This is all great. One thing I wanted to call out in particular is Thomas' take on investor verbal agreements. YC has a thing about this: it's called the Handshake Protocol.
The idea is: you and your investor agree on (1) an amount to be invested, and (2) a valuation or cap. Maybe you shake hands. Then, after the meeting, you memorialize the deal in an email. The deal is then socially binding: reneging on a Handshake Protocol deal is a big thing, gets noted in Bookface, whatever.
There's nothing magic or even interesting about the protocol; all it does is eliminate a form of ambiguity that professional investors are facile with and founders aren't. Investors are very good at saying "yes" and meaning "no"; they want the option to invest without the commit. If you don't put it to them directly, they'll take the option! The Handshake Protocol puts it to them directly: "are you committing?"
Most of the time, you're going to get a "no" answer to that, which is exactly what you want: clarity, so you can make decisions.
> there are two separate personas that you need to “create”: The user persona and the buyer persona.
Even more important: stop using personas, start using actual people. I've experienced many startups make unforced errors by conflating people into personas. A better way is to tag people with attributes, such as specific interests, explicit concerns, tasks to be done, usage goals, learning preferences, and the like.
When you switch from personas to actual people, it opens up many more product experiments-- many of which are surprising and may even feel counter-intuitive to founders. Increase your startup chances of success by carefully connecting with your actual users.
Personas are useful for developing a general character that you can refer to. But you still have to be able to say "Alice Robertson, who is a demand-gen marketer at $CUSTOMER, is a prime example of this persona and someone we should talk to during product research." If you can't speak to an actual human and validate your ideas, then you are at risk of creating a fake persona who sounds just plausible enough to convince you to make wrong decisions.
Those two personas were very helpful to me in my previous life as a technical marketer; they helped me learn when to leave a job. Any time a company I have worked for told me they're shifting emphasis from talking about our product with the actual users to talking about "solutions" for the buyers, I knew it was time to start sending out resumes because the product was about to stall and the work climate was about to get insufferable.
I resonate a lot with these reasons. I definitely know I am not the most optimal employee, but often times the people I clash with are people that I cannot respect. Either
- They think they're higher than me (you cannot collab like that)
- They want it their way, despite there being multiple ways to Rome, and will cut off the conversation with orders, not arguments
- They pretend to be technical and are only making the bureaucratic back-and-forth worse. You can definitely tell when someone knows what they're talking about
Sadly a lot of companies will reward these type of people by putting them in the high seats.
> They want it their way, despite there being multiple ways to Rome, and will cut off the conversation with orders, not arguments
I don't know about your experiences, but insisting on this point can be a death sentence. I've spent most of my career as "technical lead", carefully building an approach that works for what my team does based on an underlying theory that is very difficult to verbalize. I've found through experience that when I feel like the project is aligned with this theory, the project goes very well, and when it's not, it doesn't. I've considered thousands of small tradeoffs over 15+ years of developing these ideas.
At this point in my career, I've found that trying to explain the rationale behind my decisions is a losing game. It's a careful balance of a thousand factors that I'm constantly weighing and adjusting. If people share my goals and are interested in learning, great! I'll make some time to talk through parts of the theory with them. But it's not always during project time -- sometimes you just have to trust me.
Yes, you thought of six different ways to do it -- I probably also thought of those ways. I'd love to live in a world where we can have a quick conversation about them and then all agree on the path forward, but that's not how it works. In reality, whoever I'm talking to goes into "argument mode", focuses on irrelevant details, argues about the names of things instead of their substance, takes things personally, feels ownership of whichever idea they came up with first, etc. They say they just want to learn, then they expect me to transmit 15+ years of thinking into their brains in a short conversation, while they argue with me on every little point.
There are a thousand ways to do anything, which means it's critically important to reject most ideas immediately. That often means hurt feelings. It's just better to have the person with the vision making the decision. If you don't want to go with my vision, my theory, that's fine: go with someone else's. One other person's vision, and then don't argue with that person either.
Of course there is room for discussion, feedback, learning, and debate, but this may be better done "off cycle".
"Their way" - some way has to be chosen, without too many back-and-forth.
In addition to technical there could be other reasons to prefer a solution. Some of those reasons can't be stated - for various reasons, like privacy or intuitiveness.
There are some reasons people like that are rewarded, and not all of those reasons are bad.
I see a pattern where companies end up becoming consulting firms with a bit of proprietary tech. Then all their efforts are put into a handful of clients. The companies call them “design partners” but they’re basically clients.
Seems like a particularly risky trap for bootstrapped companies desperate for revenue. At the same time the best companies I see out there are relentlessly customer focused.
How do you draw the line between “design partner” and becoming someone’s consultant.
That comes down to the ability to say no (or at least "not yet"). I have seen lots of startups that land a few mid or big clients and lose the plot by serving every throwaway request the client makes. Doing this slowly turns your product into a bespoke solution not fit for others. There needs to be constant tension between the product goals and its application, and holding that line will always, always annoy a sizeable swath of users.
Apple famously ignored users on lots of fronts: can't manually add RAM, mouse has 1 button, etc. They didn't serve one type of user specifically so they could appeal to a larger market. You can't serve everyone.
You don't have a product until there's ~3 customers, with perspective to more. Before that you're essentially a consultant. I'll add that to the next version of the doc, too.
The point is: For anything you build, you can find 1 customer. It's only when there's multiple customers that like the product and want to improve it where you move from "consulting" or "custom development" to "product".
This rings true. A previous job I had did email analytics for the investment banking industry (from boutique firms up to the largest banks in the world). I kid you not, the single biggest driver of our success was the simple fact that our expertise in email meant that we fixed problems that almost all these firms had with email deliverability (bad IPs, SPF/DKIM/DMARC, broken unsubscribe functions, etc) over the actual product itself. This was in our best interest as our product was useless unless recipients could get email delivered to those that wanted it, but it was eye opening.
Do what Basecamp does [0]. They have one price for any size of customer and more importantly do not let any one customer, no matter how big, pay more for Basecamp and turn into a client as you say.
Excellent writeup from someone who clearly cares about hitting the intersection of "good for customers, good for himself and investors, and good for employees".
We'd be much better off with people thinking and acting in line with this!
Maybe a simple question I didn’t see here: paying yourself a salary?
How true is it you’ll need to persist under extreme duress unable to pay yourself a salary? Relevant for us with kids / families where we provide the family’s income.
I will add a section. Pay yourself a salary at the very latest the moment you've raised funding. If a VC objects to you doing that, get a different VC. You're in for the long run, and support from your family etc. is important, and you're already taking on a huge risk by pooling all your risk in one company, vs. the VC who is happily diversified.
Investors who imply you shouldn't take a salary are no bueno.
I've never once had a VC even ask about my paycheck let alone suggest I don't take one. FWIW the second you run a company you literally have to pay yourself at least minimum age, it's illegal not to. edit: Hm, apparently you can take a literal $0 paycheck. Regardless, it'd be absurd for a VC to tell you to do this imo.
It's not true, as the founder of the company, you aren't even technically employed (unless you become a legal employee), so there is no concept of wage at all, only dividends and buying stuff directly with the company (fine within reasonable limits).
Like equivalent to what your developer salary would be? Less? More because you’re a CEO now?
I basically have minimum $ amount I would accept for “developer job I absolutely love” that I know sustains my family comfortably without much extra fun or savings. Is that a good bar?
I basically specified that I'd make the highest salary and no more than that. It felt like a fair policy at least, it took a lot of guess work out of it. If I wanted to bring someone in at X00K, I had to make X00K.
I started off making significantly less than I did as a dev (~30-50k + I had spent months with 0 salary before raising), within ~2 years I was making a bit more and I capped out around there.
Yes. Usually, the VCs will want you to not take an extravagant salary, but a solid family with which you can keep your family comfortable. And that's normally the right bar.
And if there are liquidity pressures a few years into the process, and you have traction at Series B or C - don't hesitate to think about a small secondary.
Absolutely you should take a salary, one that don't create anxiety and making sure you aren't struggling every end of the month, you don't want a Founder that keep thinking of building another project than the one funded because he is struggling for a matter of thousands a month.
I'm not sure austerity wages for founders are really a thing anymore. Serious investors understand that team turnover is as or more scary than fiscal drama.
There was a longstanding "ramen profitable" ethos on HN, but part of that is rooted in a much older set of YC deal terms and lower expectations for seed rounds. But YC is now one of the principal components of all tech startup funding, the standard terms are much better, syndicated seed rounds have gotten pretty big; I think you're expected not to be silly about comp, but I don't think people are looking for you to signal commitment or virtue or asceticism with your comp package.
If you can't pay yourself a real comp package, something is probably wrong with your business.
- If you are bootstrapped, you can build dual use technology.
- All of this is predicated on the idea that building software is hard, you need 8 years to build a product that people like. Maybe this is all going away in the AI world in a couple of years.
I don't think you need 8 years to build a product people like, Prodfiler got good resonance and we built it in ~18 months, it would probably take 4 months now...
This is really well written and clearly from someone who has loved through it. I think just about all of their observations are correct (except for getting a coach - incredibly detrimental in my experience).
Author here. I'd be curious what went wrong in your case? (Also, happy to soften that advice further if there's strong evidence that people find the advice detrimental).
Not OP, but when I did my startup I also tried coaches, and the first one I talked to was kinda like what gold diggers would be in a relationship context (asking high price, since he knew we raised, and in the demo sessions provided superficial value), then I finally went with one who actually had business experience and uni degree in psychology and provided modest but solid advice for a fair price, that was quite helpful in those difficult times.
So I guess spot and avoid sweet talking charlatans (this applies to all business relationships though).
Also - I use the term "coach" broadly here. Many people react very poorly to the term "therapist", and "coach" is a much broader term encompassing both therapy or just people that have significant experience in a field. Or just an older relative or acquaintance that is willing to provide regular advice/feedback.
There's definitely charlatanism, particularly when people advertise themselves as "business coach" or "startup coach".
If you have a thing people want that you spent a decade making that isn't easily replicatable, the rest doesn't matter.
If you don't have that, the rest also doesn't matter. Unless you're obsessed with money, in which case, you are very confused and should not be guiding anybody to anything.
Guides regarding minutiae from lottery ticket winners are tiresome. I think anyone over 30 has learned what these 'guides' amount to from looking at Paul Graham.
Great article! One question: you talk about market size, but you don’t address the existing competition in the space. In my opinion, two equally sized markets can have very different levels of competitive pressure.
Is that something you factor into your playbook? Or do you simply not find it relevant to judge whether to enter a certain space?
Assuming that you're not a commodity product, it all kinda nets out in the end. If you have a competitive market, you have proof that people want your product at a good price, else no one would be in the market. If you execute better than all of your competitors, then you can theoretically take every last penny of that market.
I don't think the competitive pressure changes the decision whether there's revenue to be made in a certain space, though it may change the personal decision if the operating tactics required in a competitive market are personally fun for you the human being.
This is all great. One thing I wanted to call out in particular is Thomas' take on investor verbal agreements. YC has a thing about this: it's called the Handshake Protocol.
The idea is: you and your investor agree on (1) an amount to be invested, and (2) a valuation or cap. Maybe you shake hands. Then, after the meeting, you memorialize the deal in an email. The deal is then socially binding: reneging on a Handshake Protocol deal is a big thing, gets noted in Bookface, whatever.
There's nothing magic or even interesting about the protocol; all it does is eliminate a form of ambiguity that professional investors are facile with and founders aren't. Investors are very good at saying "yes" and meaning "no"; they want the option to invest without the commit. If you don't put it to them directly, they'll take the option! The Handshake Protocol puts it to them directly: "are you committing?"
Most of the time, you're going to get a "no" answer to that, which is exactly what you want: clarity, so you can make decisions.
https://www.ycombinator.com/handshake
> there are two separate personas that you need to “create”: The user persona and the buyer persona.
Even more important: stop using personas, start using actual people. I've experienced many startups make unforced errors by conflating people into personas. A better way is to tag people with attributes, such as specific interests, explicit concerns, tasks to be done, usage goals, learning preferences, and the like.
When you switch from personas to actual people, it opens up many more product experiments-- many of which are surprising and may even feel counter-intuitive to founders. Increase your startup chances of success by carefully connecting with your actual users.
Wholeheartedly agree.
Personas are useful for developing a general character that you can refer to. But you still have to be able to say "Alice Robertson, who is a demand-gen marketer at $CUSTOMER, is a prime example of this persona and someone we should talk to during product research." If you can't speak to an actual human and validate your ideas, then you are at risk of creating a fake persona who sounds just plausible enough to convince you to make wrong decisions.
Definitely - but those are normally called "development partners" in B2B, right?
Those two personas were very helpful to me in my previous life as a technical marketer; they helped me learn when to leave a job. Any time a company I have worked for told me they're shifting emphasis from talking about our product with the actual users to talking about "solutions" for the buyers, I knew it was time to start sending out resumes because the product was about to stall and the work climate was about to get insufferable.
I resonate a lot with these reasons. I definitely know I am not the most optimal employee, but often times the people I clash with are people that I cannot respect. Either
- They think they're higher than me (you cannot collab like that)
- They want it their way, despite there being multiple ways to Rome, and will cut off the conversation with orders, not arguments
- They pretend to be technical and are only making the bureaucratic back-and-forth worse. You can definitely tell when someone knows what they're talking about
Sadly a lot of companies will reward these type of people by putting them in the high seats.
> They want it their way, despite there being multiple ways to Rome, and will cut off the conversation with orders, not arguments
I don't know about your experiences, but insisting on this point can be a death sentence. I've spent most of my career as "technical lead", carefully building an approach that works for what my team does based on an underlying theory that is very difficult to verbalize. I've found through experience that when I feel like the project is aligned with this theory, the project goes very well, and when it's not, it doesn't. I've considered thousands of small tradeoffs over 15+ years of developing these ideas.
At this point in my career, I've found that trying to explain the rationale behind my decisions is a losing game. It's a careful balance of a thousand factors that I'm constantly weighing and adjusting. If people share my goals and are interested in learning, great! I'll make some time to talk through parts of the theory with them. But it's not always during project time -- sometimes you just have to trust me.
Yes, you thought of six different ways to do it -- I probably also thought of those ways. I'd love to live in a world where we can have a quick conversation about them and then all agree on the path forward, but that's not how it works. In reality, whoever I'm talking to goes into "argument mode", focuses on irrelevant details, argues about the names of things instead of their substance, takes things personally, feels ownership of whichever idea they came up with first, etc. They say they just want to learn, then they expect me to transmit 15+ years of thinking into their brains in a short conversation, while they argue with me on every little point.
There are a thousand ways to do anything, which means it's critically important to reject most ideas immediately. That often means hurt feelings. It's just better to have the person with the vision making the decision. If you don't want to go with my vision, my theory, that's fine: go with someone else's. One other person's vision, and then don't argue with that person either.
Of course there is room for discussion, feedback, learning, and debate, but this may be better done "off cycle".
"Their way" - some way has to be chosen, without too many back-and-forth.
In addition to technical there could be other reasons to prefer a solution. Some of those reasons can't be stated - for various reasons, like privacy or intuitiveness.
There are some reasons people like that are rewarded, and not all of those reasons are bad.
I see a pattern where companies end up becoming consulting firms with a bit of proprietary tech. Then all their efforts are put into a handful of clients. The companies call them “design partners” but they’re basically clients.
Seems like a particularly risky trap for bootstrapped companies desperate for revenue. At the same time the best companies I see out there are relentlessly customer focused.
How do you draw the line between “design partner” and becoming someone’s consultant.
That comes down to the ability to say no (or at least "not yet"). I have seen lots of startups that land a few mid or big clients and lose the plot by serving every throwaway request the client makes. Doing this slowly turns your product into a bespoke solution not fit for others. There needs to be constant tension between the product goals and its application, and holding that line will always, always annoy a sizeable swath of users.
Apple famously ignored users on lots of fronts: can't manually add RAM, mouse has 1 button, etc. They didn't serve one type of user specifically so they could appeal to a larger market. You can't serve everyone.
You don't have a product until there's ~3 customers, with perspective to more. Before that you're essentially a consultant. I'll add that to the next version of the doc, too.
The point is: For anything you build, you can find 1 customer. It's only when there's multiple customers that like the product and want to improve it where you move from "consulting" or "custom development" to "product".
This rings true. A previous job I had did email analytics for the investment banking industry (from boutique firms up to the largest banks in the world). I kid you not, the single biggest driver of our success was the simple fact that our expertise in email meant that we fixed problems that almost all these firms had with email deliverability (bad IPs, SPF/DKIM/DMARC, broken unsubscribe functions, etc) over the actual product itself. This was in our best interest as our product was useless unless recipients could get email delivered to those that wanted it, but it was eye opening.
Do what Basecamp does [0]. They have one price for any size of customer and more importantly do not let any one customer, no matter how big, pay more for Basecamp and turn into a client as you say.
[0] https://www.inc.com/magazine/201606/jason-fried/saying-no-to...
Excellent writeup from someone who clearly cares about hitting the intersection of "good for customers, good for himself and investors, and good for employees".
We'd be much better off with people thinking and acting in line with this!
Maybe a simple question I didn’t see here: paying yourself a salary?
How true is it you’ll need to persist under extreme duress unable to pay yourself a salary? Relevant for us with kids / families where we provide the family’s income.
I will add a section. Pay yourself a salary at the very latest the moment you've raised funding. If a VC objects to you doing that, get a different VC. You're in for the long run, and support from your family etc. is important, and you're already taking on a huge risk by pooling all your risk in one company, vs. the VC who is happily diversified.
Investors who imply you shouldn't take a salary are no bueno.
I've never once had a VC even ask about my paycheck let alone suggest I don't take one. FWIW the second you run a company you literally have to pay yourself at least minimum age, it's illegal not to. edit: Hm, apparently you can take a literal $0 paycheck. Regardless, it'd be absurd for a VC to tell you to do this imo.
This clearly isn't true for eg a single-member LLC, and likely not true in general.
If you're raising VC money then I assume you're not an LLC. But I think you're right that the owner can take a $0 salary.
It's not true, as the founder of the company, you aren't even technically employed (unless you become a legal employee), so there is no concept of wage at all, only dividends and buying stuff directly with the company (fine within reasonable limits).
I feel like I was an employee, I don't really recall the details when I spun up my C-Corp tbh. It does seem that a CEO can take a $0 salary.
How much of a salary do you pay yourself?
Like equivalent to what your developer salary would be? Less? More because you’re a CEO now?
I basically have minimum $ amount I would accept for “developer job I absolutely love” that I know sustains my family comfortably without much extra fun or savings. Is that a good bar?
I basically specified that I'd make the highest salary and no more than that. It felt like a fair policy at least, it took a lot of guess work out of it. If I wanted to bring someone in at X00K, I had to make X00K.
I started off making significantly less than I did as a dev (~30-50k + I had spent months with 0 salary before raising), within ~2 years I was making a bit more and I capped out around there.
Yes. Usually, the VCs will want you to not take an extravagant salary, but a solid family with which you can keep your family comfortable. And that's normally the right bar.
And if there are liquidity pressures a few years into the process, and you have traction at Series B or C - don't hesitate to think about a small secondary.
Absolutely you should take a salary, one that don't create anxiety and making sure you aren't struggling every end of the month, you don't want a Founder that keep thinking of building another project than the one funded because he is struggling for a matter of thousands a month.
I'm not sure austerity wages for founders are really a thing anymore. Serious investors understand that team turnover is as or more scary than fiscal drama.
There was a longstanding "ramen profitable" ethos on HN, but part of that is rooted in a much older set of YC deal terms and lower expectations for seed rounds. But YC is now one of the principal components of all tech startup funding, the standard terms are much better, syndicated seed rounds have gotten pretty big; I think you're expected not to be silly about comp, but I don't think people are looking for you to signal commitment or virtue or asceticism with your comp package.
If you can't pay yourself a real comp package, something is probably wrong with your business.
Great article. Few suggestions:
- If you are bootstrapped, you can build dual use technology. - All of this is predicated on the idea that building software is hard, you need 8 years to build a product that people like. Maybe this is all going away in the AI world in a couple of years.
I don't think you need 8 years to build a product people like, Prodfiler got good resonance and we built it in ~18 months, it would probably take 4 months now...
This is really well written and clearly from someone who has loved through it. I think just about all of their observations are correct (except for getting a coach - incredibly detrimental in my experience).
Author here. I'd be curious what went wrong in your case? (Also, happy to soften that advice further if there's strong evidence that people find the advice detrimental).
Not OP, but when I did my startup I also tried coaches, and the first one I talked to was kinda like what gold diggers would be in a relationship context (asking high price, since he knew we raised, and in the demo sessions provided superficial value), then I finally went with one who actually had business experience and uni degree in psychology and provided modest but solid advice for a fair price, that was quite helpful in those difficult times.
So I guess spot and avoid sweet talking charlatans (this applies to all business relationships though).
Yeah.
Also - I use the term "coach" broadly here. Many people react very poorly to the term "therapist", and "coach" is a much broader term encompassing both therapy or just people that have significant experience in a field. Or just an older relative or acquaintance that is willing to provide regular advice/feedback.
There's definitely charlatanism, particularly when people advertise themselves as "business coach" or "startup coach".
If you have a thing people want that you spent a decade making that isn't easily replicatable, the rest doesn't matter.
If you don't have that, the rest also doesn't matter. Unless you're obsessed with money, in which case, you are very confused and should not be guiding anybody to anything.
Guides regarding minutiae from lottery ticket winners are tiresome. I think anyone over 30 has learned what these 'guides' amount to from looking at Paul Graham.
Great article! One question: you talk about market size, but you don’t address the existing competition in the space. In my opinion, two equally sized markets can have very different levels of competitive pressure.
Is that something you factor into your playbook? Or do you simply not find it relevant to judge whether to enter a certain space?
(not the author, but here's how I think about it)
Assuming that you're not a commodity product, it all kinda nets out in the end. If you have a competitive market, you have proof that people want your product at a good price, else no one would be in the market. If you execute better than all of your competitors, then you can theoretically take every last penny of that market.
I don't think the competitive pressure changes the decision whether there's revenue to be made in a certain space, though it may change the personal decision if the operating tactics required in a competitive market are personally fun for you the human being.
why did the author put the tickers for the companies he sold to?
Good question. I think I did it to indicate that we sold to public companies.
Google (GOOG) is a public company? Color me surprised. I'd always thought it was just a mom and pops shop.