The Rules for Entrepreneurs

Venture Files founder and former curator, Steven Fisher, wrote a series last year that remains one of the best of its time. Even though he has moved on and is working with Network Solutions, I think it’s as important now (if not more so) than it was last year at this time. This is a consolidated (and updated) version of that series.

Pay Yourself First

Over the last 9 years and two startups I have learned many things and screwed up royally in some cases. This series is about providing you best practices of lessons learned and avoiding the mistakes I have already made.

In the past, I have had good years and bad years. When you have employees, they expect to be paid and when you mess with payroll (and payroll taxes, but that is a post for another time) you create such a negative culture that nothing will get done.

With that said, when you are starting your business regardless if it is a service or product company, you will have startup costs and probably forgo paying yourself for 6-12 months to keep growing the business. That is fine and to be expected. What you should not do (and what I did) is keep adding staff and sacrifice your own salary in the name of growth. If you keep going like that and have a bad quarter you will have nothing saved for a rainy day and if the business fails you will probably be in immense debt and got nothing out of the business.

Granted, the balance between growth and cash flow is a tenuous one but it is one thing you should never defer to someone else in beginning. Plus, there is a difference between creating a lifestyle business and an enterprise. A lifestyle business is really making enough money for yourself and having some contractors or 1-2 people that gives you a good salary but is more about freedom. An enterprise is a business that scales and gets big over time but you will be working intense amounts in the beginning but will need to hire those smarter than you with the intention that you are looking for an exit and will have time for freedom when you cash out.

So when you are growing the business you should work the first 6-12 months paying off the initial capital expenses and getting about 6 months of cashflow for yourself before you hire anyone else. Once you have that done, start paying yourself something, even if it is small and will ramp up over six months, pay yourself first. This will get you in the habit of being committed to making the business pay for itself and you so you are not worrying about living month to month and let you find some resources to help you deliver while you continue to sell and grow the business.

Once you are looking at hiring someone use these two rules as a starting basis:

- Have six months of payroll for that person in the bank on top of your salary

- Have 90 days of projects or sales committed for that person to deliver so they not only have something to do but are earning their keep.

You may have to be conservative at first in your growth but in the end you will scale better and create a business that is focused on delivery and customer service without putting you and your employees on a cash flow roller coaster.

Rules for Entrepreneurs: You Don't Need Swanky Office Space

When I started my first company, AppSolve, in 1999 it was the height of the Dot-Com boom and companies were raising massive amounts of money and staffing quickly without even making a dime yet and most not knowing how fast or whenever they would be able to. One symbol of this era was paying for expensive swanky office space that was most of the time half-empty waiting for all the other people they were going to hire when they finished their next round of insane amounts of funding.

As we all know, the boom busted hard and it left a lot of space available for companies to sub-lease or established companies to take over really cheap. As the economy got better, not like it sucks now, most people took a different look at office space but still some never learned.

My message to you who are growing companies or raw startups, you don’t need swanky office space and you probably never will. So here are some pointers in approaching your search for office space and some alternatives to serve your growing business.

Pointer #1 – You are a startup and most people will understand that.

As you grow your business people that are looking to join your company or sign a contract with you know you are startup. They will understand that and if they are potential employees they are more concerned with the fact that they will get paid on time and their stock options vest. Clients are buying from you because they believe you can deliver and what your office space looks like has nothing to do with it. A perfect example are law offices. Swanky offices and high billable rates but they do the same work that most small practices can do and probably they do it better for less cost.

Pointer #2 – You can work out of the house – the good and the ugly

When I started my first business we worked out of the house for the first 18 months. Granted, I didn’t have a wife or kids and I had a great space in a finished basement that worked well. The problem I ran into was since it was my house I was the only one with the key and had to be there to let everyone in. When my travel schedule got hectic it became ugly. This is good when you are working for yourself and have no desire to grow to a larger company. Plus, if you have really nice stuff and people you don’t exact trust, stuff can disappear. I had an intern steal most of my DVD’s and some CD’s that I didn’t realize until after they left the company had taken them.

If you have a place with a separate entrance you could make this work but it would be good to have an admin person hired that has a key to this part of the house so you can at least travel and not worry about people coming and going. Lastly, don’t forget about zoning laws. Some people in the neighborhood are just busy bodies and if lots of cars show up every day in front of your house they might call someone and you get hit with some type of fine and you will have to scramble fast to find real office space.

Pointer #3 – There is always Starbucks

If you continue to work out of the house it can become very isolating. Plus, there are many distractions (e.g. TV, Xbox, refrigerator, sofa) that can make focusing on work very hard. I found that when I don’t have to go into the office (which is far and costs me alot on gas) I work out of Starbucks where there are many regulars who have become my virtual offices mates. I also use it as a meeting place that people who have to live in an office love to escape to for a meeting. Plus, the coffee is ok and the wifi is great.

Pointer #4 – But I have a business where clients come in all the time….

Some of you have business where clients visit often or you have to present to potential customers. If you aren’t ready for formal office or your office doesn’t have a conference room, partner with someone that has nice conference space. Network with fellow entrepreneurs who you partner with and have nice conference space and see if you can use it for meetings. You can also leverage “Executive Suite” office spaces that have virtual packages that I describe next.

Pointer #5 – The beauty of “Executive Suite” offices

If you are meeting with clients alot or need to get your small team out of the house but are not ready or staffed high enough to justify a dedicated office space, these “Executive Suite” offices are great. They offer virtual plans that you can use a certain amount of hours to get an office to work in or use their beautiful conference space for client meetings. Plus they offer voice services to give you a centralized phone line with a real person answering the phone and access to other concierge services that can help you so you don’t have to pay for an assistant.

Pointer #6 – Have you thought of co-working?

If you are on your own and plan to stay that way and the “Executive Suite” is a little too expensive, there is an emerging model that blends the “Executive Suite” with the “Work at Home” model. It is called Co-Working and it is essentially renting your own cubical on a part-time, full-time or dedicated basis. It is an open space that blends together all types of consultants, freelancers, artists into one space. It usually has a conference room and a fun room along with a shared kitchen. Examples of this are Independents Hall in Philly and LaunchPad in Austin, TX. For a complete list of coworking spaces, check out the CoWorking Wiki.

Pointer #7 – Sublease, sublease, sublease

When you are ready for office space of your own, you might want to consider sub-leasing space first. We found this effective because we knew we were growing fast and didn’t want to commit to anything long term. There are always companies that have leased too much space than they need. Talk to local real estate agents or work your local chamber to find companies that are looking for companies they can sublease to quickly. This will buy you enough time to get to a point where you stabilize on your company size and will be ready for space of your own.

Pointer #8 – Getting a better space doesn’t really change anything, except how much you pay every month

As you prepare for getting your first dedicated office space, remember this simple thing: Better space doesn’t change anything, except how much you pay every month. If you are prepared to go this route and can do it to serve your ego, go for it. But don’t come back to me when you have to cut costs and are staring at that massive lease bill every month.

Pointer #9 – So what should I not have?

Here are three quick “never haves” from my past experience:

Open Work Spaces

When I first saw those dot-come spaces that were all open I thought they were really cool. Then I had one for our office and all I could think of is “everybody shut up!”. It was very noisy and you couldn’t have any kind of private conversation. You usually had to walk out of the room on your cell to talk to someone. The “ad-hoc” conferences became distracting for people that were not involved and need to get real work done. Don’t do this. You will regret it.

Huge Lobby Areas

This is just a waste of money. Most startups leave the receptionist as the last job hire so the front area is usually empty. Keep it small and simple. And no expensive furniture that no one sits on while they are waiting for someone.

Massive offices for executives

Yeah, yeah, yeah. You must be thinking, I am the master of my company I should have the biggest office so everyone knows who the CEO is. Trust me, they know who signs their checks so they know who the CEO is. You probably hired them yourself. Big offices just piss the rest of the staff off because it communicates that you deserve better than the rest of your staff when you are busting your ass as much as they are but still they come to resent you. Resist the massive office, you will have more space to put valuable staff in its place.

Pointer #10 – So what do I really need to have?

Here are three quick “must haves” from my past experience:

A big break room with free stuff

Tiny little crappy kitchen says to everyone that they should eat at their desk and never talk to each other. Smart startups put free stuff in their fridge (e.g. sodas, beer, snacks) and have good water machines along with great coffee machines. This keeps people fed when they are working late nights or want to work through lunch. You might also be surprised that buying lunch once a week can really keep morale up.

A “fun room”

Of course you should have big break room, but with many startups you are probably hiring a younger, hipper crowd. What better way to create real camaraderie than to have a plasma with a Wii or Xbox and have lunch or Happy Hour tournaments of Guitar Hero or Halo. People have fun and it helps give them an overall perception that going to work can actually be an enjoyable thing.

Great chairs, crappy tables and large multi-monitors for your people

I heard this from Jason Calcanis but he must have gotten this from me. People don’t need fancy desks, heck they really need a table to work from. The chair is way more important. People are sitting on their butts for 8-12 hours a day. Great chairs like Aerons are amazing and keep people from having to go to the chiropractor and be out of work and ultimately raise your health care costs

The other part of this great work environment is providing large multiple monitors because it has been proven that people see at least a 30% productivity improvement with two monitors. Go with two 24″ monitors so they can multi-task maximize the effectiveness for your company. Plus, if you have video game LAN parties after work, HALO looks amazing across two monitors. I am just saying….

So when is the time to get the swanky space?

Mostly, never. Spend it on getting good people.

What are your office space horror/humor stories?

So what are your horror or humerous stories about looking for office space?
Ever worked at one of those place that spent too much money on being self-important but not enough money on hiring the resources needed to grow the business?

Please share…we all want to know.

Valleyboys: It's All About the Money

Late last night I was finishing up a presentation for a class I’m taking when Jeremiah Owyang from Forrester made a statement on Twitter which made me cringe. The statement, though profound to someone living in the heart of Silicon Valley, is completely absent any reason to the observer outside of the Valley. Keep in mind the Parable of the Three Bloggers as I quote him.

Quote:

We work really hard in Silicon Valley, why? It’s not the money (only a few strike it ‘rich’) I think it’s the passion for creating new

Someone should remind Jeremiah of the 140 character limit of Twitter. ;)

I take a lot of exception to this statement because it is exceptionally wrong. Not only exceptionally wrong, but naive.

First of all, as an insider it’s easy to say everyone is just working to create and innovate. While that’s true to a certain extent, it was much more true two years ago. As the outsider to the Valley that I am, I’d say the Valley is one of four North American hotspots for money flow – Boston, New York, Canada (Toronto) and the Valley.

That places these four locations on the map as one of the four places every entrepreneur in North America wants to be. The reason why DEMO and TechCrunch 40 were so successful is because entrepreneurs want money!

Yes, they need money. This is true. But the drive for more money is beyond what it was when the interactive web was in its infancy and companies really were sprouting up because people wanted to work passionately on a project. They discovered some idea and the technology had matured enough that the idea could be pursued.

Today, we are talking about San Francisco-based Automattic valuating at numbers well in excess of $200M, Palo Alto-based Facebook (along with some fuzzy math) weighing in at some $15B. GigaOmniMedia, the parent company of GigaOm and the rest of Om Malik’s empire getting $1M+ for hardware, or something…

Everyday, new companies are being funded and it’s mostly in the Valley.

I love the Valley. I love the entrepreneurs in the Valley. I wish I was there living but no job has taken me there yet. But it’s a very introspective and naive thought to believe that the Valley is full of people who just are passionate. Yes, passionate people make the best companies. That I will not argue with. I think there is more passion to get the big exit than to build a solid product.

I could be wrong. Feel free to correct me. ;-)