There is a lot of conventional wisdom about startups and side projects that is just plain bad advice.
“How do you know it is bad advice?” you may ask.
Well, for over eight years I’ve co-hosted a tech startup podcast where we’ve interviewed many successful entrepreneurs. With each interview I’ve ‘unlearned’ a little bit more.
Here are some of the more important unlearnings…
Idea Secrecy
Grandpa says: “Don’t tell anyone about your idea kiddo! They’ll steal it. Look what happened to those Winklevoss twins in the Social Network!”
Nothing could be further from the truth! You need to gather as much information and learning as possible. You should talk about your idea to anyone who will listen. Each time you talk with someone, you’ll learn something new that might push your project forward. You should especially talk about your idea with potential customers!
People and companies generally don’t copy unproven ideas, they copy proven ones (see Slack, Flock, and Stride, for instance). Furthermore, if a large company is the type that does steal, they will usually only consider stealing when a product is massively successful (I’m looking at you, Facebook).
As Howard H. Aiken said: “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”
Further reading:
Why you shouldn’t keep your startup idea secret – Chris Dixon (3 mins)
Your idea isn’t good enough to keep secret – Ramit Sethi (2 mins)
Why You Should Tell Everyone Your Startup Idea – Kevin Siskar (3 mins)
First Mover Advantage
Grandpa says: “Ya got ta think a something new, see, something never been done before. Just like them Googles fellas did!”
In the vast majority of cases, there is no first mover advantage. Most ideas are not new. There will be some kind of competition already out there. In the rare case a project is wildly successful, being known as an innovator could result in favorable coverage, but being the first does not necessarily help you.
For example, Lyft came before Uber, then Uber launched UberX in retaliation to Lyft and surpassed their traction quite considerably.
Another great example is YouTube. They were not first, they just hit at the right time. Bill Gross talks about this in his TedTalk, “The single biggest reasons startups succeed.” Other examples of success stories that were not first to market: Google, Facebook, Slack, Apple, etc. The list goes on and on.
Further reading:
Here’s Why The First-Mover Advantage Is Extremely Overrated – Steve Blank (5 mins)
The Single Biggest Reason why Startups Succeed – Bill Gross (6 mins)
NDAs
Grandpa says: “I hope you made ’em sign an NDA, kiddo! Those guys like that are sharks. They’ll steal your idea and leave you in the dust, see.”
It is widely seen as an amateur move to ask a VC, friend, or angel to sign an NDA.
In a VCs case, they talk to hundreds of founders. It would be foolish for them to have to cross check each NDA they sign.
Basically, in the context of telling someone your idea, an NDA does very little other than cause friction between you and the person you are talking to. Also, if your business is so fragile that the idea being out there is a significant risk, then it’s probably not a good business.
NDAs do have a place, and that is usually within large corporations. For example, when Microsoft hires an outside consultant, they would need to sign an NDA.
But let’s say you went through the trouble of having someone sign an NDA, and they then broke that NDA by discussing your idea with a friend. Would you really have the need or wherewithal to take legal action? Would it be worth the damage you’d do to that relationship?
Further reading:
Ideas are just a multiplier of execution – Derek Sivers (1 mins)
Why I Won’t Sign Your NDA – Andrew Warner (2 mins)
Why I Also Won’t Sign Your NDA – Viktor Hanacek (3 mins)
Patents
Grandpa says: “You better get a patent kiddo! It’s your only protection from all them sharks, see.”
Patents are expensive, time-consuming, and generally pointless!
The irony is, once you have a patent, the inner workings of your idea will be publicly exposed on uspto.gov. To get around that patent, someone only needs to tweak it.
Precisely the reason why Elon Musk does not file patents.
Further reading:
For Most Small Companies Patents Are Just About Worthless – Todd Hixon (7 mins)
If We Published Patents, It Would Be Farcical – Elon Musk (1 mins)
Business Plans
Grandpa says: “You got to git yourself a business plan, kiddo! Then you can show it to your bank manager and git a loan, see.”
The truth is business plans are not useful in the context of a modern software startups. It takes time and effort to write a business plan – time and effort that should be spent on validating and building the business!
Note, by “business plan”, I mean a standard long-winded document as described here rather than a Lean Canvas, which is a very useful tool.
Further reading:
Don’t write a business plan – Jason Cohen (5 mins)
5 Reasons Why You Don’t Need a Business Plan – Geoffrey James (3 mins)
Technical Co-founders
Grandpa says: “You need to git yourself a partner, kiddo! Someone with some smarts, see.”
I talk to a lot of non-technical founders who think they need to get a technical cofounder before they get started. The problem is, it’s very hard to convince a technical cofounder to join an unproven business.
The irony is, to validate a business, you probably don’t need a technical prototype. In many cases, you can use lean validation methods such as the Wizard of OZ technique and Concierge MVP. After you’ve validated your idea, you’ll find it much easier to convince a developer to join you.
Further reading:
Why you can’t find a technical co-founder – Elizabeth Yin (3 mins)
You will not find a technical co-founder – Rik Visser (6 mins)
Quick Guide to Outsourcing for Entrepreneurs – Ryan Battles (5 mins)
Sweat Equity
Grandpa says: “Sweat equity is all the rage, kiddo! Work for shares and you’ll own a giant piece of the pie, see.”
I advise people to be highly skeptical about sweat equity deals. Here are a few reasons:
1) An unvalidated idea will have a tiny chance of success, so the work will probably end up being for free.
2) If the company does gain traction and make some money, the founder will most likely feel bad about having to pay for work already done. Instead, they will want to spend money on new features.
Put another way, the work will feel like it has no value after the fact. Most founders do whatever they can to get stuff done now. They are focused on the now. It will feel like pulling teeth to have to pay for work that was done last year.
3) In many cases, future investors will not want to honor previous sweat equity deals. I’ve seen this play out in the real world. It doesn’t work out well for the developer.
4) Something that almost always happens after the fact: founders have different ideas of how much value the sweat equity is worth vs. the provider.
Even if a deal is struct beforehand, this situation is likely to arise. Founders usually undervalue the work that’s been done, and providers usually overvalue it.
Further reading:
Some Hard Advice on Working for Sweat Equity – Tim Berry (2 mins)
Company Formation & Lawyers
Grandpa says: “You need a real company, kiddo! Got to dot your I’s and cross your T’s! Git it proper and legal, or you’ll be sued, sued, sued, I tells ya!”
I advise to not form a company until you’ve validated your idea.
I’ve learnt this lesson many times over. Specifically, 4 times. Each time it cost anywhere from $500-$2000 in legal fees. And it’s a terrible feeling to have to dissolve a legal entity that once held so much hope.
Instead, when you’re first getting started, create a new Stripe account as an individual and make sure the “auto transfer” feature is disabled.
Then, start validating your business and collecting money using Stripe’s regular tools. If you reach the point where you’re earning enough revenue to prove your idea is good, you can incorporate. If your project is not working, simply refund everyone that you captured money from.
The same goes for working with lawyers. I regularly see new founders prematurely waste money on legal fees when they are at the idea stage. Obviously, in some cases lawyers are required, like if you are starting a crypto currency broker, but in in most cases it is prudent to validate that customers will actually buy your product before getting a lawyer!
Further reading:
When do I need to incorporate a company? (5 mins)
Do I need an attorney when I start my business? – Jean Murray (3 mins)
Raising Money
Grandpa says: “That’s a great idea, kiddo – git yourself to silicon valley and the bigwigs will invest, see.”
I think many people try to raise money because they think that is what they are supposed to do.
However, if you are at the idea stage, raising money can become the ultimate quicksand. Instead of building a business, you’ll end up building a pitch deck. You can end up spending months, if not years, asking other people’s permission to give you money… just so you can get started.
But, in many cases… why?
Wouldn’t it just be faster to start validating and building your product until you already have decent traction or revenue as described here.
In other words, perhaps the best way to raise money… is to not raise money!
Instead, bootstrap a successful business, after which point you’ll be able to impress investors and/or accelerators, or bypass them altogether as you see fit.
Further reading:
Start Now. No funding needed. – Derek Sivers (3 mins)
9 Million Dollar Startups That Were Not Funded – Dan Norris (6 mins)
The advantage of no funding – Derek Sivers (3 mins)
Invest in Lines, Not Dots – Mark Suster (4 mins)
In Closing
With all due respect to your elders, you should tell grandpa to shut it. If you’re spending all your energy on lining 100 ducks up in a row, you’re not spending that energy on validating and building your product, and that’s where your energy should be focused in the early stages. Don’t get bogged down with advice – just focus on getting to the point where you can buy grandpa a beer with your profits!
. . .
I’m creator of Nugget, an online incubator & community. We help founders start and grow profitable side projects.