Archive for February, 2007

Capturing your startup-to-be

February 28, 2007

Wikis are brilliant. It’s one of those amazing technologies that is both so ingenious that it fundamentally changes age-old institutions (specifically, encyclopedias, but more generally, replacing expert knowledge with the wisdom of crowds) and is also so brain-dead simple that pretty much anyone can start using them within five minutes. If only more software could be that powerful and elegant.
Not surprisingly, wikis are great for startups. Here at Pretheory, we’ve been using our wiki* a lot recently for collecting technical howtos, links to business articles, task lists, product ideas, and a bunch of other stuff.
As great as the wiki is now, it doesn’t even compare to how useful it was in the twelve months before we officially got started. Without a doubt, the wiki was most important tool for making Pretheory a reality.
The most obvious benefit of a wiki is letting more than one person edit a set of documents, particularly if those people live far apart from each other. In our case, the wiki let my co-founder and I collaborate even though we were 1300+ miles away from each other. We could post business ideas, company names, books to read, funding ideas, and the pros/cons of starting up in Seattle vs. Denver – even when we were on different work schedules and couldn’t talk that often.
But collaboration over distance wasn’t the greatest benefit. You can share ideas remotely over email too. The wiki was great because it kept all our ideas in one place, let us link ideas that related, and even let us edit with confidence, since we knew the wiki would track all of our edits.
Keeping ideas together isn’t just convenient, it’s an great progress indicator. If our ideas were only contained within various emails and phone conversations, it would be hard to get a feel for how far along we were. But with a wiki, I could just browse around and quickly get an idea of what we had done and what we still needed to do. For that first year, the wiki was our startup, and we could watch it grow before our eyes. And when we thought we were ready, we had the documentation at our fingertips.
Even if you’re just considering starting a company sometime in the future, do yourself a favor. Create a startup wiki. Do it today. Put every good, bad, and ugly idea you have on it, and keep updating it. At worst, you’ll spend a little time and have a record of ideas for possible future use. At best, in a few months or years you’ll look at your wiki and realize you’ve what you need to take the leap.
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* We use Instiki because its ridiculously easy to set up and it’s written in Ruby so we can easily hack on it if we need to.

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Where’s my money at?

February 26, 2007

As I mentioned awhile ago in my post about startup algorithms, we’ve been spending a fair amount of time looking for a good business bank.
On the surface of it, most banks will offer pretty identical services: business checking, money-market checking, business credit cards, safe deposit boxes, various types of business loans, etc. But I think it’s important to invest some time into finding the right bank because our relationship with the bank will be substantially different than the one I have with my personal bank. All I ever wanted out of my personal bank was free checking, a decent credit card, conveniently located ATMs and minimum hassle. With a business bank, I want similar stuff (checking, credit cards, etc) but I also want a much more personal relationship.
If you know and trust him or her, a good banker can be a great business resource. He or she can give you financial advice, suggest resources, help you network and even connect you with potential customers. Additionally, a banker who knows you is more likely to approve loans based on your qualities and characters.
To me, it seems like it’s easier to create this relationship with a smaller, local bank. They tend to be more involved in the community and have a smaller client pool, so your business is even more important to them. Also, generally speaking, smaller banks give more loans to small businesses than big banks. This is probably due to the fact that a rep at a small local bank has more ability to grant loans based on the character of the business owners than someone who has to justify each loan to headquarters using only hard numbers.
On the other hand, if you know that you’ll be moving your business soon or will have offices in a lot of states, it might make more sense to choose a big, national bank.
Once you know what you want from a bank, you can start searching for candidates. Obviously, if you can get recommendations from other business owners (particularly ones in businesses like yours), that’s great. We got a few personal recommendations, but we also checked Entrepreneur.com’s Best Banks for Entrepreneurs and a list of the SBA’s top small-business friendly banks (I found this info in Appendix C of Start Your Own Business but unfortunately I can’t find the same list online).
Once you’ve got a good list of banks, you should either call them or set up appointments to find out more. It’s tempting to just call the banks, since it will be significatly quicker, but I strongly recommend going to see the bank fo r yourself.
The reason is that most of the banks you are looking at will likely have very similar offerings. So just getting the numbers is probably not going to give you enough data to make a good decision. Actually visiting a bank will give you something much more valuable: an excellent feel for how you would be treated as a customer.
I visited four different banks and the differences were striking. Some reps were happy to make an appointment with me, others would not. Some were well prepared for my questions, others seemed totally unprepared. Some seemed rather annoyed while answering my questions, others seemed really enthusiastic. Some just handed me brochures, others took the time to explain everything to me. On paper, they all offered comparable business accounts. But after visiting, one was clearly more interested in helping our business succeed. It’s hard to build a personal relationship if you dread going into the bank, so invest some time to find a good fit.
That said, you do need to look into the details of the accounts and services offered by each bank. Here’s how I would approach each meeting.
1. Start by introducing yourself and explaining your business (product or service, location, number of employees). If they are interested and ask good questions, that’s a plus. If they are disinterested and rush you, that’s a bad sign.
2. Most banks offer free business checking as well as money-market checking. Ask for their info on these plans. In particular, you want to know about setup fees, monthly charges, minimum balances, and the number of transactions you can have per month.
3. Does the bank offer a business credit card? If so, get the brochure on how to apply, what rewards are offered, and the interest rates.
4. Does the bank offer safety deposit boxes? If so, how much do they cost? And where are they located? Many banks only have them at some branches, so you want to makes sure you don’t have to drive an hour to get there.
5. Is there anything you can’t do online? Is online banking free? Can you set up automatic bill pay?
6. What are some recent interest rates for line-of-credit loans? This will probably be the first type of loan you get from your bank.
7. Does the bank have an individual or even a whole group that works specifically with small businesses?
8. Can you easily continue banking if you need to move somewhere that does not have any branches? Do they have many customers who bank from out of state? Usually you can bank online or by mail.
9. Ask for references. The best way to do this is to give the rep your contact info and ask them to pass it on to another small business (preferably in a similar business to yours) that would be able to recommend the bank. If the bank won’t do this or you never get a call, that’s not a good sign.
I really put a lot of weight in references. A good reference can tell you a lot: that the bank is good enough to warrant praise from it’s customers, that it serves businesses like yours, and that it knows its customers well enough to quickly find a such a customer.
If another business does contact you to recommend the bank, I would ask them
– What does their business do?
– How long have they been in business?
– How long have they been with the bank?
– Did they switch to the bank, or have they been there all along?
– How did the bank help their business? Ask for specific instances.
– What are the aspects of the bank they think could be improved?
Is there anything else you would ask a bank? Any other factors that should be used to decide? Any success or horror stories when it comes to finding a bank?

Minor victory

February 16, 2007

We’re the number one result when you Google “pretheory”. Yes, I realize this is somewhat less impressive since it’s a sort of made-up word (others have used it but we haven’t found it in any dictionary). Now, if we can just get big enough for Google to drop “Did you mean: pre theory” from the results page, we’ll know we’re sitting pretty.

The joys of startups

February 15, 2007

There are a lot of perks when you work for yourself. For instance, you can work when you’re most productive (which is definitely not between 9-5 for me), you can take naps instead being a zombie all day long, and you can easily run errands during the day.
Here’s an awesome perk: I get to visit Boston, MA to see my sister and a good friend for ten days. No need to ask for time off. I got an awesome deal on my flight since I could arrive and leave weird days. And, since this is a software company, I am still working every day – in fact, I’m writing this from the spectacular Bates Reading Room in the Boston Public Library. Not a bad change of scenery from our cramped little office.

That’s right, we really don’t know.

February 14, 2007

Ever since I started telling my friends and family that I was quitting my job and starting this company, the number one question has always been, “What will your company do?” And I’d always respond, “We don’t know yet.”
I got two reactions to this while I was still at my old job. Some people were confused and shocked that I would jump into something like this without a great idea all figured out. Other would just accept it and move on to other questions about when, where and with whom.
The funny thing is, after I quit my job I found out the second group mostly thought I was lying. I heard a lot of this: “OK, now that you’ve quit, stop being coy. Really, what are you guys going to do?” To which I’d respond, “No really, we don’t know yet.” And they’d be even more confused and shocked than the first group.
The non-intuitive truth is that a great initial idea is not necessary for a successful business. In fact, it can actually hurt your chances of succeeding.
This is surprising to many people. Shouldn’t you wait until you have a brilliant idea before you jump in? Well, no. Most startups change their business plan, often more than once. In fact, being able to change ideas as necessary is actually a crucial part of the success of many small companies. To quote from a great article at OnStartups
The Idea Can (And Should) Change: I’ve read numerous times that most startups that end up being ‘successful’ will change the idea along the way. I recall from a Clayton Christensen presentation that his studies indicated that on average startups change their basic idea/business about four times before finally landing on the one that makes them successful. He actually goes further and says that in order for startups to succeed, they need to be flexible and have the ability to change the idea based on market feedback instead of doggedly sticking to their original plan. So, the point here is, your initial idea for the startup, as brilliant as it might be, is probably going to change anyways multiple times. For this reason, it doesn’t seem prudent to get overly attached to the idea or give it too much weight in the early stages.”
That last point is especially important. Let’s say that John has a brilliant idea for a company. He quits his job, moves, and starts a company. Jane decides has a few OK ideas for companies. She quits her job, moves, and starts a company. After thinking more about it, she starts pursuing one of her ideas.
Six months later, both John and Jane start to feel that their initial idea isn’t working out. Who do you think is more likely to be able to change the game plan six months in? Bob is probably going to be less flexible, if only because he went into the whole endeavor betting everything on one idea.
In the (highly recommended) book Good to Great, Jim Collins shows that the belief that it takes a great idea to be successful is simply a myth. He includes this great quote from Bill Hewlett of Hewlett-Packard:
“When I talk to business schools occasionally, the professor of management is devastated when I say that we didn’t have any plans when we started – we were just opportunistic. We did anything that would bring in a nickel.”
So if I great idea isn’t a good reason to start a company, then what is? Why didn’t I just start one right out of college? Or before college?
First of all, to start a company you need to have a lot of faith in yourself and the people you work with. I don’t think I had the experience I needed to successfully run a business before college or even right after. But now, I have a lot of faith in myself and my co-founder. If you don’t trust the other people in your business, you’re in trouble. I won’t say any more about this because it’s explained in great detail in Good to Great.
Secondly, I think you have have to accept the level of risk in your situation. Starting a business is always a risk, no matter what. But some people have more on the line than others. Personally, I don’t have a mortgage or kids to feed. If this doesn’t work out, I can get another job. So, relatively speaking, my risk is low. People in other situations may have much more severe consequences if they fail and that should affect their decision about the right time to start a business.
But if you are OK with the risk and have faith in the people you work with, go for it. If you have a great idea, that’s even better. Just be careful not to cling to that idea too tightly. And if you don’t have that idea yet, don’t worry too much. But you will probably get some weird looks.

Startup algorithm

February 13, 2007

Now that we’ve got that whole company name thing figured out, we’re spending some time figuring out the following:
1. Business structure (partnership, c-corp, s-corp, or LLC?)
2. Lawyer
3. Accountant
4. Bank
I’ve found a lot of good resources out there for starting a business, but they all treat these tasks as if they are completely isolated. What I really need is an algorithm for setting up a business. Well, a simpler term would be a checklist, since the algorithm is simple (i.e. non-iterative, non-conditional, and non-recursive), but since I don’t get to code as much as I’d like these days, I find myself wanting to use computer science concepts to explain business stuff whenever I can.
Even though the algorithm is simple, it’s wasn’t immediately clear to me what the steps were. As far as I can tell, it goes something like this:
1. Pick a name
2. Hire a lawyer
3. Hire an accountant
4. Create legal business entity
5. Open a bank account
Of course, it’s not quite this simple, because most of these tasks are actually a set of smaller tasks which require lots of small chunks of time over the course of a few weeks (for lack of a better term, they are sparse tasks). Take, for instance, opening a business bank account. First you need to get some recommendations. Ideally, you’d find two to four candidate banks. Then you need to set up appointments to visit the banks. Then you need to actually visit them, compare the data, choose one, and set up the account. Most of these steps depend on people outside your company, so you’ll do a lot of waiting for people to return calls or emails.
We’d like to optimize this by parallelizing some tasks (and subtasks). But of course some (but not all) are dependent on others.
* Opening a bank account (but not finding a bank) requires having a legal business entity
* Creating the business requires having a name and hiring a lawyer (to advise you as well as help with the paperwork). Also, having an accountant to advise you on tax issues isn’t a bad idea.
We’d really like to be able to pay a lawyer and accountant using a business checking account to simplify our accounting, but that’s not realistic given these dependencies.
For those of you who may (reasonably) be asking, “Um, shouldn’t you be coding, too?”, let me assure you that all this work is also being done in parallel with our technical work. Since all the business setup stuff is sparse, we’re starting it now. That way, it’ll be done in a month or so. In the meantime, we’re starting to get some coding done…
Anything I’m forgetting or getting wrong?
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Update: Apparently, there are some good small business checklist out there, I just hadn’t looked hard enough. An alert reader sent me these:
* Small Business Notes: Startup Checklist
* Business Know-How: Business Start-Up Checklist
* MyNewCompany.com: Business Startup Checklist
Enjoy!

It’s official: We’re Pretheory

February 9, 2007

After a lot (and I mean a lot) of brainstorming, searching, arguing and crying, we have finally decided on a company name: Pretheory. We hope you like it, but if you don’t, we think it will grow on you. Especially after we get a sweet logo (we’re working on that).
So check out our official site pretheory.com. It’s a whole lot of nothing right now, but that should change over the next few months.
Our blog is now at blog.pretheory.com, so you may want to update your bookmarks. Also, if you’re subscribed via RSS, it would rule if you would use our new feed so we can better understand who is reading. Plus, it will work for any RSS reader you may be using.
Thanks a ton to everyone who gave us lots of feedback on possible names. Thanks to you, we decided to not go with PornyPornPornMcPorn Software, Inc. We didn’t see anything wrong with it, but your feedback convinced us to go with something else.

Do something already!

February 7, 2007

OK, I’ll admit it: we’re about a month into this whole startup thing, and I’m frustrated. Everything is just taking so much longer than I expected – when do I get to start coding?
I think it’s been extra tricky for me because, prior to moving to Denver I didn’t know thing one about starting a small business. As you might have guessed, I am a procrastinator by nature (hence the zero knowledge beforehand). But not knowing the domain has added an extra level to my procrastination. If I ever want to delay the process of actually doing something, I can always go learn more about starting small businesses.
All really good procrastination activities need to be plausible. I can’t procrastinate for that long playing video games, because it’s pretty hard to make a case that it’s a productive use of my time. On the other hand, doing laundry is a pretty good procrastination activity, because, hey, it’s something I was going to have to do anyway.
Learning more about small businesses is a great procrastination activity, because it’s extremely hard to tell the difference between necessary learning and secretly-procrastination learning. Since I knew nothing about a month ago, I never quite know when I’ve learned enough.
It’s very similar to writing a research paper on a broad historical topic you know very little about. Something big like, say, the Civil War. When you start, there is effectively limitless information on your topic at your fingertips. You could read books and papers and encyclopedia articles until you are 100 years old and you still would not have read it all. And that paper is due in three days. So at some point, you have to a) pick a thesis and b) start writing something.
But it’s rather hard to tell when you’ve actually learned enough to write something that won’t be rather stupid. There may very well be some critical historical detail that you’ve overlooked that would totally destroy your precious thesis. A some point, however, you just get an intuitive feel that you know enough to start piecing something, anything together, and you have faith in yourself that you’ll find and fill in the details as you go.
That’s pretty much what starting a small business feels like, only I haven’t found a concise encyclopedic entry to give me the three-page overview yet. So, at any given moment, I’m asking myself “Should I go read more and possibly get further behind? Or should I go actually do something and risk messing it up because I don’t know enough?”

Mistake the 2nd –or– We don’t care about your opinions

February 7, 2007

Some alert readers may have noticed that a number of your comments have mysteriously disappeared from this blog. There is a simple reason for this phenomenon: this blog is a one way street and we don’t care about your worthless opinions or feedback at all.
Just kidding. We actually really appreciate all the feedback we’re getting – we do read it and it does really help us. Unfortunately, someone who shall remain nameless got a little over-zealous deleting some spam comments from other blogs and accidentally deleted your comments. I’ll give you a hint: it’s not me and his last name sounds like an elected official (and it’s NOT Johnny Aturneygennurall). It’s that kind of attention to detail that will make this venture successful.
We’ll be more careful, we promise.