Startup: An Insider's Guide to Launching and Running a Business (27 page)

Here are some thoughts on evaluating an offer:

• Make an effort to distinguish between emotion and reason.
  
• Use tools outside of your own thought to help you to establish a depersonalized perspective—market data, advisor input, analysis spreadsheets.
  
• I always anchor my considerations on the big-picture scale, and then work my way down to the details. My process starts with finding an answer to the simple yet profound question, “How much is enough?”
  

Also, notice the explicit difference between “How much is enough?” and “How much can I get?” Economists will tell you that maximizing outcomes is the purpose of negotiation in the marketplace, but this is not just a money question. I suggest that you evaluate this question in a multidimensional fashion:

• Financ
  e: How much money is enough?
  
• Time
  : Will this deal position me with enough time to do what I want in the next stage of my life?
  
• Future opportunity
  : Will this deal position me well for my next career step?
  
• Stability
  : Does this deal create aggregately more or less stability? Is stability even important to me?
  
• Emotional satisfaction
  : Does this feel like a fitting move in terms of how I want to write my own story?
  

_________________

Handling Employees During a Transition

If you are negotiating a buyout or merger, your employees will likely know something is going on, even if you are trying to keep it low profile. Transitions are scary, and what will happen is that in the absence of specific and consistent messaging from management, your employees will be forced to imagine some of the worst scenarios and begin preparing for them (getting fired or laid off is primary among these). While severance of employment for team members often goes along with acquisitions, it is the solemn responsibility of management to communicate truthfully and as openly as possible with the team as the process unfolds.

My objectives in this regard are as follows:

• Be as open as possible with information. Speak frequently and personally with individuals who want to know what is happening.
  
• Take care of employees in a fair and generous way.
  
• Allocate extra compensation for key team members if you need to ensure their stable participation through the transition.
  

_________________

Exit or Operate?

The idealized version of the fairytale startup sounds something like this: A couple of guys have an idea and build it in their mom’s garage over four grueling months. They roll the product out, it catches the market’s attention, and 18 months later, they have multi-million-dollar buyout offers rolling in. They take an offer, and live happily rich ever after.

An alternative, less media-worthy version follows. A couple of guys have an idea and build the first version of it in their mom’s garage over four grueling months. They roll the product out, starting small, and they build up a loyal following of customers. They enjoy the business so much that it never even occurs to them that they would want to sell. They do take investments (in exchange for a minority stake in the business), which they use to professionalize their operation:

1. They move into new offices.
   
2. They carefully hire staff, including managers (that they know are smarter than they are), and begin sharing the burden of running the company with a team.
   
3. They position key staff members in roles that quickly get their business to self-managing status—freeing up the founders to focus on as much or as little of the operation as they desire.
   
4. They produce a steady income from the business that allows them to do whatever they want, inside or outside of their successful startup.
   

I think that the social commentary on the “big deal” may overemphasize selling out. Until the last several decades, the main purpose of building a business was to simply have a business, which meant building profitable relationships with customers, and building a team to do good, fulfilling work. As many find, the greatest joy is in the journey, not the destination.

_________________

Exit, and You Are Just Going to Want to Be In Again—Soon

Retirement, leisure, and the proverbial hammock on the beach are overrated, but they are great as a contrast to a period of accomplishment. They’re the yin to the startup’s yang. But all the time? No way (not for me anyway). For me, leisure only has meaning as an occasional contrast to building and working.

Notice all of the ex-startup folks that are now VCs and angel investors, interviewing and working with startups. One of the primary reasons for this is the thrill of the chase. The game is complex, primal, and exciting—carrying just the right mix of thinking, execution, luck, and potential financial upside to provide a powerful cocktail of emotional rewards for the participants. The lure of this game doesn’t simply go away once you have made a some money by selling a startup. My read on this is that the ex-startup guys out there looking for ways to play are somehow less happy than the guys who are all-in and playing for everything.

There are few things that can make you feel quite as alive as being involved in a startup, feeling the high stakes and having a lot riding on how well you and your team match the current of the changing market. Live it. Enjoy it.
¹

__________

¹
Find more resources on startups and business at the companion website for this book:
http://startup-insider.net
.

Index

Symbols and Numbers

80/20 rule,
133
–
134

A

actions, specific intention for,
36
–
37

active iteration,
43
–
46

agility

preserving,
54
–
55

vs. process, tension system,
139

always asking,
134
–
135

analysis, vs. quick decision-making,
140
–
141

attractive business, for selling,
166
–
167

B

basics win ball games,
27
–
28

bell curve,
153
–
155

big boss,
12
–
13

bootstrap mentality, of entrepreneurs,
19
–
21

bozo factor,
74
–
79

positional differentiation,
76
–
77

structural differentiation,
77
–
79

brand sacrifice,
128
–
129

business

defined,
7

entrepreneurs

bootstrap mentality of,
19
–
21

concentrated effort,
15
–
16

connecting ideas with customers,
5
–
6

defining business,
7

vs. employees,
8
–
9

guiding vision for,
17
–
19

impact on personal life,
21
–
26

intrinsic motivation needed,
16

kinds of work,
11
–
14

launch strategies,
9
–
11

making people care,
6
–
7

and resonance,
1
–
4

exiting,
163
–
176

and due diligence,
170
–
171

earn-out agreements,
171
–
172

emotional aspect,
172
–
173

and front man,
168

handling employees during transition,
174

vs. operating,
175

preparing from start,
165

and relationships,
167

retirement is overrated,
176

selling,
166
–
170
,
173
–
174

vs. hobby,
65

selling

evaluating offers,
173
–
174

getting people on your side,
168
–
170

making business attractive,
166
–
167

reasons for,
166

C

changing perspective,
156
–
157

chunking

down,
156
–
157

up,
156

clients, diversifying,
33

climbing mountains,
87
–
88

communication,
119
–
130

brand sacrifice,
128
–
129

context markers,
129
–
130

and experts, establishing context,
127
–
128

frequency and duration of,
126
–
127

"I don't know" is powerful statement,
122

multiple layers of,
120
–
121

never assume,
121
–
122

with pen and paper,
124
–
125

repetition,
119
–
120

Valerie example,
122
–
124

complaints, from customers,
56
–
58

complexity of world,
132
–
133

constraints, triple,
144
–
147

quality plus features,
146

quality plus speed plus features,
146
–
147

speed plus features,
145

speed plus quality,
145

context markers,
129
–
130

contracts, using,
46
–
49

core lessons,
27
–
59

active iteration,
43
–
46

basics win ball games,
27
–
28

controlling money,
50
–
52

customer complaints are like gold,
56
–
58

delegating,
38
–
42

self-determining level,
41
–
42

self-regulating level,
41

determining market demand,
37
–
38

diversify,
31
–
33

distribution channels,
32

key employees,
32

large clients,
33

multiple lead sources,
32
–
33

redundancy,
31
–
32

dollar exercise,
58
–
59

hope for best, plan for worst,
52
–
54

intellectual property is important,
49
–
50

mistakes are inevitable,
55
–
56

more money will be needed,
42
–
43

no partial credit,
28
–
31

preserve agility,
54
–
55

specific intention,
33
–
37

for actions,
36
–
37

for investment decisions,
34
–
36

using contracts,
46
–
49

CPA, extended team,
116
–
117

customers

complaints from,
56
–
58

connecting ideas with,
5
–
6

getting to know,
80
–
81

D

delegating,
38
–
42

self-determining level,
41
–
42

self-regulating level,
41

distribution channels, diversifying,
32

diversifying,
31
–
33

distribution channels,
32

key employees,
32

large clients,
33

multiple lead sources,
32
–
33

redundancy,
31
–
32

dollar exercise,
58
–
59

domain knowledge,
161
–
162

drama, enjoying,
162

due diligence, when exiting business,
170
–
171

duration, of communication,
126
–
127

E

earn-out agreements,
171
–
172

emotional aspect, of exiting business,
172
–
173

employees

diversifying,
32

vs. entrepreneurs,
8
–
9

friends as,
106
–
108

handling during transition,
174

managing differently,
105
–
106

for team,
101
–
102
,
110
–
111

that are motivated,
112
–
113

entrepreneurs

bootstrap mentality of,
19
–
21

concentrated effort,
15
–
16

connecting ideas with customers,
5
–
6

defining business,
7

vs. employees,
8
–
9

guiding vision for,
17
–
19

impact on personal life,
21
–
26

financial,
21
–
22

health,
25

life on hold,
22

resources,
25
–
26

time involved,
23
–
25