Summation

Fake it until you make it -- The tried and true way of starting a high-tech company

Successful Companies Iterate
What most people don’t understand about technology companies is that very few actually  end up doing what they set out to do. And even fewer make money how they thought they would make money. Either because of market changes, technical obstacles, or a general lack of product-market fit, things hardly ever go according to plan.

In fact, the only thing you know for sure about an early-stage business plan is that particular plan will almost definitely not happen.  

Which means almost all initial ideas for a high-tech company are bad ideas. In fact, it is really hard to see the great ideas unless you are in the thick of it working hard with your team.

Take PayPal for instance. Despite the company’s ubiquity today, PayPal only became successful after changing their business model five times and changing company name four times (the original company was called Fieldglass, which changed to Confinity, then PayPay, then X.com, before finally settling on PayPal).

If you really want to start a technology company, there is only one tried and true way: fake it until you make it.


The Three Things Needed to Start a High-Tech Company:

•    Moderately good idea
First, you need to come up with an idea that is compelling enough to attract a strong team. Before pitching it to other people, make sure that you yourself actually believes in the idea (although there’s 99% chance it won’t work): it’s difficult to convince others unless you believe in it first

•    Strong team
Next, you’ll need to build a strong founding team that not only believes in the idea, but can also execute and iterate around it.

•    Money
After the first two requirements are in place, you raise money to start executing on the idea. Money will help you buy technical infrastructure and hire more great people, and will give you flexibility to iterate around an idea.

Then you iterate.  And iterate some more.

“Stone Soup” Entrepeneurs
Starting a high-tech company shares many similarities with the stone soup fable.  In this story, a hungry traveler visits a village with nothing but a large stone.  The villagers ask him about the stone and he says it is the main ingredient for creating stone soup.  He then convinced the villagers to create stone soup by first getting a large cauldron and inserting the stone.  Then, he convinced them to fill the cauldron with water, then chicken, then vegetables, then spices and flavoring until the soup was complete and the entire village benefited from the stone soup.

As an entrepreneur, your goal is to – with only a stone for an idea – convince others around you to grow the company by faking it until you make it.


Special thanks to Michael Hsu for his edits.

Great WSJ article on Settlers of Catan

A reporter from the Wall Street Journal read a blog I wrote last month on how Settlers of Catan is the new golf and she wrote a story on it:

An Old-School Board Game Goes Viral Among Silicon Valley's Techie Crowd
http://online.wsj.com/article/SB126092289275692825.html

and here is a great video that the Wall Street Journal put together:

How to hire passive candidates (a guide for start-ups)

Actively recruiting can be better than referrals

This article is based on one I originally published in BusinessWeek on Dec 9, 2009. 

Hunting for the ideal job candidate? Ask any hiring managers and they will very likely give you a ranking system for would-be hires. Lower on the list are those actively looking for a job. High on the list are employee referrals.

Unfortunately, it can be difficult to elicit employee referrals on a broad enough scale. First, employees know only so many quality candidates. Second, if you have a very rigorous hiring process, employees will be loath to refer people unless they are sure that person would get strong consideration.

What's a hiring manager to do, then? One way to get a steady flow of high-caliber applicants is to actively seek them out. Instead of only relying on employee referrals and active job-seekers, companies should spend more time identifying, nurturing, and recruiting so-called passive candidates, people who are perfectly happy in their current job but would move to a new company if they felt there was higher growth potential. While these candidates might not have the same qualifications as employee referrals, they can be found on a wider scale.

Recruiting passive candidates can be an involved and difficult process. Because passive candidates are not looking at job boards such as Craigslist and Monster.com, you need to think of creative ways to reach out to them directly.

Web Recruiting Strategies

My hunch is that at most companies, the mix of job applicants is something like 80% active candidates, 10% passive, and 10% referrals. A better mix would be 30% active, 60% passive, and 10% referrals. Here are some strategies for boosting your pool of passive candidates, using the Web and social media:

• Seek great people. Companies can seek out great people on sites such as LinkedIn, XING, and other professional social networks. These sites house millions of passive candidates and include tools that let would-be employers search for candidates by geography, skills, interests, and a host of other criteria. It may be time-consuming to message each person you consider a good candidate, but it is among the most effective strategies.

• Advertise to candidates. Instead of posting a job announcement that will only get read by active job-seekers, try to find passive candidates while they are surfing the Web. Google famously posted a candidate-seeking math puzzle on a billboard alongside the 101 in the San Francisco Bay Area. Those who don't have tens of thousands of dollars to spend on a billboard can advertise by purchasing keywords that possible candidates might be searching for online. For instance, my company, Rapleaf, is always looking for people who are interested in Hadoop, an open-source software framework that supports applications running across multiple, distributed computers. So we purchase ads that will appear when people search for keywords associated with Hadoop. The approach has helped us find qualified candidates.

• Continually remind great people. Once you find people and drive them to your careers page, you'll want to continue to remind them about your company. That's because most passive candidates who visit your careers page will only be browsing and won't submit a résumé. A great way to continue to remind passive candidates is through retargeted ads—ads that follow the passive candidate wherever she or he goes on the Internet (like on the Huffington Post, Yahoo Finance, and CBS Sports). Rapleaf uses Retargeter.com, which helps you deliver ads to your site visitors as they navigate to other sites. It has huge reach because it works with Yahoo's Right Media, Google's DoubleClick, and Fox Interactive. (full disclosure: I am an investor in Retargeter.com.)

• Encourage others to refer candidates to you. Ask all your employees to put a footer in their e-mails reminding people that their company is hiring. My e-mail signature says "Note: we're hiring amazing engineers, BD people, and a star Ops person … refer a friend and get fully paid trip to Hawaii for two." Another great tool is to have employees use their status lines on Facebook, Twitter, LinkedIn, MySpace, and other social networks to let friends know their company is hiring. A great status update might be something like: "I love my job: come work with me" with a link to your careers site.

• Stay in touch with past applicants. You may also want to consider sending occasional newsletters or other communications to people who have applied in the past but, for one reason or another, didn't get the job. They may be just the right fit for a new opening, or they may at least know of a qualified candidate.

Ultimately, a company's best asset is its people, and filling open positions with top-notch people gives your company the best chance to continue to grow and innovate, which is especially important during these down times.

(special thanks to Michael Hsu for his help writing and editing this article)

The best books of 2009

Here are three best books I read (or listened to) in 2009:

 

Third Place:

The Age of the Unthinkable by Josh Ramo

http://www.amazon.com/Age-Unthinkable-Disorder-Constantly-Surprises/dp/0316118087

This is one of the few foreign policy books that takes an entrepreneurial and data-driven approach.  It should be required reading for everyone in the foreign policy establishment.   It is Clash of Civilizations meets Freakonomics meets Rules for Radicals.  

 

Second place:

The Good Book by David Plotz

http://www.amazon.com/Good-Book-Hilarious-Disturbing-Marvelous/dp/0061374245

This is a great book about a guy who reads the entire Old Testament and writes what happened chapter by chapter.   This is especially good for people that don’t read the Bible regularly or people who are not religious.  I found it really fascinating.  And Plotz is a great writer who is very funny.

 

First Place:

Justice by Michael Sandel

http://www.amazon.com/Justice-Whats-Right-Thing-Do/dp/0374180652

Sandel is a Harvard professor who teaches the most popular undergraduate course in the school (class is on ethics, society, and philosophy).  The book essentially summarizes his class material.  It is awesome and thought-provoking.  This book is absolutely fantastic and will keep you thinking and debating with your friends.  This book is especially great if you haven’t read all the major philosophers (this was my first introduction to many of the well-known philosophers).  

 

Also: I just started Superfreakonomics and it is really good.

 

Entrepreneurs guide to getting a health insurance plan

With all this talk about health care reform, here is one entrepreneur’s thoughts on how to choose a health care plan that fits the needs of your employees.

Understand your employees
The type of health care plan you’re looking for depends on who your employees are. If they are generally healthy, you might need a different plan than if they are more prone to illness and health needs.  If your employees have higher salaries, (like at an Internet company) you can offer a more flexible health care plan than if your employees are lower-salaried or paid hourly.

Group policies are usually more expensive than individual policies
There is a huge myth that employers pay less than individuals for health care.  That’s only true for people with chronic illnesses or people who are very large consumers of health care.  For a relatively healthy person, a group policy plan costs roughly twice as much as an individual policy plan. (If you hire an employee who is used to paying for health insurance herself, she might be bewildered what the company pays for her.)

The reason why employers pay more for group plans is to offset the insurance company’s risk for future hires. Because insurance companies guarantee their premiums no matter who a company hires, they will charge more to cover the future employee with high health-care needs and in doing so, raises the premiums for everyone.  This is especially true for small companies who do not have tons of employees to lower the average cost from one potential high-cost employee.

HSAs are awesome
Health Savings Accounts (or HSAs) are essentially flex-spend IRAs that helps individuals save approximately $3000 per year tax-free on anything medical spending (including contact lenses, eye doctor and dentist visits, etc.). And unlike their ugly cousin, the Medical Savings Account (or MSA), you don’t have to spend the money you put into an HSA in that calendar year -- anything you don’t spend rolls over to the next year.  The main issue with HSAs is that they are only legal with certain (usually high-deductible) health care plans. However, their benefits more than warrant the effort in finding a plan that makes HSAs a reality.

Tip: sometimes it is hard to know which expenditures are health related and which ones are not.  For instance, is an aspirin purchase health related?  Sites like drugstore.com make the decision is made for you – you enter in credit card info for both your HSA and normal credit card and they will automatically deduct them accordingly. 

“Health care” or “health insurance”

Do you want to get a plan that covers all the little health related issues, or do you want insurance that covers just high-cost things?  I personally think insurance is much better for people at a high-tech company where salaries may be higher, especially since little of the insurance costs are covered by employees themselves.  These plans are generally called “high deductible plans” since the employee has to cover the first $3000 - $5000 of expenses in the year.  While that may be a lot to cover, insurance plans come with massive flexibility – you can go to almost any doctor or specialist you want without having to go through referrals or waiting.  And if anything bad happens, the insurance covers ALL costs over the deductible.  So if your employees are well-paid, this is a good plan because it has maximum flexibility, is much lower cost, and can be paired with HSAs. 

Companies with more hourly workers will have to make a different calculation.  In their case, health “care” might be more appropriate because the hourly worker might not be able to afford a $300 doctor test.

Summation: look closely at your employees and make a health plan accordingly. 

(Special thanks to Michael Hsu and Jenny Oh for helping edit and research this blog on health care)