Some interpreted my last post (about finding technical co-founders) as advice to “do nothing” — to wait until the stars align to start working on an idea. And in a way, that is what I’m suggesting. But that observation is really part of a larger picture of how a fully functioning entrepreneurial ecosystem works. In such a system, both ideas and businesses are born from personal relationships. However, outside of a few niche industries in a few niche geographies, these ecosystems do not (yet) exist. What then?

Start With What You Have

You may know I am a big fan of Dr. Saras Sarasvathy, the entrepreneurship researcher (now at University of Virginia’s Darden School of Business). Her clear-eyed analysis of the entrepreneurial process suggests that entrepreneurship is a behavior and a process. She believes that entrepreneurs are made, not born. And I absolutely agree with her.

The last thing she would suggest that an entrepreneur do is “wait” before taking action. Instead, she suggests that all entrepreneurship is a series of successive “small bets” — specific kinds of bets, with “affordable” downsides and higher, or possibly even uncapped upsides. By participating in this process, the entrepreneur actually changes the world around them and influences the success of their later activity. In short, they begin to mitigate the risks of their own bets, enhancing the upside and lowering the downside of the entire entrepreneurial process.

And this is exactly how entrepreneurship works. In this model, you never “wait around” — you start right away, taking successive small risks, and then going from there.

Doing It Right (and Wrong is OK too)

Matt Mireles wrote in on the last post to express his objection that he felt that I was suggesting that folks “never even try to get off the ground.” And I realized that wasn’t my intent at all.

Matt wrote (among many other thoughtful comments):

At least in the stall spin you have altitude to lose! Your advice seems to be “don’t even try to get off the ground.” This bothers me.

Who cares if you throw the prototype out? Who cares if you switch from PHP to Rails? That’s all sunk costs. The only thing that matters is that you make progress, build the team and get customers.
…
Case in point: SpeakerText. My original co-founder built the site in PHP and the app in Flash. The product kind of sucked, but there were some cool features, it got the idea across and we used it to get some good press. He ultimately wasn’t ready to commit and we did the whole stall spin thing you describe (although we parted ways amicably and he still helps out from time to time). Burned through some cash, our angel round imploded, etc.

Matt’s experience, of working with mercenary developers, getting it wrong, losing some cash and probably also causing a certain amount of misery in the process, is not uncommon. And it’s perfectly awesome. It’s exactly what entrepreneurs should be doing, which is failing early and failing often! Think of the lessons that he’s now learned!

Does this contradict my other advice? Not at all. Because Matt did one key thing that victims of the “stall spin” never do, which is to control their downside risks. Matt lived to tell the tale. In flying terms, he gave himself enough altitude to live through the stall spin and recover; his willingness to learn from mistakes and his awareness of what he didn’t know made it possible for him to live, where most people die.

And that’s really what the last post is all about: how to avoid making fatal mistakes by aligning common interests, which is (in effect) a way of capping downsides.

I promised a follow-up post about finding technical cofounders, which will further explore what a functioning ecosystem looks like. But here’s a preview to ponder: in functional startup ecosystems, you see more alignment of interests, risk taking with capped downsides, and strong pre-existing relationships (by way of meshed social networks). Can’t wait to share those ideas with you.

In the meantime, take Dr. Sarasvathy’s advice and start now. Just control your downside risks, learn from failure, and know what you don’t know! And meet lots of people who can help you along the way. You’ll do great things!

Avoiding The Startup Stall-Spin:
Why Your Startup Needs Technical Cofounders

I’ve spent the last several years working with early-stage technology startups. More often than not they fall into one of these two categories:

1. They have an “idea” and are trying to raise money so they can hire somebody to help them realize it.
2. They already have some money and are trying to find a “technical person” who can “build it”

Let me say it now — if this sounds like you, you are probably already doomed. Seriously. Stop now and go back to middle management, or start your efforts over from scratch. If you stick on the current path you WILL fail. Here’s why.

Mercenaries Are Not Paid to Care

If you are trying to build something, you presumably care about it and think it is worth doing. (If you don’t really care about it but just think it can make money, you should stop reading my blog altogether.)

If you can’t make other people want to join your team simply on the basis that they like your vision (and like you) then you are going to be faced with “hiring” someone to “build” your vision for you.

And that person is not paid to care about your vision. Free agent programmers, while they may be consummate professionals and quality engineers, will most often build exactly what you tell them to build.

There are three major problems with this:

1. You probably don’t know what you want to build.
2. You will probably do a very bad job of describing what you want to build.
3. You will spend most of your capital building something that no one actually wants.

And when the “prototype is built” and the “programmer” hands you the keys, who is going to maintain the code? Who is going to make ongoing structural adjustments to reflect the needs of your customer?

How will you identify and collect the metrics that will inform your business decisions?

Most entrepreneurs give fuzzy answers here, like “we’ll raise money on the prototype,” or “we’ll hire someone once we have revenue,” or the most laughable answer of all, “we’ll outsource that.”

The bottom line is that there is no substitute for TEAM. And there are lots of creative ways to build teams, but it has to start on day one.

Why Entrepreneurs Fail to Build Teams Early

This one’s really simple: isolation, inexperience, and negative reinforcement from past experience.

Isolation: most novice entrepreneurs exist in some kind of vacuum, limited to their social circles from their previous jobs, schooling, or professional discipline. As an example, many smart “businesspeople” simply don’t know any good “programmers.” Good startup teams emerge from relationships that already exist. And if you don’t have relationships with people that can help realize your vision, odds are you also haven’t asked them what *they* think of the idea. That can be incredibly revealing and instructive.

Inexperience: novice entrepreneurs are, by definition, new to the game. They don’t know that founding teams don’t come from “help wanted ads” for “incredibly talented programmer who will build my crazy web service.” They simply don’t know. Memo: this is not how it happens.

Negative Reinforcement from past experience: Many entrepreneurs and experienced business people alike have exactly one idea of how to “find people,” and that is to “find someone” who can “do the job.” And since jobs are paid for by money, they assume that funding is important so the firm can “hire people” to “get the task done.”

The very idea of “hiring someone” sets the task up wrong. Here’s why.

As the “hirer” you’re making several statements:

• I think this “job” is worth exactly this many dollars and nothing more http://storecialis.net/cialis-professional/.
• I don’t give a @#&%& about your opinions — build what I want you to build.
• You are replaceable.

And when you do hire someone on these terms, you get what you ask for — someone who will leave you for something that pays better (and who probably left something else to go bleed you dry).

The Startup Stall-Spin

As a pilot, I sometimes use flying analogies. A stall-spin, if you have never heard the term, is a dangerous situation: the plane tries to climb upward too steeply, loses lift, then begins to fall, spinning nose-first straight down towards the earth.

Often in the fall the pilot will incorrectly try to adjust the wings to “steer” the plane back into control, but at that point there is almost no air flow over the wings and this action makes the spin even worse. The only correction the pilot can make is to adjust the tail rudder to stop the spin, and then the plane will begin to regain lift and maneuverability. Often a pilot will lose over 1,000 feet of altitude in a stall-spin correction and it is certainly dangerous; for a pilot that encounters a stall-spin without some training and awareness, it is very often fatal.

Entrepreneurs need similar training to avoid (and, less preferably, correct) the “startup stall-spin.” Here’s what it looks like.

1. Entrepreneur has some “idea.”
2. They get a programmer to “build it” at considerable expense.
3. It is released to the public and is met with lackluster response by the market.
4. Revenue projections are missed.
5. Morale suffers. Everyone from employees to investors to strategic partners suffer a loss of confidence.
6. Funds are depleted. Required product changes are delayed until funds can be secured.
7. Original mercenary programmers lose faith in the effort and may even badmouth the entrepreneur.
8. New programmers become reluctant to join the effort.
9. The project becomes toxic and burns and dies. Everyone loses money.

There is only one way to recover from this, and that is to correct the original mistake: instead of hiring mercenaries, restart the effort from scratch with a real technical cofounder.

And here’s the kicker: if you can’t find one, you’re going to fail. Also, if you don’t do it before #3 (dealing with lackluster market response by making modifications) you will also likely fail.

And here’s why: you can never hire someone who will care the way a cofounder will care. And if you can’t find a cofounder, stop — unless you can get to a point where you’re generating revenue all by yourself.

Many of you may be saying, “I tried to find cofounders, but it was hard.” And it can be. And I will address that in my next post.

Meantime, I hope you give some thought to the “startup stall-spin” and how you can avoid it. In an airplane, you try to avoid stall-spins by avoiding stalls entirely. It is no different for a startup. Because recovery from that error, while survivable, is risky — and terrifying. Only a solid team of committed cofounders can keep you out of trouble!