Pmarca, part 1: Why not to do a startup

The Pmarca Guide to Startups, part 1: Why not to do a startup

Jun 18, 2007

In this series of posts I will walk through some of my accumulated knowledge and experience in building high-tech startups.

My specific experience is from three companies I have co-founded:
Netscape, sold to America Online in 1998 for $4.2 billion; Opsware
(formerly Loudcloud), a public software company with an approximately
$1 billion market cap; and now Ning, a new, private consumer Internet
company.

But more generally, I’ve been fortunate enough to be involved in and
exposed to a broad range of other startups — maybe 40 or 50 in enough
detail to know what I’m talking about — since arriving in Silicon
Valley in 1994: as a board member, as an angel investor, as an advisor,
as a friend of various founders, and as a participant in various
venture capital funds.

This series will focus on lessons learned from this entire
cross-section of Silicon Valley startups — so don’t think that
anything I am talking about is referring to one of my own companies:
most likely when I talk about a scenario I have seen or something I
have experienced, it is from some other startup that I am not naming
but was involved with some other way than as a founder.

Finally, much of my perspective is based on Silicon Valley and the
environment that we have here — the culture, the people, the venture
capital base, and so on. Some of it will travel well to other regions
and countries, some probably will not. Caveat emptor.

With all that out of the way, let’s start at the beginning: why not to do a startup.

Startups, even in the wake of the crash of 2000, have become imbued
with a real mystique — you read a lot about how great it is to do a
startup, how much fun it is, what with the getting to invent the
future, all the free meals, foosball tables, and all the rest.

Now, it is true that there are a lot of great things about doing a startup. They include, in my experience:

Most fundamentally, the opportunity to be in control of your own destiny
— you get to succeed or fail on your own, and you don’t have some bozo
telling you what to do. For a certain kind of personality, this alone
is reason enough to do a startup.

The opportunity to create something new — the proverbial
blank sheet of paper. You have the ability — actually, the obligation
— to imagine a product that does not yet exist and bring it into
existence, without any of the constraints normally faced by larger
companies.

The opportunity to have an impact on the world — to give
people a new way to communicate, a new way to share information, a new
way to work together, or anything else you can think of that would make
the world a better place. Think it should be easier for low-income
people to borrow money? Start Prosper. Think television should be opened up to an infinite number of channels? Start Joost. Think that computers should be based on Unix and open standards and not proprietary technology? Start Sun.

The ability to create your ideal culture and work with a dream team of people
you get to assemble yourself. Want your culture to be based on people
who have fun every day and enjoy working together? Or, are
hyper-competitive both in work and play? Or, are super-focused on
creating innovative new rocket science technologies? Or, are global in
perspective from day one? You get to choose, and to build your culture
and team to suit.

And finally, money — startups done right can of course be
highly lucrative. This is not just an issue of personal greed — when
things go right, your team and employees will themselves do very well
and will be able to support their families, send their kids to college,
and realize their dreams, and that’s really cool. And if you’re really
lucky, you as the entrepreneur can ultimately make profound philanthropic gifts that change society for the better.

However, there are many more reasons to not do a startup.

First, and most importantly, realize that a startup puts you on an emotional rollercoaster unlike anything you have ever experienced.

You will flip rapidly from a day in which you are euphorically
convinced you are going to own the world, to a day in which doom seems
only weeks away and you feel completely ruined, and back again.

Over and over and over.

And I’m talking about what happens to stable entrepreneurs.

There is so much uncertainty and so much risk
around practically everything you are doing. Will the product ship on
time? Will it be fast enough? Will it have too many bugs? Will it be
easy to use? Will anyone use it? Will your competitor beat you to
market? Will you get any press coverage? Will anyone invest in the
company? Will that key new engineer join? Will your key user interface
designer quit and go to Google? And on and on and on…

Some days things will go really well and some things will go really
poorly. And the level of stress that you’re under generally will
magnify those transient data points into incredible highs and
unbelievable lows at whiplash speed and huge magnitude.

Sound like fun?

Second, in a startup, absolutely nothing happens unless you make it happen.

This one throws both founders and employees new to startups.

In an established company — no matter how poorly run or demoralized
— things happen. They just happen. People come in to work. Code gets
written. User interfaces get designed. Servers get provisioned. Markets
get analyzed. Pricing gets studied and determined. Sales calls get
made. The wastebaskets get emptied. And so on.

A startup has none of the established systems, rhythms, infrastructure that any established company has.

In a startup it is very easy for the code to not get written, for
the user interfaces to not get designed… for people to not come into
work… and for the wastebaskets to not get emptied.

You as the founder have to put all of these systems and routines and
habits in place and get everyone actually rowing — forget even about
rowing in the right direction: just rowing at all is hard enough at the
start.

And until you do, absolutely nothing happens.

Unless, of course, you do it yourself.

Have fun emptying those wastebaskets.

Third, you get told no — a lot.

Unless you’ve spent time in sales, you are probably not familiar with being told no a lot.

It’s not so much fun.

Go watch Death of a Salesman and then Glengarry Glen Ross.

That’s roughly what it’s like.

You’re going to get told no by potential employees, potential
investors, potential customers, potential partners, reporters,
analysts…

Over and over and over.

And when you do get a "yes", half the time you’ll get a call two days later and it’ll turn out the answer has morphed into "no".

Better start working on your fake smile.

Fourth, hiring is a huge pain in the ass.

You will be amazed how many windowshoppers you’ll deal with.

A lot of people think they want to be part of a startup, but when
the time comes to leave their cushy job at HP or Apple, they flinch —
and stay.

Going through the recruiting process and being seduced by a startup
is heady stuff for your typical engineer or midlevel manager at a big
company — you get to participate vicariously in the thrill of a
startup without actually having to join or do any of the hard work.

As a founder of a startup trying to hire your team, you’ll run into this again and again.

When Jim Clark decided to start a new company in 1994, I was one of
about a dozen people at various Silicon Valley companies he was talking
to about joining him in what became Netscape.

I was the only one who went all the way to saying "yes" (largely because I was 22 and had no reason not to do it).

The rest flinched and didn’t do it.

And this was Jim Clark, a legend in the industry who was coming off
of the most successful company in Silicon Valley in 1994 — Silicon
Graphics Inc.

How easy do you think it’s going to be for you?

Then, once you do get through the windowshoppers and
actually hire some people, your success rate on hiring is probably not
going to be higher than 50%, and that’s if you’re good at it.

By that I mean that half or more of the people you hire aren’t going
to work out. They’re going to be too lazy, too slow, easily rattled,
political, bipolar, or psychotic.

And then you have to either live with them, or fire them.

Which ones of those sounds like fun?

Fifth, God help you, at some point you’re going to have to hire executives.

You think hiring employees is hard and risky — wait until you start
hiring for VP Engineering, VP Marketing, VP Sales, VP HR, General
Counsel, and CFO.

Sixth, the hours.

There’s been a lot of talk in Silicon Valley lately about work/life
balance — about how you should be able to do a startup and
simultaneously live a full and fulfilling outside life.

Now, personally, I have a lot of sympathy for that point of view.

And I try hard in my companies (well, at least my last two
companies) to do whatever I can to help make sure that people aren’t
ground down to little tiny spots on the floor by the workload and the
hours.

But, it’s really difficult.

The fact is that startups are incredibly intense experiences and take a lot out of people in the best of circumstances.

And just because you want people to have work/life balance, it’s not
so easy when you’re close to running out of cash, your product hasn’t
shipped yet, your VC is mad at you, and your Kleiner Perkins-backed
competitor in Menlo Park — you know, the one whose employees’ average
age seems to be about 19 — is kicking your butt.

Which is what it’s going to be like most of the time.

And even if you can help your employees have proper work/life balance, as a founder you certainly won’t.

(In case you were wondering, by the way, the hours do compound the stress.)

Seventh, it’s really easy for the culture of a startup to go sideways.

This combines the first and second items above.

This is the emotional rollercoaster wreaking havoc on not just you but your whole company.

It takes time for the culture of any company to become "set" — for
the team of people who have come together for the first time to decide
collectively what they’re all about, what they value — and how they
look at challenge and adversity.

In the best case, you get an amazing dynamic of people really
pulling together, supporting one another, and working their collective
tails off in pursuit of a dream.

In the worst case, you end up with widespread, self-reinforcing
bitterness, disillusionment, cynicism, bad morale, contempt for
management, and depression.

And you as the founder have much less influence over this than you’ll think you do.

Guess which way it usually goes.

Eighth, there are lots of X factors that can come along and whup you right upside the head, and there’s absolutely nothing you can do about them.

Stock market crashes.

Terrorist attacks.

Natural disasters.

A better funded startup with a more experienced team that’s been
hard at work longer than you have, in stealth mode, that unexpectedly
releases a product that swiftly comes to dominate your market,
completely closing off your opportunity, and you had no idea they were
even working on it.

At best, any given X factor might slam shut the fundraising window,
cause customers to delay or cancel purchases — or, at worst, shut down
your whole company.

Russian mobsters laundering millions of dollars of dirty money
through your service, resulting in the credit card companies closing
you down.

You think I’m joking about that one?

OK, now here’s the best part:

I haven’t even talked about figuring out what product to build,
building it, taking it to market, and standing out from the crowd.

All the risks in the core activities of what your company actually
does are yet to come, and to be discussed in future posts in this
series.

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