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Alex Bäcker's Wiki / How To Start a Company
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How To Start a Company

Page history last edited by PBworks 16 years, 6 months ago

It must be considered that there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things; for the reformer has enemies in all those who profit

by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it.



Aim high

It takes a lot of work to start a company, and life is short, so you might as well aim high. The bigger the idea, the better. And do all you can to work with the best. A great team is essential.


The great tragedy of life is not that people set their sights too high and fail to achieve their goals but that they set their sights too low and do.



Generate value

It takes an idea that creates value to start a successful company. Don't start a company that simply transfers value from one place to another. Spend enough time brainstorming that you are convinced your idea is good.


Tell people (more or less) what you want to do

Your friend's network is much larger than your own; you'd be amazed at the people that are two connections away from you. If your friends and acquaintances know what you are trying to do, they are more likely to introduce you to someone who can help you.


Find an advisor who's done it before

Starting a company is hard work, but it's not complicated. But having an advisor who's done it before will give you the confidence that you're doing it the right way (e.g. that you're doing things in the right order).


Get a lawyer early

If your idea is good, you are trustworthy and you don't have money or don't want to spend it, a good lawyer will do pre-financing work for equity or for the potential of future work when the company is formed.


Attach someone with credibility to your project

Starting a company is all about creating something where there was nothing there before. There's a little of a chicken and egg problem: no one wants to join nothing, and it's nothing until people join you. The solution is to take steps that bolster the credibility of the company. Each step will elevate the company's stature and make it easier to take the next step. So find someone credible to endorse your project --it'll be easier for them to do it if they don't have to put money. That will help you bring someone else who's credible. And so on. Before you know it, everybody and his mother will want to be part of your project, and financing will be a lot easier.


Reduce product risk

If at all possible, show that the hardest or most differentiating part of your solution works before raising (much) capital.


Do not underestimate the power of a demo

Nobody understands your technology like you do. Which means that nobody believes it will work the way you do. Until they see it work.


Reduce market risk

If at all possible, show that real customers are willing to spend real money to buy your solution before raising (much) capital.


Don't worry too much about reducing a whole lot of execution risk before investment

Other than attaching people with credibility to your project, you may be best off waiting to have money to be thorough about who you hire for critical positions if you don't have access to the best before you start. The success of your company depends critically on the quality of your team.


If you will raise venture capital, use your network to find a trusted path to VCs

VCs invest in projects they trust in. Trust is a transitive property. Find someone they trust, and your life will be a lot easier.


Be selective about the Venture Capitalists you present your idea to

The venture game is all about discovering something hot before someone else does. If you present to the world, the impression is that if your project was any good, someone would have already invested in it. If you are selective in who you present your project to, the sense of early discovery is preserved, and you won't spoil the fun for the VCs. Besides, any VC from whom you do not take investment becomes a potential investor in a competitor.


Spend more time executing well than writing a detailed business plan

If an exciting enough project is introduced by the right people, you don't need a written business plan. What you need is a compelling presentation, and something exciting to talk about.


Create a competitive environment for your financing

VCs pay what it takes to win the deal.


Sell a minority stake in your company

Chances are your valuation will only go up, so don't sell more than needed.


Raising on the eve of a highly anticipated event is as good as raising after it, and less risky

VCs are paid to see the future. This makes them believe they can. So if something looks like it's going to make a lot of money and smells likes it's going to make a lot of money, chances are VCs will be assume it will, and the valuation will go up in anticipation of the event --does this remind you of Jeffrey Skilling's valuation methodologies? Skilling's problem was that Enron lied (or was uncannily bad at predicting the future). There is always the chance that an outcome will be worse than anticipated, so the risk-avoiding entrepreneur will raise in anticipation of the event.


If at first you don't succeed, try, try again

Some VCs won't invest in any deal in your space. Others will not because of a conflict of interest with an investment in their portfolio. Others won't be smart enough to realize how good your idea is. There is a lot of money in the world, and only one investment opportunity like yours.



Acknowledgments: I learned much of what I know from Craig Johnson, co-founder of Financial Engines, Venture Law Group and other successful companies.


Up to Entrepreneurship.




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