Ideas Posts

The Startup Game

Nivi · June 16th, 2010

Why Games Are Fun: The Psychology Explanation:

“Fun games operate on the principle that our actions will definitely bring us closer to the goal. If you go and slash rabbits (action), you will definitely gain experience points (relation), and you will eventually level up (goal).

“This is the reason so many people, including myself, have failed at difficult, uncharted things like entrepreneurship. There’s no guarantee that our next step will bring us closer to the goal. For example, we could easily invest 6 months into building a product that nobody wants to buy. Now, that specific problem can be ameliorated through processes of customer development, but the general problem still exists.

“If we get a job, we’re probably going to get paid for our labors.

“If we build a product and take it to market, we’re probably not going to get paid for our efforts. So where’s the motivation? It requires a lot of risk, and the human brain is not wired to consider long-term rewards! The nucleus accumbens, which may play a large role in the distribution of the phenomenon of pleasure and reward seeking, is part of the ancient limbic system, which motivates lots of behavior. Long-term goals require premeditated planning by the prefrontal cortex.”

[Emphasis added.]

I think there’s an opportunity to apply game mechanics to:

  1. Starting a startup.
  2. Managing employees in a startup.
  3. Managing teams in general.

Please steal this idea and let me know what you come up with. This would be a great project for a business school Ph.D.

Ideas need not apply

Nivi · June 19th, 2008

There were a lot of good comments on yesterday’s Do you know any idea investors? post. Here’s a few of them.

Michael Staton says:

“I’d say if you can’t bother to build it yourself, get potential customers lined up, build revenue on an easier offshoot, or convince someone else to build it in their spare time, then you should reevaluate whether you are an entrepreneur.”

Luca says:

“The idea is the easy part. If you are a first-time entrepreneur, try scaling down your concept to something whose value you can prove with friends & family money, then go to professional investors. If your idea does not lend itself to such an approach, try your hand first with something you can bootstrap.”

Ben says:

“An idea has a dollar value of $0. If you don’t believe in the idea enough to commit your cash/sweat equity to build it or a version of it to show it can work, why should friends, fools and family?”

Do you know any idea investors?

Nivi · June 18th, 2008

A reader asks:

“I’m an entrepreneur looking for seed investment. All I have right now is an idea and a pitch. I’m presently pitching friends and family and it has been very positive. Do you know any other idea investors I should approach?”

Larry and Sergey had a product and traction before they got their first check from an angel. Investors want to see products and preferably traction unless you already have a significant track record. But,

If you only have an idea.

If you have no traction, track record, or product—if you have nothing but an idea for a product in a large market, the only people who will meet you are:

  1. Family and Relationship Investors: People who already know you and are willing to bet on you, based on your history together. They’re not betting on the company, they’re betting on you. They wouldn’t invest in the company if you were replaced by someone who was equally effective. Todd Vernon calls these people family and relationship investors.
  2. Idea Investors: People who believe there’s a big opportunity to serve the customer because they understand the customer as well as you do. Perhaps they’ve noticed the same opportunity as you but they haven’t done anything about it.
  3. Once Removed Investors: These investors trust or regularly co-invest with one of your family, relationship, or idea investors.

idea.jpgThese investors sometimes have little to no experience investing in companies, but that is not an insurmountable hurdle. You will need traction, a track record, or a product to get meetings with other traditional seed stage investors.

In general, the more you need money, the less likely you are to get it. But making something out of nothing is what entrepreneurs do.

Another option: Cold call funds.

There are a few funds like Y Combinator, Seedcamp, and TechStars who will look at applications from anybody doing anything. But you will probably need traction, a track record, or a compelling product to capture their interest—ideas need not apply.

Salesmen are an exception.

Salesmen are good at getting people to comply with their wishes. That’s what it means to be a salesman. Great salesmen can get meetings and raise money with just a large market and an idea (and maybe a sprinkling of track record).

Also read the exceptional comments to this post: Ideas need not apply.

Free ideas. Just add execution.

Nivi · May 28th, 2008

Go read Mike Speiser’s new blog: Laserlike. Its theme is, “Free ideas. Just add execution.”

Mike recently joined Sutter Hill Ventures as a Managing Director. Before that, he founded Epinions with fellow Venture Hacker Naval Ravikant and founded Bix (acquired by Yahoo).

Ideas

In his second post, Mike writes,

“The theme of Laserlike is that ideas are overvalued. Entrepreneurs spend too much time worrying about protecting their ideas and not enough time launching them!

“I’m going to share my thoughts during my presentation at TiEcon this Friday at 11am, during which I am going to “give away” three of my favorite ideas. I will then blog about those ideas in more detail after the presentation and will continue sharing and discussing ideas openly on Laserlike in the future.”

My favorite idea on his blog is Shadow Market: Money management by the masses.

Execution

Make sure you read Mike’s TiEcon presentation (pdf). The section on execution is invaluable. Here are some of my favorite snippets:

“The real cost of a startup is not career risk, but rather the amount of time and psychic energy they consume.”

“Startups launch to the world too quickly and then lose some of their natural advantage of flexibility by inheriting backward compatibility.”

“Apply the same filter on your investors as you do on your founders.”

“If you have traction, you have a good deal of leverage. Even if you don’t have traction, you are better off boot strapping than going into a long‐term business partnership with the wrong person or firm.”

“While it’s possible to invent a massive new market at the same time as building the market leader in that market, it’s a low probability bet.”

“The winner in your market will likely be the one with the best leader. A startup CEO needs to convince people to make “irrational” bets with their own lives. He needs to convince customers to be early adopters. He usually needs to raise capital and manage risk averse investors. A great group of people with a weak CEO will lose. A strong CEO has a strong grasp of strategy, can sell anything to anyone, and can inspire people to do what they never realized they could achieve.”