What Does it Take to Start a Startup?

What would you rather do, work a 9-5 job with a decent salary for 40 years or work nonstop for 2-4 years forming a startup?

The regular job is consistent and predictable. There isn’t as much pressure and there isn’t nearly as much risk. The job is the safe way to go.

On the other hand, the potential payout from a startup is enormous. If you succeed, you can basically do what you want for the rest of your life. There are other benefits: freedom, control, fame, and the chance to make your vision a reality. Everyone wants to be the next tech sensation, and everyone knows the chances of making it are slim.

Startups are intriguing, but the details behind them are a bit of a mystery.

What type of people are qualified to form a startup?

Where, when, and how do they do it?

How and from where do startups get funding?

How many have a chance to succeed?

I wanted answers to these questions so I decided to do some digging. Luckily, I found everything I could hope for in Paul Graham’s essay, How to Start a Startup.

If you’re even remotely interested in startups, I recommend reading the entire piece. Graham was a founder of a startup, Viaweb, that was bought by Yahoo. In the essay he details the entire process and throws in his own thoughts on what works, what doesn’t, and what it takes to be successful.

My key takeaways from the essay:

  • You don’t need a brilliant idea to form a startup. What matters isn’t ideas, but the people who have them.
  • Ideally you want between two and four founders. One is no good because there is too much work for one person. Anymore than four and it becomes impossible to make quick decisions.
  • The prime candidates to form a startup are 23-38 years old. Any younger and you won’t be taken seriously. Any older and you might not have the time or energy to work until 3 a.m. every night.
  • Funding usually starts with an ‘angel’ who invests $10,000-30,000 to cover expenses while the company gets on its feet. Later on venture capitalists come in with the big money. All these investors receive ownership in the company in return.
  • The best place for an office is an apartment in a good neighborhood. This is much cheaper and than renting commercial space and more enjoyable than a corporate park that becomes a ghost town after 6 p.m.
  • Startups usually fail because they run out of money. If you want to make it, you need to spend as little as possible. Avoid hiring people and spending lavishly. There is no reason to try to get big fast.
  • Forming a startup means you decide to compress your work life into 4 years or so. This means for those for years you won’t have to time to do anything but work. This isn’t for everyone.

There are too many insights to list them all. If you’re interested, you need to read the whole essay. It’s long, but well worth the time.

I also found a two other great resources.

Getting Real by the 37 Signals team contains a new perspective on what makes a great application and the best way to do it. The basic message is to stay flexible and focus on creating simple, elegant tools that customers want to use.

This interview with Joel Spolsky, founder of Fog Creek Software, also describes the startup process. It ends with a memorable quote:

Don’t start a company unless you can convince one other person to go along with you. If you don’t have two people (or I would even say three) that you’ve convinced to devote their lives to doing this, it’s just going to be a different thing. There are a lot of programmers that are very tentative about starting their own companies. There are a lot of working programmers doing something they hate, with some company that they hate, but they need money to pay the mortgage. So they figure, “I’ll develop something in my spare time. I’ll put in 1 hour every night and 2 hours on the weekends and I’ll start selling it by downloads.” And you say to them, “Who’s your cofounder?” And they say, “My significant other—husband or wife. My cat.”

But because they never really take the leap and quit their job, they can give up their dream at any time. And 99.9 percent of them will actually give up their dream. If they take the leap, quit their job, go do it full-time—no matter how much it sucks—and convince one other person to do the same thing with them, they’re going to have a much, much higher chance of actually getting somewhere. Because they either have to succeed or get a job. Sometimes “succeed” seems like the easier path than actually getting a job, which is depressing.

So there you have it. If you want to form a startup, try convincing someone else that your great idea is worth quitting their job over.

  • http://www.AskDanAndJennifer.com Dan and Jennifer

    Hey John,

    Great writeup, thanks for bringing all that together so neatly. I think I came across Paul Graham’s paper a couple of years ago and remember it being quite good.

    Having done “the startup thing” myself more than once, I definitely agree it’s definitely not for everyone. You can certainly “make it big” and make a lot of money, but you can also very easily lose big.

    Fundamentally I think different people can have vastly different personalities. Jennifer and I for example enjnoy the rush, the excitement, the thrill of doing/making something cool and exciting like going all out with a new startup, a new project, etc… the risk isn’t a deterrant, but in part I guess it could be a motivator.

    So for some it’s definitely a worthwhile endeavour.

    On a down note – A trap many entrepreneus fall into is not letting go if your startup is going under… some years ago I held on to a failaing business and lost so much more than I would have if I’d cut my losses and moved on. It’s easy to get emotionally attached to “your baby”. :-)

    I think it’s important to remember that whatever you’re doing has to still be a good business proposition TODAY, not just a year ago when you started.

    But on a positive note, I’ve had amazing fun and learned soooo much with the startups I’ve been involved in.

    Also for us, it’s also not just about “the money”. Don’t get me wrong, I love all the luxuries and Freedom that come with it, but in addition to being financially rewarding, it’s so important to follow your passion whenever possible.

    It’s hard to be successful doing something you don’t particularly like… but following your passion is an incredible experience.

    Ok, that was more of a rant than i thought it would be. Oh well. :-)

    Have an awesome day!
    Dan

  • http://www.pickthebrain.com John Wesley

    Thanks for the input Dan. You’re definitely right about it being a big risk, and I’d love to hear about your experiences sometime.

    One, other thing to consider, Graham wrote in a different essay that he asked managers at Yahoo, Google, and Microsoft if they would rather hire someone who tried a startup and failed or a person who worked a few years at large company. They all said they’d rather hire the startup person.

    So even if you lose, you do get great experience. Who knows though, I have no personal experience in the matter.

  • http://www.AskDanAndJennifer.com/ Dan and Jennifer

    John,

    Can’t believe I forgot this earlier on.

    I’d like to point out that there’s a really large middle ground between the very sexy and high risk startup ideas and teh 9 to 5 endentured servitude approach. To each his own, that’s just my take. Some folks can do the job thing, I’m really not in that group. I’m just not wired for the 9 to 5 every day thing. I need challenge, excitement creativity, possibility, etc. :-)

    For example – how about a blog that you can start writing daily on a subject you’re passionate about. You gain readers, share your passion, and monetize your traffic with advertisers that are interesting to your audience. Steve Pavlina makes around $10k/mo doing that that, and many others are making a few thousand a month. Not bad.

    Here’s an excellent post by Steve Pavlina. Yeah, it’s contraversial and all that, but I think he’s right on the money. :-)

    10 Reasons You Should Never Get a Job
    http://www.stevepavlina.com/blog/2006/07/10-reasons-you-should-never-get-a-job/

    Have an awesome day!
    Dan

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