About running a startup
“Running a startup is like chewing glass.”
~ Elon Musk
Labit — is a website that helps researchers to create web-pages for their laboratories. Not is. Was.
In December 2017 we shut down the server. Our website www.labit.io is no longer accessible.
In some sense, closing your startup feels like losing someone close. Of course, the tragedy of the death is absolutely incomparable with the feelings evoked by a business failure and I don’t intend to overdramatize, but I must say the void of loss during the first days after closing was real. Probably, the worst part of that experience is that you know that everything bad that happened during the lifetime of your startup, as well as the reason behind its death, is your sole responsibility.
I can’t teach you how to build a successful IT startup but what I can do is share with you my own experience. Here are the mistakes I made and the lessons I learned the hard way as a founder and executive of Labit. If you are thinking about starting a company or you are at the very beginning of your journey, I hope this section will help you to avoid making the same mistakes.
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Stage 1. The co-founder.
In the previous section, you learned the main requirements for a co-founder. Your co-founder must be fierce. In this sense, fierceness is a combination of grit, resilience, resourcefulness, and constant hunger.
I got lucky with my co-founder. He was fierce. We have done many things wrong but we’ve done them together. From the ideating stage to the termination contract he stayed by my side. And still, I managed to learn what makes a good co-founder the hard way.
Mistake #1. Choosing a wrong co-founder.
Not long after two of us started, we invited a third co-founder. This guy was a brilliant mind and a great scientist too, however, his temper was not his strongest trait. Oftentimes he was very emotional and had to take his time to calm down. Charmed by his intellect I thought that I would be able to tolerate his emotional swings. I was wrong.
It is noteworthy that a startup with less than 12 members must be able to operate with zero management. All tasks should be self-assigned and executed with personal responsibility. Our third co-founder failed multiple times to execute self-assigned tasks so we made a meeting to discuss his performance. In the meeting when we gave our feedback he exploded. He got mad, stood up, and left the room slamming the door.
At that very moment, we knew that it was over. We knew that we would not be able to work with him. He couldn’t take constructive criticism and his reaction was immature. He cracked under the slightest pressure and that was unacceptable because the pressure is the very medium in which startups operate.
I knew he could compromise the business in a critical situation and I couldn’t let that happen, there were other people who depended on me and the success of the venture. I had to let him go. I lost a friend but I saved the company. At least for some time.
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Stage 2. The Idea.
Pick a problem that is worth working on.
Brainstorming is crucial. Get the smartest people you can find and create a pool of ideas, work on them until your foreheads bleed. Ideating is the starting phase of a startup and this is the place where everything can go wrong and do so unnoticed.
Scrutinize.
Identify pros and cons. Most importantly detect potential threats and vulnerabilities. By neglecting some of them you are playing a lottery, and in a game of startups, it means you are programming yourself for failure. There are plenty of unknown variables in this equation without your contribution. Minimize them.
Tell everyone about your startup idea.
Spread the word and start collecting immediate feedback. Your startup must not be a secret. Don’t worry, no one will steal your idea. Why? First of all, everyone is too busy minding their own business. Secondly, even though a good idea is important, the idea itself is nothing without the execution. What is more important: Idea or Execution? The answer is — both. Row hard toward the realization of the idea but make sure you are not rowing toward a waterfall.
Innovate 0 to 1.
This lesson is from the book “Zero to One” by Peter Thiel. The key message is simple — all great companies are innovators. They undergo vertical evolution not horizontal transformation.
Mistake #2. Not innovating from 0 to 1.
This is where we failed. Our idea was perceived by others as a Facebook for research labs and being the next Facebook is not an innovation.
There are many opportunities to create clones out there: Uber for pets, Facebook for kids, Airbnb for parking lots. Chasing them is a dangerous path. First of all, if you compare your idea with some bigshot brands during your pitch it will make you look like a copycat which is really bad. It makes it harder to fundraise. Secondly, if there is no innovation from zero to one there is a very small chance that your company will become great even if your execution is flawless. In order to succeed you need to be 10x better than your competition.
“The clearest way to make a 10x improvement is to invent something completely new.”
~ Peter Thiel
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Mistake #3. Choosing the wrong audience.
There are several potential lines of business for a startup: B2C (business to consumer), B2B (business to enterprise), and probably the worst possible option — B2A (business to academia). Guess which one we went for?
Thinking about academia in terms of innovation is very counterintuitive. An outside observer might think: “Who if not scientists could be called innovators? These guys are the ones who stand on the cutting edge of technological progress, right?” Wrong. The academic world is extremely reluctant to change.
Researchers hide their heads in science and have little interest in anything outside of the scope of their domains. Decision-making is confined to professors holding administrative positions who tend to be old-school and conservative. They are satisfied with the existing system and don’t care if the workflow efficiency of their labs could be increased with new technology. Students do the heavy lifting, professors are detached from the research as their focus lies on writing papers and project proposals.
Being researchers ourselves, we were driven by an altruistic intention to contribute to our community but we underestimated its inertia. The waves of our attempts to offer our software were crushing upon the rock-solid conventionality of academia. We refused to admit the obvious and had to pay the price.
You must devote a great deal of thought to choosing your target audience. B2C is an easier market to capture comparatively to B2B, but there is more money in the enterprise business. Don’t opt for B2A unless you are a masochist.
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Mistake #4. Starting in a poorly-thought-through location.
A decision to start a startup is already a reason to question your sanity. A decision to start a startup in South Korea as a foreigner doesn’t even require such a question, it’s certainly a madness.
Culture and language matter. A lot. It’s odd to see how different can be people who live with you on the same rather small planet. Koreans are aliens. Or I better say: I am an alien for them. Don’t get me wrong, I imply nothing negative by saying this. I admire and respect Korean people, but the difference in mentality is disturbing.
The way they do business is at times contentious and incomprehensible. Pointless bureaucracy and insensible rules are excruciating and observed countrywide. Long story short — the struggle was real.
The geography is crucial. Residing in Gwangju located 268 km from Seoul kept us isolated from the major startup scene of the country and consequently from all of the potential networking that Seoul has to offer. Many things would have gone the right way if we had started a company in the USA or any other English-speaking country. Of course, being a foreigner founder is uncommon but I want to emphasize how important it is to place yourself in the right setting. Aim for the Silicon Valley or any other major startup hub of the world. Staying in a small city far from metropolises and big opportunities is shooting your startup in the leg. Locate your startup wisely.
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Stage 3. The Validation.
Mistake #5. Failing to thoroughly validate the idea.
This is where many critical errors sneak in. The mistake that I made is one of the most common for beginner founders: I took the desired reality for the objective one.
I thought that the problem we solve was a real pain, whereas, in fact, it was more of an inconvenience than a problem. I was convincing myself and others that the science community desperately needs our solution. Driven by the vision of how things could be with our product if it was implemented, I persisted on the path that eventually led me to the wrong place. The very fact that things are not the way you want them to be will cloud your judgment. It’s a perception bias.
Make sure that the problem you solve is a real pain, not an inconvenience.
Running a startup is not fortune-telling. There are already enough variables to make your startup a Russian roulette. Validate your idea meticulously. Read the “Lean Startup” by Eric Ries. Use the Validation Board. Find it online, it is a must-do tool for every founder.
Run some surveys. They will give you a rough idea about your customers but don’t trust them entirely. If you have ever filled up a survey yourself, you may guess how inaccurate that data is. Surveys don’t reflect the real picture.
Do real interviews with your users.
Do not try to sell, and by sell, I mean do not try to create an opinion while talking to your users during the interview. Be as objective as possible, present your idea, and observe. When you talk about your idea try to detach your ego from it. You have to make it unbiased. It’s hard but you have to do your best. See how people react and ask how they would interact with the product. Ask them important questions. Would they buy your product? If yes, how much are they willing to pay for it?
The only guideline for the validation stage is the motto of Y-combinator:
Build things that people want.
This means that you must find potential customers and make sure you can sell the idea before building a prototype or writing the first line of code. Find people who are willing to pay money for your product.
“It’s better to have 100 people that love you than to have 1,000,000 people that sort of like you.”
~ Brian Chesky
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Stage 4. The Minimal Viable Product.
Mistake #6. Building and upgrading MVP on unvalidated idea.
Don’t build MVP unless your idea is scrupulously validated.
Your MVP should be just enough to serve as a proof of concept and have a minimum functionality that solves the target problem. Nothing more, nothing less. Otherwise, you waste your time and money.
For many startups, MVP can be as trivial as a simple landing page that does 4 things: explains the problem, presents the solution, sells on a vision of a better world, and offers to sign up for updates building up the mailing list. That’s it.
One of the best examples of an MVP was made by Dropbox. Drew Houston (the CEO of Dropbox) presented a demo-video of the product and how it can be used (available on YouTube). The rest is history.
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Stage 5. The Launch.
So, we built the MVP.
My team had finished the initial version in less than 2 months and the quality of the product was tolerable. I should have launched right away. If I could go back in time, I would push my launch to as early as I could. I waited way too long. I spent money on interface redesign, logo design, adding additional features. I wanted the product to look perfect for the first customers. It took us several months to go from the alpha-version that was practically ready for launch to the beta that looked better, was better, but was redundant at that point. I wasted time and resources polishing the product that hadn’t been yet proven to be in demand.
Mistake #7. Hesitating to launch.
This is probably the second most common mistake. Founders hesitate to launch. They iterate over an unreleased product which is absurd. The objective is to get the product out there and start learning from the real users as soon as possible. Let your product be ugly, buggy, malfunctioning but existing. Let it be. Just give the painful birth to your “child” and let it evolve along the way.
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Mistake #8. Running out of money
The most important job of a CEO is to make sure that the company doesn’t run out of money. In fact, in the early stages, that’s your only job. It’s ok to be a perfectionist when it comes to bookkeeping.
For my startup, I was able to fundraise some money from the Korean government. There were severe limitations on the ways we could use that money but we managed to build MVP, design the logo and UI, and invest the rest in marketing and incorporation.
Running out of money will almost certainly kill you.
“The most common reason for a startup death is not the competition it is a suicide.”
~ Paul Graham
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Mistake #9. Bad team.
The second most important job of the CEO is hiring. Every CEO I met said that getting the right people for the team is the hardest part of the job. First, I made a poor choice with my third co-founder and then I failed again with my hire.
We met another guy at our university and he was an advanced programmer and database engineer. He was a real pro and I was sold on it. As a non-technical founder, I especially respected the level of his expertise. I believed that eventually, he will help me to solve my problems with spending too much money on two freelance developers that did all of the work. I started to pay him money to supervise the two freelancers but they needed no supervision. They worked flawlessly so this guy ended up doing nothing and getting money for it. I could tolerate that if he had been learning the framework of the product as he promised. He did nothing. He was another big mouth with zero execution.
I made the same mistake twice. I was always a follower of the philosophy of Viktor Frankl who said that by setting the bar of our expectations for people higher than their actual capabilities we empower them, we give them an impetus to excel. I believe that people can change and I try to live up to this belief. But some people just refuse to change.
That guy was a mess. He converted to Christianity being a life-long atheist (and a proud scientist) overnight after falling in love with a Christian Korean girl whom he secretly married after dating her for 60 days. He started to skip team meetings at the last moment because of his sudden dates and visits to church. His personal life and beliefs would have been irrelevant to my story if his poor work ethic hadn’t jeopardized the business and the overall performance of the team.
I have no hard feelings. I don’t live in the past. I share this experience to make a point.
Choose people carefully.
Even if your potential employee is a brilliant mind, he will fail you if he has no integrity.
One more thing worth mentioning:
No one in the team should get a salary at first.
If people on your team work for the money they don’t have the same motivation as you. They will abandon your ship with the first signs of sinking. When an emergency happens (and it will happen) you will need people who will help you to fix the breach, not aggravate it.
First employees are as important as the founders themselves. They contribute to the DNA of the company and embody the company values. All future hires will be defined by the first ones. If you don’t get the first hires right you will be dealing with the consequences throughout the whole life of your startup.
Read “Hello, startup” by Yevgeniy Brikman. Chapter 11 is a must-read and overall the whole book is a gem of startup wisdom. Highly recommended.
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There will be good people too.
It is extremely hard to find decent people who have skills but sometimes you find diamonds in the mud. The two freelancers that first worked on a salary basis eventually joined the team as founders sacrificing salary for the idea and its potential to grow into a real business. These guys are simply amazing. I never met them in person and we didn’t talk much online but their professionalism and integrity never made me doubt them. They had been always delivering exceeding all expectations, executed on time, were very productive and responsible.
I have been always trying to instill into my team one rule of my personal credo. I believe in a startup it is the only right way of doing things. The rule is simple:
A man’s word is his bond. What man says — man does.
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Mistake #10. Combining startup with another occupation.
If you have a full-time job it is distressing to simultaneously run a startup. Your energy and willpower are finite and there are only 24 hours in a day to do everything. One of the two will suffer.
What can be worse than a full-time job? Graduate studies. When you are an M.S. or a Ph.D. student you have no life. Doing research and running a startup is too much on one plate.
This is a piece of advice to all students out there who nourish an idea of a startup planning to drop out:
Don’t even think about quitting school. I mean it.
Graduate first.
Get the degree. Get one thing done. Regardless of what you will decide to do with your life after graduation, your credentials will be determining the first impression and how serious will people take you. Having a degree opens many doors and contributes to your public image. Your startup can wait. Seriously.
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In case you didn’t listen and still started a startup, welcome to hell and here are some things you must know about the initial stages of running it.
Mistake #11. Burn.
A startup is under the threat of closure if it is not profitable but burns money. There are several points to consider.
Don’t incorporate unless it is an absolute necessity. Do it only after your business is profitable or if you made a contact with investors and they require incorporation. At the initial stages, you don’t need to be incorporated and you definitely don’t need hefty bills that come with it.
When it is time to incorporate, use Stripe Atlas. For $500 they will take care of all the legalities. The process is swift and can take as little as 1 week so don’t rush into it.
Incorporate as a Delaware C-Corp. No need to be creative here, just go with the crowd.
Bank Account Maintenance burn. Stripe Atlas will automatically open a bank account for you in Silicon Valley Bank (SVB), and here hides another expense. SVB account maintenance fee is $25 a month. It is an unnecessary burn unless you are already making money. In addition, all of the inner bureaucracy of the bank makes it quite hard to close the account, it can take an extra month.
Server burn. The minimum cost of maintaining your website will be about $20 a month. Your expense will be increasing proportionally to the scale-up of the data you keep there. Make sure you have enough money to cover the server expenses.
Salaries burn. As I mentioned earlier, don’t pay any money to people if it can be avoided. Find people who share your passion and are willing to work for the idea and equity. Don’t be greedy with the percentage too. Be generous to people who help you to build you your empire.
100% of $0 company is still 0.
1% of a “unicorn” is a fortune.
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Last stage. Dissolution.
There is a lot of information on how to incorporate but no information on how to dissolve a company and that’s easy to explain. The American government is interested in helping you to start a business because once you register your company as an official corporate entity you start to pay taxes. You have to pay taxes even if you are not profitable and make 0$ in revenue.
Franchise Tax & Annual Report Tax are absolute mandatories ($450 total, as of 2018). The latest update to the policy of the state of Delaware declares that if any corporation is in active standing on their records as of day 1 of the calendar year, then that company is responsible for filing its Franchise Tax & Annual report for that year as well as preceding years. Simply speaking, you have to pay taxes for the whole year ahead even if your company was dissolved on January 1.
Dissolution itself will cost you another 500$. Include here additional service fees of the lawyer who will take care of both taxes and dissolution and you will be able to estimate how much it is going to cost you to bury your dead startup.
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Mistake #12. Not being ready to fail.
I wasn’t ready. I thought that I was but I wasn’t. I have invested quite a lot in this project so seeing my ship sank was painful.
They used to say in Y Combinator: “9 out of 10 startups fail.” Think about it: 9 out of 10. I believe this is close to real stats. Running a startup is tough and it is almost impossible to get it right from the start.
Failures are inexorable.
Maybe you’ll manage to dodge the ultimate failure but times when you will struggle so hard you will want to quit are inevitable.
I am writing this not to discourage you. Not at all. On the contrary, I want to inspire you to start a startup and I want you to succeed. Do it in a smart way — avoid the mistakes that I made and offer the world your solutions.
The world lacks good products and services because smart and talented men lack the balls to take the risk.
So, take the risk! Start moving and persevere. Steve Jobs once said: “I’m convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance.” This remains true not only for the startup dimension but for any field of work you involve yourself with. You’ve got to persevere.
Wherever your journey brings you:
Don’t give up. But don’t persist on stupid paths either.
Admit your failures but never get defeated. Move on.
I failed. That’s the bitter truth. No need to sugar-coat it, I embrace my failures — they made me who I am. The company is only as good as the man behind it.
I have no regrets — during one and a half years of running a company I learned more about myself than in three preceding. I still don’t know what is the right way of building a successful startup but the wrong ones I walked all over. I hope my story will help you to recognize them in your own scope of business.
As for me, I took notes. I learned my lessons. I toughened up. I moved on.
Thank you for reading my book “Meditations of the Millennial”.
If you want to support me on my mission, please, share this book with someone you love. Maybe they will find what they seek on its pages.
