I really enjoyed reading Paul Graham’s take on running a startup. It seems like almost everything I read online these days is either relatively short or I just don’t finish it. The stuff that Paul Graham writes tends to keep my attention all the way through however. Do I agree with everything in there? No. But it strikes me as a very honest evaluation of his experiences and a great glimpse into his reasoning. That’s all I think anyone can ever realistically expect. Of course the bits about prototyping and building your early versions for flexibility and agility are right up my alley. At the March 106Miles meeting there were a lot of questions about early stage valuation. Here’s how Graham answers that one:
How do you decide what the value of the company should be? There is no rational way. At this stage the company is just a bet. I didn’t realize that when we were raising seed money. Julian, our lawyer, thought we ought to value the company at several million dollars. I thought it was preposterous to claim that a couple thousand lines of code, which was all we had at the time, were worth several million dollars. Eventually we settled on one millon, because Julian said no one would invest in a company with a valuation any lower.
What I didn’t grasp at the time was that the valuation wasn’t just the value of the code we’d written so far. It was also the value of our ideas, which turned out to be right, and of all the future work we’d do, which turned out to be a lot.
Something else that caught my attention in there:
No matter what kind of startup you start, it will probably be a stretch for you, the founders, to understand what users want. The only kind of software you can build without studying users is the sort for which you are the typical user. But this is just the kind that tends to be open source: operating systems, programming languages, editors, and so on. So if you’re developing technology for money, you’re probably not going to be developing it for people like you. Indeed, you can use this as a way to generate ideas for startups: what do people who are not like you want from technology?
If there’s one thing that I’ve consistently heard from the greatest number of people talking about startups, it would be to engage with customers early and learn to listen to them. When Graham talks about doing customer support he says that having smart customers early on is extremely valuable because “not only will they give you this advice for free, they’ll pay you”. I’ve heard the same kind of thing (or something very close) from Steve Blank, Guy Kawasaki, Dave Sifry, William Mitchell, and many others. In Graham’s version I think the fact that it was the founders themselves who were in contact with customers and performing the sales calls is essential. I’ve experienced the problem where the founders are the technical folks and they bring someone else in to come to do the salescalls after they’ve worked on a solution in relative isolation. The problem was that the “expert” founders refused to believe the feedback brought to them by the salesperson. Because the founders were domain experts and understood the problems and how they should be solved the problem must be that the salesperson “isn’t selling the solution the right way”. Apparently it something that happens pretty commonly, cause I saw a lot of other people bobbing their heads when I first heard Steve Blank describe it. I’m told the best way (perhaps the only way) to avoid the syndrome is to put the founders out on the front lines. When the experts hear criticism themselves they absorb it, when they hear criticism through an intermediary they doubt the competence of the intermediary. Sounds absurd… but I think it might be the single best bit of startup related wisdom that I’ve heard to date.