At Kinfolk, we regularly feature articles from people around the world whose perspectives we believe are important and valuable. Our aim is to help demystify the process of building enduring technology businesses for African founders and leaders.
In this piece, renowned tech leader and visionary Paul Graham highlights in his landmark blog post that a brilliant idea is not a prerequisite for starting a startup.
Key takeaways from Graham:
The three key factors for a successful startup are: having a team of talented individuals, creating a product or service that meets customer needs, and minimizing expenses.
Startups can succeed without a groundbreaking idea, as long as they offer an improvement over existing technology or services.
Building a network of intelligent and like-minded individuals, often from college or graduate school, is valuable for potential startup partnerships.
Understanding customer wants and needs is crucial for startup success. Observing and interacting with potential customers, such as at trade shows, can provide valuable market research.
When seeking funding, it's important to approach investors with a solid execution plan rather than relying solely on a brilliant idea. Networking with venture capitalists and attending startup conferences can help in securing investment.
You need three things to create a successful startup: to start with good people, to make something customers want, and to spend as little money as possible. Most startups that fail do so because they fail at one of these. A startup that does all three will probably succeed.
And that's exciting when you think about it because all three are doable, and since a startup that succeeds ordinarily makes its founders rich, that implies getting rich is likely.
If there is one message I'd like to get across about startups, that's it. No magically difficult step requires brilliance to solve.
The Idea
In particular, you can start a startup without a brilliant idea. A startup makes money by offering people better technology than they have now. But what people have now is often so bad that it doesn't take brilliance to do better.
An idea for a startup, however, is only the beginning. Many would-be startup founders think the initial idea is the key to the whole process; from that point, you must execute. Venture capitalists know better. If you go to VC firms with a brilliant idea that you'll tell them about if they sign a nondisclosure agreement, most will ask you to get lost. That shows how much a mere idea is worth. The market price is less than the inconvenience of signing an NDA.
Ideas for startups are certainly worth something, but the trouble is they're not transferable. They're not something you could hand someone else to execute. Their value is mainly as starting points—questions for those who have them to continue thinking.
People
It's no coincidence that startups start around universities because that's where smart people meet. It's not what people learn in classes at MIT and Stanford that has made technology companies spring up around them. They could sing campfire songs in the ranks as long as admissions worked the same.
If you start a startup, there's a good chance it will be with people you know from college or grad school. So, you ought to try to make friends with as many intelligent people as you can in school, right? Well, no. Don't make a conscious effort to schmooze; that doesn't work well with hackers.
What you should do in college is work on your projects. Hackers should do this even if they don't plan to start startups because it's the only natural way to learn how to program. Sometimes, you may collaborate with other students, which is the best way to get to know good hackers. The project may even grow into a startup. But once again, I would only aim somewhat at one target. Don't force things; work on stuff you like with people you want.
Ideally, you want between two and four founders. It would take a lot of work to start with just one. One person would find the moral weight of starting a company hard to bear. Even Bill Gates, who can maintain a good deal of moral weight, had to have a co-founder. But you don't want so many founders that the company starts to look like a group photo. Partly because you don't need a lot of people at first, but mainly because the more founders you have, the worse disagreements you'll have. When there are just two or three founders, you know you have to resolve disputes immediately or perish. Disagreements can linger and harden into factions if there are seven or eight. You don't want mere voting; you need unanimity.
What Customers Want
It's more than just startups that have to worry about this. Most businesses fail because they don't give customers what they want.
How do you figure out what customers want? Watch them. One of the best places to do this is at trade shows. Trade shows didn't pay to get new customers, but they were worth it as market research. We didn't just give canned presentations at trade shows. We used to show people how to build actual, working stores, so we watched as they used our software and talked to them about what they needed.
No matter what kind of startup you start, it will be a stretch for you, the founders, to understand what users want. The only type of software you can build without studying users is the sort for which you are the typical user. But this is just the kind that tends to be open source: operating systems, programming languages, editors, etc. So if you're developing technology for money, you're probably not creating it for people like you. Indeed, you can use this to generate ideas for startups: what do people who are not like you want from technology?
When most people think of startups, they think of companies like Apple or Google. Everyone knows these because they're big consumer brands. But for every startup like that, twenty more operate in niche markets or live quietly down in the infrastructure. So if you start a successful startup, you'll begin one of those.
Another way to say that is that if you try to start the kind of startup that has to be a big consumer brand, the odds of succeeding are steeper. The best odds are in niche markets. Since startups make money by offering people something better than they had before, the best opportunities are where things suck the most. And it would be hard to find a place where things stink more than in corporate IT departments. You would not believe the amount of money companies spend on software and the crap they get in return. This imbalance creates opportunity.
If you want ideas for startups, one of the most valuable things you could do is find a middle-sized non-technology company and spend a couple of weeks just watching what they do with computers. Most good hackers have no more idea of the horrors perpetrated in these places than wealthy Americans do of what goes on in Brazilian slums.
Start by writing software for smaller companies because it's easier to sell to them. It's worth so much to sell stuff to big companies that the people selling them the crap they currently use spend a lot of time and money to do it. And while you can out hack Oracle with one frontal lobe tied behind your back, you can't outsell an Oracle salesperson. So if you want to win through better technology, aim at smaller customers.
Raising Money
Financially, a startup is like a pass/fail course. The way to get rich from a startup is to maximize the company's chances of succeeding, not to maximize the amount of stock you retain. If you can trade stock for something that improves your odds, it's a smart move.
To most hackers, getting investors seems like a terrifying and mysterious process. It's merely tedious. While developing a prototype, you'll need tens of thousands of dollars to pay your expenses. This is called seed capital. Because so little money is involved, raising seed capital is comparatively easy-- at least in the sense of getting a quick yes or no.
There is more to setting up a company than incorporating it: insurance, a business license, unemployment compensation, and various things with the IRS. I'm still trying to figure out the list because we skipped everything. When we got actual funding near the end of 1996, we hired a great CFO, who fixed everything retroactively. It turns out that no one comes and arrests you if you don't do everything you're supposed to when starting a company. And a good thing too, or many startups would never get started.
It can be dangerous to delay turning yourself into a company because one or more founders might decide to split off and start another company doing the same thing. This does happen. So when you set up the company and apportion the stock, you should get all the founders to sign something agreeing that everyone's ideas belong to this company and that this company will be everyone's only job.
Once you've set up a company, it may seem presumptuous to knock on the doors of rich people and ask them to invest tens of thousands of dollars in something that is really just a bunch of guys with some ideas. But the picture is more encouraging when you look at it from the rich people's point of view. Most rich people are looking for suitable investments. If you think you can succeed, you're doing them a favour by letting them invest. Mixed with any annoyance they might feel about being approached will be the thought: Are these guys the next Google?
Getting money from an actual VC firm is more significant than getting it from angels. The amounts of money involved are more extensive, usually in the millions. So the deals take longer, dilute you more, and impose more demanding conditions.
Sometimes the VCs want to install a new CEO of their choosing. Usually, the claim is that you need someone mature and experienced with a business background. In some cases, this is true. And yet Bill Gates was young and inexperienced and had no business background, and he seems to have done ok. Steve Jobs got booted out of his company by someone mature and experienced with a business background, which ruined the company. So people who are mature and experienced, with a business background, may be overrated. We used to call these guys "newscasters" because they had neat hair and spoke in deep, confident voices, and generally didn't know much more than they read on the teleprompter.
Talk to as many VCs as you can, even if you don't want their money, because a) they may be on the board of someone who will buy you, and b) if you seem impressive, they'll be discouraged from investing in your competitors. The most efficient way to reach VCs, especially if you only want them to know about you and don't want their money, is at the occasionally organized conferences for startups to present to them.
Should You?
But should you start a company? Are you the right sort of person to do it? If you are, is it worth it?
More people are the right sort of person to start a startup than realize it. That's the main reason I wrote this. There could be ten times more startups than there are, which would probably be a good thing.
So who should start a startup? A good hacker between the ages of 23 and 38 who wants to solve the money problem in one shot instead of getting paid gradually over a conventional working life.
I can't say what a good hacker is, as this might include the top half of computer science majors at a first-rate university. Though you don't have to be a CS major to be a hacker, I was a philosophy major in college.
It's hard to tell whether you're a good hacker, especially when young. Fortunately, the process of starting startups tends to select them automatically. What drives people to create startups is (or should be) looking at existing technology and thinking, don't these guys realize they should be doing x, y, and z? And that's also a sign that one is a good hacker.
I put the lower bound at 23, not because there's something that only happens to your brain after then, but because you need to see what it's like in an existing business before you try running your own. The firm doesn't have to be a startup. I spent a year working for a software company to repay my college loans. It was the worst year of my adult life, but I learned a lot of valuable lessons about the software business without realizing it at the time. In this case, they were mostly negative lessons: don't have a lot of meetings; don't have chunks of code that multiple people own; don't have a sales guy running the company; don't make a high-end product; don't let your code get too big; don't leave finding bugs to QA people; don't go too long between releases; don't isolate developers from users; don't move from Cambridge to Route 128; and so on. But negative lessons are just as valuable as positive ones. Perhaps even more valuable: it's hard to repeat a brilliant performance, but it's straightforward to avoid errors.
The other reason it's hard to start a company before age 23 is that people won't take you seriously. VCs won't trust you and will try to reduce you to a mascot as a condition of funding. Customers will worry you're going to flake out and leave them stranded. Even you, unless you're very unusual, will feel your age to some degree; you'll find it awkward to be the boss of someone much older than you, and if you're 21, hiring only people younger somewhat limits your options.
Some people could start a company at 18 if they wanted to. Bill Gates was 19 when he and Paul Allen started Microsoft. (Paul Allen was 22, though, which probably made a difference.) So if you're thinking, I don't care what he says, I'm going to start a company now, you may be the sort of person who could get away with it.
The other cutoff, 38, has a lot more play in it. I put it there because I don't think many people have the physical stamina much past that age. I used to work till 2:00 or 3:00 AM every night, seven days a week. I wonder if I could do that now.
Also, startups are a considerable risk financially. If you try something that blows up and leaves you broke at 26, big deal; a lot of 26-year-olds are broke. By 38, you can't take so many risks-- especially if you have kids.
My final test may be the most restrictive. Do you want to start a startup? What it amounts to, economically, is compressing your working life into the smallest possible space. Instead of working at an ordinary rate for 40 years, you work like hell for four. And maybe end up with something-- though it will take less than four years.
So mainly, what a startup buys you is time. That's how to think about it if you're trying to decide whether to start. A startup makes sense if you want to solve the money problem once and for all instead of working for a salary for 40 years.
If you want to do it, do it. Starting a startup is not a great mystery from the outside. It's not something you have to know about "business" to do. Build something users love, and spend less than you make. How hard is that?