Philip Rosedale: First Steps to Starting a Tech Startup

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Presentation from Philip Rosedale's June 20, 2012 class at Parisoma: "The First Steps to Starting a Startup".

Philip Roseldale is one of the Co-founders of Coffee & Power and the Founder and Chairman of Second Life.

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Philip Rosedale: First Steps to Starting a Tech Startup

  1. 1. First Steps to Starting a Tech Startup Philip Rosedale, Co-founder of Coffee & Power and the Founder and Chairman of Second Life Original presentation given June 20, 2012 at Parisoma, San FranciscoThursday, June 21, 2012
  2. 2. “I can only show you the truth.” http://goo.gl/RpE1tThursday, June 21, 2012I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.My personal story is also the story of how technology is likely to keep changing everything.So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought inan analog computer that I had made for show and tell. But I also took 4th grade twice -because my social development was so retarded.Once computers became available, I bought my first one here at a swap meet for $20. Myfirst two computers didn’t have storage, so I would code all day and then just have to turnthem off.
  3. 3. Agenda ❖ Who am I? ❖ Why did I start a company? ❖ Should you? Basic Stuff Advanced StuffThursday, June 21, 2012
  4. 4. I was born in 1968 I graduated from college in 1992Thursday, June 21, 2012I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.My personal story is also the story of how technology is likely to keep changing everything.So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought inan analog computer that I had made for show and tell. But I also took 4th grade twice -because my social development was so retarded.Once computers became available, I bought my first one here at a swap meet for $20. Myfirst two computers didn’t have storage, so I would code all day and then just have to turnthem off.
  5. 5. “My God, its full of stars!”Thursday, June 21, 2012How many people know what the color image is? How about the second one?My friend and I were zooming over and over into the Mandelbrot image, until the originalimage was the size of the surface of earth.Automata like the ‘game of life’ could theoretically create self-replicating structures once asufficient size scale was reached.... imagine 10,000 laptop screens all with this same code.So I was really really obsessed in what could happen if we could use the internet to connectcomputers and create a huge new virtual world.
  6. 6. Thursday, June 21, 2012At its height, Second Life had billions of user-created objects, hundreds of millions of dollarsof transactions and revenue and hundreds of articles a day written about it.But what made it SO compelling? It rocketed into the popular press and struck a chord in away greater than any elaborate Lego building set, however advanced, could be.
  7. 7. Inventing Improving ✦ User Testing ✦ Ship Early ✦ Focus Groups ✦ Angels / ✦ Stealth Mode (*maybe) Kickstarter ✦ VCs ✦ Community ✦ PartnersThursday, June 21, 2012
  8. 8. Different Kinds of ‘Entrepreneurs’ ✦ Inventor ✦ Thrillseeker ✦ Non-Conformist ✦ Profiteer ✦ Competitor ✦ Do-Gooder ✦ Social ClimberThursday, June 21, 2012
  9. 9. Questions (from class) 1. I have an idea/business plan, what steps do I need to take to secure funding? How do you identify the right people to help you build your product in the early stages? How do you validate your product before getting in too deep? 2.I am currently a freelance consultant. I have a few ideas for start-ups. I am having a hard time deciding between starting something small that I can kick start without a lot of help vs. starting something that will require team of people and considerable funding at a very early stage. What advise you would give to help me get through the process of making a decision? 3.How do you stay motivated and focused? Do you need to quit your full-time job in order to be successful? How do you find the right key people to help you succeed? How do you find a mentor or find someone to help you through the learning curve of being an entrepreneur? 4.Steps an F-1 visa holder can take to start a business in the US? 5.Best ways to find a technical co-founder? Best ways to find a mentor? Thursday, June 21, 2012I never felt like i knew how to have a mentor or that I needed one. Mine sorta found me.
  10. 10. Sources of Funding ✦ Second Mortage ✦ Kickstarter ✦ Crowdfunder ✦ AngelList ✦ Venture CapitalThursday, June 21, 2012 Convertible note - move fast - talk about how to use this to make it really simple10M cap, 25% discountNothing complicatedNo need to use fancy lawyers - should only cost $5K or lessDO NOT raise too much moneyTake questions
  11. 11. RiskThursday, June 21, 2012Even in Silicon Valley, and in some sense especially in Silicon Valley, REAL risk-taking is rare.When I was a kid I cut through two ceiling joists to make my door go up into ceiling. I did thisin the hope that girls would like me more. My other big unfinished idea in that direction wasto build a hovercraft and drive that to school - before I could legally drive.The really crazy ones aren’t motivated by money (more by vanity), have some sort of troubledchildhood, usually fail, and are very rare. They irrationally pursue almost impossible ideasthat they can’t get out of their heads.The entrepreneurial community rallys around these people, but statistically speaking is NOTmade up of them. Entrepreneurs, for the most part, are normal people.The SV startup community is probably responsible for pushing too great a degree of risk-taking on everyone, both with the offer of financial return (Which statistically speaking will nothappen), and with cultural acceptance and respect... “Me and my cofounder” is the new pickupline.
  12. 12. Tech Co-Founders per 100,000 people (Which place would you go, if you were a gazelle?)Thursday, June 21, 2012If you were an Antelope, where would you go?Creating a vibrant startup community isn’t about encouraging innovation or risk-taking!The secret is actually to create safety in numbers - to reduce risk. This is probably true ofanything other career too, like Performing Arts (New York), or Car Design (formerly Detroit)SV is the only place in the world where “Technical co-founder” and “Entrepreneur” are CAREERCHOICES. My friend from SL says that her favorite new pickup/wingman line is “Me and mycofounder”.But technology and mobile COULD collapse the distance between these people enough tocreate a vibrant ecosystem. IF that could be done, the lower cost of living, unjaded friendly/collaborative nature of people could actually allow a place like here to rapidly displace SF orSeattle.Further on this subject, the accelerating rate of tech change means that education andexperience matter less and less. So the person whose never done it (or even heard storiesabout) is at less and less of a disadvantage.Kansas City - 24, Omaha 21, Des Moines 27. But does it get much better if you move tosomewhere else? Los Angeles - 40, New York 51.
  13. 13. “I can only show youThursday, June 21, 2012I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.My personal story is also the story of how technology is likely to keep changing everything.So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought inan analog computer that I had made for show and tell. But I also took 4th grade twice -because my social development was so retarded.Once computers became available, I bought my first one here at a swap meet for $20. Myfirst two computers didn’t have storage, so I would code all day and then just have to turnthem off.
  14. 14. “It just doesn’t make sense to say - as the democratic revolutionaries do - that people can govern themselves ... People can try, you think, but it certainly couldn’t work as well as having a wise and just king.” God Board King CEO Subjects EmployeesThursday, June 21, 2012Second Life was too complicated to have an engineering hierarchy. So I tried to figure outother ways to make people work together.Plus, I read this amazing book by Tom MaloneBut why should the nature of work change now... well an economist named Ronald Coase -who won the Nobel Prize in 1991 for work he did in 1932.But what happens as technology makes the cost of those negotations less? Smaller firms andmore markets.Also - the trend toward flatter and more rapidly changing platforms make the idea of‘kings’ (CEOs) who plan everything out successfully less likely to be optimal.
  15. 15. Thursday, June 21, 2012In 2005, in an attempt to keep very high transparency alive in our rapidly growing company, Imade the ‘love machine’Beyond the simple delight of sending love, there were two important things that happenedthat I hadn’t anticipated:1. The log and wordcloud of love became the best ‘executive dashboard’ for how we weredoing.2. The history of an individuals received love became the core of a very effectiveperformance review process.
  16. 16. CoworkingThursday, June 21, 2012If you have lots of autonomy and public recognition, couldn’t the collective opinions ofeveryone replace the management-led process of giving out bonuses?You can test the strategy by asking yourself and your managers who ‘should’ be on the list,then running the process.It doesn’t matter whether this system is better in allocating funds - nothing is perfect - thepower is in freeing management from the burden and risk of evaluating people, and lettingthem instead lead!
  17. 17. CEO surveyThursday, June 21, 2012So why have a CEO at all? With lots of employee autonomy, you might think that democraticprocesses would be best for making strategic decisions,but you would be wrong. Acommunity will only agree on not making changes. You need to entrust leaders who can takecalculated risks for everyone - and indeed in the absence of needing to do performanceevaluation, those leaders can do even more of that.If you really have guts, the best strategy isn’t to let your board of directors hire or fire you.It’s to let the whole company do it.Think of the internal confidence of every member of a company in which the leadership iswilling to use this process.
  18. 18. Thursday, June 21, 2012We initially intended to work in both bars and cafes, but the bar thing only lasted a couple ofdays.
  19. 19. Worklist.net Our Distributed Development Process 63 Contributors $229,000 work 11 Months Coffee & Power 1.0Thursday, June 21, 2012Both because we were living in Cafes, and also because we wanted toTop person on Coffee & Power did about $50,000 work, lowest was $20.
  20. 20. Since January 2011: 9760 Jobs Worklist.net $535,000 work 115 ContributorsThursday, June 21, 2012Hybrid model: In-house effort max on feature design, product vision, graphics‘Powered Exoskeleton’Plus big benefits:Use different specialists at different timesMany eyes on code, no single point/person of failureLow ego - easy to back up if you are wrongEasy way to interview/train/recruit junior people
  21. 21. Worklist Lifetime Earnings Since January 2011: 9760 Jobs $535,000 work 115 ContributorsThursday, June 21, 2012Hybrid model: In-house effort max on feature design, product vision, graphics‘Powered Exoskeleton’Plus big benefits:Use different specialists at different timesMany eyes on code, no single point/person of failureLow ego - easy to back up if you are wrongEasy way to interview/train/recruit junior people
  22. 22. “Whats the good word?”Thursday, June 21, 2012When I first went to these workspaces, what I expected to see were a bunch of deadly-seriousstartup teams hunkered down doing development. What I actually found was more like ascene from ‘The Office’.The people who come to these places do it for social contact, not efficiency. They arereconstructing the office social structure that has been removed by the relentless efficiency ofthe open market.Which makes me wonder if the employer of the future is the startup, or maybe some newform of labor union - for example a sort of ‘Hacker Dojo’ where all the Ruby-on-Rails devscommit X% of their contract income to have health insurance, etc?
  23. 23. Coffee & Power 2.0Thursday, June 21, 2012Quantified WORKImagine you can find people working, where they actually are. Like vampires or a secretsociety.Even beyond what we are doing in first version of C&P, what if all the young entrepreneurs inDes Moines could share risk by putting a % of their income into a pool that would pay themwhen they were between jobs? Or buy health insurance? What if they could all rate eachother like what we did with the rewarder, and that ranking became both a public resume aswell as a gate for entry into the community?
  24. 24. Microsoft EBayThursday, June 21, 2012A final observation is that the era of the gunslinger may be over, where the greatest CEO’swere cowboys and the most infamous robber barons.Networks and Facebook make it impossible to hide, and we are seeing more and more femaleCEO’s - a trend which I first saw in SL, where the ‘Land Barons‘ were so often... women.But exploiting disruptive change - making really crazy products - still requires cowboys, sokeep us boys around, we’re still good for something.
  25. 25. Measuring past Deciding what to do performance next NOWThursday, June 21, 2012Companies of the future will probably compete/succeed by maximizing in two ways existingcompanies did not:* Crowdsource/democratize the measurement of past performance* Use markets to assign risk to new projects
  26. 26. Thank you! Questions? philip@coffeeandpower.com philiprosedale.wordpress.com twitter: philiplinden www.coffeeandpower.comThursday, June 21, 2012

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