How to build a startup

Meaningful startups

Your startup should have a purpose. Only start companies that benefit or advance the world. Don’t create the equivalent of McDonald’s.

Never sell, shut down, or give up until you’re delivering innovation at scale.

Passion

Make sure you are passionate about what you are making. It’s a long journey, and if you’re not passionate, don’t start. Even if there’s a great opportunity, don’t do it unless you will love it.

Often, the best companies have products that are an extension of the founder’s personality.

Long-term

The best founders are long-term thinkers. Even early on, they think about decisions that are far away.

You must build a long-term foundation for your business. You’re building a skyscraper, not a house. You need a deep foundation.

You must understand that it will be very difficult. But you must also be passionate enough to not care and commit to the long haul.

If you’re thinking short-term, the idea isn’t right for you. Find the idea that you can commit to for 10 years. It will take 10 years to get a good outcome.

Takes just as much work to build for a niche market as it does for a big one. Aim for the biggest potential impact you can care about and commit to.

Iteration

If it is possible to improve it, you must improve it. If it is possible to make it more accessible, you must make it more accessible. Etc.

Quality measures how far a product advances the customer. Scale measures how many people use it.

There is no tradeoff between quality and scale. Do both—not one or the other. If it can’t be done, you innovate.

Offices

Use non-traditional settings instead of offices. Allow people to have their own space and set their own hours. Focus strictly on long-term accountability and output. Avoid keeping mediocre but reliable performers. They harm the startup.

Steps

Raising the first $25K for product development is easy—join an incubator. Raising the next $100K is easy—investors are following the incubators with automatic notes. Building a product and launching a product are easy—develop on Open Source Stacks, host on Amazon, launch on Facebook, Android, or iOS, get your early traction.

Getting real traction is hard. Raising millions of dollars is hard. Building a sustainable, long-term company is hard.

Employees

Your first two engineers are late founders. Treat them as such.

Your next five designers and developers? Your cap table probably can’t even afford them until you have traction, and the cash that follows it.

Give 1-4% of the company to early founders not 0.1-0.4%.

• Keep the team small. All doers, no talkers. Absolutely no middle managers.
• Outsource everything that isn’t core. Resist the urge to pick up that last dollar. Founders do Customer Service.
• People choose what to work on. Better they ship what they want than not ship what you want.
• No tasks longer than one week. You have to ship something into live production every week – worst case, two weeks. If you just joined, ship something.
• Peer-management. Promise what you’ll do in the coming week on internal Yammer. Deliver – or publicly break your promise next week.
• One person per project. Get help from others, but you and you alone are accountable.

Hire slowly. Hire only after there’s a burning need for that person. You have to be ruthless about firing and trimming the ranks. It’s not popular, but it works well. You must always cut waste.

Business hierarchy

The larger a hierarchical organization, the more dysfunctional it is.

The less people you have, the more that those people are invested in the companies growth. They want to see the growth and are more willing to put in effort for it. They feel they have more accountability for it.

The board of directors

No committee ever built anything great. Boards can be helpful; they can be sounding boards. But you do not want the board to be running the company.

The larger your board, the less it is going to get done. Every experienced board member will tell you they favor private company boards of five or six people or less. Don’t give up more than one board seat per round.

Space the board meetings out further. So maybe have a board meeting every three months, and then do an update call every month. And keep that call short.

Set the expectation very early on that it’s going to be simple. Don’t waste time on a slide presentation. Print a paper with the numbers on it and talk about it.

You must manage your board.

Naval Ravikant doesn’t give out permanent board seats. Anyone can be removed. In his company, even he can be removed. He always makes the argument, “Hey, you can remove me too if I’m out of line.” This forces everyone to behave.

Raising money

Money follows execution, not precedes it.

If you want to make a long-term company, raise more money. This protects the company from poor funding. But make sure that you maintain control of the company. Don’t let investors get too powerful. Keep a majority of the ownerships so that investors can’t dominate decisions.

Ensure you know the order and amount of payout if the company is sold or liquidated. Check if you get your investment back before others.

Track the percentage of your ownership in the company. Be aware of new shares issued that can reduce your ownership percentage.

Also understand that, if your valuation is high in this round, you will have to make a lot of progress for the next round to be an up round.

If you want to keep valuation down and keep the option for an early exit, raise less.

Act like you don’t have lots of money. When you start spending lots of money, you waste time and start losing urgency.

Investors

When you’re thinking of doing a deal with an investor, don’t be afraid to call off the close if you’re getting negative signals. If you won’t work with them for the rest of your life, stop working with them right there.

I’ve [called off closes] and I’ve never regretted it. — Naval Ravikant

Pitching skills are overrated. Find the right co-founder. Attack the right market. Craft the right product. Investors will pitch you.

How to name your company

Make it easy to spell and pronounce. Don't use that name if you’d continually have to correct people about their spelling. Names like “Flickr” are bad because it’s difficult to spell.

Don’t be too general or too out-of-the-box. General is like “Chicago Pizza.” Out-of-the-box is “Xerox.” Be in-between.

Don’t limit your future opportunities. For example, don’t put your city name in the company, because if you try to expand to another city, it won’t work. If Jeff Bezos had used “OnlineBooks” instead of “Amazon”, it would have been much harder to expand past books.

It should denote trust, authority, and expertise. A high-quality name is more important than having the exact name in your URL. You want the name to convey something meaningful and positive related to the business. Tesla is a name that does a great job of suggesting electricity and technical prowess. Names like “Google”, “Yahoo”, or “Zappos” are appealing because their catchiness, but they cost a lot to brand.

Avoid acronyms like “BMW”. These are hard to remember.

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