What to Pay a Founder? More Thoughts on a Thorny Issue

My recent LinkedIn epistle on “what should founders pay themselves” aroused a true firestorm of commentary… my second most provocative post of all time—after “why so many startups suck,” which was something of a shot heard ‘round the world. Comments were truly all over the place, and fell into a few interesting “buckets” worth sharing:

First, this caveat, which I affirm with every startup I talk to: these are one (seasoned veteran) guy’s opinions—there’s no set of facts or rules. So take them for what they’re worth and consider them in making your own rules, which—as a founder—YOU get to do. Remember that investors will also judge your startup on how you approach your team compensation, particularly for teams lacking a track record of at least some success.

Are serial founders worth more than first-timers? It’s not a distinction I actually made, since I focused on my salary (of zero) in my first startup. (Actually my salary was the same in all seven—as little as humanly possible—because I’m a firm believer in bootstrapping, which I did each time.) But I think a successful, serial founder is indeed “worth more,” and perhaps—as many suggested—even deserves a market rate salary based on a prior track record and the need to attract them to “do it again.”

What bugged me in the 100+ comments were those from first-timers who felt they commanded more than starvation wages. In my view, this is why “founders’ equity” was invented. If you’re looking for a salary, get a job. If you’re looking to build something, you should be at least as heavily invested in its future success as any of your financial investors.

Can you succeed at a startup working less than full time?

Big question among the readers, and for me (and my The Startup Owner’s Manual co-author Steve Blank), the answer is generally a resounding “NO.” Steve loves to call these people “napkin entrepreneurs,” because they spend limited amounts of time talking about and playing with an idea drafted on the proverbial cocktail napkin. That’s not a business; it’s a game.

If you’re not committing to 80-hour weeks, and making that commitment for a very long time, odds of your success are overwhelmingly low, and odds of finding investors are lower still. Quite a few folks commented on my “lucky strike” of stumbling into a $200,000 (in today’s dollars) night job at my former employer, and more than a few blasted me for taking my eye off the startup ball to do so. Well, I was the CEO, I made the rules, and I chose to work about 110-120 hours a week to capitalize on this wonderful opportunity. I quit that wonderful 200K job to launch my startup, fully intending to live on a “ramen noodles” budget until the business could afford to pay me. Apologies to those who were mad at me for getting lucky and capitalizing on the opportunity. In my case, it allowed me to accelerate my hiring investment at Bob Dorf Inc., moving it forward faster. If it works for you, do it!

What does it all really mean?

First, if you are launching your startup for the money, give up now and save yourself a lot of time and heartache. Most startups fail. Period. And many never achieve the traction that’ll pay their founder a “market rate” salary, whatever that might be. If you’re committing yourself to a startup, do it because you want to do something great… to be your own boss… to execute on your vision of something special or unique or (ideally) that can change the world. If you’re in it for the money, get a job, marry a rich person, rob a bank… don’t do a startup.

Second, being a founder is not a salary entitlement, especially for first-timers. Your “founder commitment” is sweat (and blood and tears), for which—if your startup is successful—your reward is equity that comes to you just as it comes to other startup investors who invest cash rather than perspiration. If you expect big compensation and big equity, you have very big dreams… unless your name is Steve Blank, Steve Jobs, Nolan Bushnell or Mark Zuckerberg… and your track record of generating massive returns for financial investors makes your involvement a massive value-add for your next startup.

Third, give it everything you’ve got. There’s just no other path to success. Don’t take a part-time job to fund your startup unless you have the stamina to work over 100 hours a week, allowing at least 75 or 80 for your startup.

Last and most important, do it for Love… For 99+% of the world, jobs are far more comfortable, easier to understand, and easier to do. Only the crazy, passionate maniacs do startups at all… and a small percentage of those have the drive, the tenacity, the vision and the passion to reap personal and—sometimes—financial reward.

Here’s to the next 200 comments!

 

This article first appeared on http://www.linkedin.com

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Why Too Many Startups (er) Suck…

My favorite startup writing to date…and retweeted about a zillion times…

While statistics are weak on startup success rates, the worst one I’ve seen suggests that 2 in 1,000 venture-backed startups will ever achieve $100-million or more in valuation. Another stat puts that number at 2% rather than 0.2%. Either way, the “hurdle” for successful, scalable startups is high, and it gets higher every day as customer acquisition challenges continue to increase.

I’ve spent more than four decades founding, coaching, teaching and investing in startups, and nothing breaks my heart more than meeting a starry-eyed founder who says “we’re almost ready to show it to people.” The “it” is a physical or web product they’ve often been locked-down, pounding away at, for many weeks.

In my view, this is the nastiest of all startup sins: failing to involve customers and their feedback from literally the first day of a startup’s life, keeping the most vital opinions silent—those of the eventual customers—for far longer than necessary.

When I hear this comment, as I do far too often, I switch to pleading mode: “Please. Take a week. Get some feedback. Does anybody really care, or are they giving you polite nods and little more. This generally leads to the second biggest reason too many startups suck: they’re solving a non-problem.

Does anybody care? Many Startup Owner’s Manual readers ask why Steve Blank and I are adamant that Customer Discovery happen in two separate, distinct phases: “problem” discovery and, later, “solution” discovery. There’s just no other way but, as Steve Blank has said for a decade, to “get out of the building” and talk to the only folks who matter—your customers.

Building a solution to a problem of moderate or lukewarm interest to users is a long-term death sentence for startups, where founders will almost certainly commit to 20,000 hours of their lives (or 5 years of 80-hour workweeks) in order to “beat the odds” and deliver a breakout success: a sustainable, scalable, profitable business.

Why, then, are so many founders so reluctant to invest even 500 or 1,000 hours upfront to be sure that, when they’re done, the business they’re building will face genuine, substantial demand or enthusiasm. Without passionate customers, even the most passionate entrepreneur will flounder at best. Dropbox is a great example. It scaled like lightning by solving an urgent, painful problem for millions of consumers. The product is so good, helpful, and easy to use that it literally almost does its own marketing organically through the product’s viral nature, just as Hotmail and Gmail have done since inception.

What’s the honest trajectory? There can only be one Mark Zuckerberg, and at last look he’s young and healthy. Can every startup skyrocket like Facebook or Square or Google? It’s downright impossible. The solution: understand your startup’s “honest trajectory” and align objectives of the founding team and—importantly—its investors to define and agree about what “success” looks like. Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million. There’s a ton of money to be made “in the middle,” a broad swath between struggling or gasping for cash and ringing the bell at the NASDAQ.

Find the right trajectory for your business and focus not only on reaching it, but on assuring that the result is a sustainable, repeatable profit engine that can perform and grow healthily over time. Use Customer Development to identify and refine the potential profitable niche and stay in close contact with customers as you build, to be sure you’re building something they’ll want to have…and keep.

Stand Out in the Crowd: If you’re solving an important problem, make sure your solution stands out in the crowd. Hundreds of entrepreneurs I’ve met never spent an entire day Googling their industry, other ways to solve “their” problem, and few have spent time “playing consumer,” trying to find “their” own product, or one like it, and creating a “market map” that assesses all the competitive solutions, their strengths/weaknesses, and where the new product fits clearly and distinctly in its competitive environment. If you can’t figure this out on your own, and relate it to customers succinctly, it’s a certainty that your customers never will.

Going Forward is NOT About Standing Still: Another of my high-frequency “sad” moments happens when visiting with a team that is consistently “flatlining,” or delivering minimal or trivial user growth week after week or worse. Clearly, something’s horribly wrong, and everyone just keeps showing up, doing their jobs, without attacking the core problem that’s almost always a lack of palpable customer enthusiasm. What’s the point? What are they waiting for? It’s time to bring the leadership team into a room, dissect each key element of the business model, and identify pivots that are worth exploring smartly—where else—with customers.

Going Forward Is Often About Going Backward First: Entrepreneurs pride themselves in their problem-solving abilities, tenacity, and willingness to run through brick walls to make things “go.” More often than not, the DNA strand that makes entrepreneurs great is the one that’s their undoing when confronted with “flatlining” user adoption, growth, referrals, or frequency. These entrepreneurs need to switch smartly out of “do” mode and return to the earliest “discovery” steps to find a distinctive, exciting solution to a seriously painful customer need or problem.

It’s the only way to make a startup not suck.

 

This article first appeared on http://www.steveblank.com

Inspiration for Entrepreneurs

Ten “inspirational moments” for entrepreneurs from 33voices.com… and ME! (Who’s that old guy in the picture?)

 

 

This article first appeared on http://www.linkedin.com

How Great Startups Are Built …

I’ve been starting startups since before you were born.

What did this old guy learn? Have a listen at 33voices.com, a wonderful resource….

 

This article first appeared on http://www.linkedin.com