A startup without a business plan isn't a business. It's just some code.
I disagree. Users make it a business - and users don't care if I have a business plan. They just care if the product (i.e., code) makes their lives better.
I mostly agree, though I don't think "business plan" in this context is meant to read "a 100+ page analysis of the market and other bullshit." Rather, I took it to mean a sense of how you're going to get the product out to users and (maybe) how you'll eventually make money. Both of those things are required if you want your business to become sustainable.
In spite of this being repeated so many times still it is so easy to fall into the trap. At-least it was for me. Working on my latest project we discussed so much on the feature, design and others but never on how to get users. We kinda assumed that once the project is done users will be waiting for us.
smanek's point still stands. If your plan was incorrect and what you THOUGHT was going to make you money, doesn't do so, then you still don't have a business.
However it's much easier to get users if you do have a business plan, or as I prefer to think of it, a business model. If you throw something out there on the internet and start gaining users, you probably have more of a plan (model) than you think.
Having just a good business model can generate sales too though. Actually there's quite an argument for doing so before writing any code. Its a whole lot easier to change some words around on a word document than to completely rewrite an application.
A business without a business plan is still a business.
A codebase without users is probably not a business, sure.
But if you have users there is almost always a way to monetize that. Thus, a business. The plan doesn't have to be any more complex than, "Charge for something."
Maybe this is off-putting because the term business plan has a lot of baggage. However, the point remains valid and correct: you need to have a realistic and executable plan for how to get users. "Build it and they will come" fails way too often.
Smanek, one reason why the failure rate of start-up failure rates are so high is because the founders of the start-up don't have a sustainable business model, or they don't know how to best convey the value proposition to customers and investors. I heard a story about two ladies who sold gift baskets back when it was novel (80s). Initially it was just a hobby, but they turned it into a business because of overwhelming demand. After several years of doing this, working 70 hours week, they looked at their books and realized they were only making 10K profit each per year. Ok? That means they're only making a few bucks an hour. They made a product that people loved, but they didn't make any money.
You need a viable business model if you want your business to succeed.
I think business plan may have not been the right words to use there. Feel free to replace it with "user acquisition strategy" or something like that.
At the end of the day if you're making something that people want, you aught to be able to make money out of it, but it's not as simple as just making something good. Unless you're super lucky/awesome (read: Rapportive http://blog.rapportive.com/the-accidental-launch), you're probably going to have to use significant elbow grease to get users on board.
Steve blanks blog today mentions in passing that a startup is an entity formed to discover a business model, and a business is one that executes on a business plan.
It might make more sense to say a startup without revenue or a monitization plan is just some code. While likely unintentional I think "business plan" trips people up. The idea should def cover how the startup will get users and make money.
I think a "code plan" is the equivalent of a "business plan". Neither have much value. A working product is execution of the code plan. A working business is the execution of the business plan.
When the technical person creates the working product, they have delivered on their side of the bargain. I think the problem is that many non-technical founders think they have made the equivalent contribution by having "a plan". They haven't. They will have made the equivalent contribution when the execute the plan and make money.
I liked the piece a lot and it is roughly right. However, as a technical co-founder, I think a good measure of a business co-founder is whether he tries to solve the technical problems himself. e.g. by learning a bit of php and hacking something together.
Not only does that show that he's resourceful and scrappy, but it also makes it more likely that he'll be able to talk about the product coherently i.e. understanding and keeping in mind the constraints that software development has. It calibrates his intuition, if you will.
Are you willing to try to solve non technical problems by yourself?
You know, researching the market to assure you're actually building something people will want to use, finding paying customers or advertisers, dealing with investors, finding decent PR people, recruiting etc... nothing too fancy.
That's the right attitude. Unfortunately, that's not the norm at all.
Mostly, technical folks tend to behave as spoiled brats when dealing with non technical people as cofounders (which amazes me given that one of the best performing tech companies today is run by a non technical guy - Steve Jobs).
Update: no need for the technical guy to actually work on non technical issues... given the current scenario, respecting the non technical guy within his domain would suffice. It's not like non technical people try to tell programmers how to do their job.
Just soldering doesn't make anyone "technical". Woz's designs were the technical assets that made Apple a successful startup.
Furthermore, that experience certainly didn't mean a thing for his second tenure at Apple since 1997, during which the company became bigger than ever. I also doubt he had anything to do with the technical aspects of the operation during this time.
You can be technical without being an engineer. Steve Jobs
has been working closely with some of the best engineers in the world full-time for 30 years.
He probably knows more about display, memory, graphics, processor, and battery technology than 99% of programmers. Not to mention his knowledge of a dozen other technologies.
I'm sorry, but every reference I've ever read to the history of Apple has only reinforced my opinion that Jobs is a marketing bully. A clever one, perhaps, but still.
I think you'll find lots of technical founders are willing & able to pick up those skills along the way. Programming is perpetual self-education. This means that for a large subset of entrepreneurial programmers picking up business skills is easier than you'd think.
I think this is an instance of a general point. Resourcefulness is an important. A finance person learning a bit of php and hacking something. A coder reading 'Sales for Dummies' and trying to do a walk in sale. etc.
Also, 'business co-founder' (as can be derived from the fact that not similar pd exists at a large company) is a generalist role. Understanding how software gets made, if software making is a central part of the business is important.
Know something I don't. Plenty of people seem to operate under a false dichotomy between code and business, where "not programming" gets treated as a business skill. I consider myself a hybrid hacker/businessman, but stronger on the hacker side for now. If I am to take a "business person" as a partner, I'm looking for that person to do things I couldn't learn easily from a day of reading. This could mean lots of things: truly understanding markets and pricing, being a professional member of a specialized target market, legal and accounting training, unlimited patience for customer support, etc.
I see some "business" people making the same mistakes they're supposed to prevent. The stereotype is of a programmer who builds and builds without testing the market, but how many non-programmers try to recruit techs to hack together a totally untested but "revolutionary" idea?
Another thing I've gotten wiser to is the use of vague terms, like "leadership" and "networking." To me this comes off as "I wanna be the boss and hang out." If you really are good at these things, try to give some specifics.
Finally, if I wanted to have a boss and live in a hole, I'd get a job at X big corporation. This is the point I expect the most disagreement on. I don't want a business founder who will "take over" all of the networking. By deciding to be a founder, I've already bet that I can manage myself better than someone else can manage me.
This is a nice piece overall but, having seen founders negotiate their splits countless times over nearly three decades, I would add that such negotiations tend to be more nuanced than equal splits in most cases.
Idea people may not be able to proceed without solid technical people but what they do or don't have to give them for their services is always governed by supply and demand. An exceptional technical person who will drive a company will get an equal split (or more) but someone whose skills can be supplied by a good number of people will likely get far less. Strong technical expertise does tend to be hugely important in a typical startup but is only marketable consistent with what people are willing to pay for it in light of other alternatives.
So too with idea people. Abstract ideas may not have much value but many of the best ideas come from those "in the field," i.e., who have worked extensively in a given area and have special insights about how, e.g., customer pain points can be addressed effectively. Such ideas can be incredibly valuable and they do not necessarily come from technical people. They can come from managers, from sales people, or from a broad variety of sources - even from those with a technical background who later moved into sales or management and who combine their skill set with their experience to derive special insights. When people like that want to found a company, they may lack the particular technical expertise to execute on the project but they will know enough about the industry to know where to find the best candidates to fill such a role. That may result in a 50/50 deal but it could easily result in all sorts of splits, even if one of the roles is prominent enough to be called "technical co-founder."
So, as a technical founder, you should push for as large a split as your personal qualities can command but you should not use any arbitrary formula for determining splits. The rule is and always will be to assess the situation based on the real value each person is contributing and this often leads to a wide range of founder splits that are far from equal yet are perfectly suitable for the persons involved.
That said, this again is a fine piece reminding those with technical skills not to sell themselves short in dealing with business people. There are all sorts of hustlers out there who are more than willing to take advantage of you and, if you do not value yourself properly, you will likely fall victim to them. If people really do have valuable things to contribute, however - whether on the business or on the technical side - then the process is not really that adversarial because smart people will know an opportunity when they see it, whether or not they get equal shares in the venture, and they will usually work these things out in a way that is amicable.
I definitely agree that 50/50 is nowhere near a hard and fast rule. The split depends on how long the company has been around, how much progress has already been made, etc.
The larger point I was trying to get across is the discrepancy between the amount of value many businessy types ascribe to technical skills and the actual value (at least from my perspective).
If the only progress you've made on your company is the initial idea, I really do believe that the you'll up your chances of success significantly if the split is close to 50/50. The odds that you're even going to end up succeeding with the same idea is pretty low. At that stage, you really want to build a team of equals, not get employees.
I think the problem is extrapolating from simple examples used to illustrate thing.
eg Rich Dad or similar: You have an idea for a company. You create the company and deposit $10k in it's account. You bring on a programmer to build the project paying him in equity. The company could be worth $100m in a few years, so his 10% is better than a salary.
I'm sure parallel toy ideas exist in people's minds about investors. If someone puts $1m into a company that's still mostly an idea and a prototype, it doesn't seem all that far fetched that the investor would expect to basically own the company. What have the founders contributed? An idea and 6 month work. What has the investor contributed? $1m.
In the absence of actual experience, people develop biases based one imagined experiences where they are the hero. I don't mean that in a bad way. Everyone does it. It's hard to see an outside perspective unless you encounter it.
"someone whose skills can be supplied by a good number of people will likely get far less."
If your idea is so easy to implement that it can be done by any cheap programmer, it's probably going to be hard to defend yourself against competition. Ideas like that aren't worth very much, even if they are correct and very clever, because they're so easy to duplicate.
At it's core, yes. You (and me) are in the wrong place. It's like going to the Apple store and hoping to hear great things about WP7.
I don't want to be snarky, but I'm having a hard time resisting. Two technical co-founders have shuttered a business and moving on to work "hard on a new product which we're super excited about." It's great that you're super excited about it, but wouldn't it even be more exciting if you had a business minded co-founder who could demonstrate the market opportunity, or lack thereof, and make sure the time, energy, and sweat equity you're dumping into this will have some payback?
I do appreciate the use of "'technical cofounder' and not 'developer.'" I think a lot of technical co-founders that also write code have been annoyed to hell by the non-technical business people who don't understand the effort required to realize their big awesome idea.
I see how this might look a bit ironic ;). The reason we're shutting down HireHive and launching something new is precisely because of what we've learned in the past 8 months working in the hiring space. The only way to find out if there's market opportunity is to come up with a hypothesis and test it. So we've done that once, learned a bunch of stuff about hiring, and are pivoting to what we think is a bigger problem (still in hiring).
I doubt there's a business minded co-founder who could have told us the direction we should be going in without learning what we did about hiring first.
I doubt there's a business minded co-founder who could have told us the direction we should be going in without learning what we did about hiring first.
You're absolutely right, and I agree with this statement. I'm left with the feeling that you don't think this could have been learnt without first writing code, testing the application, and learning the expensive way.
It's tough, awkward, and often frustrating, but you can connect with potential users ("prospects" or "strangers") and flesh your idea out without writing a line of code. People are willing to talk, but you have to approach them -- and go outside of your comfort zone to find them.
I too am in the other camp. I've already developed a MVP over the past year over many iterations. Now I want to find a co-founder that wants to help me take it to the next level for an equity stake. The problem is location. The midwest is a horrible place to birth an internet startup.
It might be worthwhile to add some contact information to your profile or a link to your blog about your MVP. Otherwise those of us in the Midwest who might be interested can't ever find out more. :) I'm in Chicago and love to connect with other who are actually doing it.
The author makes the assumption in this relationship that the technical co-founder is a talented hacker who has read all of Paul Graham's essays, maybe a Steve Blank book or two, and is well connected in the startup tech scene, all while the business co-founder is just some marketing shmuck. The characterization is unfair; there are plenty of marketing shmucks, but they should be compared against socially inept code monkeys, not this superstar technical co-founder (say, the kind that read Hacker News).
A great "business person" doesn't just flip open a roledex and start dialing for dollars once the technical co-founder has laid a magical golden software egg.
And hopefully, a technical and non-technical co-founder can find a way to work together where they don't perceive their partner as a parasitic dead-weight.
Pretty good explanation. A couple of tweaks: 50/50 is a bad split, because it will lead to paralysis, argument, flying chairs, and eventually bankruptcy.
Second, the advice here is to not pitch the idea when you first meet potential technical co-founders. I disagree: I think sharing the same passion is key, so you definitely should tell me that you plan to revolutionize the music industry (a bad example, I know...). Small talk won't get me, the developer, interested.
I think it really depends on how far along the idea/business guy has taken the project. If he has talked to tons of angels/VC's, or lots of potential customers, especially if those customers have indicated or even signed things saying they are ready to pay money to use the product, the split might favor the idea/business guy more than if he has just been "noodling" over something and has some "sketches" of what it might be.
This. The later you come into a given project, the less equity you would be justifiably entitled to.
As to the original question, if you are starting from zero and you want a means of avoiding critical shareholder deadlocks, you can split 45/45/10 with the smaller portion going to a party both founders agree will be impartial. This person can be the initial angel, or perhaps a minor founder who accepts a smaller chunk in order to maintain his dayjob.
You can also maintain 50/50 splits of ownership but still break executive deadlocks via a third vote by mandating a third seat on the board. This won't help fundamental shareholder deadlocking, but disagreements rarely go to the shareholder vote level.
A 50/50 split can work fine as long as you have a roulette clause. With a roulette clause or similar it's always possible to easily part ways if the 2 parties reach a deadlock that cannot be resolved.
The one thing that I don't understand is how people are willing to be paid in equity. Do you people not have to pay rent? Are you living in your parents basements with someone feeding you?
In the words of many a Taxi driver "NO! You pay me cash now!"
The one thing that I don't understand is how people are willing to be paid in equity. Do you people not have to pay rent? Are you living in your parents basements with someone feeding you?
The problem is you don't need a technical cofounder, you need a good technical founder. Just because someone is at a meetup or on Github doesn't mean they're a good technical cofounder.
Finding a technical cofounder isn't too difficult. If you can't sell your idea to one developer you probably can't sell it to customers. Finding a good technical cofounder is very hard.
Finding this is hard, especially because we non-techies are likely on a learning curve when we're having substantive discussions with you about the evolution of our product.
But I think that as long as we're informed on technology (opportunities and hurdles) and have truly crystallized some initial business plan, I think we're better poised to experience that essential chemistry.
I agree with you, Matt - I wouldn't want to just pick the first technical cofounder that could dazzle me with jargon I haven't heard.
I'm a business type, and I absolutely believe that business types with great ideas and hypotheses they want to test can hire a team to get their minimum viable product off the ground, for a very reasonable price. And, if skilled at product development, they can get quite far on this track.
Yes, of course you want to partner with a great technical co-founder, but how do you expect to attract such a hero without having proven your worth, the viability of your idea, etc.
What's a bit frustrating about this post is that it's going to paralyze a lot of perfectly good business folks with the ingenuity to get it going on their own first. I'm not saying that hiring a team is a long term strategy, but in the short term? HELL YES! YOU CAN DO IT!
This piece gave me a couple of red flags even before I started into the article - primarily the adversarial premise in the title and implied put down of "business people". Remember the time when your VP or manager walks into the room and begin with "you people need to ..."?
As a tech founder, I realize how many aspects of technologies and competencies I need to get right to move the startup to somewhere near a profitable business. There are very few super techs who "know it all". There are legal techies, business techies, hardware techies, etc and probably will look down with similar disdain that a "coding techie" who just don't get it. That attitude is not going to be conducive to building relationship all around.
I would suggest looking at any proposition that comes your way as what a good angel or VC would - ask the right questions, be helpful, do your due diligence, say no politely and walk away if it does not interest you. We techies must educate ourselves how to evaluate a startup proposition and be helpful where possible to build our network because the network may yield answers in our "next" startup.
Maybe the title should read, business focused entrepreneurs with no money. If I am a entrepreneur and I have money, I will not be looking for a "technical co-founder". I will hire technical teams to build and iterate the product to my liking and specification, with their expert input of course (which I can choose to accept or not).
I listened to a Mixergy podcast earlier this week where the founder (a "business founder") started by doing some customer development, getting a prototype developed (paying to get it done, raising a round and then going to find co founders. Andrew (interviewer) assumed this meant a higher equity portion, but Rafael said it was close to an even split. The logic seemed to be that he could get better co founders this way.
To anyone who sees themselves in David's (the poster) position: How would you feel about coming on board at this stage? How would you feel about coming on board at this stage minus the investors?
Before embarking on new venture, everybody should watch the "Treasure of the Sierra Madre", a great movie, directed by John Huston, starring Humphrey Bogart. There you will see that the real problems begin once you have a whiff of success.
Oh forget it. Go see the "The Social Network" if you want to see that. Give a huge majority of shares to your technical cofounder and try to stay on his good side.
btw, a good technical cofounder isn't "just" a good programmer (or even a great one)... actually, he doesn't even have to be the best programmer on the team
Guy says he doesn't value the "vision guy" that much...has he looked at the photo he's using? It's not even sized properly. Simple, simple fix: http://i.imgur.com/o73DX.png
I disagree. Users make it a business - and users don't care if I have a business plan. They just care if the product (i.e., code) makes their lives better.