Creating your First Startup: For BigCo employees

First Time Startup CEO Boot camp

Ex-Microsoftee Founded Startups Microsoft Founders of Startups (Acquired, IPOed, or Significant revenue): Jonathan Sposato @ Picnik: ACQUIRED Dan Shapiro @ SparkBuy.com (Shell) ACQUIRED Rev, Acquisition or Market Cap Mike Matthew @ All Stars Directory ACQUIRED Amount: TA McCann @ Gist.com (Exchange) ACQUIRED $1+ billion: 3 Joe Giordano @ PayScale Companies Rich Barton @ Zillow & Expedia IPOed Mike Slade @ Starwave ACQUIRED $100+ million: 6 Companies Kevin Merritt @ Socrata Jordan Schwartz @ Pathable (MSN) $30+ million: Many Bill Bryant @ Qpass, Visio, Mixxer, etc. Hadi Partovi @ Tellme Networks & iLike ACQUIRED IPOed 5 Alex Castro @ Delve Networks (Shell) ACQUIRED Rob Glaser @ Real Networks IPOed Gabe Newell @ Valve Alex St. John @ WildTangent Companies Bryan Starbuck @ TalentSpring (Shell) ACQUIREDNumbers are often confidential. Some information came from people in the companies listed BLOG: bryanstarbuck.typepad.com

Covered in this Talk1 2 Business Model Create the Validation First Company3 4 Startup CEO Engineering Stack Leadership BLOG: bryanstarbuck.typepad.com

Business ModelValidation First

Validate by Pitch-Deck Force Planning in all Critical Areas Brief enough for feedback from Customers, Employees, Advisors, Investors, etc. BLOG: bryanstarbuck.typepad.com

Pitch-Deck PAIN finds your Blind Spots He says, “This specific Pitch-Deck SLIDE is PAINFUL” Response, “You found a Blind Spot in your ANALYSIS skills… … or in your business”Complete ALL of your Pitch-Deck BLOG: bryanstarbuck.typepad.com

10x Healthy Business Model “10-x” refers to the customer have a LARGE problem in their life, not just another small issue in their life.1 2 10x 10x PROBLEM SOLUTION3 4 Great Single Transactions Transaction multiply to a Large Economics Market Size BLOG: bryanstarbuck.typepad.com

Validate by Talking to CUSTOMERS1 2 Do they want a SOLUTION Do they have this PROBLEM 9 2 8 3 People People People People3 Will they PAY THE PRICE 4 Will they BUY with these FEATURES 10 1 2 9 People Person People People A real Problem 5 Are they any hidden found in validation PROBLEMS 9 2 People People BLOG: bryanstarbuck.typepad.com

How to Validate Do NOT use your friends And do not use the startup community Be willing to pay $25 to $50 for 60-minutes for B2C. $50-$100 for B2B professionals. PayPal, Amazon, iTunes lets you record the dial-in conference call and share the screen. Cheaply People from The US and your customers Your Social Group are BAD are more like: Early Adopters NOT Early Adopters NOT A-Players or Type-A White-Collar employees NOT Advocating change & disruption College educated Have a budget already fully spent A-Players or Type-A Blue-Collar employees Advocate change & disruption High School only, Community College… BLOG: bryanstarbuck.typepad.com

Burn Rate“Burn Rate” is the speed of spending moneyBurnRate = (Expenses – Income)“Runway” is months until running out of moneyRunway = (Cash / BurnRate) = months until closing downSearching for a great Burn Rate when Employedbusiness modal whileemployed is Salary: $120k Living Expenses: $80kgreat, because of the Burn Rate $40k (Negative)NEGATIVE burn rate BLOG: bryanstarbuck.typepad.com

Create the Company

Burn Rate – When RunningNow you are running the company. Manage aroundBURN-RATE and RUN-WAYOne Metric for Pre-VC Funding: Founder: Up to 2 years no salary Engineer: $80k/year max salary (but not in the valley) Monthly Burn Rate Monthly Burn Rate (Low End) (High End)RECOMMENDATION: CEO / Dev 1: $0k CEO: $7.3kMicrosftee gets a NON- Dev 2: $0k Dev 1: $7.3kMSFTee co-founder. Dev 2: $7.3kDon’t magnify blind-spots Law / Accting / G Design: $4k Law / Accting / G Design: $4k Other: $3k Other: $5kTarget 4 to 8 months to launch Burn Rate $7k Burn Rate $31k BLOG: bryanstarbuck.typepad.com

Typical FundingFirst Funding: Comes at 5 months to 24-months (or never) Stages of Funding First funding is often $50k to $200k from 1) Friends & Families friends and family Whenever possibleFull Round: 2) Individual Angels 2 or more employees. Demo Highly conditional on an incredible idea, team and credible Founder/CEO. Often at 8 months to 18 months 3) Angel Groups Launched. Tracking is a Plus 4) VCs For most first time founders, post- launch, post-traction BLOG: bryanstarbuck.typepad.com

Two Typical Models1 2 Developers until Traction. (Part-time CEO type) The goal is LAUNCHED + TRACTION Keep burn rate close to $0 Focus on Funding when Traction is starting PROS: Easier to build team. Less need for funding. CONS: Some risk of going in the wrong direction. Funding will be harder to achieve pre-traction2 1 CEO + 2 Developers. Funding sooner, more focus on Marketing / Biz Dev The goal is LAUNCHED + TRACTION + Bigger Marketing/BizDev goals Funding is needed sooner CEO needs to ramp to be “Fundable” sooner PROS: Better business strategy. Better marketing & BizDev. Funding easier CONS: Higher burn rate, requiring funding sooner BLOG: bryanstarbuck.typepad.com

Time Spent by Founder/CEOFounder / CEO Long-Term Strategy, Marketing, Board, Advisors, Fund Raising Medium-Term Launch: Marketing, Sales, Biz Dev, Legal, Finance UX DesignsDev #1 CodingDev #2 Coding BLOG: bryanstarbuck.typepad.com

Dev OutsourcingSuccesses: Only pay FIXED Projects. oDesk.com $1.5k to $3k for ~1 month to 2 month projects Full specs, heavily manage with meetings, reviews & testing Own Source Control. Code review everything Tend to only work for technical founders Always high riskFailures: Normally fails with no technical founders <Hear horror stories> BLOG: bryanstarbuck.typepad.com

Startup CEOLeadership

Test your Startup CEO KnowledgeDemonstrate understanding of these topics. These are a common metric byinvestors to test for a “Fundable CEO” Finance Marketing Deferred Recognized Revenue How to improve traffic conversion rates. Rates impact on business model GAAP compliance. Typical Pool sizes Dave McClure model of marketing Patterns of COGS to Revenue ratios of different business models Drip email marketing Impact of Churn How to create a POSITIONING strategy from a strategic point of view Post-Money Valuation. Cram downs Explain behavior of 8+ channels of marketing Negotiating focal points to secure next two rounds of capital List 3 companies and their typical Cost-to-Acquire costs Other Explain what CHANNELS are for B2C startups. List them Explain how to manage to a Sales Pipeline. Describe each stage Explain how Business Development deals are secured BLOG: bryanstarbuck.typepad.com

Engineering Stack(For .NET programmers to Understand the OPEN SOURCE STACK)

Ramp-up on Knowledge GEMs This STACK is NEW  Mobile Frameworks Ajax FrameworksTHIS IS VERY IMPORTANT CSS Frameworks Cross-Site Integration (Scraping) The great expansion of the stack is new: Rails ~2008 to 2011 DB Schema Auto-Upgrade GOAL: Work can be accomplished with Content Management System HALF the number of devs Cloud WebApp Services And with little or no TEST or IT Cloud Hosting head count Enterprise BUS / Queuing Microsoft people think, “It is just another BI & Reporting language” Database Debugger The stack is beyond the language Source Control Innovations and new Linux Servers Automatic IT Testing (Blackbox & Whitebox) Utility Helpers Utility Helpers Language Language BLOG: bryanstarbuck.typepad.com

Stack is Critical for Burn RateOld Model: 10 Employees New Model: 4 Employees CEO or Leader CEO or Leader Dev #1 Dev #1 Dev #2 Dev #2 Dev #3 Dev #3 Dev #4 Tester #1 Dev #5 Tester #2 Example: Dev #6 IT / OPs $1m per WEEK In customer transactions With 12 Employees BLOG: bryanstarbuck.typepad.com

Next Steps for Learning (1 of 3)People often ask how to learn more. Here is the best way: ABSOLUTE Must Read Strategic Thinking or Execution Venture Deals On Amazon Innovator’s Dilemma On Amazon By: Brad Feld By: Clayton Christensen Crossing the Chasm On Amazon Art of the Start On Amazon By: Geoffrey Moore By: Guy Kawasaki Blue Ocean Strategy On Amazon By: W. Kim The Lean Startup On Amazon By: Eric Ries Good to Great On Amazon By: Jim Collins Maverick On Amazon Other By: Ricardo Semier The Ten-Day MBA On Amazon The Four Steps to the Epiphany On Amazon By: Steven Silbiger By: Steven Blank Founders at Work On Amazon Inspiring Excellence On Amazon By: Jessica Livingston By: Michael Schutzler ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com

Next Steps for Learning (2 of 3)People often ask how to learn more. Here is the best way: Marketing Other The 22 Immutable Laws of Branding On Amazon Founders at Work On Amazon By: Al Ries By: Jessica Livingston Full Frontal PR On Amazon Startup Weekend On Amazon By: Richard Laermer By: Marc Nager Positioning: The Battle for your Mind On Amazon Don’t Make Me Think On Amazon By: Jack Trout By: Steve Krug The Strategy and Tactics of Pricing On Amazon By: John Hogan Purple Cow On Amazon By: Seth Godin ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com

More Learning (3 of 3) (My) Bryan Starbuck’s Blog on Company Building: http://bit.ly/StarbuckBlog Dave McClure – Marketing Model for Startups: http://500hats.typepad.com/500blogs/2007/06/internet-market.html http://vimeo.com/26277733 http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version http://www.slideshare.net/dmc500hats/startup-metrics-101-367863 More from Dave McClure: http://www.slideshare.net/dmc500hats/why-not-to-do-a-startup http://www.slideshare.net/dmc500hats/do-marketing-its-not-evil Presenting to Investors: http://www.slideshare.net/dmc500hats/how-to-pitch-a-vc-aka-startup-viagra-how-to-give-a-vc-a-hardon Strategic economics of SaaS https://salesforce.adobeconnect.com/_a13852757/buildingasuccessfulsaasco/ Startup Marketing: http://howtolaunchastartup.com/2011/06/20/21-must-read-resources-for-start-up-marketing/ 57 Things I’ve Learned Founding 3 Tech Startups: http://betashop.com/post/1417413108/57-things-ive-learned- founding-3-tech-companies ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com

The ENDNext Steps: Create your company and have a BLAST Join the “MicrosoftStartup Learning” mailing list Join here: http://groups.google.com/group/Knowledge-Startup-to-Microsoft Bryan Starbuck’s Blog: bryanstarbuck.typepad.com

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Creating your First Startup: For BigCo employees

by Bryan Starbuck on Dec 08, 2011

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