18 Responses to “9 Startup Steps, Learned over 22 Years”


  1. 1 Matt Secoske January 28, 2010 at 11:45 AM

    Your ssn is a tax id, but not for partnerships or corps (iirc). Only works for sole-proprietorships.

    Also, I am not a lawyer. 😉

  2. 2 Michael Buffington January 28, 2010 at 12:03 PM

    I’ve basically done all of these steps myself at least once and wanted to share some thoughts.

    1. Partners.

    Partners are great. But be aware that partners that start out as best friends often end up as worst enemies. Partners that start out as two different people with varying approaches to problem solving, but also share the same values and principles can work very well, even if along the way you are never truly “friends”.

    Statistically speaking, startups where the founders have equal founding equity fail more often than those with unbalanced founding equity. (I tried finding the research article suggesting this but couldn’t)

    There are a lot of possible reasons for this, but in my experience it seems that it’s related to who calls the shots. There’s a lot of tension between founders, both good and bad.

    When the split is 50/50, founders are less inclined to conceding to one another when opinions deadlock, whether they’re aware of it or not. When the split is say, 65/35, it’s much easier for the the 35% stakeholder to provide just enough criticism and influence, but concede to following the larger stakeholder, whether they’re aware of it or not.

    Here’s a good article on how to pick a good partner:
    http://venturehacks.com/articles/pick-cofounder

    2. A bookkeeper/CPA/Accountant

    If you had to choose only 1 of the 9 steps, this would be the best one to choose. At least for the first year you can “be a business” at least in practice without having a partner, a business bank account, a corporation, etc, but you would be wise to find a good account early.

    They enable you to worry about what you do to make money without having to worry about balance sheets and the mountains of record keeping complexities that can dominate your time cripple your ability to make money (ironic eh?).

    They’re also an investment. They help you avoid problems in the future. They help you land investment. They help keep you safe from the IRS (which will gladly destroy a startup in pursuit of taxes).

    3-9. Do these as soon as you can, but not at the expense of making money. If you need them to make money, then yeah, do them. If you’re going to spend 3 months bogged down in paperwork getting a business bank account, wait until you can afford to hire a part time CFO to do that for you (they do exist) so you can focus on what *you* do.

  3. 3 Logan Leger January 28, 2010 at 1:41 PM

    Great advice! I think it was a great idea to wrap it up in a blog post too — this will be handy reference for the future. Thanks again.

  4. 5 krobertson January 28, 2010 at 2:03 PM

    Very useful post! Enjoyed reading.

    Would also recommend getting a mailbox of some type, like from a UPS Store or EarthClassMail. One you go online, you don’t really want your personal address/phone number showing up in your WHOIS record. And I don’t always trust a company that chooses to use those privacy services from registrars.

    I tend to dislike PO Boxes, simply because they look less professional. But aside from that, having a UPS Store type box is useful. You can ship things there and go in anytime to pick them up, not worrying about wether you’re home or not.

    • 6 Lance January 28, 2010 at 3:08 PM

      That’s a fantastic idea!

      In the old days, we used our home addresses, but that was a simpler time :-).

      When Engine Yard was young, we used a P.O. Box. I never really liked it for the reasons you mentioned.

      UPS or EarthClassMail are great options nowadays. Another, if you have it, is to use an office address where you know a manager or owner, assuming they’re okay with it.

      Either way, you want a profeesional looking address.

      One thing you also touched on that’s huge: I *hate* businesses that hide! If I can’t imagine where you are and easily know who’s making the product or service, I’m much less likely to do business with you.

      Business is still a personal/emotional exchange with customers. Make your business and the people who run it easy to see and easy to imagine where they are located geographically.

      Chargify still suffers from the notion that we’re all in Boston, when we’re actually in Boston, North Carolina, Colorado, Sacramento, and Portland. And we still need to get our 800 number on the site (I take full responsibility for not getting this done yet).

      People like knowing.

  5. 7 Bhaarat Sharma January 28, 2010 at 2:42 PM

    I think you missed one…”Find customers”. It might not be that impt to you w/ 22 yrs of experience but thats the most important thing an entrepreneur faces while starting out.

    • 8 Lance January 28, 2010 at 3:02 PM

      Yeah, sorry, I assumed finding customers is obvious :-). When I started Parallax in 1987 with my friend, Chip, we made a 1GB RAM card for the Apple IIgs because we thought Apple was charging way too much and I wire-wrapped a card myself and then we perfected it into a sellable item. We took out magazine ads and approached computer stores to resell it. This was all way before the internet, of course.

      My point is that almost any entrepreneur sees a market need and then wants to act upon it and see if the need is real and if the market for that need is decent. Having the basic structure already in place makes it much easier to move when a market is spotted.

      The typical path is to create all this structure when you see the first market you want to pursue, and if that doesn’t work out, well, you’ve got everything in place for whatever is next.

  6. 9 Jebb Dykstra January 28, 2010 at 3:13 PM

    Great blog. I am a entrepreneurs lawyers and also a software entrepreneur. All of these steps are unique building blocks to building a great company. But one point that is NOT really discussed is “getting customers” and getting people who want to pay you for doing something. Customers are the golden key to any successful business. After all these years, I can’t think of anything more important than a happy customer who is willing to pay money for your goods or services. Customers, customers, customers. Or in the case of the internet, User(s), User(s) and more User(s).

    • 10 Lance January 28, 2010 at 3:47 PM

      Absolutely! Getting paying customers is, without question, core to buidling a good business :-). As I mentioned in another reply, I assume that any entrepreneur is reacting to a market need and is therefore able to find at least some customers.

      Most of the companies I have been involved in offered something utilitarian. For instance, when we made EPROM emulators at Parallax or when we made Engine Yard, we were reacting to a clear need. EPROM emulators saved engineers a TON of time, and Engine Yard did the same many years later.

      In both cases, there were magazines and/or internet venues to reach customers and test our ideas. In both cases, the response was good enough to keep going and keep building a business.

      I do have some failure stories, of course. I’ve been involved in products and services where *we* thought we had a great idea but the world didn’t seem to agree :-). In one case, my friend and I tried for 6 or 12 months to find a market segment for our software and no one cared, not even the ones we thought were most obvious users. We should have “failed faster” on that one.

      I guess I’m saying that if you notice a real, utilitarian need, there is a fair chance that you will notice that need within the context of a market and a group of potential customers. Nothing is in a vacuum.

      So, we were doing Rails consulting in 2005-06 and my friend, Tom, noticed that clients were having a hard time with deployment and they just didn’t want to deal with it. Thus, Engine Yard. Or Chargify: all the stuff that surrounds recurring billing was a b**ch for Engine Yard and for our customers, so the need is clear.

      Once the need for EY and Chargify came to mind, finding customers, at least initial customers, was clear: they are app developers and entrepreneurs, who can be reached relatively directly.

      I will admit, when it’s time to reach 50M American households, that’s a whole new ballgame that I’m not familiar with.

      I will also admit that I’ve failed the hardest when I simply thought an idea was cool to me and/or my friends, but didn’t see a clear market need first.

      Unless you’re a visionary like Steve Jobs, I’d stick to solutions to clear needs in an existing market or market segment. Then the finding customers part is clearer.

      Wish I could go back in time and tell myself that!

    • 11 Michael Buffington January 28, 2010 at 4:35 PM

      You need zero customers in order to *start* a business.

      To succeed (if by success you mean being able to stay in business, satisfy the financial needs of employees and so on) you need profits, which means you need a lot more than just customers.

  7. 13 Josh of Cubicle Ninjas January 29, 2010 at 6:55 PM

    Very well written. Great advice too.

    I’d also add:

    • With online shops like LegalZoom you can incorporate and have a tax ID within weeks. They handle all paperwork for a few hundred dollars. After legally building a few businesses with them, I couldn’t recommend them more highly.

    • I feel that both a merchant account and payment gateway are useless today for the majority of businesses. I’d recommend Google Checkout instead through your business account. It is easier for you and clients, less cost (no application fees), and can be cancelled any time.

    • Also, I’d recommend staying away from business credit lines anywhere near the first few years. If your idea is viable you ought to be able to build a solid savings very quickly. Then borrow against this savings like it was a line of credit.

    • Finally, I’m very happy to see that you haven’t recommended VC routes or business plans. VC is wonderful for some folks, but the vast majority of businesses should hold onto their equity and push as fast as possible to become profitable. VC should only be taken as a very last resort, in my opinion. And business plans may be helpful to focus your ideas, but it seems to me to be better to put that energy into the actual product/service.

    • 14 Lance January 29, 2010 at 8:56 PM

      Josh, thanks for the a really thought-out reply… I love it!

      My comments:

      * I wondered about LegalZoom and others like them. I’m old school and still trust an attorney and/or CPA I can sit with, but that’s just me and I might be showing my age :-). Sounds like they’ve worked for you very inexpensively.

      * I would argue that merchant account and gateway are not useless for the majority of businesses today. Most of the economy is still consumers interacting with businesses and using their credit cards for easy, familiar payment. But I see your point.

      * I didn’t say go crazy with business credit lines :-)… I think it’s good to start applying early. QHI took a few years to really get going, and then when I needed credit to buffer payments to my guys, I needed at least $25K, maybe $50K, which would have been tough if I hadn’t started early with $500. I assume what you’re concerned about is misuse of credit/debt early on.

      * Yeah, I didn’t mention VC because I don’t think it should be part of the plan, at least not for the majority of business ideas. Most of us can’t get VC that easily, and an aim to *need* it from the start I think warps business priorities. Satisfy a utilitarian need, get traction, charge your customers, treat them well, grow the business. Take VC if it makes sense later, if ever. Engine Yard started out with no plan for VC, we had growing sales every month, and we were paying our bills. As a young company growing very fast with a lot of capital expenses (this was long before AWS), we did ultimately need VC, but it was much easier to get than if we had pursued it up front, because we had a growing company and years of small business experience before Engine Yard.

      Thanks, again, for your very useful and thought-out comments.

  8. 15 Nigel Hawkins January 31, 2010 at 2:52 PM

    Great site with lots of relevent information
    Glad i found it

    Thanks

    Nigel

  9. 16 Victor March 5, 2010 at 1:21 PM

    Lance,

    I just wanted to say thanks sooo much for this post. I read the entire thing and all of the comments, which were also very insightful. I am graphic designer, who has recently partnered with a web programmer and we are in the early stages of starting our own business. This post is incredible for someone in my position because it offers a clear-cut outline of actions that need to be taken, as well as personal examples and experience. I can’t thank you enough for taking the time to spread you wealth of great knowledge to us newbies.


  1. 1 Damon Cortesi's Blog » This is why I love Twitter. Trackback on February 3, 2010 at 1:54 AM
  2. 2 Think you’re customer obsessed? Measure yourself against Lance Walley of Chargify. | Untitled Startup Trackback on February 5, 2010 at 2:31 AM

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Fun Stuff & Business History


@lancewalley
lwalley@chargify.com

Motorcycles
Birds
Espresso

I co-founded Parallax in 1987 with my best friend. We were both fresh out of high school. We grew from a bedroom operation to a $3M/yr business.

I learned a TON at Parallax! We strugged for several years to find a market we fit, but once we did, were were able to "pivot" (today's term!) into that market and then execute on manufacturing, marketing, and distribution. We didn't even know the term "VC", so we *had* to make money! We took $20K from friends & family and had day jobs to bootstrap those early years.

As I left Parallax in Winter 1996, Radio Shack started carrying our BASIC Stamp computer.

I spent a few years trying to make money in the mobile-messaging space. Unfortunately, I learned lessons about how to spend all of my cash chasing a market that simply was not yet developed enough. I wish I had known about VC :-)! I closed up shop and put up a notice saying "goodbye" to my customers.

Which led to a San Francisco VC-funded startup in 1998. They were in the mobile-messaging space and were on the normal VC route as everyone else back then. Unfortunately, it didn't end pretty, but my friends and I learned a lot through the CEO, who was nice enough to tell us how things worked with his Board, the investors, etc.

I got laid off along with most other tech folks in SF in 2000. What does one do at a time like that? Start Quality Humans, Inc. as a way to offer my programming services to clients. QHI grew to employ 8 guys working around the USA.

My friend and QHI consultant, Tom Mornini, saw Ruby on Rails coming over the horizon, so we started offering Rails consulting. Within a few months, Tom noticed that Rails clients didn't want to worry about details; they just wanted to deploy their apps.

That led me to co-found Engine Yard in 2006 with Tom, Ezra Zygmuntowicz, and Jayson Vantuyl. We built a great business and then took VC after a year from Amazon, Benchmark, New Enterprise Associates, and others. I served as CEO until Jan, 2009, when we started building an executive team who can take EY up a few more notches.

I reflected on major pain points we experienced at EY, and recurring billing was one of them. That led me to Chargify.

In Chargify, I joined great folks from Grasshopper. It's been very cool working with the team as we grow Chargify in 2011.

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