(This essay is derived from a
talk at the Harvard Computer Society.)
You need three things to create a
successful startup: to start with good people, to make something customers
actually want, and to spend as little money as possible. Most startups that
fail do it because they fail at one of these. A startup that does all three
will probably succeed.
And that’s kind of exciting, when
you think about it, because all three are doable. Hard, but doable. And since a
startup that succeeds ordinarily makes its founders rich, that implies getting
rich is doable too. Hard, but doable.
If there is one message I’d like
to get across about startups, that’s it. There is no magically difficult step
that requires brilliance to solve.
The Idea
In particular, you don’t need a
brilliant idea to start a startup around. The way a startup makes money is to
offer 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.
Google’s plan, for example, was
simply to create a search site that didn’t suck. They had three new ideas:
index more of the Web, use links to rank search results, and have clean, simple
web pages with unintrusive keyword-based ads. Above all, they were determined
to make a site that was good to use. No doubt there are great technical tricks
within Google, but the overall plan was straightforward. And while they
probably have bigger ambitions now, this alone brings them a billion dollars a
year. [1]
There are plenty of other areas
that are just as backward as search was before Google. I can think of several
heuristics for generating ideas for startups, but most reduce to this: look at
something people are trying to do, and figure out how to do it in a way that
doesn’t suck.
For example, dating sites
currently suck far worse than search did before Google. They all use the same
simple-minded model. They seem to have approached the problem by thinking about
how to do database matches instead of how dating works in the real world. An
undergrad could build something better as a class project. And yet there’s a lot
of money at stake. Online dating is a valuable business now, and it might be
worth a hundred times as much if it worked.
An idea for a startup, however,
is only a beginning. A lot of would-be startup founders think the key to the
whole process is the initial idea, and from that point all you have to do is
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 tell 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.
Another sign of how little the
initial idea is worth is the number of startups that change their plan en
route. Microsoft’s original plan was to make money selling programming
languages, of all things. Their current business model didn’t occur to them
until IBM dropped it in their lap five years later.
Ideas for startups are worth
something, certainly, but the trouble is, they’re not transferrable. They’re
not something you could hand to someone else to execute. Their value is mainly
as starting points: as questions for the people who had them to continue
thinking about.
What matters is not ideas, but
the people who have them. Good people can fix bad ideas, but good ideas can’t
save bad people.
People
What do I mean by good people?
One of the best tricks I learned during our startup was a rule for deciding who
to hire. Could you describe the person as an animal? It might be hard to
translate that into another language, but I think everyone in the US knows what
it means. It means someone who takes their work a little too seriously; someone
who does what they do so well that they pass right through professional and
cross over into obsessive.
What it means specifically
depends on the job: a salesperson who just won’t take no for an answer; a
hacker who will stay up till 4:00 AM rather than go to bed leaving code with a
bug in it; a PR person who will cold-call New York Times reporters on their cell
phones; a graphic designer who feels physical pain when something is two
millimeters out of place.
Almost everyone who worked for us
was an animal at what they did. The woman in charge of sales was so tenacious
that I used to feel sorry for potential customers on the phone with her. You
could sense them squirming on the hook, but you knew there would be no rest for
them till they’d signed up.
If you think about people you
know, you’ll find the animal test is easy to apply. Call the person’s image to mind
and imagine the sentence “so-and-so is an animal.” If you laugh, they’re not.
You don’t need or perhaps even want this quality in big companies, but you need
it in a startup.
For programmers we had three
additional tests. Was the person genuinely smart? If so, could they actually
get things done? And finally, since a few good hackers have unbearable
personalities, could we stand to have them around?
That last test filters out
surprisingly few people. We could bear any amount of nerdiness if someone was
truly smart. What we couldn’t stand were people with a lot of attitude. But
most of those weren’t truly smart, so our third test was largely a restatement
of the first.
When nerds are unbearable it’s
usually because they’re trying too hard to seem smart. But the smarter they
are, the less pressure they feel to act smart. So as a rule you can recognize
genuinely smart people by their ability to say things like “I don’t know,” “Maybe
you’re right,” and “I don’t understand x well enough.”
This technique doesn’t always
work, because people can be influenced by their environment. In the MIT CS
department, there seems to be a tradition of acting like a brusque know-it-all.
I’m told it derives ultimately from Marvin Minsky, in the same way the classic
airline pilot manner is said to derive from Chuck Yeager. Even genuinely smart
people start to act this way there, so you have to make allowances.
It helped us to have Robert
Morris, who is one of the readiest to say “I don’t know” of anyone I’ve met.
(At least, he was before he became a professor at MIT.) No one dared put on
attitude around Robert, because he was obviously smarter than they were and yet
had zero attitude himself.
Like most startups, ours began
with a group of friends, and it was through personal contacts that we got most
of the people we hired. This is a crucial difference between startups and big
companies. Being friends with someone for even a couple days will tell you more
than companies could ever learn in interviews. [2]
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 classes
so 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 in
theory you ought to try to make friends with as many smart 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 own projects. Hackers should do this even if they don’t plan to
start startups, because it’s the only real way to learn how to program. In some
cases you may collaborate with other students, and this is the best way to get
to know good hackers. The project may even grow into a startup. But once again,
I wouldn’t aim too directly at either target. Don’t force things; just work on
stuff you like with people you like.
Ideally you want between two and
four founders. It would be hard to start with just one. One person would find
the moral weight of starting a company hard to bear. Even Bill Gates, who seems
to be able to bear 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. If there are seven or eight, disagreements can linger
and harden into factions. You don’t want mere voting; you need unanimity.
In a technology startup, which
most startups are, the founders should include technical people. During the
Internet Bubble there were a number of startups founded by business people who
then went looking for hackers to create their product for them. This doesn’t
work well. Business people are bad at deciding what to do with technology,
because they don’t know what the options are, or which kinds of problems are
hard and which are easy. And when business people try to hire hackers, they can’t
tell which ones are good. Even other hackers have a hard time doing that. For
business people it’s roulette.
Do the founders of a startup have
to include business people? That depends. We thought so when we started ours,
and we asked several people who were said to know about this mysterious thing
called “business” if they would be the president. But they all said no, so I
had to do it myself. And what I discovered was that business was no great
mystery. It’s not something like physics or medicine that requires extensive
study. You just try to get people to pay you for stuff.
I think the reason I made such a
mystery of business was that I was disgusted by the idea of doing it. I wanted
to work in the pure, intellectual world of software, not deal with customers’
mundane problems. People who don’t want to get dragged into some kind of work
often develop a protective incompetence at it. Paul Erdos was particularly good
at this. By seeming unable even to cut a grapefruit in half (let alone go to
the store and buy one), he forced other people to do such things for him,
leaving all his time free for math. Erdos was an extreme case, but most
husbands use the same trick to some degree.
Once I was forced to discard my
protective incompetence, I found that business was neither so hard nor so
boring as I feared. There are esoteric areas of business that are quite hard,
like tax law or the pricing of derivatives, but you don’t need to know about
those in a startup. All you need to know about business to run a startup are
commonsense things people knew before there were business schools, or even
universities.
If you work your way down the
Forbes 400 making an x next to the name of each person with an MBA, you’ll
learn something important about business school. After Warren Buffett, you don’t
hit another MBA till number 22, Phil Knight, the CEO of Nike. There are only 5
MBAs in the top 50. What you notice in the Forbes 400 are a lot of people with
technical backgrounds. Bill Gates, Steve Jobs, Larry Ellison, Michael Dell,
Jeff Bezos, Gordon Moore. The rulers of the technology business tend to come
from technology, not business. So if you want to invest two years in something
that will help you succeed in business, the evidence suggests you’d do better
to learn how to hack than get an MBA. [3]
There is one reason you might
want to include business people in a startup, though: because you have to have
at least one person willing and able to focus on what customers want. Some
believe only business people can do this-- that hackers can implement software,
but not design it. That’s nonsense. There’s nothing about knowing how to
program that prevents hackers from understanding users, or about not knowing
how to program that magically enables business people to understand them.
If you can’t understand users,
however, you should either learn how or find a co-founder who can. That is the
single most important issue for technology startups, and the rock that sinks
more of them than anything else. |
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