In Entrepreneurial Ecosystem, Cofounders Find YOU!

My last couple of posts have been about finding technical cofounders, either at the start or over time. Many of you have chimed in with your own experiences and thoughts. And I’ve promised to talk about what it takes to find cofounders. Here goes.

The Ideal

You hear about it all the time. Three friends leave Facebook along with two friends from Google to start a new skunkworks project. It gets some traction, some revenue, some press, raises some money, gets huge and then sells out to Google or Disney or whoever. And then the process starts all over again.

This all sounds great, but outside observers often make a fatal mistake; we think, “Wow, that was a really great idea. If I had that idea, I could have done that.” Or even worse, “I totally had that idea. I would have done that but I couldn’t find anyone to help me past my prototype.”

What the external observer fails to account for is the power of pre-existing relationships. How do companies like this get started? At bars, parties, over lunch, and over time. Notice that the company was formed by “friends.” That’s really how it works. So, how to get started?

Making Friends

Many people, especially engineers, are not particularly extroverted. But at the end of the day, if all good entrepreneurial endeavors are born from relationships, it is necessary that you be a social creature. That means cultivating many personal relationships — and not just on Facebook or Twitter either. A good litmus test? If you know somebody well enough that they would consider inviting you to their house for a party or dinner, that’s a good indicator of a strong relationship. We’ll call these “strong ties.”

There may be countless other relationships which are not quite that far along, and you’ll need those too. These are your “weak ties” and will be the people who can help you find accountants, lawyers, customers, and vendors. Some of these relationships will ultimately evolve into “strong ties” as well. You need a lot of both.

So how do you go from being “just you” to having all of these relationships? One stupid thing you could do would be to move to Silicon Valley. In one move, you will manage to weaken your existing strong ties, blow up your weak ties, and force yourself to rebuild all of that from scratch. But too many people assume this is the only answer. (In fairness, there are a lot of great people in the Valley, and if you know people there already, it might help you move forward; but that’s a subject for another post.) But even there, you have to be a relentlessly social creature and meet anyone and everyone who might be potentially interested in what you’re doing.

When I talk about becoming “social” I am not talking about being some kind of socialite, bon vivant, or “party animal.” I think we all are frustrated with the constant barrage of networking events and the people who want to “be seen” at them. I’m as cantankerous and introverted as the next geek, yet I’ve made it my business to become extremely well socially connected — and not because it’s cool to be connected, but because I’ve sought out people in my area and around the world that care about the things I care about.

Getting Out There (in Engineered Contexts)

One way you can become more social is to go to events and meet people. Startup Digest (which I co-curate here in Baltimore) is a great way to find out what events are going on in your area that might be relevant to startups.

Many “businesspeople” feel out of place at “geek” events, and vice-versa. But if you are really serious about starting businesses, you need to get to know people of all stripes. Go to each event and tell people your story and even more importantly, ask people about theirs. What’s your story? “You’ve been doing X for Y years, and now you want to try to do Z.” Nothing more than that. People want to help you succeed.

As I mentioned, we all get frustrated with traditional networking events — stand around drinking a beer, talking to 10 people who find you odd, and pretty soon you’re checking the clock. So, instead of going to generic networking events, think about ways you can “engineer the context” of the event. Here are some:

  1. Events with a speaker plus networking are almost always better than events with none.
  2. If there’s no speaker, make sure there’s a focus or targeted community you want to understand better.
  3. Events with multiple speakers (like Ignite) are even better because they expose you to many points of view.
  4. Raise your hand, ask questions; share your expertise and passion publicly and let others find you.
  5. Be the speaker. Find a way to present to a community you care about.
  6. Be authentic. Don’t pass yourself as expert on something you’re not.
  7. Hold your own events, or sponsor others. Host a Tweetup, targeted to people you want to attract.
  8. Befriend thought leaders; ask how you can help with later events.

These are just a few ways you can go about building your network of potential cofounders. But these all pale in comparison to what I’m about to tell you.

Start Coworking Today

If you really want to start building your network of potential cofounders where you are, there is simply no substitute for spending time with a lot of them on a regular basis. Coworking is a great way to do that.

Coworking is a worldwide movement based on shared workspaces for creative professionals. They’re run by their respective communities with the goal of getting teleworkers out of the house and making friends. In Baltimore, I helped to form Beehive Baltimore in February 2009, and it’s grown to include over 100 professionals in its ecosystem. On any given day, there are between 10 and 20 professional programmers, designers, marketers, and entrepreneurs that participate in our community. That same story is repeating itself in every city in every country around the world.

There’s simply no substitute to being around people, sharing ideas and the occasional laugh with them, and getting a feel for what makes them tick. In a sense, you’re engineering the kind of workplace context that occurs when “friends from Facebook and Google” leave to form a startup.

You’re creating the same opportunity for after-work drinks and weekend interaction. You’re creating a shared context for the reinforcement of ideas and exploration of imagination. And it’s vitally important you do this with others.

Relationships First, Ideas Second

Ideation is a social exercise. But ideas are cheap. If you have an idea but haven’t yet strengthened it by sharing it with others, odds are it’s still a pretty weak idea. (And if you’re scared to share your idea with someone, gosh, well, I’ll get to you later.)

I keep a list of about 150 business ideas at any given time. My idea list over the years has included ones closely resembling Google Earth, e-Bay, Foursquare. These ideas, while great, were in many ways obvious and “in the air” at that time — what mattered is execution, and others beat me to it. And that’s OK. It just shows that execution is the only thing that matters.

Sharing ideas with others allows you to get buy-in from other potential cofounders. If you are able to get three or four of your coworking friends excited about an idea, and one of them suggests a tweak that makes it even better, chances are you have something pretty strong there. Run with it. Get that team to build it at night and on weekends. They very likely will, because they believe in the idea. (IndyHall Labs is a great example of this dynamic.)

Your Cofounders Are Your First Investors

If you can’t convince technical people to at least show interest in working with you on your idea, you are likely going to have a very hard time changing that later by waving money at them. At the end of the day, people want to work on stuff they believe in. Start from there.

Also, investors will be excited to look at a team of eager people who are already working together to attack an interesting problem — much more so than a lone entrepreneur who needs to “raise money” to “find programmers.”

Put Yourself Out There

In the end, entrepreneurship is not something you really control. You have an idea of where you want to head, but almost always you end up someplace else. That’s fine. And that’s the point. Entrepreneurship is something that happens to you.

And so, if you start today and get yourself out there, talking about ideas, asking people about theirs, developing weak ties and pushing your weak ties to become strong ties, you’ll get there. And people will start finding you. Because over time you’ll learn that some of your ideas resonate, some don’t. And you’ll pursue the ideas that resonate.

Resonance drives interest. Your cofounders will find you. If you build something awesome, customers will find you. If customers find you, investment will find you. A large percentage of VC deals happen not because someone pitches them, but because VC’s find a hot growing business that’s attracting attention.

It’s been said that advertising is a tax for being boring. And there’s probably an analog in startup-land. Don’t be boring. Be remarkable. Get out there and meet the people you’re going to build your future with. That’s how this process works, and it can happen anywhere in the world if you employ the right approaches and understand that it’s relationships that drive the startup engine more than anything else.

Avoiding The Startup Stall-Spin

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
  • 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!

Two Thought Experiments for Startups

I’ve been meditating on these two ideas, and they resonate for me. See what you think of them.

The Building

Imagine taking the roof off of your building and shaking out all of the people inside.

Now, rearrange the people into an optimal value-producing configuration.

I would bet that you could find a handful of combinations that unlock $1 billion in value; I’d bet you could find a few that unlock $10+ million in value; and I’d bet that 50% of the available combinations would unlock more value than the existing configuration.

What are the barriers that keep us from unlocking maximum value in our workforce? Walls, lack of connections, non-optimal application of resources, and addiction to personal cash-flow spring to mind.

Why do we perpetuate these non-optimal configurations of resources? What are you doing to unlock the potential in your building and in your broader community?

Keep the Same Team?

The more exposure I have to the world of startup investing (and to startups themselves) the more convinced I am that team is everything. At first I was more apt to evaluate a startup by its idea and its market metrics. But I’ve come to believe that all bets are bets on people.

In support of this strategy, I’ve started to look for heuristics that indicate that a particular team is worth betting on. And one question I am asking founders is this: If you do secure funding, would you keep the same people or would you hire new team members?

The answer can be revealing. If they indicate that they will keep the same team members, it’s worth asking why. And understanding the why behind the why. If there are good reasons why the team is well-cast, then this is likely a bankable team. Good reasons include expertise and real dedication. Bad reasons may include “knew them at my last job,” “he built it under contract,” or “found him at a meetup.”

There’s no hard and fast rule here, but the key thing to remember is that money changes everything. But if it changes too much of your team make-up, it’s probably not a bankable configuration to begin with.

How are you rearranging the world around you to produce optimal, bankable teams? To me, this is the essence of entrepreneurship. What do you think?

Team is Everything

For a software startup, having a good idea is important, but a good team is essential.

Good ideas are easy to find; I keep a list of interesting business and tech ideas that I constantly update and probably have a couple hundred at the ready.

What’s hard to find, and is much more important for success, is a good team. What are the ingredients of a good team?

Go All In: Look for “Crazy Eyes”

It’s tough to go it alone. While you might succeed nurturing an idea as a side project, your chances of success go up dramatically when you band together with people who complement your skills and are willing to do what it takes to get something to market as quickly as possible.

I call it “crazy eyes.” You need to be able to look somebody else in the eyes and catch that wild-eyed glint of insane dedication – and truly commit to each other as collaborators. If you can’t find people to take risks with, you probably won’t be able to bring your idea to fruition.

Proper Casting

Putting together a good team is all about having the right people in the right roles. First, that means choosing the right people to collaborate with. Second, it means knowing and being honest about the strengths and weaknesses of each individual on your team.

All too often, I have seen people call themselves CEO that really ought to be “Chief Software Architect.” Or people in operational roles who clearly can’t stand being around other people. While it’s tempting to label yourself and your cofounder as COO and CEO, you need to be honest (and educated) about whether you are really right for these positions.

When you go to talk to potential investors, they will sniff out this kind of bad casting right away, and they will just assume you have bad judgment. If they think you have bad judgment about a simple thing like properly casting yourself, then they think you will have bad judgment about everything else; they certainly won’t trust you with investment funds.

Proper casting is a sign of honesty, clarity, and good judgment. It’s key to connecting with investors. Even if you don’t think you need investors, prospective partners and employees pick up on your casting judgment also. Do it right.

A Good Team Always Survives

What may seem like a great idea may turn out to be a bad one, or one that needs to be changed to be successful. Maybe it turns out that kids don’t want to play with horses in your 3D virtual world. Maybe instead, 50 year old men want to play war there. A good team figures that out and capitalizes on it. A bad team spends ever greater sums of money trying to embellish the pretty horses and advertise in kids magazines.

Even in the worst case, a good team that knows its strengths and weaknesses will know how to salvage assets and return value to investors (license the tech to others, etc). A bad team gets mired up in personality conflicts, personal crises, falls apart and becomes toxic to everyone.

This is why investors will almost always bet on a good team with an unproven idea over a sure-fire idea and a so-so team. Good teams deliver returns no matter what.

Good Teams Make Markets

I’ve seen lots of ideas that sound impossible on the surface turned into great businesses through the skills, connections, and experience of their teams. Want to sell WiFi in airports? Sounds impossible, but not if your COO spent 10 years as the director of purchasing for HMS Host. Want to sell an avionics upgrade to the Air Force? Sounds tough, but not if your CEO spent 10 years on contracts at Lockheed.

What a team brings to an idea is more important than the idea. Good ideas are a dime-a-dozen. Finding the people to make a good idea work is incredibly difficult.

Stay Calm and Open to Change

It’s easy for partner relationships to become emotional and strained. Often, partnerships form as a handshake and a promise of 50-50 equity. Operating agreements and buy-sell arrangements often come later, breed resentment, and then become set in stone as people invest increasing amounts of sweat equity.

Don’t let relationships get in the way of execution. While you may be passionate and emotional about your idea, you should be calm and cool about your relationship with your team members. Remember, it’s all about proper casting. Do whatever it takes to put people into the right roles and immediately address any questions regarding equity, hurt feelings, and the like.

There’s no better way to turn a good team bad than to let equity and casting issues fester.

Know a Lot of People

The best way to insure proper casting is to choose the right teammates to begin with. The best way to do that is to know lots of people with diverse skills. This will keep you from going into business with your college roommate and instead partner with people who have the skills that round out your team.

Just Say No

“No” is the most powerful word in business. The pressure to be “moving forward” in our society is intense where to buy propecia. But if team is so important and you also believe in your idea, it doesn’t make sense to move forward with the wrong team or the wrong idea. Just say “no.” Instead, wait it out and find the right team, or at least part of the right team before moving forward. Or change your idea.

Every day I see smart entrepreneurs, under pressure to “move forward,” squandering their time by pursuing an idea with a “halfway there” team. I don’t mean to belittle any entrepreneur’s efforts, and I certainly wouldn’t bet against them. But there’s a difference between doing something just to be doing it (and not really believing in it) and going all-in with people who have what it takes to succeed.

And yes, many entrepreneurs don’t really believe in what they are doing: if they did, they’d quit their day jobs. Building up and then tearing down a half-baked startup takes time as well as real and emotional capital. Why waste all that? Life is short. Find the right teammates (if you need anyone beyond yourself to begin) and then go all in. Your support network will rally around you.

What Investors Look For

You may think investors read your idea first. They don’t. They look at where you live. They look at who your attorney is. They look at your background. They look at your team. Smart investors know that your network says more about you than anything else.

Once they’ve figured out “who you are,” then they consider your idea and determine if you have any hope in hell of delivering what you’re promising. Investors know ideas are cheap; they see them all the time, and usually have many ideas of their own. What they are looking for is why they should bet on you to deliver on your particular idea. And frankly, they are looking to see if you are delusional!

If you are realistic about your chances, have spent time building a good team, and have cast your team members in appropriate roles, most investors will look at any plausible idea favorably. It doesn’t hurt if you share some common acquaintances, either; shared social networks and shared values help ensure long term commitment to the investor and the community. This is why angels almost always invest close to home.

Local Is Best

It’s both tempting and possible to put together a “virtual” company with folks spread around the world. However, investors see this as a sign of team weakness. It means video conferencing instead of face-to-face meetings. It means slower response times. It means travel costs and weaker relationships. In the end, it lowers your chances of success and is just a pain in the ass.

In the context of larger established companies, having some remote workers can make lots of sense. But if you’re trying to launch a startup, do it with the people in your own backyard. Can’t find the right people? Keep digging; see below.

Build Your Network

The single best thing you can do to as an early stage startup is to build up your network of potential team members. And don’t just collect business cards at networking events. Build real relationships. Figure out what makes people tick. Spend time in environments where you take risks with people and try out new things. They will become your casting pool, now and in the future.

One of the best ways to do that is to get involved in your local tech community. Here in Baltimore, we have Beehive Baltimore, which lets freelancers and entrepreneurs spend time working together. From Beehive, TEDxMidAtlantic was born. That event brought over 100 amazing entrepreneurial thinkers together in organizing a 500 person, very complex event. Go to events like Ignite Baltimore; listen to the people around you and think about how you can collaborate with them. Grab lunch and beer with people!

These are just a few observations I have gleaned from my work with Baltimore Angels and with starting and observing many companies over the last 23 years. I welcome your comments!