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LLC vs. Corporation: Which is Right for Startups?

If You’re Starting A Startup:

If you’re starting a startup, and you want to deal with equity, you’ll need to start something known as a C-Corp.*

The two major ways you can create a company are as a C-Corporation (C-Corp for short) or a Limited Liability Company (LLC). If you want to have equity in your company, then you shouldn’t start an LLC. An LLC is just for multiple partners owning a business. A C-Corp will let you take investment and have equity in your company.

Another important thing about a C-Corp is that you’ll have a Board of Directors. That might start out as just you and your Co-Founder, but as you grow and get more investors, they may join as board members as well.

For now, you probably don’t need to know about A-Corps or B-Corps (but if you want to geek out, we won’t stop you from Googling). Focus on LLC vs Corporation.

*Of course, for questions specific to your particular situation, it’s best to seek the advice of an attorney or accountant.

Key Takeaways:

  • If you want to take investment (and have equity in your company), you’ll need to start a C-Corp.
  • The two main forms of company structure are C-Corp and LLC.

What Are Convertible Notes and Why Use Them?

Throughout our previous entries on raising funds as a startup, we’ve been talking about raising money for your company by sharing equity with venture funds.

When you’re a company in its early days, sharing equity is difficult. Moving equity from your company to another requires a lot of time to hash out an agreement everyone can live with and it requires lawyers to work out the actual contracts. The whole process can cost upwards of $50-$100K, which is a lot of money for a company still looking for its first round of seed money.

Rather than dealing with the hassle of transferring equity, a lot of venture funds find it better to offer funding to startups using convertible notes.

Convertible notes are debts that convert into equity when a startup raises an actual equity round of funding. In essence, the venture fund offers to give you a loan of whatever amount, but instead of paying them back in actual money, the startup agrees to pay them in preferred equity. The venture fund gets the same agreement as whoever has invested in the series A round, with a bit of a discount as a good faith offer for investing earlier.

Early investing venture funds often find working with convertible notes preferrable to working with equity transfer for a few reasons:

For one, issuing a convertible note is easier. It can take weeks of discussion to transfer equity, but you can really issue a convertible note in only a couple of days. They also make it easier for the venture fund to work out the valuation of the startup by putting the discussion off until the series A round, when there is actual data to base their valuation on (rather than just a hunch). That considerably lowers the risk of their investment.

For startups, the convertible note also simplifies things. Convertible note agreements are short, maybe ten pages at most, and they can often be found online and modified according to the template.

Instead of the high cost of hiring a lawyer to transfer equity, the documents for a convertible note can often be found online. As a result, they can help generate quick funding in exchange for onle a few hundred to a thousand dollars. For a company that has limited time and financial resources, that is a tremendous advantage over complicated agreements.

Key Takeaways:

  • Convertible note are a form of debt taken on during seed funding that converts into equity when a startup begins an actual equity round of funding (usually in series A).
  • Convertible notes are preferrable to startups because they are quicker, easier, and cheaper to issue than equity. They are better for venture funds because they make valuation more flexible.
  • You can find a lot of online templates for convertible notes that you can use. Usually a lawyer is only needed in a limited capacity when working out a convertible note agreement.

Links

How Will You Make Money?

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You should have an answer to the question “How will you make money?” early on. You may even have several answers. It needs to be plausible, and people (like investors) may push back and argue with you about whether or not it’s a feasible business model. If you’re asking people for money, it’s a question you will have to deal with so you better be prepared for it.

That being said, you pointed out a few important things. For one, it’s okay to not be sure which will be the ideal business model or price. The process of getting to profitability is something you’ll have to face eventually if your startup continues to grow, but you may be able to push it off for a while in favor of focusing on growing usage. That’s the second point, if your product is growing quickly, you’ll often find investors willing to fund your growth despite the lack of a proven business model.

There are only a few major business models though: Advertising, Subscription, E-commerce, Business Development, and Lead Gen are some of the major ones.

Let’s take Facebook as an example. In the early days, Facebook was growing so fast that they were able to get a ton of money before they had to worry about their business model. But it was pretty clear their business model was going to be advertising. It’s a fairly straightforward path to monetization for a social network — though not all social networks monetize solely through advertising (LinkedIn charges users for premium accounts).

There are some others (like Medium) where the business model is still unclear, but I bet that the founders have a path (or several) towards monetization in their heads.

Yes, solving a problem should be the most important thing for you to focus on. But the reality is that if you’re trying build a big business, you have to have an idea how it’s going to be a lucrative problem to solve.

12 Podcasts Every Entrepreneur Should Be Listening To

Podcasts are a great medium for learning about, well, almost anything — but they’re especially useful for learning about starting and leading a company. After all, most future entrepreneurs are super busy, so you need a way to digest information that’s easy, flexible, and accessible.

To help you get started, we’ve put together the entrepreneur’s podcast starter set.

These shows each meet the following criteria:

Actionable: Although theories are good, concrete tips you can implement right away are better.

Engaging: Unfortunately, it’s hard to pay attention to even the most fascinating interviews and conversations if they’re presented poorly. Each podcast on this list has high-quality audio and dynamic hosts.

Innovative: None of these podcasts will cover things you already know. You’re listening to learn, not to rehash the same tired lessons.

Focused: As previously mentioned, your time is valuable. If you’re listening to an hour-long podcast, it should have six times the information as a 10-minute one — not just six times the talking.

1. To learn how to start a startup…

How to Start a Startup

How to Start a Startup

Listen to How to Start a Startup. Sam Altman, the president of Y Combinator, originally taught this 20-part series as a Stanford class. He starts with the basics, like how to create a team and build a product, and ends with advice for after you’ve achieved product-market fit. Altman is brilliant — and he also brings in many startup heavyweights, including Reid Hoffman, Marc Andreesen, Aaron Levie, and more.

You’ll learn:

  • How to develop a great idea
  • How to build a high-quality product
  • How to put together a winning team
  • How to execute on the first three

Start with:

Episode #1, in which Sam Altman gives an overview of the course.

2. To learn how to pitch to venture capitalists (VCs)…

The Pitch

Listen to The Pitch. This podcast is essentially an audio version of Shark Tank: Each episode, a different startup comes on to give their elevator pitch to a panel of investors and answer their follow-up questions.

After the investors have quizzed the founders, they’ll discuss whether or not they’d invest and why.

You’ll learn:

  • What goes into a good pitch
  • What types of questions VCs ask (and how to answer them)
  • What makes or breaks their decision to invest

Start with:

Episode #10, in which Dollar Beard Club founder Chris Stoikos pitches his startup to Marvin Liao, Howie Diamond, and Ryan Hoover.

3. To learn how to get traction…

Traction

Listen to Traction. Coming to you from NextView ventures, this show delves into the weird, inspiring, unexpected, and ultimately genius ways startup founders have made progress in the very early days of their companies. It’s a great antidote when you’re in the “startup trough of sorrow,” which is what entrepreneurs go into when they have a major failure.

You’ll learn:

  • How to pivot
  • How to ignore the disbelievers
  • How to forge on through the worst times

Start with:

Episode #7, in which Jay Acunzo talks to Kathryn Minshew, co-founder and CEO of The Muse.

4. To learn how to grow your business from an idea to an 45-person company…

StartUp Podcast

Listen to StartUp. In 2014, public radio veteran Alex Blumberg decided to start a new podcasting company. He also decided to record his entrepreneurship journey and produce it… as a podcast. (Very meta.) StartUp is now heading into its third season, and Gimlet Media — Blumberg’s company — has six podcasts in its roster, $7.5 million in funding, and 45 people on its staff.

You’ll learn:

  • How to write (and rewrite) your business plan
  • How to handle inter-company conflict
  • How to figure out equity, organization, responsibility, and more

Start with:

Episode #1, in which Blumberg pitches famous Silicon Valley investor Chris Sacca.

5. To learn more about the startup world…

This Week in Startups

Listen to This Week in Startups. Once a week, host Jason Calacanis and a rotating group of guest experts sit down to talk about their experiences, their future plans, and of course, the latest news in entrepreneurship. Calacanis has a blunt, straight-forward style, which means the conversations are usually extremely interesting and sometimes controversial.

You’ll learn:

  • What’s happening in Silicon Valley
  • How insanely smart people see the world
  • How to be more innovative

Start with:

Episode #423, in which Calacanis talks to Mark Cuban about which startups he’s excited about and why he still invests in new companies (despite having billions in the bank).

6. To learn how to be more creative and grow faster…

Seeking Wisdom

Listen to Seeking Wisdom. This show comes from David Cancel, a five-time entrepreneur and former Chief Product Officer of HubSpot. Cancel is a highly respected fixture of the tech community, and you’ll understand why once you hear his innovative leadership and learning techniques.

You’ll learn:

  • How to hire the right people
  • How to organize your teams
  • How to find awesome mentors

Start with:

Episode #4, in which Cancel discusses why you should give your employees more autonomy.

7. To learn what goes into an ultra-successful company…

Collective Wisdom for Tech Startups

Listen to Collective Wisdom for Tech Startups. Founder Collective is a well-known venture capital fund that’s invested in Uber, Buzzfeed, HotelTonight, and SeatGeek, among others. In this podcast, Founder Collective’s leaders talk to founders whose names you’ll definitely recognize: Phillip Crim, the founder of Casper; Sam Yagan, the CEO of OkCupid; Stephen Kaufer, the cofounder and CEO of TripAdvisor, and many more.

The wisdom is definitely useful, but this show also stands out for its digestible format. Each interview is available both as a full-length show and in roughly one-minute clips.

You’ll learn:

  • How to get tech reporters to cover your startup
  • How to set your own salary
  • How to build a culture that survives an IPO

Start with:

Episode #4, in which Scott Belsky talks about founding and growing Behance.

8. To learn how to be a stronger leader…

The Growth Show

Listen to the Growth Show. As you can tell from the name, this show is focused on growth — and because growth is such a broad topic, you’ll get suggestions on everything from designing a happier life to balancing innovation and competition.

The guests are equally varied. Although founders feature pretty heavily, authors, speakers, executives, and even a violinist have all appeared on the show.

You’ll learn:

  • How to grow almost anything (your team, your abilities, your brand, your idea, your business, etc.)

Start with:

Episode #52, in which HubSpot CMO Kipp Bodnar talks to Canva’s co-founder, Cliff Obrecht, and its head of growth, Andre Pinantoan.

9. To learn about design and product management…

Inside Intercom Podcast

Listen to Inside Intercom. In a unique twist, the guest and the host change every episode. The two things you can count on? The host will be an Intercom employee, and the guest will be a leader in product management, design, marketing, or startups.

When you’re fairly new to any (or all) of these worlds, it’s really beneficial to get first-hand insight into from some of the best, most experienced practitioners.

You’ll learn:

  • How the design process works
  • How to start and scale a marketing team
  • How to sell before you have sales reps

Start with:

Episode #12, in which Emmet Connolly, Intercom Director of Product Design, talks to Mike Davidson, former VP of Design at Twitter

10. To learn how to start, scale, and fund your startup…

Startup School

Listen to Startup School Radio. Every week, host and Y Combinator partner Aaron Harris talks to two guests to get their practical advice on running an early-stage company. His guests are always fascinating, intelligent, and wildly successful; for example, past guests include Peter Reinhardt, CEO of Segment; Suhail Doshi, CEO and co-founder of Mixpanel; and Solomon Hykes, CTO and founder of Docker.

You’ll learn:

  • How to launch a startup
  • How to overcome major obstacles
  • How some of the most successful entrepreneurs think

Start with:

Episode #35, in which Aaron Harris interviews Paul Graham, author and co-founder of Y Combinator.

11. To learn how to build an amazing culture…

Mission & Values

Listen to Mission & Values. Host Bryan Landers explores, as he puts it, “the ‘why’ behind startup work, and the ‘how’ behind their decisions.” In practical terms, that means asking CEOs questions like, “Do your employees have a shared characteristic — something that makes them a good cultural fit?” and “Can you tell me about your transparency value?”

You’ll learn:

  • How values impact the day-to-day of your startup
  • How to assess cultural fit
  • How to scale your values

Start with:

Episode #1, in which Landers talks to Zapier CEO Wade Foster.

12. To learn the best startup advice and latest tech trends…

a16z

Listen to a16z. You might not’ve heard of this podcast, but you’ve probably heard of Andreessen Horowitz, the VC firm that produces it. Some of the episodes cover tech news, others delve into trends, and the rest (and frankly, the most useful) provide how-tos. There are three to four episodes per week; we recommend only listening to the ones most relevant to you.

You’ll learn:

  • The most important industry news
  • Where the software world is headed (and how to prepare)
  • How to run a startup

Maintaining Healthy Relationships While Working at a Startup

The thing about putting your all into your startup is that, technically, then you don’t have anything left for the other important facets of your life. This week, Mattan tackles why maintaining healthy relationships are important, and how you can (re)structure your time to push your business forward without leaving your friends behind.

The universally acknowledged and unpleasant truth is that when you’re running a startup, you’re going to be working unbelievably hard. Harder than you ever thought possible. It’s tempting to see the huge time commitment you’re making as a binary choice between relationships and work. But that doesn’t have to be true. Maintaining a good work/life balance is just that: balance. Here are three tips to help you keep all your plates spinning:

1. Relationships Are An Important Investment

Don’t simply write off your relationships in favor of taking care of, er, business. While relationships require energy and attention, you’ll eventually get that commitment back in the form of support, help, introductions, and resources. Those outcomes shouldn’t be why you’re investing time and effort into family, friends, and significant others — but they are an inevitable benefit.

2. A Change Is Gonna Come

That said, with so much of your time taken up by a startup, something has to give or change in how you invest time and energy into relationships. Think of new channels and mechanisms you can use to keep in touch with people. Perhaps consider putting together a friend update newsletter. Even the gesture of shooting a quick email to people you care about will be appreciated.

3. Constant Vigilance!

A key ability in managing your startup commitments, personal wellbeing, and other relationships is knowing when and how to say no. You can’t take every meeting, and you can’t see every movie, and you can’t always go out for drinks. Set aside one day, or a specific amount of time per week, for meetings/coffees/socializing, and then ruthlessly prioritize how you spend it. You have to be honest about your time commitments, both with yourself and with everyone else.

Still, remember that first point about relationships being worth the effort. Even if you don’t have the time to meet with someone, do still reach out out to them. People will appreciate that you’re thinking about them. All relationships are, are communication over time. So keep the lines of communication open and keep track of your time. The rest will, so to speak, balance out.

Finding A Technical Co-Founder Or Developer For Your Startup

How do you find a co-founder or a developer to come onboard your startup?

How do you speak to Code Monkeys? And what do you do if you don’t know any developers? For entrepreneurs with business and non-technical backgrounds, these issues can seem like huge and overwhelming bars to making your idea a reality.

The good news is that you can take concrete steps to find technically-minded folks and get them excited about your projects. It just takes a little research, a willingness to ask around, and the ability to form sentences more coherently than Kanye West.

It just takes a little research, a willingness to ask around, and the ability to form sentences more coherently than Kanye West.

1: Speak the language

The first and most essential thing that will endear you to technically-minded potential co-founders and developers is surprisingly basic: the ability to sound at least familiar with their area of expertise.

You don’t have to become a complete programming geek, but you do at least need to put enough effort and do enough research to be cocktail-party-literate in code.

Computers are a science, and there’s a technical jargon that separates people who know what they’re talking about from people who get made fun of on the Whartonite Seeks Codemonkey tumblr. You need to either learn enough that you’re able to correctly communicate your needs — like knowing the difference between Swift, Android, and website building — or be able to frame your pitch so that your co-founder can tell you what you need.

2: Make sure you (sound like you) know what you’re talking about

In the pitch itself, developers get excited in the details. Having tangible research, the results of an MVP experiment, domain experience or field credentials go a long way towards proving your credibility.Make sure you front-load all of that when reaching out to people.

Remember that it’s not just on your co-founder or developer to bring some tangible skill to the table. You have to prove that you’re showing up with the skills that are going to make your startup a success and make someone excited about working with you. To that end, it’s definitely a faux pas to be stingy about what you’re offering someone to come onboard. Resist that proprietary possessive fallacy that your idea is yours. When you start collaborating with someone else, the idea gets bigger than just you. And most of the time, that’s what makes it better.

Resist that proprietary possessive fallacy that your idea is yours. When you start collaborating with someone else, the idea gets bigger than just you.

3: Brevity and clarity are an entrepreneur’s best friends

When you’re reaching out to co-founders and developers, bear in mind that successful emails are short, direct, and spelled correctly.

Even if you have the Best Idea Ever, dial down the hyperbole. Yours isn’t the first idea a developer’s heard and it won’t be the last. You’ll be much more convincing if your pitch is based on evidence.It’s even better if you can provide figures, like the example from Derby Jackpot does, of what the market demand is and what kind of opportunity you’re trying to seize. When in doubt, think “Just the facts,” and not “What would Kanye do?”

If you already know what technology requirements your project needs, specify that. But if you don’t, don’t trying and bluff your way through it. The Derby Jackpot pitch makes no mention of what platforms they want to launch on or what components they need to make virtual horse racing a reality. And that’s fine. The email makes up for it by cleanly and clearly presenting the idea. It also wraps up quickly, with an easy invitation for interested developers to ask questions and learn more. Leave them wanting more.

4: And remember, the social network isn’t just a movie…

If you don’t know where to start looking for a technical co-founder or developer, that’s okay. There are other people out in the world who do, and chances are you know some of them. Pack that pitch email with details of what you’re looking for in terms of time commitment/what you can offer, and send it out to 5–10 of your friends. Ask them to refer you not just to one or two folks who may be interested in your project, but to include people who may know someone else who is. Ask for introductions and more than likely, a few degrees of separation later, you’ll have a strong list of candidates.

The more effortless it is to help you out, the more likely people will do it.

As with your pitch email, you want to make the referral process as easy as possible. The more effortless it is to help you out, the more likely people will do it. One good way to think about phrasing your request is with a scorecard. Avoid a lengthy back and for by detailing what you’re looking for and what you’re not. What kind of commitment you’re looking for, what your budget is, whatever logistical constraints you have: any detail at all will help your network find the person who can best help you.

5: Look around and use online resources in your search

If you’ve tapped into your network and come up dry, that’s okay. Here are a few ways to tap into the world of the internet (and the ground) to find a developer:

  • Check and see if you can insert yourself into a pre-existing network or local community. You may live somewhere with meetup groups, tech or programming-specific schools and bootcamps, and tech-related business events. All of these are great avenues to explore and make connections.

If you’ve left no in-person stone unturned and still come up short, don’t despair. There’s still a magical land called the Internet, where people can connect with each other across space and time.

Wherever you go online, just make sure you follow some basic etiquette. Take the ten minutes to get a feel for the community you’re entering. Get a sense of its tone, read the rules, and make sure you’re posting in the appropriate way, in the appropriate space. You don’t want to immediately spam a thread with requests — and just like in reaching out to individual developers, make sure that you come across as thoughtful, engaged, and able to provide some value to the discussion.

It’s all about the long game

However you reach out, it’s people who are going to make your company. You want to create a connection that’s strong enough to see you through all the exciting challenges of building and launching your idea. So don’t be afraid to reach out, put in the time to make connections with both tech-minded individuals and communities. The best thing you can do is to a take those extra few weeks to really get to know someone. Then find your team, and get to work.

Founder Friday Series

This post is part of a series of short, candid, quick videos and essays on entrepreneurship and starting your own business– I call it Founder Friday.

If you want to see more of these, leave a comment and let me know that you like it.

Why I Do Startups (Plus Startups vs. MBAs)

Why do I do Startups?

When you’re running a startup you certainly don’t do it for the money. Paper valuations, even those worth millions, end up coming out to $0 most of the time (90% of startups fail).

And I certainly don’t do it for the stability (there is none).

So why do I do it?

It’s kind of selfish. I do it because I love what I’m doing at any given moment — all the stress, uncertainty, and anxiety around finding product market fit.

I get off on constantly having new problems to solve.

Maybe it’s because I’m trying to escape boredom. Boredom scares the shit out of me. Doing the same thing every day sounds like hell.

“I’ve got a great ambition to die of exhaustion rather than boredom.” — Thomas Carlyle

But I also think of the act of running a startup as building the life I really want to be living.

That means a life in which I’m constantly learning, facing new challenges, and then achieving and conquering those challenges. The feeling of going from being totally underwater and drowning, to occaisionally being able to come up for air, to swimming, and eventually surfing — that’s an amazing feeling and I’ve grown quite addicted to it.

The more experience you have trying new things and figuring it out, the more confidence you build in yourself and your ability to tackle bigger and greater problems.

Like in improv comedy, after you throw yourself on stage enough times without any lines, you learn to trust yourself in new and unexpected situations. There’s no way to put a value on that. It’s priceless.

It’s about trusting yourself. Knowing that you can be thrown into an uncertain situation and knowing that you’ll be alright.

Trusting that you have the ingenuity to figure it out. I believe everyone has that ingenuity but few people are willing to let themselves be scared enough to figure it out.

STRESS

People often talk about stress as something negative.

But stress can also perceived as something positive — a challenge, a new obstacle, something exciting. Weightlifters and runners talk about stress, but they perceive it differently. It’s a stress that makes you better, it’s a stress that makes you stronger.

Being at a startup is about constantly learning, and improving things like leadership, your ability working with people, and your ability to master yourself.

Developing new skills is never boring.

That’s why I do what I do.

Startups vs MBAs

Of course, some people go back to school to get an MBA. I considered it for a while.

When you get an MBA, you spend 2–3 years, pay $200k, and you get a degree. You read case studies, interview business leaders, and learn frameworks for tackling problems.

Harvard Business School relies heavily on case studies — business situations that are dissected as white papers. But these case studies are simplifications. They only show a small part of the whole picture. As Ben Horowitz would say, that’s not the hard thing about the hard thing.

If you only ever study case studies, then you’re missing out on the nuances of the situation — the people, your biases, the holistic picture — the things that are really hard that you can’t learn from a book.

To me, deciding between going to business school versus starting a business is a no-brainer. I think the best way to learn is to do something yourself. The problems you run into are the kind you never would have anticipated. The speed at which you learn those problems is so much faster.

And also you don’t end up with student loans. (Ideally, you get paid to learn.)

Plus, interestingly, entrepreneurs get paid more if they go back to the workforce (as long as they’ve been running their companies for at least 2 years). The set of experiences you get are so unique and valuable.

Starting a business is the future of education.

That’s it for today’s #FounderFriday. If you have questions, post them below or email founderfriday at onemonth.com.

Admitting When Things Aren’t Perfect

No you’re not perfect but you’re not your mistakes. — Kayne West

We tend to have a hard time admitting when things aren’t going great. When I talk to a founder and I ask them how things are going, the answer is almost inevitably, “Everything’s great.” And then you find out a few months later that they’ve run out of money.

Things usually aren’t great. That’s because startups are usually failing by default. And even when things are going great, there are always one or two things that aren’t. When you’re a founder, those are the things constantly on your mind.

At Y Combinator, Sam Altman once told us that there’s a negative correlation between how well a founder says their startup is doing, and how well it’s actually going.

So why do so many people lie about how things are going?

Well, I think it’s a lot like when people ask you how you’re doing, and you say you’re doing fine, even when you’ve had a tough day. Sometimes it’s just not something you have the energy to fill people in on.

You should get over that though.

You should get over it for two reasons. First, when you share your problems and imperfections with people, you open yourself up to the possibility that someone else might be able to help you.

When you share what you’re going through with others, they may be able to help you by introducing you to people, sharing resources, or even just helping you see the problem in a new light.

That’s was one of the biggest benefits of doing office hours at Y Combinator. Even though the partners would often give us radically different advice, it sometimes helped us see things in a new way that we wouldn’t have been able to before.

Second, when you open yourself up and share your problems, vulnerabilities, and things that aren’t going well, you are humanizing yourself and creating an opportunity for others to connect with you.

That’s one of the paradoxes of leadership, you can be strong through weakness. Vulnerability can be inspiring.

Michelle Wetzler at Keen.io once wrote a great post about giving yourself permission to fail, in which she says something amazing:

To give yourself permission to fail, you have to untangle your ego from your work. Having your ego tied up in your work is a handicap. You can’t think strategically or take risks when you and your personal well-being are on the line.

I used to (and sometimes still do) romanticize Keen a little too much, thinking of it as my child, a part of myself. I’ve been working hard to untangle this. Not because I plan to care any less about Keen, but because I don’t want my ego & personal fears to get in its way. Keen and Michelle are two different things, or at the very least they are less overlapping than they used to be. If Keen is struggling, it need not mean Michelle is struggling. If Keen is taking a risk, it need not mean my happiness is on the line. It also means checking my ego and admitting (with some difficulty) that even if I fail completely at my job, Keen is going to be just fine. And, that if I fail completely at my job, that I will be just fine. It just means I tried something too difficult for me, or my assumptions were wrong. That’s ok too.

And this is incredibly true for almost every startup. Founders entangle their success with the success of their company. They assume that if people think their company isn’t doing well, that it means they’re not successful as co-founders. They continue thinking that until they go out of business.

The biggest danger is that by not talking about the things that are going wrong, I think founders are putting themselves in a mentally dangerous position. They’re alienating themselves from the very people around them who care about them and want to help them the most.

I’m reminded of the tragic story of Diaspora co-founder Ilya Zhitomirskiy who committed suicide at the age of twenty-two. Reports linked pressure related to the startup to his death. His mother said “I strongly believe that if Ilya did not start this project and stayed in school, he would be well and alive today.”

It’s shouldn’t be all that serious. People fail, and that should be alright.

So the next someone asks you how things are going, instead of saying the usual, “Everything is great,” try to take a moment and think about how things are actually going, and then share. You may find that people thank you for it. At the very least, you might thank yourself.

How I Learned To Understand Silicon Valley

If, like me, you are new to the world of tech startups, and are also a fan of the HBO show Silicon Valley, odds are pretty good you spend a part of your Sunday nights very confused.

If you haven’t been watching Silicon Valley, it’s a hilarious parody of life in the tech startup world, which follows the trials and tribulations of an incubator team turned startup (Pied Piper) as they navigate the highs and lows of the business.

Sometimes this show is so accurate, it isn’t even parody; it’s just real life.

The problem with Silicon Valley (and seriously, if you haven’t been watching it, just go now and watch it; I’ll wait) is that it’s so chock full of inside knowledge about the way tech startups work that from the outsider’s perspective, it can be a bit confusing. As one friend put it, sometimes this show is so accurate, it isn’t even parody; it’s just real life.

So for a long time I watched the show in the dark (the metaphorical dark; the one where no knowledge goes) and wondered what the heck half the dialogue even meant. Weirdly (or luckily), it was while writing for One Month’s Learning Library (and researching Valuations, Exits, Seed Fundraising, and why on earth people keep flocking to Delaware to incorporate their companies) that I was turned on to the subtle hilarity and tension at work in the show. So with that in mind, assuming you are watching (do it! There’s a reason creative procrastination is healthy!), let’s answer a few questions about the show using the learning library.

Luckily, it was while writing for One Month’s Learning Library that I was turned on to the subtle hilarity and tension at work in the show.

Why Does Anyone Fund Pied Piper When They Don’t Have a Company Yet? (Ep 1.1)

A lot of season one is devoted to Richard Hendricks, Pied Piper’s CEO, trying to figure out what exactly their company does. Pied Piper starts out as a music app for creatives, effectively a way to find out if you’re accidentally ripping off another artist (or “sampling” as Vanilla Ice would have it), but in the first episode Richard suddenly finds himself at the end of a bidding war with one person offering him seed money and another offering him money money.

But why on earth would anyone offer him money for a product that doesn’t exist yet?

You don’t need a big, flashy product to launch your startup. In fact, it’s fine if you’re even a little embarrassed by your product at first. What you need is a minimum viable product.

Basically, it all comes down to the concept of the MVP: the minimum viable product. If you remember from the “How to Launch an MVP in One Minute” post, you don’t need a big, flashy product to launch your startup. In fact, it’s fine if you’re even a little embarrassed by your product at first. What you need is a minimum viable product: something tiny that people will want to invest in.

In Pied Piper’s case, the MVP is a baller compression algorithm with an excellent Weissman Score that he pushed to GitHub (yay, Github!). That’s enough to entice a VC into funding.

I’m Sorry, Did He Say SCRUM? (Ep 1.5)

As the team at Pied Piper start building the platform of their web app, they run into an early problem with workflow: there is none. The problem is that they still think like individual programmers, so each member of the team is waiting for every other member to finish their work before they feel like they can start it.

Their business manager, Jared suggests turning to a SCRUM system.

It’s really not important to understand the ins and outs of a SCRUM system (which is fortunate because I understand neither the ins nor the outs, and the acronym is vaguely vulgar), what’s important is to understand how an agile workflow system works.

What is SCRUM? It’s really not important to understand the ins and outs of a SCRUM system (which is fortunate because I understand neither the ins nor the outs, and the acronym is vaguely vulgar), what’s important is to understand how an agile workflow system works.

Agile Workflow effectively means that rather than having each member of the company complete a task and then pass it on to the next person and next person and so on, now all of the company is working on tiny, iterative bits of the process. One person can be conceiving of a framework for information architecture while another is testing a part of the process. It works incrementally and iteratively toward a polished product.

How Do They Make Money? What Drives This Company? Why Didn’t They Just Take the Darn Buyout? What the Heck?! (Ep 1.1, 2.1, 2.3, 2.7)

The second season starts out with the Pied Piper team searching for funding yet again, which confused me more than maybe any episode. Why would Pied Piper need to secure funding again when they had so much interest at the end of last season? Couldn’t they write their own check?

Well, no. It’s good to think of it like this: season one is all about getting seed money and creating a strong MVP. Season two is about getting series A funding and about growth hacking the company.

It’s good to think of it like this: season one is all about getting seed money and creating a strong MVP. Season two is about getting series A funding and about growth hacking the company.

What helped me understand this was watching the video on the stages of startup funding. It’s helpful to remember that startups don’t get funded all in one go. They have to go through stages of funding and growth before seeking an exit strategy. The first stage is really just a way of generating the company’s MVP with no revenue stream. But that’s not enough money to get through.

So at the start of season two, Richard needs to find his series A funding, and this is where things get both weird and interesting. VC firms enter into a bidding war for shares in Pied Piper, each valuing the company differently. In this process of valuation, they’re essentially saying, “We offer you X amount of money for Y percentage of your company.” So as the percentages being taken go down, the value of the company goes up based on its equity.

It would make sense for Richard to take the most money he can and then run with it, right? But he doesn’t, and that baffled me, until I understood the principle of growth. We have heard time and time again that the most important thing to a startup is consistent growth.

From that perspective, it would make sense for Richard to take the most money he can and then run with it, right? But he doesn’t, and that baffled me, until I understood the principle of growth.

We have heard time and time again that the most important thing to a startup is consistent growth. When a VC invests in your company, they count on getting upwards of ten times that back later. So from Pied Piper’s perspective as a young company too early on in its years to think about exiting, they need to think realistically about their prospects for growth. If they can’t grow past their series A valuation, they’ll never make it to a series B, and that’ll be that for them (they probably know that 90% of all businesses end in bankruptcy).

This raises the question of why they don’t just sell the company while they’re up. That’s certainly an option for them. Twice, they’re offered a buyout. Aside from the fact that we need them to exist or there’s no show, it also makes sense for them to keep control of their company as long as possible to make sure its valuation grows as much as possible.

Eventually, they’ll need to sell their company or go public. Hopefully, that’s not for a few seasons.