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Small Thinking; why Austin entrepreneurs need to think bigger!

I teach a class at UT Austin called “lean startup”, I also help run the UT Texas Venture Labs and I volunteer at Capital Factory.  I mentor or advise dozens of startups.  I also run my own startup and have started 3.   All this is to say, I am plugged in to startups in Austin.  As with all my blog posts, this is not anything official from UT or anywhere else, just my own opinions.

I see probably 50 (or more) startup pitches per year.  One thing I have noticed recently, since Venture Capital has mostly dried up in Austin and worldwide, people have stopped thinking big.  I see so many deals where “the startup” is really “a product or service”.  For example, your app idea, your IoT idea, your new restaurant concept, and so on.  If it could be done on Kickstarter or bootstrapped in a year or two, it’s probably not big thinking.

This article is a call to get entrepreneurs to THINK BIGGER!  It is also hopefully a few tips for entrepreneurs to do just that.

First, let me explain what I consider ‘small thinking’.  Small thinking is when an entrepreneur is so focused on ‘the first product’ or ‘getting to revenue’ that they fail to communicate (or possibly fail to think) what the big picture is.  If you are not thinking past ‘your first move’, you are playing Startup Chess with a massive handicap.  If you don’t have ‘a second move’, you are failing to plan.  In both cases, you are not THINKING BIG!

Now, let me explain what I consider ‘big thinking’.  Big thinking isn’t doing, it’s thinking, and maybe talking.  Doing is what you are doing first and now (probably being Lean and Agile and building an MVP and focusing on Getting Customers and Feedback)… all very smart and important stuff.  However, while you are off ‘Doing’ that important stuff, you should be ‘thinking’ and probably ‘communicating’ your big vision a bunch more than you are.

Big thinking is having a big vision for wanting to ‘change’ something.  ‘Change’ is the operative word, and it implies a disruption in the status quo.  Big thinking is having ‘the end in mind’ before you begin.  This is more than a personal financial goal (which is also important).  This is understanding where your company might play in the big picture of the world.  This requires understanding ‘the world’ e.g. your market today, and where your market will be after you have risen to power and achieved your ‘big vision’.

Here’s the problem.  Many companies in Austin simply do not have this ‘big vision’ in mind for their company.  I ask you, how is your company going to change the world?  How are you going to “shake up” your industry.   If you do not have an answer, then you are not Big Thinking.

I urge you now, go out, and think bigger!  If you do it, WHILE staying focused on “DOING LEAN” there are so many awesome benefits.  Here are some personal examples I will share.

At my first company, Bigfoot Networks, our “big vision” was to End All Lag!  In fact, we even had a website, t-shirts and events, all around “Ending Lag Now!”.  We had a clear big picture mission, near 0-latency & 0-lag online gaming.  We were going to change the world… and as a result:

  1. The press cared about our story… even though many didn’t believe we could do it, it was still a story (rather than a non-story).
  2. Employees LIKED working for Bigfoot Networks… we all understood our mission and it gave us energy to tackle the day-to-day “Doing” because we knew where we were ‘Going’.  
  3. As a result, my attrition rate was lowest at Bigfoot Networks than any other company.  And my recruiting was the easiest.
  4. I was able to raise ‘big’ VC money, not because of our results (which were average), but because of our vision (and technology to back it up).
At Karmaback, my second company, our vision was also clear… we wanted to ‘Prove Social Marketing Works”, and create analytics behind social network marketing.  What is interesting here is that we did so many ‘day to day’ “Doing” that did not line up with this goal (to pay the rent) that we ultimately lost sight of this vision… when that happened, we had to sell the company.  It just wasn’t honest to say “this contracting job” had anything to do with our vision.  Had we stayed truer to our vision, Karmaback probably would have been even bigger and sold for much more.
So, I hope you can see where I am headed.  Have a big vision, execute on a plan towards doing it, and change the world!   If your company does NOT have a ‘change the world plan’… maybe it needs to get one.  Personally, I am on a mission to make sure all my endeavors have one.  At U.T. Austin, “what starts here changes the world”… and I’d like to see all of Austin take the charge and “THINK BIGGER”!
Harlan T. Beverly, PhD + Daughter, think BIGGER in Denali National Park

Startup Life: When to tell your team… we’re almost out of cash!

Is your startup nearing $0 cash? When do you tell the team?

You are not alone!

Doing a startup is hard.  Whether you are bootstrapping, VC funded, or even backed as an internal skunkworks, you may find that your bank account is getting awfully close to zero.  You are not alone.  Nearly ever startup I’ve ever been a part of has hit this point.  It is scary.  It is stressful.  And what do you do about the team?  Some of them, you know, depend on that regular startup paycheck!

Here’s what you need to know!

  1. Fiduciary Duty: First, you have a duty to your shareholders which is actually very simple: if you are nearing “insufficient cash” to pay your debts (defined as non-investment capital), then you must inform your shareholders (and/or board of directors) very soon.  They may be able to help.  My advice: have a plan in place that shows how much you need, or how you will come through anyways.  Even better: don’t get here… raise more funds before this point.
  2. Duty to Employees:  If there is ANY doubt that you might miss a paycheck… you need to tell people as soon as you have that doubt.  Personally, I like the 1-month left rule… if you will be able to make 1 more months of paychecks, and then no more… it’s time to share the news… REMEMBER TO ALSO share your plan.  Employees will want to know how they can help!  Let them.  Let them help with the fundraising… make slides… etc.  Let them help with sales (the whole company can do sales!).
  3. If it get’s dire… like down to 2 weeks… one thing you might do is ask if any employees can take partial deferred salary.  This is salary, you are asking them to risk, on the hope that you’ll make it through.  100% is not a great idea (unless you are the founder), but I’ve gotten nearly 100% participation in a 50% program in the past… and we made it through!
I hope this helps you know what to do (this time or next time).  Remember, it’s normal, it’s stressful, but you DO need to tell your people.  The best employees will only respect you more for your transparency.  The worst, who quit on you, you don’t need anyways.
Good luck!

How to Avoid Fistfights with Co-Founders: Founder Equity Split Suggestions

Fistfights with Co-Founders can be avoided!  Here are some tips for founding your company with partners, such that later on, when things get complicated (like founders quitting, etc.), ya’ll don’t kill each other.   Nothing feels more frustrating than a founder that quits, and takes a bunch of stock with him….  A big benefit of this method is also: many VCs will prefer this type of structure (vesting)!  And.. the IRS might prefer it too… so, here goes!

  1. First, decide who is bringing “value” to the company at this point… (like who is bringing ‘the idea’, or ‘some tech’, or contributing ‘some gear’, or contributing ‘some money’).  If nobody is bringing anything, skip to step 3.
  2. Set aside 10-30% of stock to give to people who ‘brought something’ to the team…   Rule of thumb: 5% for money or stuff, 10% for tech, 20% for idea.
  3. Now take the remainder (90-70%) and set that aside to distribute evenly to the whole team for “work on the business plan prior to formation”.
  4. Okay, now assign the remainder amount evenly with all founders (example 7 founders, 70% means 10% per founder).
  5. Next assign the ‘brought something’ extra stock to the given founders (example idea will have 30%, tech guy has 20%, and the rest have 10%).
  6. Agree on a vesting term (3 year, monthly vesting is common).
  7. Now, write a VERY short Memorandum of understanding with everyone’s name, the date, signature places, and most importantly the vesting terms.
  8. Pick a CEO!  (the 1 person who shall be the CEO and in the drivers seat!  All other roles could be identified too, but the CEO role is a must.).  It does not have to be the idea guys, but it’s nice if it is.

Here’s an example Memorandum (note: I’m not a lawyer, and this wasn’t written by one: use at your own discretion).  (names are made up, except mine)

Memorandum of Understanding

We, who plan to found company ______ each agree that when this founding occurs we will split the shares of the company as follows:
   Joe Smith:  30%, Whom we agree shall be the CEO of the company.
   Frank Toe:  20%
   Alan Man:   10%
   Harlan Beverly: 10%
   Sally Jenson: 10%
   Erin Klause: 10%
   Jessica Stower: 10%

We agree that these shares should have a vesting period of 3 years, whereby vesting happens evenly, monthly, over a period of 3 years.  the company shall have the right to any stock not vested in the event that any founder leaves the company (voluntarily or involuntarily).  We, agree that this vesting shall begin on this day ________.

Signed,
______________________________, Date ______________
______________________________, Date ______________
______________________________, Date ______________
______________________________, Date ______________
______________________________, Date ______________
______________________________, Date ______________
______________________________, Date ______________

That’s about it!

Now, get it done right, so that you don’t have to fight!

Later on, when you actually found the company (as in incorporate), this document will go away… and be replaced with real shareholders agreements and so forth.