Slightly different format for today’s publishing.  I had the great fortune to spend the weekend with close to 300 people on the Microsoft campus for the Startup Weekend.   It was amazing to see so many people come together and create so many awesome products in such a short period of time.  I will have post my report out on the weekend up at my other blog sometime this week.  For now, I wanted to share the slides from the talk that I gave: Product Management for Hackers.  I received so many requests for the slides that I have posted them online.  I have embedded them here if you just want to click through the slides, but would encourage you to download them to get the speaker notes as well.

“What’s it good for?” “So?” “And?…” Get used to hearing those questions. In venturing off on your own, there’s a chance you are going to be creating a new product or service that the world has never seen. As with anything, there are varying degrees to which there is newness to what you have created. There’s the product which is an improvement over an existing idea, but is novel or new enough that you could make claims that it is new. There is also the product which is so completely new as to require an explanation as to what it is or what its use is.

Marginal improvements over existing products can be very useful in the marketplace. They can help solve an old problem in a more efficient way. They can also add needless complexity to an already sublime product, yielding a new product which falls short of its predecessor. That’s the risk associated with a marginal improvement over an existing product. What exactly is the improvement, and is the product space ultimately better for it? The litmus test for that question is whether or not your competitors will immediately copy what you have done.

Completely new products are a mixed bag. Paul Graham is attributed with the following statement: “make something people want.” It’s a terribly simple, and terribly powerful concept which, unfortunately, is overlooked far more often that it is yielded. This is the burden you will bear should you endeavor to build a completely never been seen before product. Not only will you have to spend a bunch of time explaining it to people who don’t get it (and there will be plenty of those), but you will have all of the insecurity associated with thinking that you are perpetrating some terrible act of hubris to believe that you could come up with this idea when no one else has done so before you.

Whenever someone asks me about what it’s like to pitch a new idea and how to ensure that you get your point across, I always use the zipper as my example. Why you ask? Great question. Think about it this way. If you think about having to start from a world in which the zipper didn’t exist, and you came up with this new product, how would you explain it to people? The story about the product and its usefulness becomes that much more important. Up to that point, people had little to no problem keeping their pants up, so what was the real problem being solved by the zipper?

Put a different way, what if I told you that I wanted you to give me money to fund my zipper product. Let’s start with what it is. I would be asking you to give me money so that I could create an interlocking set of metal teeth which was going to be situated in the pubic region of men’s pants to help keep them up. What would you guess would be the reaction by someone to that story? No way, right? Instead, what if I told you about how you would never risk being caught with your pants down, or have the security which is afforded to a man who knows that his trousers will always appear to fit like a gentlemen’s? The story changes the perception of what could be scary or useful to me.

When considering the depth to which you are solving a real problem, you need to ask yourself whether you are selling a vitamin or a pain killer? This question helps to get you thinking about the user experience in acquiring your product. What is their mind set, and are they going to actively seek out your product? How much marketing are you going to have to do, and how expensive will your user acquisition campaign have to be?

I don’t know about you, but when I was growing up I had to take vitamins every day. When I was a kid (man do I feel old even saying that) we had these vitamins which purported to taste like orange or some such nonsense, but that couldn’t be further from the truth. The vitamins tasted terrible, and left to our own devices, my brothers and I would ensure that those very tablets found their way into the garbage can. Sure, you know you need these things, and they are supposed to be good for you, but what problem were they solving for me at that very moment.

Pain killers, on the other hand, are a completely different beast. No one wants to take a pain killer. The reason is that you generally have to be feeling rotten in order to require the services which a pain killer provides. However, when you have a headache, what do you do? You seek out a pain killer. It solves a real problem for you, and thus you seek it out. I’m not suggesting that you need to come up with a pain killer in order to sell product. I’m merely trying to illustrate that when you think about the product that you are going to build, you have to consider whether someone is going to actively seek out your product, because it’s solving a real problem for them for which you are the only solution, or are they going to discover your product through some other serendipitous mechanism and decide that you are solving a problem that they guess they have and why not take care of it.

Reverting back to my MBA days, I present you with yet another 2×2 matrix to consider when you vet your product ideas.

In the lower left of the matrix is where you don’t want to be. Why would you want to invest your time and energy into solving a problem about which no one cares, and doing so with only a marginal improvement over an existing product in the marketplace? There’s a strong chance that the product upon which you are improving isn’t doing very well in the market in the first place. If by some miracle you discover a product which is jumping off the shelves, but is solving a problem about which no one cares, you have probably found a faddish product, in which case, a marginal improvement isn’t going to yield much.

If you have found yourself designing a completely new product in a space about which no one cares, there’s a pretty good chance that you are going to be spending more time on the product than money you will make. There are exceptions to this rule. Using Twitter as an example, I’m not really sure there was a real problem being solved when Twitter went live. In my opinion, this is a case of problems finding a solution, and that’s great. It’s not a hard and fast rule that if you build something completely novel solving a problem no one cares about that you will fail. However, it’s better odds that you will.

An interesting example of this is RLX, the blade company which my private equity firm funded and subsequently was sold to HP. When we put in the first investment into RLX, they were making a product which should have been the perfect product. We were able to fit 24 servers into the space which would have normally been occupied by 3 servers. This was an 8x increase in the server density for datacenters. This was at a time when Internet build-out was exploding and data centers were expanding at a rapid clip. You would think that these datacenters would have been snapping these things up. Here’s the problem. Well, there were a couple of problems, but here are the big ones.

First, the datacenters were predicating their hosting pricing on the amount of space taken up by their tenants. Since the “pizza box” server (the 1u server) was a standard size, this was how people were used to paying for servers. For a datacenter, the notion of all of the sudden having to change the way they were doing pricing was a non-starter, especially when there was so much business to be had, they were closing deals at such a rapid clip, they didn’t have time to slow down. Further, it seemed that these datacenters were competing on the size of the floor space which they had allocated to customers. They all wanted to say that they had one million square feet of tenancy. Bragging rights. The 8x reduction in the footprint didn’t make sense to their world view. Only the people who were going to purchase their own equipment cared about this sort of thing (either to co-locate or run in their own datacenters).

Second, when you solve one problem, make sure you understand the entire problem space before you rush to claim victory. For those of you who don’t know what a 1u server is, it’s like any computer you would buy, except that it’s kept in a rack, and generally is managed remotely – meaning that there is no keyboard or mouse attached to it. This new and novel product which we had created went against the rules for management, and required completely new methods for maintaining the servers. It was not a simple matter to connect a keyboard and mouse to this new RLX chassis. So the potential buyers would have to retrain their personnel to work with the equipment.

Third, the problem space included not understanding who the buyers were, and therefore not knowing what they would want to purchase. In general, at the time we launched the first RLX blade server, the only people who would be interested were people who were buying their own equipment. Those people weren’t looking to buy many cheap servers to serve up web pages. They wanted to buy servers to place in their own datacenters – i.e. enterprise customers. Enterprise customers had absolutely no interest in buying low end web servers. They were only interested in buying the most powerful servers they could get. This ensured longevity of the product, and the ability to re-provision that equipment should the need arise.

So there we were with a completely new product and not a fine understanding for the problems that we were or were not solving for customers. We ended up spending a ton of time, and quite a bit of money, trying to solve that problem, only to have to start completely over building a product specific for enterprises.

The other two categories are a little easier to discuss. If you have discovered a novel improvement over a product in a space that many people care about, you might have a winner, but you might also have some challenges. If this is a space that many people care about, there is likely to be a high amount of competition. That competition is likely to be better financed and better connected than you are, meaning that not only will they have the financial wherewithal to copy whatever you have done, but they will have a much easier time getting it on the shelves than you will. In a case like this, you should consider the possibility of licensing your work to those competitors to reduce the risk associated with your new product. You can always take it to market, but you need to understand how protectable your intellectual property is, as well as your ability to execute quickly and capture mindshare of customers in the market place.

Lastly, if you have solved a problem about which a great many people care, and it is a completely new solution, you are in the best of positions. You have found a colony of people with massive migraines, and you have the pain killer. It’s a wonderful position in which to find yourself, but one that is likely to engender competition, and quickly (making the assumption you can do so at a price the market will bear). As always, protect your intellectual property as best you can, and get to market as quickly as you can.

The moral? Solving a problem in a new way is great, but you have to evaluate if you have marginally improved on an existing solution or come up with a completely novel way of solving a problem. Second, you must evaluate if you have solved a problem about which people care. Have you created a vitamin or pain killer? One will lead people to your door, begging you to let them give you money. The other will require a lot of heavy lifting to acquire customers and convincing the marketplace that they you’re your product.

So much ink is contributed to the topic of finding good co-founders and hiring great employees, but very few offering advice steer you in the direction of needing to focus on your extended team. While the people with whom you are working day to day will have a great deal of impact on the success or failure of your project or business, the people with whom you interact less often might actually save your ass.

The line item on your income statement of “professional services” can be a pretty broad one, and mostly encompasses service providers which are considered non-core to your business. Until you are a large company, you will most likely be outsourcing a good deal of services to these providers, and finding the right partner can mean the difference between good work and wasted money. There may be service providers whose services are specific to your industry, but more generally, every business needs a lawyer, a banker, and an accountant. You may also need a professional recruiter and a commercial real estate broker.

Regardless of the type of service which is being rendered to you from these providers, it’s of utmost important that you find a provider that is right for you. This is going to depend on a few variables, but when in my past I have sought out these providers for my businesses, I learned (through mistakes) to ask the following questions:

Do they believe in what you are trying to do?

Your extended team doesn’t necessarily need to believe that you are going to be changing the world, or even having a significant impact on it, but they do have to believe in what you are doing, whatever that may be. The reason for this is you need to know that they are going to bring that little something extra to the table when you need it. You may find yourself in desperate need of a solution from one of these service providers, and if you are “just another name” to them, it’s more than likely that you aren’t going to get what you need. It’s too easy for them to do what’s passable, versus what’s extra-ordinary.

Do they understand what it is you are trying to do?

I can remember my first meeting with an accountant in Texas when we were starting IMSafer. I had found this particular individual through the local chamber of commerce, after spending time asking around my anemic professional network in the area. We spoke on the phone and he seemed like a decent guy, so we agreed to meet. The most important question I should have asked on the phone, which I didn’t, was “have you ever had any software startups as clients?” His answer would have been “no” and that would have been the end of the conversation.

When we first sat down to go over the company’s current financial situation, you should have seen the look on this man’s face when we told him we had not revenues and that there wasn’t a concrete plan to start generating revenues in the coming months. This was clearly anathema to him, and in fact, he grew increasingly uncomfortable as the conversation went on. During our meeting, I had to explain too many things to him, with him repeatedly asking questions about business models, funding, the security which the angels had invested, etc.

Ultimately we decided that we would give it a go, but only after taking him on a probationary period. I wasted two months with that particular accountant, who not only didn’t understand what we were trying to do, but he really didn’t ever help beyond the basic checking of my double entry accounting. When it came time to get creative with how we were going to manage payables to our search engine marketing company, he didn’t understand their business either, and could offer nothing up. Perhaps I just drew a dud of an accountant, and it wouldn’t have mattered if he understood our business or not. However, my experience with our intellectual property attorneys led me to come up with the third qualifier.

Do they have other clients who look and smell like your company?

Above and beyond simply understanding your business, what experience does the service provider have servicing clients like yourself? You would never dream of hiring a programmer specifically to scale your service if they have never done it before. Doubly so if you have the opportunity to hire a similarly competent programmer who had. Why then would you consider hiring a member of your extended team if they have never had experience working with a company like yours? Since most of these service providers are providing that service on a per hour cost basis, it helps to know that they will be working efficiently and not learning on the job as you go.

If you locate yourself in a hub that is a natural gathering point for companies/businesses like yourself, you will most likely be in luck when it comes time to build your extended team. Things become slightly harder if you are the only company like yourself around. As I pointed out earlier, finding an accountant in the area where I lived north of Houston who understood software startups was very challenging. Finding one that understood the oil and gas industry was obviously much easier. Similarly, you won’t have any challenges finding lawyers in Silicon Valley who can help you structure your funding documents for an Internet startup.

The Moral? You need to put just as time and effort into building your extended team as you would your co-founders and employees. Having an extended team that supports you, understands what your company does and has other clients like you is hugely important when you get yourself into some really sticky situations.

Interviewing is one of those things that very few people know how to do really well. There are a small handful of things that you really need to get accomplished during an interview loop, and if people in the loop don’t know what part they are playing, it’s probable that you are going to end up with some bad hires. Bad hires come in two forms: the people who are just bad people, and the people who you aren’t sure whether or not they can do the job. Bad hires are like bad apples, and they can quickly bring down a company.

I was once told by a mentor that I should always look to hire “A” players. Initially, I thought that this seemed incredibly elitist, and somewhat difficult to attain. If we assume that “A” means top 10%, it stands to reason that there is a very limited supply of such players. While that’s true, it turns out there is a very different reason for wanting to hire “A” players. “A” players attract and hire other “A” players. They aren’t afraid of “A” players. They want to work with other “A” players. They believe that having a team of “A” players (not to be confused with “rock stars”) is creating a whole greater than the sum of its parts. “B” players don’t like to hire “A” players, especially for peer hires, because the “B” players might be outshone. “B” players hire “C” players. With this, the death spiral begins.

When considering your interview loop, there are some base principles that you should consider. These may seem obvious, but it’s been surprising to me how many of the companies for whom I have worked, interviewed with, or invested in don’t succeed in their hiring practices. Over the years, I have compiled the following general recipe for interview loop success:

1. Everyone on the loop has an equal say in the hire decision
2. There should be at least 3 interviewers (up to 5) with a last “as appropriate” interview
3. The interview questions should test fit with the company
4. The interview questions should address ability to do the job
5. Feedback should be immediately entered into a form following the interview, with a required, binary “hire” or “no hire”
6. Measure the accuracy of the hiring decisions
7. Always be selling

In giving everyone equal say in the hiring decision, you are letting all employees, at all levels, know that they are just as important to the company as anyone else when it comes to determining who is going to come aboard. This includes having a junior member of the team who has been out of college for 6 months being able to say “no hire” to a senior level candidate.

Some might think that this is an absurd idea. What could that young person possibly know about what it takes to hire a senior level person? They know enough about being able to detect bullshit. They know enough to detect whether or not they can get along with that person. Lastly, and this is a point I consider very important, it teaches them that sometimes they are going to have to make tough decisions without full information. That goes for the other members of the team. Sometimes someone on your team is going to have to make a tough decision, without full information, but you are going to have to commit to supporting that decision if it is theirs to make. Obviously, the larger the company, the more relaxed this requirement, but the spirit should remain.

The number of interviewers on a loop is important to ensure that there is no bias in the hiring, and that there is enough diversity in the decision making to avoid any monoculture. To ensure that, the people who are on the interview loops should not always be the same. This will be tough with smaller companies, but you want to have enough of a group so that the collective set of interviewers is seldom the same group as a previous interview loop. Using combinatorial math, with just 11 employees, you can have 240 different groups of 3 interviewers if the 11^th person is always the “as appropriate.” Who said you wouldn’t use your high school math in your real job?

The “as appropriate” interview is something I took away from my time at Microsoft. It’s basically the person who is the most senior on the loop, and has the authority to make a decision on the person being interviewed. The “as appropriate” is what it sounds like. Depending on how the initial set of interviews went, this person may or may not actually have to sit down with the candidate. If the “as appropriate” occurs, it’s basically a fit interview. The candidate has cleared the hurdles of whether or not they would be able to do the job, so this interview is to gauge whether or not the candidate will fit in with the rest of the company.

In general, all of the interviewers should ask a few questions that can help gauge whether or not the candidate would be a good fit for the interview. I like to ask what they do for fun outside of work. It’s a very non-threatening, and very open ended question, which gives the candidate a moment to relax and talk about something that they really enjoy. If they have nothing to offer here, their silence tells you more than any words possibly could.

More important than fit questions, during the first set of interviews, the candidate should be subjected to questions that measure whether or not they can actually do the job. It never ceases to amaze me when I read feedback on candidates and it’s clear to me that the interviewer didn’t ask any questions about whether or not the candidate could actually do the job for which the person is interviewing. I really don’t care where they went to school or what their last job was. Anything on a resume should more or less be considered an embellishment of some sort, and really, the resume is what got you in the door for interview. What really matters is what comes out of their mouth when they are asked direct questions that have to do with the job for which you would be hiring them.

If they are a marketing person, ask them to come up with a marketing campaign for some product. If they are a developer, ask them coding questions that are real (perhaps even something you just solved that week). If they are a sales person, make them sell you something. If they are a customer service rep, have them walk you through how they would handle you if you were calling to complain about something. This may seem like common sense, but all too often, the people who are doing the interviews spend time talking about themselves, the industry, the company, or the product, without really asking questions that could determine whether or not this person could do the job. It ends up being a long form fit interview.

When an interview loop is set up, there should be a form evaluation that is following the candidate all day. After each interview, the interviewer should fill out that form, and at the very top should write “hire” or “no hire.” The reason for getting these filled out right away is to ensure that the interview is still fresh in the mind of the interviewer. The binary nature is to force a decision. “Maybe” is not an appropriate answer. The “as appropriate” or HR person should manage this, and people who have yet to interview the candidate should not see the feedback. If there are things on which interviewers think follow-on interviewers should focus, then send emails to that person (or have a side conversation) before the interview. You don’t want to have a later interviewer swayed by talking with someone else on the loop who has already done their interview. Their decision should be theirs and theirs alone.

You can decide to be super hardcore, and have a rule that one “no hire” is enough to ensure that the candidate doesn’t make it to the as appropriate. I prefer to have a two strike rule, just to ensure that someone’s bad day isn’t influencing their decision making ability. This will vary from company to company, but decide which you want and stick to it.

How good are you at predicting the hire-ability of a candidate? I’ll bet you have no idea. Few companies measure this, but it’s a fantastic way to ensure that the people who are saying “no hire” don’t get future interviews if they keep missing candidates who make it on board, and people who say “hire” are selecting candidates who eventually don’t make the hire cut, or get into the company and leave within one year. Post interview accountability is one of those attributes that I am happily surprised when I hear a company is tracking it.

The last, and most important of the rules, is that you should always be selling. Would you want to go work somewhere if the person interviewing you was slagging off on their boss? What about if it was clear that they weren’t excited about what they were doing or the people with whom they worked? Your primary job in interviewing is to make the candidate want to work at the company. Their job is to convince you that they should work there, but your job is to ensure they want to work there. I’m not suggesting sunshine and puppy dog tails or anything like that, but be upbeat. Always be selling the company to the candidate. If they ask you about things that you don’t like about the company, be honest, but also talk about how the company, you, or your boss are addressing those issues. Don’t complain. Constructively criticize, but never complain.

The moral? It’s important that you have a very well defined interview process. If you don’t take it seriously, how can you expect the candidate to take the company seriously, and how can you expect to attract top talent to the company? Each person in the loop should know their role, and have equal say. Feedback should be immediate and decisive. Determine if the person is a good fit for the company and if they can do the job. Measure the results of hiring decisions made by interviewers. Last, always be selling the company. Leave a candidate with the feeling that this is the absolute best company to work for, and leave the decision about whether or not they can join be yours to make.

Do you know what kind of leader you are? Are you sure you want to answer that question? For all my conflicts with him as a CEO, I did learn a pretty succinct way of categorizing managers from Doug Erwin during his time at the helm of RLX. According to him, there are “generals,” who lead from the front, and there are “sergeants,” who have to push from the rear to get people to go where they need to go.

The “sergeant,” as used by Doug, was meant as a derisive epithet. He was talking about me. In his world, the sergeant is the guy who is responsible for taking a hill, and will do so no matter what the cost. In this way, he will not engender positive will with his team, and many of them will in fact have a negative set of feelings associated with their sergeant. As such, according to Doug, the sergeant is in the rear, quite literally pushing his men up the hill because they don’t want to follow him. He was letting me know he didn’t think too much of me as a leader. I disagree (of course), but debasing this claim is not the point of this essay. Illustrating that leadership persona is, and sergeants have their place inside of companies.

Sergeants can be useful when you really need to get the job done, and aren’t worried about team morale or the leadership path of the sergeant with that team. Sometimes it is absolutely necessary to have this person who is going to force people up the hill. If done right, he will get more productivity and performance out of the team than even they thought possible. Some members of the team will reach the top of the hill and want to quit. Others will be much stronger for the process. Clearly you want a disproportionate of the latter than the former when all is said and done. The risk with being a hard-nosed sergeant is that you will burn through your staff, and, worse, gain a reputation as someone who burns through headcount, making hiring much harder in the future.

I actually have some issues with this bimodal classification of leaders, and would prefer to expand on it just a bit. I think there are three types of leaders. The “general” Doug referred to is more like a “lieutenant.” A lieutenant is much more likely to be leading from the front, and they will know the name and responsibility of each and every person on their team. When you are thinking about a startup, this is your leader/founder. Ideally, they exude confidence and leadership, and always have an answer, even if it ultimately is the wrong one. A lieutenant never says “I don’t know” to his troops. They will know when to ask for help, and will do so from their trusted advisors, but never letting on to those down the chain of command that they are not in control of the situation. A lieutenant can make the transition from small company to large by way of checking their ego at the door; essentially becoming a middle manager.

The “generals” to which Doug was referring do in fact exist, but they lead from off the battlefield, and have a very broad view of it. Not everyone who is following them will necessarily have even met them, but know that they must follow their directions. Think of a general as a construct appropriate for a larger company. The risk with a general in a startup is that they are likely to be too separated from the work, and instead choose to lead the team(s) by management sound bites and motivational stories. These can be a bit tiresome on a small team, especially when the members of the team feel like they are doing all the work.

Knowing what kind of leader is going to gate what kind of results you are likely to see, and what kind of situations you are most well suited to take on. As a general, you generally (no pun intended) can’t have a very depth oriented view of the details. You know what the overall goals are, but you are no longer a front line soldier worried about the minutia of the tasks to get it done. This will actually prevent you from making some of the harder real time decisions, for no other reason than you lack context (or data). These generals will need strong downstream leaders who are closer to the action to make those decisions.

Generals are also less likely to be willing to roll up their sleeves and do “real” work. They’ve done plenty of it in the careers, but having reached this point in their leadership career, they are more apt to seek opportunities where they have a team of doers, so that they can be a planner and strategizer. As I stated earlier, this type of leader is a hard sell for any new venture, and you have to know if this is the type of person you are before you get involved in a startup or smaller company.

When we first invested in RLX, the management team was thought to be full of rock stars (remember what we talked about with regarding rock stars) from Compaq. The CEO had literally built the server market from scratch. That was a long time ago, and he was quite removed from the day to day requirements of creating business from the ground up, and certainly quite a bit removed from the resource constrained environment that is a startup. Because he was of this leader type, and the fact that his entire senior leadership team had a similar mind set, the company had some problems relating to conserving cash, building customer pipelines, having small teams, and building product cheaply. Not understanding that the stage of the company necessitated a different type of leadership was a failing on the part of the investors, and, to his credit, it wasn’t until Doug showed up as CEO that things really started to turn around from a sales and product development standpoint.

As a leader, Doug had just come out of a startup environment, with a very successful exit. He had spent many of his formative years at IBM. I bring this up because it’s important to note that just because you have a substantial amount of big company experience doesn’t mean that you can’t take the lead role in a smaller company and be successful. You just have to be willing to roll up your sleeves and do actual work, and ensure that your management team has a similar view on their responsibilities.

The moral? Know what kind of leader you are, and whether or not it is appropriate for the environment into which you are stepping. If you are the wrong leader for the given scenario, you risk alienating your team, and potentially burning through headcount by way of disenfranchised employees.

In my essay about going it alone, I mentioned a strange quirk about the first dot com gold rush. It was called the “war for talent.” For those of you who weren’t in the business arena yet, it’s a strange thing to think about – a war for employees. It was McKinsey who first coined this phrase in 1997, and they actually meant it to extend beyond simply hiring the best people to your company. The main premise was to focus on the principles of attracting, developing and retaining the best leadership talent.

There was another phrase that fell out of that dot com period that had a similar ring to it, and you see it persisting to this day. “Rock stars.” The myth of the rock star CEO was one which was perpetrated on the VC funded companies by those holding the purse strings. It was believed that one rock star CEO could take a company from contender to champion.

Not to be outdone, or more likely not wanting to be left behind in what could be called a land grab for options and cash, line employees started referring to themselves as rock stars. Engineers started taking this meme to some strange extremes, and in fact began referring to themselves as ninjas. I always found that one a bit strange. Why would you willingly invite a shadow warrior, known not for their honor bur their ruthlessness and viciousness, into your company? An army of one, with little in the way of allegiances seems a strange thing to ask for when loading up on talent. I would prefer to fashion myself a Shogun looking for some good samurai rather than some stab-you-in-the-back-while-you-aren’t-looking ninjas. But I digress.

What is it about this notion of the best of the best being the only thing that will do? I would love to think I am the best of the best, but I know I am not. I learned one of the most important lessons about hiring very early in my career. I was told that I should always look to hire people smarter than me, give them the tools they need to succeed, support them, and get out of the way. Nothing about that said hire rock stars.

Team building and company achievement isn’t about the cult of personality. It’s a very rare company where they can make the claim that their CEO is the recipe for success. There’s a survivorship bias at work here, because I can all but guarantee there are readers right now saying “what about Steve Jobs?” What about him? What about Ken Lay from Enron? What about Sanjay Kumar from Computer Associates? What about Bernie Madoff? These were all “rock stars” and things at their companies went horribly, horribly wrong. I guess when people go to jail, people forget that these leaders were once lionized as rock stars. The public can be so fickle.

The second best lesson I have learned about building teams I take from a line from the movie “Miracle” about the 1980 US Olympic Hockey team. I don’t know if it was what he said in actuality, but in the movie, Coach Herb Brooks was asked about the team he had selected and was slightly admonished for not selecting some of the “best players.” He said “I’m not looking for the best players, I’m looking for the right ones.”

We’ve all seen this in all-star teams. No one knows how to play as part of a team because each of the individual players is the star on their own team. The US Olympic basketball team demonstrated this fact a couple of times in the Olympic tournament by simply not living up to the hype. The team wasn’t a team, but rather a collection of really, really good athletes.

When I set out to start IMSafer, I was concerned that I wasn’t going to be able to get the top talent I thought I would need to get the software built. Living in Houston, TX at the time, software talent is a bit thin compared to other tech hotbeds. Most of the guys who I regarded as the very best developers were in Seattle and Silicon Valley. It was pure luck that I hooked up with the guys with whom I founded the company. They were not the very, very best at what they did, but they were good. As a team, however, they were spectacular.

Each of the three technical founding team members brought very different skills to the table. At the time of founding, none of them would have been considered rock stars in the Valley. They hadn’t done anything of note. They had, however, already worked together for a couple of years. They also were subject matter experts who knew enough about their own stuff to be devastatingly effective, and had enough overlap with at least one other team member to pick up slack as needed, and provide thoughtful reviews.

I could not have had a better founding team. They were the right guys. They weren’t rock stars. I certainly wasn’t a rock star CEO. Far from it. In fact, during the term sheet negotiations with the tier 1 VCs, they all made it pretty clear that I was going to be shown the door when they put in their money. That’s fine with me. Owning a smaller percent of a huge success beats owning a huge percent of a large failure. Further, this tied back to the original lesson, which was to hire people smarter than you and get out of the way.

If you can’t trust the guy sitting in the cube next to you, you are in trouble. Hiring rock stars and ninjas is inviting trouble because they are likely to be glory seekers who are thinking about their own personal rewards, and less likely to be thinking about the team. Even worse for the team is the highly paid mercenary consultant. Those guys have no allegiances to the team or the company, they don’t care what breaks along the way, and ultimately drain spirit out of the company.

The moral? You don’t need to hire the best employees, just the right ones. Make sure that the early team complements each other well, and provides air cover for potential weak spots. No one person should make or break your team, but if you are the leader, your primary goal should be to elevate the game of those people around you.

One of my favorite parts about being in business school was working on business plans. I loved to write me a business plan. It really felt like I was creating something. I got to spend a bunch of time researching and learning, and then committing to paper the fruits of my labor. Better than the researching and the writing was the model building. Going into Excel and building a gigantic model clearly laying out the next five years of the business was something I loved to do. Finally, I could take the model and the business plan, roll it all together into a 60 page tome, and prove to everyone just how smart I was. Fail.

Unfortunately, I wasn’t proving how smart I was. I wasn’t proving that I was a business titan who could craft a business out of nothing. I wasn’t showing the world that you needed to get an MBA to be a successful entrepreneur. What I was showing was that I could waste a bunch of time doing a bunch of work about which no one would ultimately care, and in fact was making little progress in the actual building of the endeavor.

Anyone who tells you that you need to have a long and thoroughly written business plan is either a banker, a consultant, or has never been an entrepreneur. Why a banker? Well, if you do decide to go to a traditional bank for any kind of loan, they are going to want to see very exhaustive information about you and your business. They are not in the risk taking business. They are in the risk mitigation business. In theory, the more information you present to them, the more risk you are mitigating. Venture capitalists are ostensibly in the risk taking business, meaning you can get money from them with far less of a plan, but we’ll talk more on that later. VCs are actually some of the most risk adverse people on the planet, but they will certainly invest in your opportunity without you having to show up with a 60 page plan.

The truth about those long business plans is that you will never read it again. Well, not never, but the likelihood that you will read it again with any level of depth, or use that document as a detailed plan for success is very low. Why? Because in the early stages your business is going to be very fluid. What makes your business successful will not turn out to be what you thought would, and the business you build will be very different from the business you planned.

Another reason to avoid writing a long business plan is because, well, let’s call it what it is. It’s an advanced form of procrastination. You can spend time writing this long document which lays out your value propositions, key target demographics, competitive analysis, financing needs and management team background, or you can actually get started on building the business. You would be surprised how much time you can waste with the work that you can put into one of these documents.

The last thing that I want you to think is that a plan of any kind is a waste of time. You should have a plan. You should know who your competition is. You should understand who your customers are. What you should not do is write a very long document that you will never read again. Much like there is a minimum viable product, which necessitates that you get to market quickly and iterate on design, the same can be true of a plan. Get a minimum viable plan done as quickly as possible, validate it, and use that to start building your business. That minimum viable plan is a PowerPoint presentation that answers the following questions:

1. Who are you?
2. What is the problem you are going to solve?
3. What is your solution?
4. Why will the market accept your solution?
5. What does the competition look like?
6. Who are your customers?
7. What are the details of your product?
8. How will you acquire customers?
9. What is your best approximation for the financials of the business?
10. What are the risks/challenges?
11. What’s the timeline?
12. Bonus: What’s The Exit Plan?

If you take a close look at this list, you will see that it is stage agnostic, meaning you can apply it to the planning for any new product, group, or company.

Every single business plan that I wrote in business school amounted to nothing. Nothing. You never would have thought that would be the outcome given the time, energy, and effort that I put into those business plans. I had a ton of ideas, and wrote several plans, and some of them might have even been good ideas. Unfortunately I spent so much time writing them, and not so much time going about trying to implement them.

Even when I was working in private equity, the length of the presented plan seldom dictated the decision to invest in a company. The first question to which we always needed an answer was about the management team. Then the product. Then the market. Much of the investment decision was based on a completely separate long document, called the investment memo, which was written by the investment team at the firm. This document had much of the content delivered in a long form business plan, but generated through independent research by the investment team. We primarily did this because we never took what the companies said at face value. So if you think about the amount of time that the management teams of all those potential investment opportunities spent writing long form business plans, you can see that it was largely a waste of time.

There is no shortage of books at the book store or online resources which will walk you through all the steps to writing the killer business plan. These books will often times espouse writing tomes of absurd length and depth of content. It’s not necessary, and you will just be wasting valuable time better spent on getting started.

To help give a little more context to this discussion, I want to use the exact slides I used when I was out raising money for the angel round of IMSafer. These slides constituted the entirety of our business plan as of June 2006 when we were raising money, and served as the roadmap for how we were going to spend the next 12 months. It took us 8 days to raise $1.2 million.

For brevity, I have removed some of the slides which served as backup or further explanation on a given topic, but I have not changed one word of the slides as presented to investors. Incidentally, if you think the content is shit, that only further proves my point that investors invest in people first, plans second.

Who Are You?

The very first question that you are going to need to answer is who is on the team. If you are presenting to investors, they want to know who they are backing. For anyone who has skipped ahead, you will catch that I broke one of my own rules in trying to go it alone (next chapter). The reality was that while I had other “founders” on the team, because of my misunderstanding of what was required to be called a founder, I only represented myself as a founder. The investors want to know about you, your experience and your pedigrees, in that order. It’s more important to have relevant work experience, preferably in similar company stage and with you in a similar role. Don’t be afraid to list failures. They are great learning experiences, and allow you to demonstrate your ability to learn from fluid situations. They will also want to know about any other advisors you have with the company. For privacy reasons, I have blocked out some names.

What Is The Problem You Are Going To Solve?

Consider this section of your plan a place to tell a story. You want to grab the attention of your audience, and connect them to the problem that you are going to try and solve. You don’t need specifics about the product at this point, or how you are going to solve it. You just need to make it clear that there is a problem worth solving. After laying out some interesting statistics about the incidence rate of potential illicit contact of children on instant messenger and the number of sexual predators on the Internet, we laid out the problem in plain English. This is done primarily so that we knew which problems we were trying to solve, and, more importantly, which problems we weren’t going to try to solve.

What Is Your Solution?

Very early on in the presentation, you need to explain what you are going to be making. If you can’t sum it up in a few sentences, you have to work on your elevator pitch. The description should not only highlight what you are going to be doing, but further help your audience understand why it’s important. Remember, we’re talking about your business plan here, so this will serve as your sign post for future discussions about product features and/or changes you want to make to the plan of record. This one slide, for us, served as the key set of rules by which we designed our product, kept costs low, and prevented feature creep from plaguing the product.

Why Will The Market Accept Your Solution?

Immediately after you explain what you are going to build, you have to lay a pretty good case for why you should build it. Among the reasons should be a clearly laid out set of reasons as to why the current market offerings are failing to deliver on the promise they propose, or do so in a sub-optimal way. These reasons should evoke rational reactions, like “of course, the current offerings don’t do that,” as well as emotional reactions, like “I hadn’t thought of that, and the current offerings should do that.” These market failings will inform not only your design work for the product that you are trying to build, but will help you better understand your customers. If you are not delivering value to your customers, then you should pack up. Understanding how those customers are being ill-served in the marketplace, and being able to connect with them in a logical and emotional way, is a sure fire way to fail.

What Does The Competition Look Like?

Whether you are presenting to investors or keeping yourself honest, to not understand your competition is to prematurely raise the white flag. By mapping out their core features and functionality of your competition, you will gain clarity on how you do or will stack up. Understanding where they are weak will also help you identify the potential opportunities for improvement on existing products. It’s important to note, however, that just because the competition isn’t doing it doesn’t mean that it should be done.

Incidentally, if you are in the fortunate position of having no competition in your market space, congratulations. In reality, if your answer to the question “who is your competition?” is “no one,” you probably need to revisit that answer.

Who are your customers?

Hopefully you will have a better understanding of who your customers are when you get down to putting together your plan. As you can see from our over simplified graph here, we dug into some US Census data and did what could be called “nothing more than a very cursory analysis of household data.” I actually give us a great big fail for not really understanding our target customer better when I first went out to raise money.

First, what kind of households were we targeting? To suggest that we were going to target any household with children ages 6-17 is crazy. Are those single parent or dual parent homes? Is one parent working, or are they both out of the house with jobs? What about income ranges? Broadband and Internet penetration? Does race and level of education of the parents impact Internet use in the home, and likelihood of children being in potentially dangerous situations online? Is IM more likely to be used by white kids or black kids? Boys or girls? Do parents of boys or girls care more about online safety?

Second, which parent were we selling to? Based on research we did later, we found that in most households, the male is responsible for the technology, but they aren’t generally concerned with the parental control software. Women make that decision. Further, women will do the research and tell their husbands which software to install. It turned out (as we found out much further down the road), our core audience was divorced and single moms in their late 40s and early 50s who were not that technologically savvy.

It should be pretty obvious that we didn’t know what we were doing when it came to understanding and segmenting our customer base. Take advantage of the wealth of free research information which exists on the Internet.

What are the details of your product?

Presumably, once you sold yourself, or potential investors, on the idea of your product, you are going to have to demonstrate what the product is and that it’s a feasible idea. The first chart above is how we initially talked about what we were going to build. This was not a formal spec, but it certainly set the tone for the scope of the product that we wanted to bring to the market. The amount of information that you need to accurately depict what you want to build is going to vary, but if you can’t do it in a few slides, you might be in a situation where you are being far more ambitious than you ought to be.

Once upon a time you could present your plan with nothing more than words; maybe even a few sketches of your product. Specific to software, but also in general, the availability of tools to create mockups of your product necessitates that you at least build a prototype so that you can gain understanding into the user interaction. Without being able to demonstrate how customers will use your product, you are merely speculating, and it’s very tough to invest in speculation. Further, while mockup demos are fine, and this is also especially true for software, a working product is far more powerful. As you can see, we had our obligatory architecture diagram of what we were going to build, but we also were able to present screen captures of the working product, and, if necessary, show the product during the early investment meetings. If you can’t succinctly scope your product, and show a working (barebones) product, you need to reconsider your decision to put yourself in front of an investor or decision maker (including yourself) seeking investment.

How will you acquire customers?

Ah, the marketing plan. How are you going to get customers? I am tempted to spend a bunch of time on this topic here, but since it’s a topic for which I dedicate several essays later in the book, I will pass on this for now. The exception I will make in the discussion is to point out that nowhere in these two slides do I even broach the topic of how to measure success, or what my per user acquisition costs would be. Fail. Having a bunch of ideas as to how you might approach the market is fine, but if you don’t know how you are going to measure that, then you have a problem. More importantly, most investors are going to want to see that information. My investors gave me a pass because they knew me, and I had been in a consumer Internet startup before, and they had mostly all seen the financial model which presented my per user costs. Which brings me to…

What is Your Best Approximation for the Financials of the Business?

For any presentation that you are going to make where you are seeking investment of any kind, you had better come prepared with numbers. I present only the base case here, but realistically you are going to need your base case, as well as an upside and downside case. Financial modeling is something on which I am also going to dedicate quite a bit of time later in the book, so I will leave the specifics for there. I do want to point out that it’s important to be cautiously optimistic with your numbers, be realistic, and anything beyond eight quarters out is a guess, and completely useless. For the record, when the diligence began for the sale of the business in November 2007, we had 160K users. Our projections were very close…because we were metrics driven and realistic. More on that later (in another post to come).

What Are The Risks/Challenges?

No new business or project is going to go off without a hitch, and if you are going to be seeking risk capital, you are going to need to lay out the risks of what you are attempting. In this specific instance, I chose to focus on the technical and business risks. I wasn’t too concerned with the competition because the analysis we had done so far on the market indicated that the dominant players were not innovating, and those new entrants who were innovating were marginally improving on existing ideas. There wasn’t anyone doing exactly what we were doing, which begged the question “why not?” The technical risks were the most pressing and obvious.

In this enumeration, you are going to have to know which risks are within your control and which ones are not. There’s an element of luck in everything you do, and knowing which risks are going to require a little more risk than others helps shape how you spend your time. Stack rank your priorities based on impact to the business and which ones are most in your direct control.

The investors also want to know what the risks are to their money. While these may be a reiterated form of what you have already stated as business and technology risks, you have to be a bit more circumspect about your thinking here. Demonstrate that you are thinking about things that could drive the valuation of their investment to zero. You can never show too much care when talking about their money and how you are going to be a good shepherd for it.

What’s The Timeline?

Lastly, you are going to need to lay out a timeline. When will all this stuff get done? How are you going to be measured and held accountable. My view on this, for right or wrong, is that you can really only plan so far out with a high degree of certainty. When presenting to investors, I chose to let them know what the timing looks like through the next likely funding point. In my particular case here, I hadn’t anticipated being able to raise $1.2 million straight away, so the pitch was tailored for a much smaller raise, and I chose, instead, to focus on the time line which got us to launch of the product.

Bonus: What’s The Exit Plan?

Any investor is going to want to know that you have at least thought about how they are going to get their money back. The answers here tend to be the same, so be realistic and don’t overreach. Just show them that you intend to get them their money back.

The moral? Spend the absolute minimum amount of time to appropriately answer the questions laid out above. The data which you collect should be presented in a slide deck and not a long form business plan. If you are successful in raising money, you will seldom refer to a long form document, and the interconnected nature of the document will make editing and maintaining it very difficult. If you aren’t able to raise money, you will waste many precious hours tinkering with this document instead of doing the more important task of building product and proving you can turn the crank and acquire customers. Focus on this core content, and be pithy. My deck was 30 slides, but you really should be done in 15-20. This deck is your set of core principles, product road map, and marketing plan all rolled into one. Most importantly, you are selling yourself and your ability to get the job done. Investors (specifically early stage investors) are investing in people first. Building your team is one of the most critical things on which you must execute and get right.

UPDATE: Chris Yeh, an old school mate from way back, has pointed me to a great post he wrote on the topic of business plans being a waste of time.

I cannot tell you how many times I have spoken to entrepreneurs and colleagues who told me that they wanted to start a new company, or even looking to join a new, young company, because they "hate their job." Let me say this up front: if you are going to go and take the risk associated with a young company, please, please, please make sure you are doing it for the right reasons.

The very first question I ask someone when they come to me with that glimmer in their eye, the wanderlust effusing from within, spouting off about how great it’s going to be at this new company, or starting their own thing, is "are you running to something or from something?" It’s a pretty simple question, and one that is easy to misunderstand. The core principle is to determine if you have thought through what you are doing and understand the situation into which you plan to insert yourself.

The common fallacy about a new or young company is that you do only what you want to do. This is especially true if this new company is your own. Admit it. You’ve thought the same things:

1. I’ll get to make my own schedule
2. I’ll work on only the things that interest me
3. I won’t have to deal with anyone else’s shit

Unfortunately, these are all very, very wrong. So very wrong. One of the first things you will discover when you venture out on your own is that there is all this other "stuff" that needs to get done. Seemingly, all the time. Stuff that you don’t want to do, and will never find interesting.

What is it that you hate about your job so much? Ask yourself that. Then, be completely honest with yourself, and ask if those things will still exist in your new gig. If you get over that hump, ask yourself how much you think you will enjoy doing the following:

Not getting through when you call

The first job that I had when I got out of college was working for Microsoft. In the early 90s, this meant quite a bit more than it does today in terms of what attributes people ascribed to you by virtue of your association with the company. Whenever I had to call a company for a contact, I would either get through, or my calls were returned quickly. Seeing as this was my first job out of college, I just assumed that’s how people in business conducted themselves.

It turns out that people were responding to "Microsoft" and not "Brandon Watson." People didn’t give a hoot who I was, but they did care that I worked for Microsoft. When I switched jobs to working for AskMe.com from Microsoft, I got a very, very rude introduction to the realities of being at a small company. No returned calls. In fact, when I got the admins of people that I knew, I would have a tough time getting through those gate-keepers. Getting your calls through, much less returned, has a somewhat inverse relationship to the age and size of your company.

Getting rejected 99% of the time

Even if you do get your calls through, get ready for the word "no." A simple fact of life is that people are simply not going to be interested in whatever it is you are selling. You will be fighting an uphill battle on many fronts. They don’t know who you are, what you are selling, why it’s important, why they need it, why your company is the best at solving whatever problem you are solving, and, most importantly, whether or not they want to give you money for it. That’s if you are trying to sell them something. It’s a completely different bag of "no" when you are looking to raise money, and yet another when you are trying to hire someone.

There are so many different reasons why someone is going to tell you "no." Worse, the inertia of saying "no" far outstrips that of saying "yes." Saying "no" is easy. It’s safe. Most importantly, it costs them nothing. It’s not personal, generally, and you need to keep that in mind as you work your way through the gauntlet of "no"s that will accompany you on your journey.

Dealing with the myriad of government forms and processes to ensure that your business is in good standing

Do you know what forms you need to fill out with your State Comptroller’s office to start your business? What about with the county registrar? Which tax forms do you need? What kind of legal entity are you going to create for your new company? Do you know whether or not you have to pay taxes on the furniture and other capitalized equipment that you have in your office?

The answers to these questions will vary based on the location of your business, and this book is not about trying to help you answer those questions. I am merely trying to point out that there’s plenty of these sorts of questions waiting for you, and they are going to occupy a large portion of your time, which will obviously take you away from the very thing you want to be doing – working on your product/service. If you join a new company, this is probably already done, but if you are going out on your own, invest the time to ensure that you get this one right.

Quickbooks, or dealing with accounting in general

I make it no secret that I hate Quickbooks. It’s not that I have a blood feud with Intuit per se, but rather a severe distaste accounting and accounting software. Everything has to be just so, and if you screw something up, it’s difficult to back track and figure out what you did wrong. The software has a direct link to your bank account, so you can forget feeling comfortable about the whole check writing process. Me personally – well, every time I used Quckbooks, I felt like I was going to blow up my bank accounts and never recover the data file.

Your basic bookkeeping is certainly something that you can contract out, and I would strongly encourage you to do so. If you use Quickbooks, you can even give your contract accountant access to the file and they can do your bookkeeping remotely. In the early days of your company you will most likely not have the revenue base to support someone full time handling the accounting, and if you have a transaction intensive business (even something as simple as an eBay business), you will be interacting with the accounting software quite a bit.

Have fun. I hated it. Even when I was working as an investment banker, I didn’t ever have to deal with the nuts and bolts accounting, and certainly not the accounting software.

Asking people who owe you money to pay you the money they owe you when they owe it to you

So you got the sale? Congratulations! That’s awesome. You’re only part of the way there. Now comes the part where you have to actually ask for the money. You may have sent out the invoice, and you are probably dealing with someone who handles their vendors on a net 30 or net 45 basis (meaning you get paid 30 or 45 days after they receive the invoice). What do you do when they don’t pay you? How comfortable are you going to be when you have to call and ask for the money?

At larger companies, you never think about this sort of thing. You probably have an Accounts Receivable department who handled all of that for you. Now you are the AR department. You will hear all sorts of excuses. Yes, you will even hear "the check is in the mail." If you are selling to small companies, you will find that they are just as cash strapped as you, and are also probably waiting on getting paid from another vendor who owes them money. It’s a tough cycle to get caught in, and your little company goes to the back of the line. Who do you think your customer is going to pay first? No name, young company with whom they have a short working relationship, or large, well known corporation with an army of lawyers?

As you can see, there’s no shortage of suck work that goes into a new company. In all probability, you have never given much thought to any of these things, and therefore don’t really have an appreciation for all the various departments within your current company that handle these items. I know I certainly hadn’t.

I mostly wanted to paint you a picture of some of the harsher realities of a new company. In having something that you are running to, these other issues won’t be the show stoppers they often times end up being. Knowing what it is you are looking to get out of your new gig, and knowing with certainty why you are doing it, will create for you a sense of purpose which will override the voice in your brain asking you why you got yourself into this mess. Starting a new company because your current job sucks is just trading in one bad situation for a new set of pain and drama.

The moral? Know whether you are running to something or away from something. Running to something will get you through the rough times when you are dealing with all of the fun subtleties that come with being a new company.

There’s a phrase that I used to hear all the time when I was growing up. My high school soccer coach (really, every coach and wanna-be manager loves this one) used to say "there’s no ‘I’ in team." The implicit statement is that you can’t do everything on your own, and in fact you need a team to help get to the finish line with a win.

I would like to take that statement one step further, and make it a little more topical given the content of this book. "There’s no ‘I’ in team, but there’s an ‘I’ in ‘fail.’" When you think about what it takes to be successful with a new company or project, there list is long, and most certainly one of them is having at least one co-founder. The needs of the business and the prerequisites for success are too much to bear for a single person.

When considering the applications from potential startups for the Y!Combinator and TechStars programs, both programs will tell you that the ideal size of a founding team is somewhere between two and five people. If you start a company with a founding team of larger than 5 people, you will ultimately end up with a team of less than that number, and most likely lost a few friends along the way.

The reason for this "optimal" size is pretty straightforward. You need to have enough people to balance out the skills of the team, as well as diversity in the views expressed when making decisions, but you also need to be able to make decisions quickly and not get bogged down in meetings. Meetings are the productivity killer.

I can speak from personal experience on this one, since I have been at startups with "proper" size funding teams, and started a company as the sole founder. There’s certainly plenty of truth to the axiom about the size of the founding team, but I think that some of the dogma which gets associated with it ends up obscuring the meta-point, which is that you can’t do everything alone.

There’s a subtle nuance between having a "founding" team, and having "founders." Founders are in it together, most probably equal partners, and make all decisions with equal sway. A founding team is your early set of employees who join on with the prospect of building something amazing, and hopefully getting in early on what could be a big pop.

When I was at AskMe, it was interesting to see how the three founders interacted with one another. There were many closed door sessions, where they would make decisions about funding options, hiring, budget, HR outsource companies…you name it. They each had equal vote and their stakes were certainly more equal to each other than they were to any of the "employees" who were hired on after the formation occurred.

For the most part, this arrangement appeared to work. There was, however, a fatal flaw in the arrangement, but that came down to a personality conflict. While in theory each of the three founders had equal say, in practice this was not the case. One of the founders had a much stronger personality than the other two, and this was further complicated by the fact that he was the cousin of one of the other founders. This strong type personality had a habit of imposing his will on others. I cannot speak for the other two members of the founding team, but only from my own experience working with him. If it wasn’t his way, it was the wrong way. While the team initially had three members, which would seem to be right in the power zone of the appropriate number of founders, it turned out quite differently.

At IMSafer, there was one founder. Me. When I finally got started, and was rounding up the deck to pitch angel investors, I had a couple of guys who I was talking to about coming on-board. Since I had never gone through this very early stage of the process of founding a company, and having only been on the investor side of the table with companies who were raising their second or third round of capital, I brought my own assumptions about what made a founder a founder. To me, a founder was someone who was writing a check to get the company started. For one reason or another, I actually believed that if one person was writing a check to incorporate the company, then everyone had to write checks to get founder’s shares.

During all the meetings that we were having at Starbucks, we spent countless hours talking about market size, opportunity, fund raising strategies, technology solutions, implementation tactics, and all other manner of topics. Does this sound like a founding team to you? In retrospect, it certainly sounds like one to me. Hindsight is always 20-20, so I can see now what a mistake I was eventually going to make. When it came time to pull the trigger and incorporate, I basically had asserted earlier that if a person wasn’t putting in money then they weren’t a founder, and wouldn’t get the founder shares – they would get options only.

I’m not going to lie. I liked the fact that I could write a big check. I liked the fact that I could say I was "the only founder." It made me feel good. Being the low EQ (emotional intelligence quotient) guy that I am, I didn’t see the other side of that coin. I never once considered how that might make my founding team feel. Again, hind-sight being 20-20 and all, how completely stupid of me, right? Here we are making all this progress on starting the company, designing a kick-ass solution, thinking through all the problems, and all I could think about was how I felt.

After we secured the angel funding, and put a proper option pool together, it was up to me to decide what the option package would look like for my employees. Do you see what I just did there? I called them "employees." That’s how I thought about them. They weren’t founders, like me, but employees. All because I wrote a check and they didn’t. I am sure I can spend a few pages on the incredibly myopic view that represented, but instead I am going to fast forward to our first board meeting. One of my board members told me that this had been one of the best first board meetings to which he had ever been party to. I felt pretty good about that until he quickly brought me back down to Earth by pointing out that "you’ve done a lot of good here, but you’re doing a huge disservice to your team by not calling them founders."

That statement hit me like a ton of bricks. My worldview, to that point, had been that in order to be a founder, you had to write a check. It never once dawned on me that the "founder" construct was not a legal one in that regard. In fact, we were operating largely how you would expect a founding team to operate. The only decisions that were made without the team were the option packages and pay. Other than that, we made decisions together and everyone had equal say. On the one had we were operating in the right manner, in that we acted like a set of founders, but on the other hand, I was dealing a huge blow to the team by holding that title for myself. Immediately after that board meeting, we changed everyone’s title on the team of four to "founder."

In the very early days, when I was trying to get through the "Getting Started" phase, there as an incredible amount of stress. In fact, it was that stress of carrying all of these very hard decisions on my own shoulders that caused me to have the entire founding team act with equal say and vote. I found that the stress of that burden was not something that I wanted once we had the early team in place. It was great that I was getting to the right place (i.e. don’t go it alone) but made some stupid decisions based on an inaccurate worldview about what was a "founder."

The strength of that founders bound cannot be overstated. We made it through some tough times with IMSafer specifically because we had such a good founding team. Everyone trusted each other, and we knew that someone on the team was a subject matter expert (SME) on something, and at least one other person on the team was a backup SME. It’s an incredible feeling to be working in that kind of environment, and removes quite a bit of the stress of day to day operations when you know you can focus on the one piece of the puzzle for which you are responsible, but that you can also voice an equally weighted opinion when there needs to be a vote. This strength of team and bond is what gets you through the tough times.

I bring up the tough times and the strength of team so that we can revisit the team at AskMe. When the company was founded, it was 1999, and venture capitalists were falling out of trees. All you had to do was shake one and a VC with a bag full of money fell out of it, willing to give it to any company with “dot com” in its name.

Over the course of the ensuing 18 months, the dot com bonanza was on in full force. My favorite term for that time was that it was a "war for talent." It was a relentless battle to get the very best people that you could get from whatever source, and hold on to them. People were job hopping every 6 months for increased pay and options packages. Everyone was doing well, and many businesses were hiring. During these great times, cracks in a management team can remain hidden and undetected. When things go to shit, however, those cracks explode into a dysfunction which is indescribable.

As you’ll recall, the one founder had a much stronger voice than the other two. To paint an appropriate picture for his ineptitude as a manager and arrogance as a person, he loved to walk down the hall, and tell me “Watson, there’s only 10 people in this company that matter. The rest are completely replaceable.” He didn’t seem to care that he would say this in full ear shot of many employees.

Toward the end of my tenure, my favorite of the three co-founders took a leave of absence. It turns out he was the keystone, because what followed was a parade of departures from the company. The timing was interesting because of the close proximity to the dot com melt down. Orders were drying up. Funding was scare to non-existent. Receivables were getting stretched or outright defaulted on entirely. When the tough times hit, peoples’ willingness to tolerate bad management rapidly declines. This founding team eventually dwindled down to the one founder, putting him in exactly the spot in which you don’t want to be.

Incidentally, AskMe sold recently for a very modest sum, but there was a trail of broken investors along the way, and far more employees, who had what I would call a “not so great experience.”

The moral? You need to have at least two people on the founding team to keep the pressure at a manageable level. Each of the founding team members should have equal vote, and an atmosphere of trust needs to be in place. When things are going well, it’s easy to mask poor founding team dynamics, but when things get tough, and they will, those problems will get magnified. The founding bond that gets put in place will ultimately have a pretty strong directional impact on the future success or failure of your company, so invest in getting the team right sized and empowered early.

“What’s in a name?” A famous question that is as relevant today as the day it was penned. There are a few things that are completely in your control when you think about starting a business or kicking off a new project, and the name that you select is one of them. It never ceases to amaze me how few people give the name selection process the attention it deserves when they are commencing.

There once was a time when you could take a product almost all the way to the finish line and come up with your name then. The companies who really understood marketing and brand management would spend considerably more time on this exercise, but some of them are the worst offenders when it comes to coming up with names. More often than not, what they would bring to market is a line extension, utilizing some portion of an existing brand (i.e. Coke Zero, Miller Lite). They successfully bi-furcated the target market, and end up losing cumulative share.

The Internet changed the importance of a name in a few ways that may not be immediately obvious when you are thinking through a name, but are exceedingly obvious when you hear them said out loud. The discovery process that consumers go through today for information about your product or company will most likely (I really want to say “absolutely will”) begin with a search engine. Thus the question, “what’s in a name?” Perhaps a more contemporary version (much to the horror of Shakespeare lovers around the world) is “how Google-able is your product?”

A great example of this is a language invented by Anders Hejlsberg, and released by Microsoft in 2000. Initially, the code name for C# was “Cool” (supposedly for “C-like Object Oriented Language”), but in an effort to tie the language to the anchor brand of the C programming language, Microsoft opted for “C#” – pronounced “C sharp.” The only problem with this is at the time, the “#” character was a non-allowable character for search engine crawlers. They ignored anything after the “#” because the “#” is used for HTML to mark an anchor on the page. Further, at the time, most search engines ignored the “#” as an input character on the search page. This meant that anyone typing “C#” into a search engine would get a search for “C,” as the search engines would strip out the “#” character. Worse, not only would customers be confused if they found links to the older “C” programming language, but what if they were presented with stock information for Citibank, whose NYSE stock ticker is “C?”

Imagine how frustrating this must have been for anyone who heard about this cool new language and immediately went to the search engines to get more information. Sure, the year was 2000, so search engines were still new-ish, but the primary consumer of a new programming language, especially in 2000, would certainly be search engine savvy. The search would have come up empty, or, worse, pointing to many non-relevant sites.

Further compounding this naming gaffe is the fact that the character “#” is not usable in a URL. What? In plain English, Microsoft could not have the URL “http://www.microsoft.com/c#”. The “# is supposed to represent an anchor within the document, but without addition text after the “#,” the URL doesn’t work. Failing in finding the information in a search engine, a customer might try to simply tack the name of the new product on the end of the company domain. Again, the tech savvy customer who would be seeking this information would be stymied in their attempts. Even today, in 2009, this URL fails.

Typing “www.microsoft.com/c#”

What’s interesting about this is that even today, the Microsoft search box throws out the “#” for the customer. You can see this by looking at the search term presented on the lower left. As you can see, because the URL failed, Microsoft conducted a search for what came after the dot com, and thinks I was looking for “C.” With this as a failure, a customer might spell out “csharp” and find that the URL www.microsoft.com/csharp comes up empty:

Typing in the URL “www.microsoft.com/csharp”

Unbelievably, they repeated this error in 2005 with their new language F#.

When we first started IMSafer, the name wasn’t IMSafer. In fact, that name was more of a serendipitous discovery than anything else. The original name of the company was Collabarent. I was trying to be cute, and was hoping to convey the concept of parents collaborating. It’s a pretty awful name. Tough to spell and even harder to say if you aren’t ready for it.

One of the design principles of the product was meant to harness the collective wisdom of the parents using the system. We weren’t really clear what problem we were trying to solve other than taking on the “parental controls market.”

The challenge put to me by Tommy, my VP of engineering and co-founder, was that we didn’t have any focus. Without focus, and a clearly laid out problem set, there was a good chance that we would try to do too many things, and in fact do none of them well. The name I had chosen had pretty much demonstrated that sentiment.

Tommy took the challenge one step further and suggested that we really ought to spend time thinking about the core problem set, the impacted customers, the feelings we wanted to evoke from those customers, and see if a name would evolve. We set forth the following requirements: The name had to be:

1. “Google-able,”
2. Memorable
3. Not confusing with other products in the market
4. Immediately convey the purpose of the product

We also needed to ensure we could get the domain. You must always, always, always get the domain, and it must be a “.com.”

I want to take a quick moment to hit this point about domains really hard. Don’t underestimate the need, nay requirement, for a .com address. When Microsoft first shipped their Zune player, they didn’t own Zune.com. They do now, but at the time, it was www.zune.net. The same story played out for their Silverlight technology, except that Microsoft still doesn’t own the .com URL.

How many respectable or popular businesses do you know of that have a “.net” URL? Very few. The opportunity cost in terms of lost traffic and customer mindshare is pretty high, especially if there are two commas in your marketing budget. This problem is further exacerbated should your product or company have any level of market success and you decide that you are going to procure the .com address if it’s being squatted. Your market success will have the perverse effect of driving up the price for the .com version of your domain.

Back to Collabarent. With the above guiding principles in mind, we set about on an exercise to enumerate the problem sets we wanted to tackle, list out our customers, and decide what feelings we wanted to evoke. The final test for any proposed name was whether or not GoDaddy told us the domain was available. We came up with a bunch of names, but for one reason or another, the each failed the tests above. Finally, Tommy said, mostly out of frustration, “I just want parents to know their kids can IM safer.” I remember my first thought was that there was no way that domain was available. The likelihood of any seven letter domain comprised of any real words being available in early 2006 was pretty low. IMSafer.com was available. Unbelievable.

Sounds like we had a winner, right? Sort of. There were two problems which wouldn’t present until much later in our cycle. First, my board of directors, and many people we spoke to, often dropped the “r” from the name, and were convinced we were “IMSafe.” We did not own that domain, and spent a good deal of our time correcting people. We failed the rule of not testing the idea with enough people. Had we done that bit, we would have discovered this issue.

Second, the “IM” part of the name had the potential limiting effect on design and product direction. Company versus product name is a discussion for another essay, but it’s something to keep in mind when you are thinking about your company and your product portfolio. By adopting the name of our flagship product for the company name, there was a potential branding issue down the road should we have decided to broaden the scope of the company.

We had a similar problem at AskMe.com. When we started the company, it was known as “Xpertsite.com.” Yes, we spent a good deal of our time repeating the following, in one form or another: “no, w-w-w-dot-x, no e, p-e-r-t-site.com.” Very annoying, and distracting for potential customers. When we switched to AskMe.com, we spent a lot of our time explaining to people that we weren’t Ask.com the search engine. To this day, when I tell people that I worked for AskMe, some people tell me that they “use that search engine.”

The moral? First, make sure that you have a name that can be found in a search engine, and is unique enough that you are not going to get lost amongst the information about irrelevant products. Second, make sure that your name is not only easy to remember, but that it won’t get confused with some other existing product which already occupies some spot in the mind of your potential customer. Third, it helps if the product name immediately conveys purpose or relevance to your target customers. Lastly, make sure you can get the domain name, and make sure it’s a .com.