How to save money running your startup

money hundiesYears ago I wrote a blog post on how to save money running your startup, and it was one of the most popular things I’ve ever written.

I thought I would take a second stab at this — without reading my original piece from 7 years ago — as an experiment in how much has changed.

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  1. Outsource your HR/payroll to a company like Zenefits & ZenPayroll. Previously, I used TriNet and other PEOs, but those startups charged a whopping $100+ per month per employee. That’s like $1,400 per year per person. If you have 10 folks that’s $14,000 per year and it’s crazy. These new services charge fixed fees, not these absurd monthly fees.
  2. Keep computers cheap by offering folks $500-1k credit toward the computer of their choice — that they own — provided they stay at the company for two years. So, instead of buying everyone $2,500 MacBook Pros (absurdly expensive), just give folks $500 to $1,000 toward buying one they own, if they want. Folks like owning their own gear and it’s free money for them.
  3. Don’t sign a lease until you are at over 20 employees. $500-600 per desk coworking spaces are so much better overall because you have no hidden costs of buildout, buying desks, security, coffee, and cleaning. When you put all those costs together it makes ZERO sense to waste three months trying to find a space and negotiate with these ass@#@% landlords (and they are complete f@#$%$%ing ass@#$#@s more than half the time).
  4. Negotiate flat rate and deferred fees with your attorney. The great firms and attorneys invest in startups and do this for me and others all the time (WSGR and Scott Walker are two long-term partners of mine who control costs — especially in those early days).
  5. Buy a cheap domain and “fake it ‘til you make it.” I know folks are going to say, “Aren’t you the Inside.com, Mahalo.com, and 20.com guy who buys expensive domains?!” Well, I bought those domains for $60k, $14k, and $70k — I got sick deals on them. I would not have bought 20.com for the $1.2m I recently got offered for it, but I would have paid $1m for Inside.com, actually. Instead, get a domain name like “getinside.com” or “insideapp.com” or “inside.co” — or something like that — until you can afford the actual .com (if ever!). Times have changed.
  6. Hire part-time and contract designers for cash and stock. I’ve seen a bunch of designers — high-end ones — take $5,000 in cash and $15,000 in stock (at your next valuation) for their work. Great designers pick projects based on their passion, not the paycheck — and the savvy ones understand the value of stock options!
  7. Hire part-time folks where you can, but get them for what their full-time salary would be. I see folks come to me all the time and say, “We’re going to pay these consultants $200 an hour for 10 hours per week.” I’m like, “How much would they charge as an employee?” And they say “$100,000 per year” — to which I say, “Well why don’t we pay them $50?” The answer? “They’re consultants!” Well, if you talk it through with the consultant you’ll find that s/he plays ball if your project is cool — and you are too! Just say “Hey, I don’t want to put you out, but can you support us now and grow with us and take $50 an hour so we can see if this company is even viable? If it is, we might be able to hire you full time!”
  8. Do not hire a PR firm. If you need press then figure out who the top five journalists are in your space and send them a personal email: “Hey Jason, I loved your story about ‘saving money on a startup.’ Our company has an amazing solution to saving money on cloud computing. I’ve attached our one-pager and I’d love to tell you more. Best, Jane Doe.” The CEO-to-targeted-journalist approach works really well.
  9. Do not spend money on desks, chairs, and anything that doesn’t have to do with the product until you have to.
  10. You can hire folks at rate X, but tell them that you can only pay them 80% of X for the first six months or until you raise your A round. Folks can feel free to take this offer or not. If you are at a startup you shouldn’t be cash-driven anyway, so challenging the cash assumption is fine (you will lose this battle sometimes, of course; especially when you try and hire a Yahoo exec with three kids in private school and who goes to Hawaii for three weeks over Christmas — but you probably don’t want a $200-300k Yahoo exec at your startup anyway!).
  11. Ask your early clients to pay you one year in advance for your work. Many will say yes! Heck, if one in five says yes, that’s amazing! The way you close this deal is by saying, “If you pay us one year in advance, we will be extra attentive to your firm and do a lot of custom training and support for your team as a thank you!”
  12. Get Rackspace, AWS, and Google Cloud to give you free server space for a year or two. They all have programs like this, and if you get to know the reps at those places they can get you even more.
  13. Keep your meetings to coffees, do not do drinks, dinners, or lunches — unless they are clients who have spent money with you. Those take a lot of time and cost 20-30x more to do!
  14. Use “drip campaigns” (low-cost client acquisition) and content marketing to make a name for your company. I need to detail those in their own posts — someone remind me.

That’s all I got … but do share what ideas you have for saving money in the comments!

best @jason

PS – 18 days until LAUNCH festival! Be there!

 

 

How to manage running out of cash / doing a down round

thelma and louise
One of the most brutal things you’re going to have to do at some point in your career as a founder is deal with running out of money.

It happens to everyone if they’re in the game long enough — and boy does it suck. I saw the world’s greatest living entrepreneur run out of money, in fact. It happens, it sucks.

Goal: In this piece I’m going to explain to you how to save your business if you run out of money.

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Now, the worst part about running out of money is that you lose all leverage with your current and future investors. Paradoxically, when you have a ton of money in the bank, and your business is doing reasonably well, investors will chase you down the street and try and throw bags of money into the back seat of your convertible!

The reason folks hate investing in a startup with no money in the bank is because they fear they will be “bad money after good.” Translation: they will feel that if they give $500,000 to a business that has just burned $2m — and that currently burns $100k per month — all they are doing is pushing the inevitable flame-out five months down the road.

And guess what, they’re probably right!

Our jobs as founders is to “reboot” the opportunity by re-establishing credibility and re-telling the story.

Let’s say you are a delivery service like SpoonRocket or Sprig, called Acme.

You have been heads down and thinking you have six months to raise money because you have $600k in the bank and are burning $100k per month. Suddenly you realize that you spent $100,000 more than you thought you did last month because of a trademark lawsuit and a settlement with your former CTO, who you fired with three months of salary.

Oh yeah, you missed your sales target by $75,000 per month for the 4th quarter, so you were down another $225k for a total of $325k in unexpected loss.

You then spent two months trying to clean this up enough to present to your investors — and now you have three weeks of cash left.

F@#$k!

This happens all the time … in fact it’s happened to a couple of startups I’ve invested in.

Here is a toolkit of all the things you can — and probably will — have to do.

Step One: Ask Existing Investors For a Bridge

Go to your investors and explain in detail how you messed up and ask for a six-month bridge at the last valuation. If this works, well, you have awesome investors who believe in you and the business. Congrats, you’re done!

Continue reading How to manage running out of cash / doing a down round

Oh no, Calacanis is mansplaining again!

Diversity in technology is a hot button issue I’ve been told to stop talking about — mainly from a small contingent of radical people who say that “cishet white males” have nothing to contribute to the dialogue and that they should “SHUT UP AND LISTEN!!!!!!”

It is possible, obviously, for cishet white males to *actively* listen and help solve the diversity problems in ways other than “shutting up.” Crazy, right?

In fact, I’ve been talking about the issue constantly on my podcast because my producer and I have been very focused on having groups who are underrepresented in technology on the program more often.

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No one person can solve the problem, but I do think that each of us should be part of the dialogue, both listening and speaking, but most of all, taking action!

I’m going to step onto a huge landmine by writing this post I’m certain, but I’m not going to let my life and my writing be dictated by “PEOPLE WHO WRITE IN ALL CAPS AND YELL AT ME FOR BEING A WHITE MALE WHO HAS SUCCEEDED DUE TO THE WHITE PATRIARCHY!!!!”

No, I’m going to take action and discuss this issue as much as I damn please because it’s important. Additionally, I suggest all folks working on this issue in technology discuss these issues with a big open heart and true intent so that we can all move forward and lead the world on this issue.

Technology executives and companies have reached a level of influence and impact that has rarely been seen in the history of civilization. We can’t benefit from this global revolution, where citizens embrace our creations — be they apps, services, or devices — and ignore the issues of our time: equality, environment, and opportunity among them.

Continue reading Oh no, Calacanis is mansplaining again!

Twitter can solve harassment right now with verified accounts

the awesome lizzy caplan in Mean Girls https://www.youtube.com/watch?v=-3HM04crs3s

Dick Costolo wrote a heartfelt mea culpa this week to his staff on the harassment and trolling issue. It’s a paradoxical moment because no company has ever built as sophisticated a harassment policy and tool set as Twitter — yet they still have trolling issues.

In this piece I’ll explain three things: first, why Twitter has this problem and Facebook doesn’t; second, how Twitter can solve this issue today (literally, by the end of the day); and third, why “Verified Twitter” would print money for Twitter.

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Why Twitter Has A Trolling Problem: Pseudonyms

On Twitter you can do the following today:

  1. You can block people: If you do this they can’t follow your tweets and you don’t see them — and they know you’ve blocked them.
  2. You can mute people: If you mute people you never see them but they don’t know you’ve blocked them.
  3. You can set your account to private, in which case only your friends will see your tweets.

B.F. Skinner would be touched by number two, as it’s a clear hat tip to “extinction behaviors.” Blocking someone (#1) is a form of reinforcement of bad behavior, and I’ve seen that people who block each other are actually engaging a deeper, usually twisted relationship. Psychologists would have a field day with these things.

Of course, if you create @jasonisafatgreekbastard and I block you there is nothing stopping you from creating @youfatbastardjason the very next hour.

This is because Twitter is an open platform that allows pseudonyms — a.k.a., “a name you made up that is not your legal name.”

Continue reading Twitter can solve harassment right now with verified accounts

I would invest $100k for someone to make “Google Glass Light” to do *just* this

Google Glass was a wonderful ride and I give Sergey and the Google X team a lot of credit for having the gumption to put a raw and promising product like Glass in the market so quickly.

It was clear from the start that Glass wasn’t ready for primetime, from the battery life to Apps to societal norms. However, there was a killer feature and it wasn’t augmented reality or notifications. It wasn’t maps or local data either.

The best feature of Google Glass was taking pictures!

Given that, why hasn’t a serious technology company said, “Let’s create a pair of awesome sunglasses that take absurdly awesome photos!”

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Literally rip off the dorky eye projecting screen and leave only a camera, bluetooth, and some decent storage.

Call them “Photo Glass” and build an API that allows Apps like Instagram, Path, and Twitter to easily connect to them.

I’m guessing these can be built for $50 to $150 depending on the build and sold for $100-250. It would be 1,000x more successful than Google Glass and every parent would buy a pair — hands down.

Continue reading I would invest $100k for someone to make “Google Glass Light” to do *just* this

Answer this question & you’ll get unlimited funding for your startup

“How can this company return 100x on my investment?”

Answer that question and you will have an unlimited amount of investors for all time, because investors are playing for Golden Tickets (almost universally).

Let me run you through some examples.

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My Blogging Company

Weblogs, Inc., my second company, created Engadget, Autoblog, and 80 other blogs when we sold it to AOL for $30m — 18 months after we started it.

When Mark Cuban invested $300,000 for 15% of the business we had a $2,000,000 valuation. Now, Mark never asked how this business would make him 100x on his money, but in my mind I had a very specific answer for how this business *could* grow fast.

  1. 100x on his money would be $30,000,000, which would require someone to buy the company for a $200,000,000 valuation.
  2. We had five blogs when he invested and I predicted that we could get 100 in three years. We would simply launch a new blog every two weeks!
  3. If each blog made $100,000 per year we would have a $10m per year business, and each blog would be manned by a $50,000 per year writer. That would give a 50% margin.
  4. $5m in profits at 40x earnings (for a high-growth startup) = $200,000,000 (from an aggressive buyer).

Now, we had < $100,000 in total revenue when we sold, but he still did ~15x his money in just over a year — not too shabby!

My Human-Powered Search Engine

I had a crazy idea back in the day that humans could build search results just like the Wikipedia built an encyclopedia (Jimmy Wales, co-founder of Wikipedia had a similar idea around the same time).

At the time I was hot, the Wikipedia was hot, and I pitched this idea to the best investors in the world. At the time it was clear that search was $100b market so my idea was, “If we get 1% of that market it’s a billion dollar company!” In truth, today, you would be worth a LOT more than that.

Investing in Mahalo at $10m or $100m made a lot of sense and we got a lot of amazing investors. We did get to 15m uniques and $10m run rate on AdSense — but we missed the window to sell before the big Google SEO correction (called Panda). Hard lessons learned, but we’re still alive: I’ve built Inside.com out of those Mahalo ashes with a similar concept to both Mahalo and Weblogs, Inc. — and it’s working! Never give up, never surrender!

Continue reading Answer this question & you’ll get unlimited funding for your startup

What product features should I focus on?

deschart

My favorite slide of the year came from Des Traynor, the co-founder of Intercom who spoke at our SCALE event, on October 23-24, 2014. At that event, he was the highest ranked out of 54 speakers.

This is extremely notable because:

a) He was also a sponsor — yes, a SPONSOR gave the best presentation at the event.

b) He was rated a 9.61 out of 10 by 900 founders of venture-backed companies.

So notable was his talk that I asked him to give it again to our LAUNCH Incubator and he agreed. The seven startup companies and their founders were blown away and asked dozens of questions. I literally had to kick them out of the (slick and new) Galvanize offices over on Tehama Street in SF-SOMA.

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The Slide of the year

In the slide above you see a chart with two axes: the Y is how often people use a feature and the X is what percentage of people use a feature.

Des explains the chart:

“One way to think about this is this (he shows the slide): the core of your product is here (points to top right),  you make an improvement here everyone appreciates it and it pays off big time. You’re in Dangerville over here (points to top left), right? Small number of people heavily dependent on small PC or product. The reason I call this Dangerville is because it’s the road to consulting-ware” (as in software made by consultants for clients).

The top right of the slide, to be clear, is a feature that everyone uses all the time. If we were talking about Gmail it would be reading email, if we were talking about Tinder it would be swiping left and right, and if we were talking about Inside.com (or Reddit) it would be scrolling up and down the “top” feed.

Now, if you get to the top left of the chart, it’s a feature that a few people use all the time. This basically means it’s customizable software and — in my mind — should be done via your API.

If you try to fill the chart, Des points out, you’re making a huge mistake:

“You’re going to have a very messy product if loads of things are heavily dependent upon by very small groups of people and you’re putting it all together in one product. It means you’re on your way towards being a swiss-army knife — a small group of tangentially useful features, independently used. There’s no benefit to being complicated.”

Continue reading What product features should I focus on?

The first 31 days of blogging: a brilliantly efficient knowledge exchange

Just hit my first month of blogging — 11 more to go.

Was 90% sure I would not make it through 2015 without missing a day. Right now I’m 50-50 I will make it, as I’m trying to figure out how I will get through the LAUNCH Festival, vacation, the secret TV project and — gasp! — what if I get sick!? Robitussin with codeine blogging?!?! Sizzurp style!

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Best part about blogging every day is the feedback — hands down. It’s been non-stop on Twitter, LinkedIn, Facebook, and in person (not as much in the comments at Calacanis.com, which I’m bummed about! Post comments here please!).

On Comments & Trolling

The super savvy folks over at Hacker News are having a field day with me blogging again, ravishing me in the comments with facts, insults, and praise — and I love it! So groovy to have people actually reading your work.

My piece about Facebook’s Mobile Strategy is currently being dissected here — and yes it’s me commenting as jasonmcalacanis.

One of the things I’ll never understand is these writers who feel they are being “harassed” by the commenters or Tweeters on the internet. If you choose to write words about important things in the world you should not only expect, you should embrace, feedback!

If that feedback is from anonymous trolls who tell you that you’re a “fat Greek bastard” just suck it up like I did and drop 20 pounds! Seriously, trolls are just failed (sometime real) comedians mostly telling you the things you need to work on (with some other nonsense wrapped around it). In fact, a bunch of your trolls are your friends and colleagues who don’t want to tell you that you’re “fat Greek bastard” to your face — but they want you to lose the weight!

Anyway, I’m getting this massive ground up feedback from Hacker News that’s just brilliant, because many of the folks there work at the companies I’m talking about. Do keep educating me and sending me anonymous details to fill in the gaps — I don’t trade stocks so I have no SEC problems.

High-Level Feedback

On top of the information from the streets, I’m now getting the analysts and PR teams who are seeing me on CNBC emailing and DMing me on Twitter to hash out my statements. I seriously had Katie Couric’s PR team at Yahoo email and call me after I dismissed the value of mainstream media folks doing videos on the portal (I stand by it; I still love Katie!).

All because I blogged for 31 days in a row.

Continue reading The first 31 days of blogging: a brilliantly efficient knowledge exchange

The Valuation Game: The triple play strategy to land Triple N angels

Valuations are a tricky game for founders, and I’ve found they wildly over optimize for them in the early days and frequently waste time and miss great investors.

An early stage startup by a new or unquantified founder here in the Bay Area, where things are frothy, should do what I call the “triple play” strategy.

This strategy will a) get your rounds done QUICKLY, b) let you fund the company over time to minimize dilution and c) reward early supporters by a factor of 2-6x the later ones (which builds long-term loyalty).

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Stage One: $1m (Real) Friends & Family

If you need $25-100k to get your startup going (i.e., quit your job, hire a designer, and build a prototype) this is a great way to reward your friends and family with a super juicy bite of the apple. Give them 5% of your company for $50,000.

Product Progress: You have no product, just an idea or wireframes.

Important Note: I do 10-20% of my deals at this level. I love giving to founders who I have invested with before (and who do things like give monthly updates), have friendships with, or who have had a successful exit. I write checks like this often. For example, Josh Williams, Kevin Rose, and Jeff Dachis have all gotten checks from me in the past year because I know them and want to support them blindly. If we don’t know each other, it’s hard for me to write this check — that’s why your mom should!

Continue reading The Valuation Game: The triple play strategy to land Triple N angels

I think I just figured out the killer App for the Apple smartwatch

dick tracy

I’ve been thinking about the smartwatch space a bunch, and I’ve tested all the major products out there. Everyone is trying to figure out if the smartwatch will be a hit, but that’s not the right question to ask.

There are two important questions to ask about smartwatches:

  1. When will the smartwatch be a hit?
  2. What App will cause it to be a hit?

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Right now the best features of smartwatches are health-related. I am in love with the Basis Peak, which tracks my walking, running, sleep, heart rate, skin temperature, and perspiration.

It’s really helpful to know how much you’re moving and how your sleep is doing — even if you’re not really into fitness. It has awesome battery life due to a low-energy black and white screen, which gets you like three or four days of usage.

  1. When will the smartwatch be a hit?

I’m convinced that the smartwatch needs two to five years to be a hit (defined as hundreds of millions, not tens of millions, of units sold). The reason I think we are two to five years out, is because the hardware is not ready just yet, which makes it hard to make the “killer app” for the Apple smartwatch.

Continue reading I think I just figured out the killer App for the Apple smartwatch

Did Yahoo just put up the white flag?

3ut7lf

When I did my quick hit on CNBC today I talked about how well Twitter and Facebook have been doing, especially in the video space.

The topic of Yahoo came up, and the hosts had read my piece defending Marissa and endorsing her spending $10-20b over five years buying startups in the hopes that one or two could transform the company.

Strategies like that have worked exceptionally for Google, which bought two epic, industry-changing products in Android and YouTube. Not to mention Facebook, which has had equal success buying Instagram and WhatsApp.

What did I think of Yahoo giving back all the Alibaba cash?

My snap reaction was “they’re done!” Marissa will be out of there in 18 to 24 months and it will be sold for parts.

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I guess that was a little too blunt because people were like, “whoa.” Of course, I kind of think this should be apparent to anyone who has watched Larry Page, Jeff Bezos, Steve Jobs, and Mark Zuckerberg give zero cash back to shareholders — instead deciding to invest that money back into their companies.

When you have great ideas about how to own the future you invest every dollar you can. When you start giving back large amounts of money it’s because one of two things has happened:

  1. You don’t have a lot of great ideas for how to grow your business.
  2. You have so much cash that even with those great ideas you can’t put it all to work.

That second reason has happened once: Apple under Tim Cook (but not Jobs).

In fairness, we are in deep and uncharted territory with Yahoo spinning off their returns for Alibaba into a publicly-traded entity called SpinCo — that doesn’t have to pay ~$14b in tax on the ~$40b windfall.

Continue reading Did Yahoo just put up the white flag?

Facebook’s insane mobile takeover is just beginning

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In August of 2012 Facebook stock was trading at $19 per share — half of its IPO price of $38 — and the prognosis was that FB might have seen better days.

The financial press was pounding the company hard, wondering if social networking — or the life of any one social network — was akin to a fad. Perhaps people just naturally joined one service every couple of years, or perhaps different demographics would be attracted to different social offerings.

Turns out they were right about the faddish nature of social networks — they do fragment along generation, geography, product design, and even devices!

What the markets got wrong was that Zuckerberg would be able to own four of the top six social networks by the end of 2014 — and 86% of the active users.

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Monthly mobile active users of top social apps

Facebook (main app): Not broken out, safe to say 1b

FB Messenger: 500m

WhatsApp: 700m

Instagram: 300m

Twitter: ~250m

Snapchat: 100-200m

Total: 2.9b active monthly users

FB Main App + FB Messenger + Instagram + WhatsApp = 2.5b active monthly (not unique) users *

FB has 86% of the active user count of those six Apps. Stunning.

Now, I would say Twitter’s users are worth 2-5x as much as the average FB users because the product is just much more “upscale.” It draws the more elite, powerful, and intelligent folks (overall). Would be interested in seeing some demographic studies on this if anyone has them.

* These are not unique users, as folks might use two or more of these apps in a month. Facebook’s total monthly mobile is 1.19b, which means they use two apps on average — WHICH IS AMAZING!

When Facebook SUCKED at mobile

It’s hard to believe that Facebook actually sucked at mobile only 24 months ago — but if you go back 36 months they were outright horrible.

Continue reading Facebook’s insane mobile takeover is just beginning

How to win any hackathon — and why they’re important

war games

UPDATE 2/2: Two great responses to this post worth checking out. First here, then here.

Hackathons serve five main purposes in the world:

  1. To get the host(s) some combination of recognition and/or money (i.e., from sponsors).*
  2. To get participants some combination of jobs, investors, friends and/or co-founders.
  3. To provide enjoyable challenges in a community setting that help people learn new skills — while having fun!
  4. To help sponsors (and hosts in some cases) lure developers into trying their awesome tools — and providing feedback on them through challenges/contests (think a Twilio award for the best use of their API).
  5. To help companies find developers to join their companies (think Google puts up a prize around wearable computing because they are looking to hire developers who are passionate about this space).

That’s why these events are thriving: they provide a massive amount of value for everyone involved.

[ * Important side note: We do not make any money from our events — we simply break even (or sometimes lose a bit). ]

On February 27th, 28th, and March 1st we will be hosting the 4th LAUNCH Hackathon — right before the LAUNCH Festival (which takes place on March 2-4th).

My goal for these events? Inspire folks to create startups that I can be the first investor in.  That’s my job: take the most risk on the youngest startups — but get the best valuation!

How to win any hackathon (including LAUNCH)

Having hosted hackathons a bunch of times I’ve seen a serious pattern: the wow-factor of the demo drives who wins — not who solved the hardest technical challenge or wrote the best code.

The best demo wins — almost always!

[ Click to Tweet: I’m reading @jason’s advice on how to win a hackathon! (can edit before sending): http://ctt.ec/sdUaW ]

Some teams spend 99% of their time on their product and 1% on their demo. You should stop work every six hours and stand up and do your demo. This way, by the end of the hackathon you’ve done at least five or six rehearsals.

What makes a great demo? Well, I actually spend a lot of time coaching companies to demo their products. In fact, I “coached” (I use that lightly) Mint, Dropbox, Yammer, Fitbit, TrueCar  and countless other startups that launched at the Festival. What works in their demos is what works at a hackathon, with one small caveat: at a hackathon you should use the latest, most buzzworthy technology.

So, if you were going to a hackathon in 2007 you might see a lot of facial recognition projects, and in 2009 everything would center around an iPhone. In 2010 the iPad, 2012 3D printers, and in 2013 Google Glass.

What’s hot today? Well, obviously things like drones/quadcopters, the iWatch/smart watches, VR (Oculus), AR, and artificial intelligence.

Most of those things are very physical, which translates into good for the stage and screen. They all have a massive wow factor but lack use cases.

You can take anything that has worked in the past couple of years and just layer the new technology onto them and think, “how could this be better?” Then do the best thing you can think of.

Now you’re in the running!

Continue reading How to win any hackathon — and why they’re important

Should you give advisors equity in your startup?

godfather

“Are advisors worth it?” the young founder asked.

“Depends” I replied.

“On what?” he asked.

“On what you want them to do — and for how much,” I replied.

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Why Advisors Exist

Advisors exist in the world because there are people who could be valuable to your business, but who do not have the money to invest like angels and VCs do.

Advisors ask founders to trade “advice” and “work” in exchange for equity. Founders who haven’t raised money yet typically get advisors because, well, they are unable to get investors!

Cynics (typically VCs) say things like, “if you could get investors — who advise for free — why would you get advisors who don’t put any cash at risk? Those people are not earning their equity!”

The cynical folks are right 80% of the time — the advisors don’t earn their shares. However, they don’t earn their shares typically because the founders don’t create a clean set of expectations (deliverables!) with the advisors.

What Advisors Do & How to Manage Them

Advisors typically have some combination of great networks, great reputations, and serious skills. If you are doing a enterprise software company, having someone like David Sacks (Yammer, PayPal) would be a huge win because he is respected and has a huge network.

Of course, he has money as well, so having him as just an advisor would negative signal that he doesn’t think highly of your company’s ability to return capital — so be careful!

Continue reading Should you give advisors equity in your startup?

Is inventing something new necessary for startups?

Do you have to invent something completely “new” to have a successful startup?

Absolutely not!

Most of the great startups of our time were evolutionary, not revolutionary.

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  1. Google’s search engine was certainly better than the dozens that came before it, but it was still just a search engine as far as users were concerned.
  2. Facebook was a stable, fast version of MySpace and Friendster — there was nothing original about it, truth be told. It was simply executed at a very, very high level.
  3. Apple 2.0 — which I would define as the consumer electronics company — did not invent the mp3 player, the smartphone, or the tablet. All three of those products were in market for years before Apple entered.
  4. Tesla Motors was not the first battery-powered car, but it was the first serious effort in a long time — and it was filled with dozens of innovations that collectively add up to the greatest car ever made (according to the experts).

Those are the biggest companies in the technology space and they made their fortunes based on perfecting other people’s inventions.

And that’s no dig to anyone at those companies. The people who invent truly new things in the world tend to work at University labs or they are science fiction authors!

Now, there are dozens and dozens of choices that are made while building a killer product that change, evolve, or tweak them just enough to make them extraordinary.

So extraordinary are these collections of innovations that these companies will be credited in people’s minds with inventing the category.

Continue reading Is inventing something new necessary for startups?

What should I include in my monthly investment update?

Yesterday’s post on why founders should send monthly updates (in the angel stage), or every other month after their A round, got a lot of awesome feedback.

Investors predictably went crazy favoriting and retweeting the post. How could they not, given the fact that they’ve experienced the silent death of startups they might have been able to sell or save.

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Some founders felt it was excessive, to which I responded “do it in one hour.”

That’s the discipline of investor updates. They don’t have to be “War and Peace” (or even 100% comprehensive).

Here’s a simple list of things you can include that I’ve compiled from the awesome updates my founders send me.

You don’t have to include all of these every month — but never leave out #1.

  1. Money left in back / monthly burn = months of runway

This is important so everyone knows when the raise will need to be done. Takes 15 minutes to get from accounting.

  1. Product updates

Screenshots, Invision links, Skitch drawings, and wireframes are super easy to get together. 10 minutes tops.

Continue reading What should I include in my monthly investment update?

My Job: Never Underestimate Anyone

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Anyone can go from a nobody to a somebody overnight — so my job as an angel investor is to never underestimate anyone.

Truth is, people starting their careers often look awkward, are broke, and they seem desperate.

You know why I know this? Because that’s how I looked when I started Silicon Alley Reporter back in ‘95. I was so broke that I lived in Brooklyn when it wasn’t cool. I had no money, so I printed the first issue of my zine at a photocopy store.

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Back then I would walk my magazine (the 16-page photocopy I delusively called a magazine) to the offices of Razorfish, Agency.com, DoubleClick, Flatiron Partners, Pseudo, and SiteSpecific.

When I brought in the stack of magazines — carried on a cheap luggage cart — people would ask me, “who is the editor or CEO of Silicon Alley Reporter?”

“Me!” I would reply as I untied the bungee cords and handed the receptionist 25 issues.

At the time I had no idea folks were laughing at me and considered me somewhere between a pest and a joke. However, some folks didn’t sleep on me. Some folks noticed the hustle behind the dorky kid with the photocopied magazines who couldn’t afford to UPS them to receptionists.

Continue reading My Job: Never Underestimate Anyone

How much should I raise in my angel round? How should I spend it?

fun couponsIn 2015, I suggest consumer internet and enterprise startups raise $750k in their Seed round. If you’re a hardware startup I would double that.

This will give you 18 months of runway if you burn $35,000 a month, and have $120k in legal, accounting, and capex spending (your laptops). Hardware companies will need the extra $750k to do a crowdfunding campaign, tooling, and a small production run of their product.

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$35,000 per month is enough for four team members to work on a problem for 18 months, while having a decent salary — and a $500 per month desk.

You’re not going to get rich off your salary, nor should you. If you wanted a max salary you would be at Google or Facebook refining their glorious ad networks to target just a little bit better every quarter — and hate your life!

How should you spend your angel money?

The typical composure of a great team, as I can tell, is something along the lines of:

— two developers to manage the code, process, ops, and customer support

— one product manager to do UX, design, product testing, and customer support

— one business head to do operational, fundraising, sales, legal, marketing, and customer support

You’ll notice that in this case your four people are doing at least four jobs each. Everyone is doing customer support, because early in a company’s life everyone has to commit to understanding the customer.

These four people, the founder(s) and founding team, have to be absolutely willing to do anything. Not everyone in the world is comfortable with the concept of “we have to get it done with what we have,” and that’s OK.

Continue reading How much should I raise in my angel round? How should I spend it?

If you want to optimize your Twitter experience do what you do in real life: mute insane people

I was at dinner with an author friend the other day and he was lamenting how his next book was going to make his life miserable. Without going into too much detail, he wanted to take an honest look at the divide between logic and reason in our most polarizing debates (race, gender, science, religion, etc.).

Although he thought the book would be important, well-read, and helpful to society, he had decided he didn’t want to spend his life having to defend himself in these hot-button areas.

“You’re spending a lot of time on Twitter right?” I asked.

He admitted he had, and lamented the neverending stream of people misconstruing his arguments to make him into something he is not. He lamented the way folks ganged up on people without actually reading what they had written.

“So, the crazy people on Twitter are determining what a bestselling author is going to write next?” I asked.

“To a certain extent, yes” he replied candidly.

And there you have it, folks — the inmates have taken over the asylum!

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How the crazy people took over

Blogging was an amazing innovation in which individuals could construct arguments on their blogs and get reaction from the world in the form of a trackback or a comment. It was a very balanced system because in order to join the debate you had two distinct options: 

  1. Write a comment, which would always be subservient to the main post & controlled by the author (i.e., if you got vulgar, abusive, or insane, the author could delete your comment and/or ban you from posting again). Commenting felt just open enough: if you were disrespectful the owner of the blog could excuse you.
  2. Write your own blog post on your blog to challenge the author (thus earning a ‘trackback’ — which basically means the two posts are linking to each other). If you wrote something compelling, folks who read the first post would get to yours via a search engine or link on the original blog post.

This system was super balanced because you had to be able to write either a quality comment or a full blog post to get people to pay attention to you.

There was no 140-character retweet machine gun at your disposal. Your account wasn’t on the same footing as mine by default like it is on Twitter. No, if you wanted to build up a subscriber base on your blog you were welcome to do so: by writing intelligent stuff every day for a year or two!

Continue reading If you want to optimize your Twitter experience do what you do in real life: mute insane people

Is Apple wrong for not taking off Martin Luther King Jr. Day?

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There’s a controversy going on right now about tech companies not giving people Martin Luther King Jr. Day off. Said more correctly, there is a controversy about not doing a full, company-wide shut down on MLK Day, as all technology companies today let their employees pick which holidays they choose to celebrate.

Now, I’m not going to answer the question in the title straight away, as a bit of a social experiment. What I’ve learned in the first 18 days in a row of blogging this year is that many people on Twitter are going to comment deeply on your blog post — without actually reading it.

Some folks will read the first paragraph of this piece and think, “Jason is letting folks off the hook!”

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Now, we writers have always expected that people skim ahead and sometimes favorite a story before reading it. None of us writers actually thought people would try to make detailed arguments for and against our pieces without actually reading them!

I’ve literally been faced with multiple instances of people reading the first half of one of my pieces — or perhaps just the headline — and then telling me a flaw in my argument. That flaw in my argument is actually 100% true … and addressed in the very next paragraph!

I frequently anticipate the objections and debates that will come out of my posts and address them, as it’s easy to do. Yes, if you have someone read your piece before you publish and say “How will people react to this? What will their obvious objections be?” you can actually write a better piece! Brilliant! Obvious!

The other thing I’m learning coming back to blogging is that my perceived status in the world is how a certain group of folks filter my words. When I was nobody, which is to say before I sold a company for a large return, people read my words as “that nobody kid from Brooklyn trying to hype his new startup.”

Today this group views me as some sort of fat, conservative, and entitled powerbroker, while only one of those labels is true (and I’ve lost 24 pounds in the past year — won’t be able to label me fat for much longer). Of course, I still view myself as an outsider kid from Brooklyn who fought his way into the technology industry while many tried to stop him.

Continue reading Is Apple wrong for not taking off Martin Luther King Jr. Day?