TiEcon 2006: From 0 to 60 : Ramp it Up with Low Bucks – Bootstrapping Startups

I spent Friday and Saturday at TiEcon 2006, a Silicon Valley gathering of close to 4000 Entrepreneurs and their "ecosystem".  I’m posting some of my notes on my personal blog, and in case I feel it fits the theme of The Small Business Blog, I will repost those notes here.

Jeff Clavier’s bootsrapping panel is certainly on of those: Small Business owners at several stages (early, established, already sold) and investors discussed startup issues.   (note: I am obviously publishing this, as well as other TiEcon posts after the fact, but have done only  very basic editing, and some linking, essentially posting my original live notes)

Panelists:

David Hornik: best way to grow a company is without VC money – now that’s something to hear a VC say…

Jeff Clavier: Agrees, but sometimes  competitors force the entrepreneur to want to accelerate business which in turn leads to a need for VC investment.  

David adds another case when you need VC investment, citing a  payroll company he invested in: in that type of business customers expect a robust infrastructure, not just a  program, and building out the infrastructure is capital intensive.

ToniBackground:  Oddpost, Yahoo,  Automattic – this being his 4th startup now, and he’s just recently "switched sides" to True Ventures.   Classic bootstrapping worked for him better than VC funding.  Too much VC investment can create a "fat model", entrepreneurs may find themselves trying to use VC money to "create a market" where there is none.  Oddpost – could not raise money,  since  everyone thought they were crazy to be a "me-too" on the crowded email market.  They got some corporate customers (licencing deals) , eventually took VC money, but ended up not touching it, since Yahoo acquired them  4 months after the funding.   At Automattic they raised intentionally little, could have raised more, but does not favor that model.  Organic growth, go find customers, start revenue flow works better. 

Jeff:  Automattic is  going up against well-funded blogging companies, why is the "lean model" better?

Tony: WordPress is Open Source, combine that with the Silicon Valley effect: start an Open Source project, people will find you.  Want to be lean, organic, likes the craigslist approach: 15-8 people run a huge service.   Jeff Clavier compares them to MySQL’s Open Source – viral growth effect.   Tony: MySQL goes after the corporate market, it  needs Marketing,  while we have a consumer product, and our products are  blog-related, and bloggers are natural marketers.

Jeff: Often the original Founder is an engineer who needs a business savvy partner, or at least advisor, how do you get started in finding the right business guy?

David:  Teaches a class on IP at Stanford B-school.  Recently saw a flyer, showing the original Sun Founding Team.  It said: "Do you wanna be like them?  I am an engineer… looking for business partner"  Cool poster, but generally it’s safer to find them "organically", living your life, networking, having coffee.  
                      (Warning: this is the Commercial: I am   available )

Toni: more business people are looking for technical parners then the other way around, they tend to be better at networking, while the techies are sitting at home writing code.

Fred Durham:  Don’t start by looking for a patner. Go find customers first before partners, since you’ll never get it right on your own without customers. 

Tim Tuttle: Found his first business partner through determined search on job boards. 

After the warmup / introductory questions Jeff quickly switched to taking questions from the audience.

Question on picking the right business, focus on one out of several options:

Toni: Early in life he was a trainee at Autodesk.  They had 9 original Founders, all engineers, all with their own ideas. Since they could not predict which one would take off, they pursued all for a while, eventually dropping all but on.  But generally it’s good to have a singular focus.

Jeff, as moderator demonstrates the importance of focus when he forces the next questioner to pick only one of two questions he wanted to ask.  After all, that’s what entrepreneurs have to do, too.
Question: How much money/equity to give away to ?   

David: Equity is a zero-sum game.  Early stage entrepreneur normally forgets this,tends to give away too much.  Raising money is a market mechanism  If the market is one, i.e. only one source is willing to fund you, that one source will determin the price.  Price of equity is  more easily determined in an investment situation then with partners.  What’s the value of participation? Depends… Give away as little equity as possible without feeling a jerk.

Fred: interrupts: Give away less than that, it’s  OK to feel a jerk. 

Kanwal: Don’t give partners / employees what you feel they’re worth  upfront, you can always do that later.

Tim: Don’t take money from friends.  Business and Friendship rarely match. (Oops, I know .. been there, done that...)

Question:  When do you give up pursuing a dead business? 

Fred: I failed many times, walked away relatively unharmed. Advice: run early. Get on a different horse. 

Tim: When you and the children need  a tent to live in, it’s a pretty good infication that it’s time to give up.

Question:  Specifically to Tim and Fred. How did you get initial traction once you have the product?

Tim: Raised little money, spent most of it on viral marketing.. 

Fred: Co-founder sent 100 invitations (spam) to random webmasters.  He got 20% response rate.

David:  A portfolio-company used quizzes. 

Toni : design product to be word-of-mouth compatible.

Question:  Entrepreneur ended up "in the tent" in 2002 starting again now.  Trying to release little bits of software to get customer feedback instead of writing plans. Is that a good approach?

Tony: Just be careful that the core is polished enough to put in front of  people without turning them off.

David: Don’t ask me as a VC what to do.. If your VC knows more about your business than you do, than one of you is an idiot.

Fred: Switching cost is huge, don’t easily jump to the next more attractive idea.

Question:  Inventor of ready-to-launch web application to save marriages. (huge audience laughter, apparently the entrepreneur crowd is in need of being saved….  Hey, if I am not married, what can you do for me?Finalist of Berkeley Business Plan Competition..  He just needs a VP Marketing to launch, but listening here made him realise he should be hunting for a CEO (Wow!).

David: You don’t want my money NOW, get it out, launch, create buzz, displayt ads – you will get called by VC’s.

Toni: You don’t need a VP Marketing to launch a product. You will need one later to take it above $10M.

Question on chances of a little startup vs. established players.

Kanwal  Uses Cisco as example: they won’t pay attention until you’re large, then buy you. 

Tim: Truveo: big guys wanted to build better video search, but they couldn’t, so they bought us.   Now that I am part of a big com I understand why.  (Audience laughter…. someone on the panel remarks Tim probably missed  AOL’s PR training )

Question:  Legal issues., when to involve lawyers.

David: Cites strory of a great business, raised big interest in the Valley.  Later it turned out the Founder built the products on his employer’s computer and time – BAAAAD.  Advice: get lawywers involved early – try to find ones who are excited about the business and pre-fund their contribution until you can pay later.

Tim:  Strongly disagree, lawyers are a pain in the ass, put it off as long as you can.  

I don’t remember the context but two notable quotes from Fred:

"The only thing you want to do is to separate people from their money."

"Nothing will focus your mind razor sharp better than losing money, especially your own"

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