The Art of Startup

2500 years ago, a true polymath authored a book so powerful that it made emperors, kings, and generals.

When I first read the Art of War by Sun Tzu in my youth, I set a goal. To one day understand my own domain well enough to produce a similar set of insightful directives.

About 15 years into my quest, 2 startups founded, personally mentoring more than 100 founders, managed 3 VC funds, and made a few angel investments I feel, for the first time, that I can produce my first version of these directives.

i. On startup ideas

  • When conceiving of an idea for a startup, write it down and return to it two weeks later. If the idea still seems good, pursue it.
  • When conceiving of an idea for a startup, ask yourself if you have empathy for the customer. For the first couple of years, the customers will reject you. Make sure you have enough empathy to see it through.

ii. On (founder) team formation

  • When forming the team, everyone must have a profound trust in and respect for each other.
  • When forming the team, everyone must be willing to work for the lowest possible salary to stretch the runway.
  • When forming the team, it must be complete enough to design, build and sell the product for the first year without relying on other people or money to pay other people.
  • When forming the team, it must have a person with an intimate insight into the life and thinking of the customer.
  • When forming the team, the members must select a clear leader who is given the title of CEO, and whom everyone agrees will have the last say in case of a dispute.
  • When forming the team, the members must select an advisor who can bring perspective and be a sounding board.
  • When distributing shares, all members must own enough shares to give up all other projects and keep motivated during the hard times.

iii. On culture

  • The culture must be written down as a simple list of commandments about behavior everyone obeys.
  • The culture must be one of honesty, clear and timely intellectual communication and debate, and utter and complete acceptance of whatever decision is made in the end.
  • The culture must be one where time is regarding a scarce and valuable resource.
  • The culture must be one that celebrates every win and victory with feasts, toasts, and hugs.

iv. On hiring

  • When hiring, the founders must perform the interview themselves.
  • When meeting a candidate, the founder must tell a breathtaking purpose that will offset a non-competitive salary.
  • When evaluating a candidate, the founders must devise practical samples of relevant work the candidate must complete.
  • When evaluating a candidate, the founders must prioritize culture fit, curiosity and helpfulness highest.

v. On employees onboarding

  • When onboarding a new team member, make sure everyone else knows the new team member’s name and background before the first day at work.
  • When onboarding a new team member, place a welcome card the desk signed by the founder or CEO.
  • When onboarding a new team member, explain to the person exactly how his/her job contributes to the success of the company.
  • When onboarding a new team member, explain to the person exactly how his/her job affects the job of other team members.
  • When onboarding a new team member, explain exactly what behavior will impress and what behavior will disappoint.
  • When onboarding a new team member, give the person everything they need to do their work on the first day. Expect them to work the next.

vi. On employees

  • When having employees, the founders must embody the culture and always act like they want employees to act.
  • When having employees, the founders must attribute all success to their employees internally and in public.
  • When directing employees, the company must have no more than 3 company KPIs that is always pointed to.
  • When directing employees, the employees must be told exactly how their role contributes to the 3 KPIs.
  • When directing employees, the employees must be told what the priorities are, so they can make individual judgment calls.
  • When an employee does not perform, the founders must exclude that employee immediately and then help that person find something better.

vii. On fundraising

  • When fundraising, focus on investors who are known to invest in the stage, geography, and industry you are in.
  • When fundraising, ask other founders for introductions to their investors.
  • When fundraising, have a world-class pitch deck because it might be all the investor sees.
  • When pitching, only ask for an amount that the investor normally invest.
  • When pitching, know the other companies the investor has invested in.
  • When pitching, tell the investor why you are seeking investment from that investor specifically.

viii. On investors

  • When finding investors, founders must find one of two kinds. Investors who bring money and stay away. Or investors that bring money and provide a recent and relevant experience. Anyone else is harmful.
  • When having investors, founders must update the investors monthly. And whenever something interesting happens.
  • When having investors, founders must attribute the success to the investors in the press and on social media. This will make the investor even more vested in your success.
  • When having investors, founders must invite investors to any celebrations of success.

ix. On sales

  • When starting to sell, the founders must learn how to do it themselves until the task can be given to anyone else.
  • When starting to sell, the founders must focus on the smallest possible sub-segment of the market (the beachhead) until they have a monopoly in this segment.
  • When starting to sell, the founders must emerge themselves with their customers until the founders understand their customers better than the customers understand themselves.
  • When the customer has bought the product, the founders must make sure the customer actually starts using it. Only then, the sale can be considered successful.
  • When the customer has used the product for a while, the founders must ask for a referral.

x. On marketing

  • When making noise, make sure the message is so compelling that people will share it. Also the employees.
  • When making noise, distribute free education to potential customers in return for contact information.
  • When making noise, use referrals from happy customers.
  • When making noise, distribute free samples or free accounts of your product to the first critical mass of customers.

xi. On boards

  • When forming the board, select a chairman who is not a shareholder.
  • When forming the board, have no more than five people.
  • When having board meetings, place plenty of drinks and foods so people are not distracted by thirst and hunger.
  • When having board meetings, have a standard agenda and follow it every time.
  • When having board meetings, if a board member comes unprepared, let the board member know he/she has no business showing up.
  • When having board meetings, only have the founders and investors in the room.
  • When having board meetings, spend most of the time on sparring and decision making.
  • When having board meetings, and if big issues arise, form a separate working group to deal with.

xii. On exits

  • When receiving acquisition interest, deny it. If they really want it, they will try harder.
  • When getting an acquisition offer, hurry and talk to their competitors.
  • When negotiating an acquisition, be most interested in how the company/product will become a success with new owners.
  • When negotiating an acquisition, negotiate great terms for your employees.
  • When negotiating an acquisition, ask for cash with no handcuffs for all owners.

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