Recently I read a good book to tackle some questions for the inexperienced founder to build profitability from day one. In this post, I will comment on some main key points about “How Great Founders Do More with Less”. This post is not a review of the book, there are many out there. It’s only a guide to refer to when young founders ask me questions about minimalist entrepreneurship.
Let me reveal a secret to you. Every big idea started small and every founder starts with nothing and learns as they go. Set aside your concerns about funding and software, and concentrate on your first customers, using your time and expertise to solve real problems for real people.
This is about interests rather than skills. You can learn what you need to know and delegate the rest. Do not obtain permission. Just get started. Most people don’t start. Most people who start don’t continue. Most people who continue give up. Many winners are just the last ones standing. Don’t give up, you only need to be right once.
When building a company, many first-time founders tend to seek external capital as a form to validate their business. Another common trap for first-timers is to focus on growth (as a form of the number of employees, the number of followers on their social media, or scaling by a never-ending external capital injection loop) rather than profitability. That’s basically because there is a misconception that external investment confers validation to do things in expensive ways, but that’s not true. It’s about revenue and traction. Most of all, paying customers is the permission you need to grow.
It’s valid that there are some great businesses that need a lot of up-front cash. However, the vast majority of software startups don’t need to rush to VC money. See it like this; if you raise money now your company has two distinct sets of stakeholders: your investors and your customers. Your customers do not want you to get bigger and grow faster. They do not care which venture capitalists you raised money from, or how many employees you have. They only want your product to improve, and your business to stick around. That’s about it.
When you are profitable, you can take your time. Since you are running on your own steam, your runway will last forever. You can talk to customers and make sure understand their problems before you attempt to solve them. Then you can iterate on your solution until your customers are happy with it. If you can grow something really substantial with baby steps, you won’t be afraid of taking the longer path. You will not die unless you do something stupid.
For now, your goal is to move away from being paid directly for your time. Selling your time does not scale nearly as well as other types of business but can generate positive cash flow much sooner, giving you the breathing room to think about what comes next.
In between moving away from being paid for your time, learn about sales. Learn while doing. Sales is an education process. Sales is aligning your customers’ problems with your company’s needs. Sales is not a four-letter word. Understand that marketing is sales at scale, so you first need to be great at sales, later at marketing.
When you have been solving your customers’ needs for a while, it’s time to create a product that your company will use to scale the business. Now, and only now, you understand what are the market problems, and you have (some) expertise in solving them. This is the correct path. However, many first-time founders just put their heads down and start coding a “solution” for a problem that doesn’t exist. Understand the market problems, solve them pseudo-manually with (probably) broken processes, and create fast-feedback loops to iterate your product.
Here are two good quotes from the book that explains this process of product discovery and fast-feedback loops:
Building a business is a lesson in fast feedback loops and iteration. Imagine if you were on a boat searching for treasure, but you could only ping your radar once a year. Then once a month. Then every day. The boat is your business, and the treasure is product-market fit (repeat customers).
— Sahil Lavingia
Creating a product is a process of discovery, not mere implementation. Technology is applied science.
— Naval Ravikant
The goal here is to build something “good enough”. Good enough to show others, and good enough for them to pay for.
- Can I ship it on a weekend? If you can’t ship it fast, you are building a minimum viable product, not a manual valuable process.
- Is it solving my customers’ problems? This is easy since your product is created by the accumulative expertise your company has gained in solving real people’s problems.
- Is a customer willing to pay me for it? Put profitability in front.
- Can I get feedback quickly? Remember the boat-treasure analogy.
- Make it easy for customers to pay. When you’re growing, there will always be broken processes. However, be sure your sales process is not stopping your growth.
Communicate why and how you do what you do. Writing is a long-term game for long-term companies. Most founders are not comfortable putting themselves at the center of their company’s story. But they need to. People don’t care about companies, they care about other people.
How to create a cheap communication channel:
- Name your business
- Build a website and create an email address.
- Create social media accounts.
- Build in public.
- Trust the feedback loop.
Never forget that while social media is sexy, it is not the be-all of your business. Social media is at the top of the funnel. It’s mostly strangers. That’s why you should start building an email list. It gives you a direct line to your customers that isn’t controlled by a recommendation system, or whether you spend money on advertising. The more targeted you can get, the less you have to spend.
Understand communication funnels. Your audience (network of everyone you can reach when you have something to say) will grow much larger than your customer base—but your customer base is a subset, likely the most passionate, of your audience. People do not transform from strangers to consumers overnight. They progress from strangers to dimly aware of your presence to gradually becoming fans, and lastly to customers and then repeat customers who help you spread the word.
Many, many, many, founders do first the “communication” before the “0-day product checklist”, and they are completely wrong. This is because of two common stupid things:
- It’s easy to show off than create real value for real customers. Many “founders” only want other people to see how good they are at “business” but very few care about the one single more important thing: solving real problems.
- Many think they need a landing page or a social media account before their first manual valuable process as a show-off of expertise to target customers. That’s not true. Solve the fucking problem first. Then earn money. Finally, make the things scale.
The fact that most plane crashes are due to engine failure doesn’t mean planes shouldn’t have engines. All you have to do is look at the empirical evidence. Successful single-founder startups are so rare that they’re famous on that account. If you are a single founder should be aware you are doing something that, for whatever reason, rarely works.
Finding a co-founder is important as the first years will be (very) hard. Finding a co-founder is not like dating, but if things do not go so well you probably want a good relationship. No one wants a berk working with them, and neither you. Some important things to keep in mind:
- Don’t start a relationship with someone unless you really, really trust them.
- Do introduce vesting so that each of you earns your stock over several years.
- Do make sure you are aligned on your values, what you want to build, and how you want to build it.
- Do not ignore the possibility that one of you may leave. Plan for what a successful exit from the business may look like.
- Do have the hard conversations as early as you possibly can. Hard conversations get harder the longer you wait to have them.
- What does a happy relationship look like?
- What does success for this business look like?
- What does an exit look like?
- How fast do we want to grow?
- Why are we starting this together?
- Why don’t you start this business with another person?
Have these hard conversations again and again (monthly, quarterly and yearly). Think about specific meetings to reevaluate these goals so that disagreements don’t fester silently, and make sure that whatever path you plan on taking, you’re on the same page about it.
The further you can get without hiring your first engineer if you are building a software product, the higher your chances of achieving profitability. However, if you already “built” (software is more like a garden rather than a building) one product, now you’re building another: the product is your company, and your customers are your employees. Understand that organizations are people, and building a company full of humans is more rewarding than building software, but it is also much harder.
Whether you have one employee or one hundred, have clear KPIs that everyone knows about and can measure their work against. Articulate your values early and often, because you will need them to avoid veering off course as you grow. Have the hard conversations early, as they’ll only get harder the longer you wait.
Understand the difference between behavior and intention. Behavior is what someone is doing; the intention is why they’re doing it. Most people judge themselves based on their own intentions but then judge others based on their behavior.
The problem with traditional managers is that they aren’t really invested in the success of the people they manage. Managing, it’s about caring your employee’s career aspirations and growth beyond what your company might require. It’s about the long-term game for long-term people.
Ultimately, if you hire well, your employees will be better managers of themselves than you could ever be. And in the long run, giving everyone autonomy allows you to be a peer to your employees so that you can code alongside your engineers, design alongside your designers, and spend your time building rather than constantly managing others.