come to a point where they decide that spending money for tangible benefits is fine. Before: “no way, we’re not spending anything on recruitment, where can we advertise for free?”; after: “$350 for a Stackoverflow advert is fine if it will give us a selection of good candidates”.

Even more dramatically, the mindset shifts from “we want everything for free” towards “stuff that’s given away for free isn’t really worth anything”. This is somewhat similar to the App Store mindset that free apps are worse than paid apps, so don’t even bother looking at the free apps, because your time is more valuable than the $2 you might save.

GrantTree charges a refundable setup fee to get started (2018 update: we haven’t done so for a long time! The market moved…), and while we’ve had people tell us they didn’t want to pay it (they didn’t become our clients), we’ve also had others telling us that if we hadn’t charged them a setup fee, they wouldn’t have taken seriously (they did become our clients).

So, what’s the deal here? Is one mindset better than the other? Are zero-cost entrepreneurs “bad”? Should they be lumped in with people who offer up equity for bits of work that really don’t deserve it?

Credit cards and paying for things

Here’s an interesting parallel with the domestic world. On a personal level, people often evolve through (at least) three phases of credit-worthiness.

First, people (at least in the UK and US) often get credit cards before they’re ready for them. What happens then is sadly predictable: they overspend and get in debt. A lot of people never seem to get past this stage 0 of financial responsibility by themselves. They stay in debt, let their debt balloon, maybe declare personal bankruptcy, and at that point, they’re forced by the system to go to stage 1: learning to be on top of their expenses (because they can’t do anything else, since they have no credit).

In stage 1, the person learns to be financially responsible, to manage their expenses tightly enough to make sure they can always pay their rent and other essentials. Finally, once a level of confidence about personal cash flow management has been built, they can progress to stage 2: responsibly using advanced financial instruments like credit cards (which is possible!).

The evolution of business owners seems similar, with perhaps fewer people stuck on stage 0, at least in the parts of the world, outside the Valley, where money is scarce (I don’t have enough direct experience of SV startups to comment here, although it does seem that they are quite willing to take on large fixed expenses without any way to sustain them other than raising further investment).

Stage 0 being a willingness to spend without control, stage 1 is the time when control is built, when founders learn how important it is to keep track of cash flow, reduce fixed expenses, etc. Since this new control is a reaction to a fear of stage 0, it is often an overreaction. “Since keeping on top of expenses is difficult, let’s not spend anything”.

Is it unhealthy? No, I don’t think so. If you don’t feel confident managing your cash flow, it’s very reasonable that you should cut down your expenses as much as possible. This is why investment is dangerous to new founders: it enables them to let their expenses grow without learning the hard lessons of keeping on top of cash flow. Perhaps this also explains why so many Silicon Valley VCs feel compelled to bring in a “grown-up” to manage the business more closely, when they invest a large sum into a promising startup.

Evolving

At the same time, I think it’s important not to think that stage 1 is the best place to be. Overreaction is not a healthy long-term lifestyle choice.

The healthy path is, as always, in the middle. You do need to be on top of your cash flow, but spending when it makes sense does, well, make sense.

If you can spend $100 and save yourself a day of work, you should not hesitate to do so. Even if your company is pre-revenue (perhaps especially so), being able to move quickly, when you know where you’re going and how to get there without falling, is important and worth investing in. Learning to leverage your cash reserves to generate more income faster is as essential as learning to keep cash in the bank.

There are many things that need to happen in a business, and most of them are not critical for you to do personally. For those, you should bring in other people or products, and if you want good work out of them, you’ll have to pay for them.

So, I guess the take-away from this article is:

  • being out of control of your spending is bad;
  • cutting down your spending to the minimum is a natural reaction to the fear of being out of control, and you should keep costs as close to zero as possible until you are in control;
  • the best situation is to be in control and have the willingness and judgement to spend money where it makes sense, rather than try to keep every cost to zero forever.

Thoughts from 2018

This article has aged a little, particularly the reference to setup fees, which we haven’t charged for quite a while now (without losing the clients we wanted to work with!). I also would argue that it’s oversimplifying things a bit in some ways. I chose to repost it anyway because I think the concept of zero-cost entrepreneur is valid and exists in the world and it’s helpful to be able to identify that this is the sort of person you’re speaking to.

A startup escape path

This article was originally published on swombat.com in December 2011.

Today, right now, what is the best path out of the corporate world and into startups? What would I advise myself to do, 5 years ago, if 5 years ago was today?

Let’s start with some assumptions:

  • I am in a corporate job (for example, Accenture);
  • I am nowhere near ready to be an entrepreneur; when it comes to startups, I have absolutely no fucking clue what I’m doing and by default, I will make every mistake in the book;
  • however, I really should be an entrepreneur; given time, I will be successful; I just don’t know the best way to go about it;
  • importantly, I am not based in Silicon Valley, or, for that matter, connected to the startup scene anywhere, since I’m still a lonely corporate drone;
  • maybe I have some technical skills, maybe not; in either case, my technical skills, if any, are geared towards the corporate world (e.g. Java/J2EE, Enterprise .NET, etc.) rather than the startup world (Rails, MySQL, node.js, etc.).

It’s a wild guess, but I imagine it covers 90% of the western world’s potential entrepreneurs. After all, the default for smart people is to do a degree and then end up working in a bank, law firm, consulting company, etc. So most smart people end up working in large corporations. And yet most smart people would be able to run their own business if they knew how.

What’s the default case for a transition from this set of assumptions to “entrepreneur”?

Failure. Dramatic, disastrous failure. The kind that hurts and leaves scars.

Running your own business is an entirely different proposition than working for someone else. There are lots of things you need to learn, hangups you need to get over, habits you need to form, in order to have a chance at being successful. Even then, there’s no guarantee of success, but without those key building blocks, you might as well roll some dice and hope for a 12.

So, with that being said, what would I advise someone fitting those starting conditions, in order to smooth the transition and maximise chances of not breaking one’s teeth on the first attempt?

This is the “startup escape path”.

Where several choices are possible, I’ve chosen what I believe to be the best one. Others will disagree. For example, some might think that working for someone else’s startup is a better learning experience than running your own thing right away. It’s their right to do so. I’ve picked one path that I believe is the best.

The first step into the startup world is to get the hell out of that corporation that’s sucking your soul away and grinding it into shareholder dollars. However, most people aren’t ready for that transition. So step one is to get ready.

The key at this step is to make up for all those great big blind spots that will kill your fledgling company and send you back to the corporate world with your tail between your legs. This is what these tasks are geared towards. All of this stuff can be done on the side, while holding a full time job. The only parts that are time-consuming are the learning parts.

  1. Register a business: it will come in handy later. Figure out what the law requires you to do to be a business owner, and do it. Make the business active, not dormant, even if it doesn’t do much.
  2. Connect to the local startup community: The number of things that can kill your startup is truly astounding. You won’t know about them all, but having a good mentor can save you repeatedly. You won’t be able to get a mentor right away, until you’re someone worth mentoring, but you should at the very least start turning up to local entrepreneurial events so you know what’s out there. Don’t be a blowhard or a showoff, just be your humble self: you may have just spent 5 years at McKinsey and got a top MBA, but there’ll be 19 year olds at those meetups who are a million times better at building cool startups than you’ll ever be. Learn to be honest or you won’t get honest advice.
  3. Read Hacker News regularly: and subscribe to a few great startup blogs. There’s a lot to learn in the startup world, and HN and other key blogs will help you to get up to speed.
  4. Build something someone uses: Learn some basic coding skills in whichever “hot” technology you like (these days: node.js and iOS are the hot shit). Build something, anything, that at least one person other than you finds useful enough to use it at least 5 times. It doesn’t have to look good or change someone’s life. In fact, it shouldn’t. Just find someone with a problem that recurs every once in a while and build something that solves that problem for them. Learn both how easy and how hard that is.
  5. Build something that you will continue to use: Find a problem in your life that recurs regularly, at least once a week (bonus points if it’s every day), and build some kind of solution for it that only you will use. The important thing for this step is that you will continue to use it for a long time, so you learn how important it is not to write shitty code that can’t be maintained. Afteryou’ve run this thing for at least a couple of months (not before), do some serious googling and find the 10 solutions that others have come up with for this problem, and compare yours to theirs.
  6. Start a blog: being able to express yourself in writing is not optional. Your blog might suck, and that’s ok. You’re not trying to become the next John Gruber, you’re trying to become an entrepreneur. Post something to your blog every day, no matter how short. Don’t worry about people thinking you’re stupid: no one will read your blog anyway. At the same time, try to get people (e.g. from the #startups channel on Freenode or from r/startups) to read some of your stuff and give you feedback.
  7. Write something that Hacker News will vote up to the top 5 of the front page: the bar is not as high as you think. Getting over that hurdle will make you more confident about engaging with other entrepreneurs and testing your opinions in public.
  8. Sell something online: create something, or buy something you can resell – whatever. Build a page that sells at least one thing profitably, even at extremely low volumes. You can start unprofitably, but eventually you should make a profit (not counting your time, of course), even if it’s only 1 cent.
  9. Sell something intangible in person: even if it’s not worth your time, sell something to someone who’s not a friend or family member. Being able to convince someone to buy something from you is an essential startup skill. Note: selling a car or other physical item doesn’t count. It has to be something that they can’t touch, or that you made yourself.
  10. Come up with 10 ideas: break them down into at least one full page of hypotheses. Pick the best 3 that don’t require a lot of “blind work” upfront. Blind work is the work that happens before you’ve validated that there is a market.
  11. Invalidate those 3 ideas: go through the hypotheses until you either realise that they will work, or realise that they won’t or aren’t worthwhile (or aren’t exciting enough to you). There are lots of ways to validate ideas listed on swombat.com.
  12. Repeat 10 and 11 until you have something that sticks: eventually, you’ll stumble into something that people actually want, and which is generating recurring revenues, however small. Once you’ve achieved that, celebrate, and then jump off the corporate mothership.

You may still splat yourself on the ground even after all this. There’ll always be risk. The parachute is by no means guaranteed to open, and despite all these steps you will still probably make some really basic and avoidable mistakes (though if you have built a good and honest relationship with a more experienced startup founder by now, you might avoid most of them).

But you’ll certainly be head and shoulders above the average “I just quit my job, what do I do?” train wreck.

There’s no speed limit on this startup escape path, but I would expect it to take 6-12 months if you’re going about it deliberately and with some energy.

I hope this helps someone.

Thoughts from 2018:

Some of the linked resources are no longer as relevant today as they were 7 years, ago, but on the whole, I think this article still presents a useful path to getting out of the corporate world into startups, and would still recommend it to people who want to follow this path.

Productised Services

This article was originally published in 3 parts on swombat.com in December 2011.

One of the most fundamental decisions when deciding to start a company is whether you will sell a product or a service. Most people will immediately pipe up that products are the best, but that’s not so clear. It’s not even clear that the devision is so binary. There is a third alternative: productised services.

In this series, I’ll explore the difference between products, services, and productised services, and offer some tips for how to productise a service (or service-ize – sorry for the butchery – a product).

Product companies

Classic product startups are things like Basecamp. Sure, it’s sold under the moniker “Software as a Service”, which muddies the discussion a little, but the key product property of a product has is that additional sales require a minimal amount of additional skilled time to deliver. There are support costs, server setup costs, etc, but those are marginal compared to a specific sale. On average, each sale has a fixed delivery cost associated with it and requires no human interaction to deliver the benefit to the customer (though the sales process maybe very time-consuming, but that’s another discussion).

The benefit of selling products is that if you build the right kind of product, and particularly the right kind of technology product, it scales tremendously well. If 37signals gets demand for a million new basecamp accounts at once, they should be able to ramp up the server infrastructure pretty quickly and capture that business, rather than turn them away. Services companies can’t do that. A services company with business than they can handle will either turn away customers, or ask them to wait, or raise their prices (same as turning away customers), or even just take the business on and deliver a poor service.

Another benefit is what I call the “making money while you sleep” paradigm. Since there’s little or no human element in the delivery of the product, you can go to sleep, wake up, and find that you earned money while you were sleeping. That’s a great feeling, not to be underestimated as a feature of products – although in theory, once a services company gets big enough, you will essentially arrive at the same point: others work and earn you money while you sleep.

The big downside of product companies is that it can be very hard to validate demand for your product, and until you’ve done that, you don’t know whether the product is worth building. Many people skip the validation step (because it’s hard) and end up building worthless products that don’t sell. Others take too long to build the product (can especially be the case for web startups), or fail to build it quite right, or are beaten by strong competition. Many of the best product markets are winner(s)-take-all markets, where one or a few large successes will reap most of the business, and the rest will be left with crumbs.

Another big problem with products, particularly intangible products like your typical SaaS app or music track, is that people don’t value those very highly compared to physical products. App developers rightly bemoan the fact that people will spend hours deciding which of three 99 cent apps they will buy, and then walk into a Starbucks and spend $5 without even thinking about it. So another problem with intangible products is that it’s hard to get people to pay a high price for them, so you need to sell to lots of customers to make a profit. These two factors rule out direct sales methods and mean that you need to be able to market your product to large numbers of people cost-effectively to stand a chance. By comparison, a high-price item only needs a few sales a month (or even a year) to be profitable, at least when the business is small.

So, basically, products have a lot of uncertainty in terms of whether anyone will want to buy them, and can have a fair bit of upfront expense before you find out whether your effort so far was a waste of time and money (even with lean methodologies, there will be some waste and dead-ends).

Services companies

Services companies are much better and much worse than product companies, depending on how you look at them.

The classic example of a service company is a consulting, web development or design agency (like, oh, 37signals – but before they built Basecamp). Essentially, a services company trades skilled time for money in a mostly linear way.

There are great benefits to services. First, you can often ask for a significant chunk of the money upfront. That’s great for cash flow, and not to be underestimated. It means that services companies very rarely require investment to take off.

Secondly, you know pretty much right away whether anyone wants to buy your time, so you’re not sitting for years waiting to find out if you have a business. It can take a few months, or even years for sales to ramp up to a level where the business can be called “alive”, but sometime in the first few months you should start to see significant amounts of cash coming in. If you don’t, you’re probably selling the wrong service, or selling it very, very badly.

Another good thing about services is that people instinctively understand that skilled time is worth money, so whereas convincing even a 10-people company to spend $200/m on a web product might be a tough sell, they will not hesitate to spend a few thousand dollars on the right service. And before you say “but the $200/m comes in every month forever”, first of all, that’s ignoring inevitable churn, and secondly, most businesses would (and should) rather have $3000 upfront than $200/m for 18 months, even if the latter is slightly more.

Finally, one last benefit of services is that services markets are often very fragmented, so it’s much easier to build a moderately successful company in that kind of market. There are very few winner-takes-all services markets. Most of them look a lot like accountancy and consulting: a handful of huge mega-firms, a bunch of very large firms, quite a few large firms, and lots and lots of small firms. It’s much easier to get a foot in the door and build a sustainable business in this type of market.

On the downside, services are very hard to scale. Since you’re selling skilled time, and you only have so much of that yourself, you need to hire other skilled people in order to scale. The maths for that just doesn’t work in your favour until you get really big (see this article by Jason Cohen for details), and getting really big is really hard, because you need a lot of smart people, and smart people are rare and expensive and hard to recruit.

Another problem is that services have much lower gross margins, because part of your variable cost (i.e. the cost that is attached to delivering the service) is skilled people’s salaries. As long as you’re the only person working in your company, the margins look great because it’s all profit for you, but as soon as you have to pay someone else, suddenly you find those margins dwindling rapidly. By comparison, with a product, your gross margin can and should be extremely high – 80, 90, or even 95% in some cases.

Finally, services kind of suck because they take constant effort. Most services are not recurring, so you have to keep selling. People leave your company, so you have to keep recruiting. New people don’t know what they’re doing, so you have to keep teaching and training. If you stop doing any of those things, your company can develop deadly problems very quickly, like a diminishing sales pipeline, running out of people at a given skill level, or even running out of cash. Those things are hard to delegate until you get bigger. And getting bigger is really hard.

The third alternative: productised services

First of all, what is a productised service? It’s a service which you’ve systematised and supported by tools, automation, processes, etc, so that you’ve decoupled the benefit given to the client from the amount of time spent on your side. In other words, whereas in a services company the ratio of X units of time for Y units of income is relatively fixed, in a productised service, X/Y can be all over the place. Some clients will be extremely profitable, and others less so (but still worth serving – otherwise, turn them away, of course).

Accounting services are a great example of productised services. Though many accountants will charge for time above and beyond their “standard service”, most of them have packaged things like “yearly accounts” or “VAT returns” into a fixed price deal. This leaves them free to optimise the delivery of those services so that they take a minimum amount of time, while still charging the client the same amount.

Even large consulting companies, like Accenture, try to productise their services. Back when I was there, Accenture was very keen to sell what they called “Managed services”, where they would take over an entire function of the business and deliver it for a fixed price, enabling them to manage the costs internally and deliver the service in an efficient way without undercutting their own revenues.

Productised services don’t have to, and in many cases, shouldn’t, be marketed as such, or else clients may try and push down your prices if they think it doesn’t take you that long to deliver (conveniently forgetting the time it’s taken you to systematise the service so it can be delivered more efficiently). “But you’re getting a lot of value out of our service” doesn’t always work, especially not with smaller companies, so think carefully before marketing your productised service as such.

Productised services have a number of advantages. Similarly to products, they can scale much more easily than services. Once a service is properly systematised, it is easier to actually carry out, which makes recruitment much easier, since you don’t need your people to be as highly skilled. You won’t be able to deal with a sudden million orders, but you can ramp up capacity pretty damn quickly if you need to.

Like products, the margins can also be quite high, because most of the time-consuming parts of the service have been automated or simplified so that the human time spent is small compared to the return. Unlike products, however, the process doesn’t move along without human involvement, which means you have to keep working on it – but you can structure productised services so that there is a recurring component, which provides similar benefits.

Since this is a service (and perceived as such), people naturally understand the value of it and are willing to pay real amounts of money (in the thousands or tens of thousands) which they would not be likely to throw into a product by a small company.

Because it is a service, unfortunately, you must do the sales directly – it is difficult to sell services without any salespeople. However, the advantage is that you can tailor your pricing to the type of client, and how much value your productised service brings them. If your service will provide £100k of value to one client and £1m of value to another, it stands to reason that your proposal for the second client will have a markedly higher price tag than the first (which might be based on a percentage, or some other calculation method). This is difficult to achieve with most typical startup products, since you often don’t know who you’re selling to until too late.

Finally, another advantage of productised services over both products and services is that they can be taken in either direction if needed. If customers start to require a lot of bespoke work, you can evolve towards a normal service model. If, on the contrary, the customer base just keeps growing, you can automate more and more of the service until it becomes self-service. This makes productised services a great way to kick off a product business, by generating these product-related revenues early on and using them to continue building out the self-service aspects of the product (in effect cannibalising your own service with your product).

Productised services are not good at all stages of a company. Google could not and should not run AdWords as a productised service, for example. At that scale, you need maximum automation. But they could have done so in the early days of AdWords. Nor are they always possible in the very early stages, before you have any idea what your market wants (but then, why are you starting a business in that industry?).

I’ll address the paths to a productised service, from either a product or a service, in later articles, but hopefully in this article I’ve made the case for why there is a third model, which sits in between products and services, and which should be worthy of your consideration when trying to figure out how the hell you’ll get your company off the ground, particularly if you’re a new entrepreneur and are taking my advice to stay away from investment until you have your basic business skills figured out.

Thoughts from 2018:

This article still makes a lot of sense today. The fundamental business forces have not changed. The benefits of each kind of business are still the same.

Startup gung-ho

This article was original published on swombat.com in November 2011.

Businesses, investors and consumers alike are gregarious. They want to go where everyone else is going. They want to buy success, from successful companies.

This leads to a perversion that affects the startup world as well as the rest of the business world: the need to appear more successful than you are, in order to get business, investment, customers.

This is not entirely artificial. Building a successful business is also about being able to project the right image to appeal to customer, and an appearance of success is part of that. Fake it till you make it, as they say. People don’t want to buy from or invest in a dying company, so you’ve got to look like you’re doing great, even if you’re an invoice away from technical bankruptcy.

But there’s a reverse side to that, which I believe is harmful to some startups: this projection of fake success extends to meetings with other startups and potential mentors at networking events, and because of that, founders who could really use a good dose of advice from a more experienced entrepreneur end up flying blind and making all the same mistakes again.

Startup networking events

When I turned up to my first startup networking event, I didn’t know what to expect, so naturally, I turned on the “we’re doing great” façade (which, I quickly observed, everyone else did too). Isn’t it amazing how, in a high-risk industry where most companies are expected to fizzle out in the next few months or years, everyone is doing great, growing fast, acquiring more users, etc? How often do you meet a new founder and hear “Yeah, well, I’ve been at this for 9 months and our revenues are still way too small, so I think I’ll be throwing in the towel and trying something else soon, because this isn’t working.”

Another aspect of this problem is that once you start putting up the appearance of success, it becomes very tempting to do so consistently, with everyone. Anyone could refer you to some business, after all, so you have to be on your toes all the time. Otherwise, you might miss out on some great opportunity that would have come your way if only people thought you were doing well. At least, that’s how it often feels.

To make matters worse, if you introduce yourself by presenting what’s wrong with your business, people will peg you as a negative type, and that’s not the kind of founder people think of as being headed for success. No, you have to be an outgoing, friendly, open extrovert with a strong dose of self-confidence and a very slight touch of arrogance.

I’m very lucky that I can genuinely say that at this point, the two businesses that I am involved in are doing very well. But this wasn’t always the case.

Missed opportunities

In the times when my companies were not successful, did I get any amazing opportunities by claiming to be successful to my startup peers? I don’t think so. Founders have a pretty finely tuned bullshit detector. I doubt anyone was all that fooled. What about investors? With them, faking success is even less useful. VCs will not invest without doing a fair amount of due diligence. Claims that you’re doing great when you’re going bust will never lead to investment, unless you’re a consummate con man.

What opportunities did I really miss, then?

How about opportunities for advice? Entrepreneurs are a helpful lot, but if you don’t present your problems clearly, your peers won’t be able to help you. Even non-entrepreneurs seem more likely to offer advice and connections if they think you’re struggling and they could make a difference. Perhaps the only set of people to whom you might want to project the “appearance of success” are clients, during a pitch. Even that is unclear, though. It really depends on your industry. In some industries, a fledgling startup is more likely to get a foot in the door than a mature, successful company, and expectations will be lower, and therefore easier to beat.

In summary

  1. Appearing more successful than you really are will destroy more opportunities than it will create.
  2. Instead, be honest with fellow entrepreneurs. Don’t be negative about it, but don’t claim to be doing great when you’re not.
  3. VCs will not invest based on an appearance of success, so bullshitting them won’t work either.
  4. Appearances of success may work with some types of customers in some industries, but think about it for a few minutes instead of simply defaulting to the startup gung-ho attitude.

Thoughts from 2018

This article was and still is bang on the money. And it has thankfully become less of an original thought due to a lot of focus, in the startup scene and elsewhere, on depression and how it impacts people in jobs with a high pressure to appear successful, like startup entrepreneurs. Tragically, that focus has generally come about due to people committing suicide.

In a more prosaic sense, the same is still true. People at startup events rarely talk about their problems, opting instead to project an image of success. And yet, there are all sorts of “fail-con” types of events that also try to portray the reality that many startups don’t succeed. It feels like we still have a fair bit of work to do as an industry to bring these two poles together.

Driving, and the art of running a business

Learning to drive and learning to run a business are surprisingly similar endeavours.

When you learn to drive, you don’t know what you need to pay attention to. There are, seemingly, a million things going on, and some of them might kill you if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to drive, you rely your experience to know what to pay attention to and what you can simply ignore or deal with without thinking about it.

Learning to run a business is similar. There are a million things that you could do, and some of them will kill your business if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to run a business, you rely on your experience to tell you what you need to pay attention to and what you can simply ignore, delegate or outsource.

When you learn to drive, there are a lot of new habits that you need to build into automatisms. Learning to use the clutch to change gears rapidly while accelerating onto the motorway, surrounded by speeding cars, seems very difficult at first. But the more you do those things, the more they become automatic and unconscious. When you know how to drive, you don’t even really think about changing gears, you just do it.

Learning to run a business is similar. There are a lot of new habits that you need to build into automatisms. Learning to detect that the person in front of you is a lead, pitch them in the correct way, follow up, and close the sale, seems very difficult at first. But the more you do it, the more it becomes automatic and unconscious. When you know how to run a business, you don’t really think about pitching and closing sales, you just do it.

To learn to drive, you have to actually sit in a car and drive yourself. No amount of reading or talking about it will enable you to drive. You could study driving for years, and even watch someone else driving for years (most of us watch our parents driving for our entire childhood), and still it won’t replace the actual experience of driving. While it is possible to build car simulator, even that is a poor substitute for actual driving.

Learning to run a business is similar. You have to actually run a real business yourself. No amount of reading or talking about it will enable you to run a business. You can do all the MBAs you want, and study entrepreneurs and entrepreneurship for years, and still it won’t replace the actual experience of running a business. While it is theoretically possible to build a simulation of a business, it’s a poor substitute for actually running a business.

The best approach for learning to drive is to get an experienced driving instructor who will sit in the car with you and figure out what you know and what you need to learn, construct a teaching plan personalised to you, teach you those things, demonstrate them when it helps, and help you practice them over and over again in a safe environment, watching out for things that might kill you. Because this approach works, it is used throughout the world.

The best approach for learning to run a business is similar. You get an experienced mentor or coach or close advisor who will be lightly involved in the business, who will figure out what you really need to know next and point you in that direction, who helps you work through tricky business issues, and who watches out for things that might kill your business and that you haven’t spotted. This is much less widely used in business than indriving, perhaps because good business coaches are much more rare than good driving instructors. But driving schools for business are getting more common every day.

There is a difference between learning to drive and learning to run a business. In business, there is no such thing as a safe environment. You’re on the motorway from day one. And most people drive their first business without an instructor by their side.

Thoughts from 2018:

Not much to add to this article! I still think this is a good and useful analogy for learning to run businesses, and the best ways I have observed to train entrepreneurs are indeed experiential and based on working on a real business.

People, Processes and Tools

This article was originally posted on swombat.com on October 24th, 2011.

Some years ago, one of my managers used to repeat this “Accenture truism” (or so he designated it): to fix or improve something, first you need the right people, then you need the right processes to help those people work together, then finally you need the right tools to support those processes. People, processes, and tools – in that order.

This is even more true for tech startups than for corporations. As geeks, whenever we face a problem, we often start by looking for a tool to fix it. “Our team isn’t communicating properly – let’s set up Campfire.” “But I don’t like Campfire, why don’t we use Yammer?” “Yammer and Campfire are so lame, let’s just use good old IRC.”

This is the wrong approach. Tools by themselves rarely resolve problems in your business. If your team isn’t communicating, you need to solve that problem step by step.

First you need to figure out if that’s because of a “people” problem. Maybe one member of your team just doesn’t want to talk to the others. If that’s the case, no tools or processes are going to fix that. For example, many sales organisations try to get their salespeople to communicate everything they know about every client – but salespeople don’t want to do that, because it makes them more easily replaceable. Setting up a CRM tool doesn’t solve that problem, until you fix the people, by giving them the right incentives to do what you want (or, if that’s impossible, either changing what you want or changing the people).

Then, you need to look at the “processes” part of the problem. For example, assuming your team wants to communicate with each other, maybe they can’t because they tend to sleep at random schedules in different parts of the world. That’s a process problem that can be fixed by, for example, declaring a certain time each day “team time”. For example, you can anoint the period between 2pm and 4pm in some timezone as “team time”, and require everyone to be available to chat at that time every weekday.

Finally, once you’ve got the right people and they have the right processes in place to support them, then you can start looking for tools to support those processes. Depending on what you actually want “team time” to look like, you might choose campfire, GTalk, IRC, or any number of other tools. But by now, you can select the tool based on whether or not it supports your processes, rather than whether or not it’s the sexy SaaS app of the month.

Thoughts from 2017

The principle still feels true to me. If anything, it feels even more true. The biggest addition would be a much deeper and nuanced understanding of what working on the “people” and “process” problems can mean, and how they feed into each other. At GrantTree we’ve even adopted and developed a whole interview aimed towards figuring out how well people will be able to adapt to our complex processes (open culture makes significant demands on people’s abilities), so we try not to find ourselves hiring people who are perfectly fine individuals but not well suited to our environment.

As the years have passed, tools, however, have become less and less interesting in and of themselves.

Steve Jobs Lives On

This was originally posted on swombat.com on October 6th 2011.

I’m sure there’ll be thousands (probably tens of thousands) of blog posts, comments, and other forms of expression and eulogies about Steve Jobs. The man had that much influence over us. Maybe some, maybe all of them will repeat what I’m going to say here, but that’s not why I’m writing this. Fundamentally, it’s because I feel compelled. I can’t not write it.

I was sitting in a meeting about UK legislation throughout the morning, and found out, at the end, that Steve had died. Even though it was obvious that he was going to die sometime, it was still incredibly sudden and shocking. It’s amazing how personally and emotionally touched I feel by this.

1.

First, it seems amazing, unbelievable, that Steve Jobs could be dead so suddenly. His death at a young, young 56 is a brutal reminder that death takes us all.

Even if you’re a multi-billionaire, someone who’s changed the world twice over, loved by many, influential beyond measure, leading one of the world’s most powerful human organisations, living what was presumably a model life from a health perspective, even if you’re someone who literally has all the world at his disposal, still the great scythe will sweep and it will not miss. Taxes may not be certain. Death is.

2.

A second thought is of the empty “reserved” chair, visible in the front row at the Apple keynote just two days ago, was reserved for a man who was probably lying on his death bed at the time. The empty chair reminds us that Steve worked until the very end, resigning only when, presumably, his declining health made it impossible for him to work.

Like Freddy Mercury said (and did, working until June, dying in November): The Show Must Go On.

Steve died as the curtain fell. I’m not ashamed to say that it actually makes me cry a little, here in this coffee shop. Oh well, I’ve always been a sentimental.

3.

A third thought is about what a tragic, personal loss this is to, well, everyone who loves technology. You may have loved Steve Jobs or hated him, but what you can’t deny is that he was a force for the progress of technology.

Steve Jobs revolutionised the world of consumer computing with the Mac. He upended the music industry (and a few others), transformed consumer electronics, forced the mobile phone industry to leap kicking and screaming into the 21st century, and finally pushed forward a device which will possibly represent the future of computing. The shape of things to come – cue Battlestar Galactica music in the background.

Seen from the perspective of where technology was a mere 10 years ago, the iPhone and iPad are, quite simply, science fiction. No matter your emotional stance on Steve Jobs, it is impossible to deny that, on a technological level, he made a big dent in the world.

What a tragic, personal loss this is to all who love technology, and even to those who don’t. Here was a truly exceptional man, who made the world better in the way he could, and he is no longer with us. We have lost him – all of us. We’ll have to make do without him.

4.

A final thought occurs, a thought about life and death that I’ve been mulling over for some time.

I don’t have much experience of death, but here is my perspective. While we live, we influence the world around us, through our will (which led some philosophers to declare that will was the fundamental unit of reality). When we die, that will is extinguished.

How quickly it seems that the world erases all trace of most people. Some live on for some time, through great art or great acts, but eventually, it erases all, without fail, without exception. The broom follows the scythe and sweeps everything away. The well of the past is indeed bottomless and filled with the forgotten memories of those who came before us.

And so with Steve Jobs. One day he will be utterly forgotten, not even an atom of a memory will remain, even if humanity lives on. But for now, what Steve Jobs achieved in Apple, over a brief decade since he came back to it, was to create, in a medium other than art, an extension of himself. Apple is modelled after Steve’s vision, and it is fair to say that it is an extension of what he learned, through his life, and, more importantly, of what he willed. Apple is Steve’s will, externalised.

And Apple lives on. And Apple is, technically, immortal (as in, not subject to mortality – obviously it can go bankrupt). One day it will err and die, but its potential lifespan is considerable, given where it is now.

Certainly, Apple will change, but so would Steve, had he lived.

This is a poor form of immortality. As Woody Allen said, “I don’t want to achieve immortality through my works, I want to achieve immortality through not dying”. But whereas art, to a large extent, is static, a company is an entity – legally and in reality – capable of making decisions, of changing the world, capable, in short, of will.

It may not be a perfect proxy for Steve’s will, but it’s what we have left after this great man has passed away. That, and the science fiction he made real for us.

Thoughts from 2017

Most of the thoughts in this article still feel true, but as my articles about my ill-fated adventures with the new Macbook Pro have perhaps made clear, I suspect that the answer to the question of whether Steve Jobs’ will lives on in Apple is, sadly, no. But I might be wrong, who knows. Jobs made a few mistakes in his time too, though generally they didn’t lack vision. Time will tell.

Still, I wanted to preserve this article on danieltenner.com.

My life in Accenture before startups

This was originally posted on swombat.com in June 2011.

I regularly get asked about my time in Accenture, and my transition into entrepreneurship, both by people who are trying to decide whether to apply to go there after university, and by people who are currently working there. Here’s an attempt to answer some of those questions in one place.

Background and overview

First, some background. I joined Accenture in 2003 as a Junior Software Engineer, on the basis of my mad Java skills (certified by Sun) and the undeniable fact that I didn’t have three heads.

I’d like to say the interview process was gruelling and that I succeeded where many failed, but to be honest, I think at the time they were hiring anyone that could write two lines of Java to grow the newly created Solutions Workforce (engineering people, basically), so I don’t remember the interview process being particularly hard at that stage.

On my first or second day, I sat in an induction presentation where they told us that the Solutions Workforce was designed so that “it’s ok to stay at the same level for 10 years if you want to, it doesn’t have the ‘up or out’ pressure of the Consulting Workforce”. From that horrifying moment onwards, I knew I had to get the hell out of the Solutions Workforce into Consulting.

Transition to Consulting

There was no process allowing people to do so, so it took me about a year to bypass the un-process (which included having to go through a whole new round of much harder interviews) and transform from a Software Engineer (I got promoted in the meantime) into an Analyst (which earned me some £10k a year more than other Software Engineers).

This was, largely, a very good move. I learned a lot in Consulting. I had always been a good programmer, but now I was able to take on all sorts of non-programming roles and round off my non-technical skills: client management, people management, planning, recruiting, processes, performance reviews, and all sorts of other “softer” tasks that I really wanted to learn how to do well. I’ve always liked being a generalist, and I’ve always liked pressure, and Consulting suited both those tendencies very well.

At the same time, something really bothered me about my work. It felt pointless. One project I did (whose output was basically a PPT and Word document outlining the successes and failures of a client project), which took two and a half months, had, as its only apparent purpose, the promotion of the person who had led the project. Accenture was paid (quite well) so that I would sit there and produce a piece of paper that justified this person’s promotion.

To me, that didn’t seem like a good use of the precious few years we have on this Earth. In fact, the feeling that I was wasting my time was really killing me inside (I’m not exaggerating).

The height of absurdity was reached, I believe, when I was asked to prepare the proposal for the preparation of a plan to produce a proof of concept for a module of a tool the client was implementing. Long before that, though, I had started to look for other things to do. Wherever I looked in the corporate world, though, I found more of the same (usually more of something even less good). As far as the corporate world went, Accenture was not so bad.

About two years into my four-year corporate journey, I started looking for other jobs, but found nothing I liked. Another year passed before I started considering the idea of starting my own business. From that point on I was looking for a partner to start it with (I knew I didn’t have the knowledge or skills to do it all by myself yet). Soon, my best friend approached me with a product idea. It was all I’d been waiting for, so we got started. Nine months of hard work and no sleep later, I handed in my resignation, and finally ended my stint in the corporate world.

Hindsight

Do I regret my time in Accenture? No. Not at all.

I think I should probably have planned my time there better, and exited sooner, but all in all, it wasn’t a bad experience. I learned a lot, both in terms of skills and self-knowledge. Accenture has some truly exceptional people working there, and they tend to be fairly accessible, so if you’re the kind of person who naturally strives to get advice, who reaches out to your network for assistance, you will get plenty of coaching from people at all levels.

Most of the managers I worked with, directly or indirectly, were excellent (some less so), and I learned a lot from them both. One of the most crucial things I learned in Accenture was how to hold back my habit of being blunt and direct with everyone. I learned to be smoother and far more effective. That’s a valuable thing to learn. I also gained a lot of confidence in my abilities to pick up and absorb new things and become productive quickly – something that I knew I could do with technologies, but which I saw I could now do with almost all subject areas.

So, in hindsight, would I do it again? I’m not sure. I was far from ready to join the startup world before I joined Accenture – but then, I was just as far from ready when I left Accenture, and in the end I’ve done alright, I think. You’re never ready to take that leap. You might think you’re ready, but you’re not, really. It’s impossible to say what my life would have been like if I’d joined a startup instead of Accenture, or if I’d simply tried to launch my own business.

I was already toying with some entrepreneurial ideas with a friend in Geneva before leaving for Accenture. Perhaps life could have gone differently.

Conclusion

My advice to people who are hesitating between startups and a company like Accenture is: don’t worry too much about it.

Big, prestigious corporations have their share of benefits. Accenture is probably not a bad choice amongst the selection of corporate masters. If you’ve got the bug for entrepreneurship, chances are a few years in a large corporation won’t distract you from it (and they might even strengthen your resolve). If you feel like you can start a business right away, you can try that too.

But don’t stress about it. You’re not making the most important decision in your life. There’ll be many chances to adjust the shot if you decide corporate life is not for you. Many entrepreneurs get started later in life, after having held steady jobs for decades.

If it’s in your blood, it’s in your blood.

Thoughts from 2017

Not much to add to this article. It’s still a sensible look back at those years in Accenture, that seem rather more distant now (this year, I reached the “10 years since I quit my last regular job at Accenture” milestone).

What sort of entrepreneur are you anyway?

This article was originally published on swombat.com in May 2011.

From my father’s blog about wisdom:

The trouble with values is that they are all good.

Most people will swiftly agree with most of the high values of humankind: freedom, happiness, truth, respect, justice, equality, prudence, compassion, courage, modesty, patience, moderation, harmony, industry and so on; but ask them which is the most important and prevailing. You will suddenly find in the pattern the striking differences that tell fascists apart from communists and religious fanatics from tolerant free thinkers.

Bad people have no problem with good values. Irreconcilable opposites are made from the same handful of values representing goodness. It is the weight of each that differs.

The same is true for entrepreneurial values. Everyone but the most psychopathic entrepreneur will agree that a business should treat its employees well, shouldn’t waste money, should create value, should generate returns for its shareholders, shouldn’t kill people or make them ill, and so on.

And, more specifically in the tech startup world, a great many entrepreneurs will agree that startups should hire the best people they can, should iterate, should keep an eye on relevant metrics, should have automated test suites, should have automated deployments, should have backups of valuable user data, should be running on secure, well-administered servers, and so on. For B2B startups, everyone agrees that making sales, creating a good brand and building strong customer relationships are good things.

At the very least in public, very few entrepreneur will disagree with those values. But, as with the more generic human values, there is a world of difference in how each entrepreneur orders those values. Are backups more important than automated tests? Is saving money more important than implementing good metrics measurements? Is it ok to treat your employees harshly in the name of shareholder returns?

If you’re going to work in someone else’s business, it is wise to try and determine how they have ordered their values before doing so – this is why interviewing with people who work there already can be so important for the job seeker.

And, similarly, for yourself! What sort of entrepreneur are you (or will you be when you start your own business)?

To be aware of your values and to examine their worth with your own mind is yet another subtle source of freedom. Keep Nietzsche’s hammer at hand to gently tap on each value and to judge the sound. Depending on the place where they are hung, some of those bells may give an empty ding of hypocrisy. We tend to forget that values are man-made axioms agreed as beneficial. There is nothing God-given about them. You do have a right to examine them freely – in your head – to chose your own choices. This is not theory: your own chime, your arrangement of personal values chants who you are.

Thoughts from 2017

As time has passed, I’ve been able to see first-hand how important knowing yourself is, if you’re trying to build a successful company. Reading this article again, I see that it lacks a method by which you can know yourself – Nietzche’s hammer is a bit too abstract for most people. Ultimately, to know yourself takes the same thing as to know someone else: you have to witness the person’s actions, particularly when they need to make difficult decisions.

So my advice today would be that knowing your values is important and yet at the same time the only way to really get to know yourself is to go out in the world, do things, make decisions. Then, be sure to reflect on your choices regularly, and gain the self-knowledge available to you.

What will kill Facebook?

This article was originally posted on swombat.com in December 2010.

This question pops up regularly on Hacker News. What will kill Facebook? Before that, it was “What will kill Google?” There was no Hacker News before that, but if there had been, it would have been “What will kill Microsoft?”

Often, the question is asked with a combination of rage and envy. The questioner doesn’t like Facebook, they want it dead, and they wouldn’t mind if they were the one who came up with something that killed it. Aren’t entrepreneurs charming?

However, the question is fundamentally flawed. It’s the wrong question. It leads nowhere. The only company that can kill Facebook is Facebook. Here’s why.

Undead Facebook

First of all, let’s assume that right this minute there is a startup which is just like Facebook 5 years ago. Let’s call it Smashbook. Let’s further assume that Smashbook is going to do to Facebook what Facebook did to MySpace. We don’t know how it might do that, and we don’t care. We just care that this is the Facebook Killer.

What then?

Take a look at the top 100 sites. What do you find at position 51? MySpace. Wait a minute, didn’t MySpace get “killed” by Facebook? They sure did, and Smashbook will have exactly the same effect on Facebook. It will drop from position 2 to position 10. Maybe. After a few years.

In other words, even if a Facebook killer was out today and ripped Facebook a new one, it would still take many years for this to be noticed by Facebook, and it would take decades before it finally did kill Facebook.

Ok, but how to kill it?

Is it even possible for Smashbook to exist? The evidence of Facebook killing MySpace would point to ‘yes’, but this is not so clear. When Facebook came on the scene, MySpace already had many issues. Due to MySpace’s design and its demographic, large groups of people were simply not interested in joining MySpace, and so MySpace already carried the baggage that would eventually cause it to get trampled by Facebook.

Facebook, on the other hand, doesn’t have any such flaws. You might say that privacy is Facebook’s flaw – Diaspora and others are certainly betting on that – but, unlike design and demographics, privacy is not something that most people care about. The odd geek will get angry and leave Facebook, but for most, privacy is of no interest.

In this, Facebook is similar to Google: it has utterly dominated its market and has such a lead over its potential competitors that no one can catch it. Facebook is as unkillable as Google.

So how unkillable is Google?

To see whether Google can be killed, let’s look at the previous “unsinkable” title-holder: Microsoft.

Microsoft is far from dead (and probably will never die), but it has made a very good attempt on its own life in the last decade. With Windows Vista, Microsoft did what it could do commit suicide on its flagship product. Six years of delays, bugs, driver support issues, usability issues, and so on – Vista had them all. And yet even that didn’t work. Microsoft’s revenues barely took a hit. Like any company of this size, it will take decades for it to kill itself, and it will have countless chances to avoid death along the way (and probably will successfully take one of them).

No company is really “killing” Microsoft. What may be killing Microsoft is its own failure to adapt and evolve with the times. What will eventually kill Microsoft’s current cash cow is the slow but inescapable disappearance of the Windows/Office monopoly, to be replaced by “the cloud”, whatever form it eventually takes.

Google, similarly, will be killed not by a competitor rising out of nowhere, but by falling into irrelevance. This will take many, many years, and Google will have many chances to jump onto whatever the next wave of relevance is.

So, back to the beginning.

What will kill Facebook?

As I said at the beginning, this question is flawed. Facebook, like Google and Microsoft before it, has risen on a giant wave, that of social networks. As an entrepreneur, thinking about “killing Facebook” is unproductive. You won’t kill Facebook. No one will.

The right question to ask, instead, is:

What will be the next giant wave?

If you can figure that out, and execute the right business to catch that wave, and beat every other business who sees it too, and end up king of the hill at the top of the next wave, then you will have beaten Facebook in the only way which is meaningfully possible. Chances are, when you get there, you won’t care much about how to kill Facebook, or any other mega-company.

Thoughts from 2017

The points of this article are still true. The latest darling to kill is Apple, and many are predicting its demise. I joined in that, with a caveat1. The caveat is partly informed from the views in this article. You can’t “kill” giants like Facebook, Apple, Microsoft, etc – you can only wait for them to fail to catch every single important wave of change. Eventually all things die, but category dominators like these companies take a ridiculously long time to die.


  1. “Like Microsoft, I think Apple will continue to make mind-boggling amounts of money for those 5, 10, 15 years. It just won’t be from my wallet, I guess.”

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