Category: Entrepreneurship

Why to Start a Startup in a Recession

Water Fountain in Vienna This is one of those must-read essays for entrepreneurs. Paul Graham recently wrote a piece called “Why to Start a Startup in a Bad Economy” that I found pretty damn inspiring. His opening lines:

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.

When Microsoft and Apple were founded.

If you’re feeling any doubt about these economic times, that opening ought to shine a ray of hope on you. A lot of companies have started in tough economic times.

His entry has sparked a lot of discussion too:

  • From Don Dodge: great talent is more available, raising money is still possible (though a bit harder), and supplies are cheap.
  • From Fabrice Grinda: there will be fewer competitors right now, decrease your burn rate, and be patient.
  • From Robert Scoble: have a business model that helps customers save money, diversify your customer base, look for new distribution channels, etc.

All are good ideas and worth considering.

I’ve also got more tips on how your small business can save money during a recession. It’s totally possible, it just requires more operational & financial discipline. And take heart – you could be the next Microsoft (MSFT) or Apple (AAPL)!

How Small Businesses Can Save Money in a Recession

Newstand Speaking of saving & making money in a recession, entrepreneurs can do it too. It requires some financial discipline, but it’s certainly possible. Countless businesses and smart entrepreneurs have done it. You can too.

Here’s how:

  1. Buy Cheap

    Prices fall in recessions. That means it’s a great time to go shopping for cheap supplies, raw materials, and services. Outsourcing sites like Elance and oDesk can help you find lots of affordable contractors. A year ago, I saw software developers on Elance going for $40/hr. Now, the cheapest ones are $12/hr. The downside is that quality can vary significantly. So caveat emptor.

  2. Renegotiate Your Vendor Contracts

    This is a good time to renegotiate all of your vendor contracts for lower prices. Chances are, many of them will be willing and able to lower their prices to keep you as a customer. Try to lock in these prices with long-term contracts too (assuming you’ve got enough in the bank), so you can benefit from these lowered prices when the economy improves.

  3. Hire the Best

    It’s layoff season. That means there will be a lot of good talent on the streets. Look for them and woo them. Do everything you can to keep those smart individuals around, so that they’ll continue being there after the recession. It’s a great time to find great talent.

  4. Learn Financial Discipline

    Tough times call for strict discipline. This is what separates the script kiddies from true programmers, the boys from the men, the girls from the women. Learn how to bootstrap, trim the fat, and make smart choices. Ask yourself how each decision will benefit your business. Don’t just focus on the short-term either, tempting as that will be. The financial discipline you’ll learn now will benefit you when the economy rebounds.

  5. Impatient for Profits, Patient for Growth

    Though this is very counter-intuitive to many Web 2.0 companies, the book The Innovator’s Solution advises entrepreneurs to be impatient for profits and patient for growth. This, in my humble opinion, is great advice. If you don’t have a real business model, you don’t have a real business. At best, you have an “Acquire Me!” business, which is a horrible model, especially in a recession.

  6. Negotiate Your Credit Card Rates

    This tip works for both personal and business credit cards. Lots of credit card companies will give you a lower interest rate if you just ask. So ask! Every little bit of savings can help.

  7. Look Into Recession-Proof Businesses

    Some industries aren’t as affected by recessions as others, such as health care, funeral parlor, debt collection, and repair services. Repair services are good because people want to maintain what they have instead of buying something new. If your existing business can be extended into any of these areas, give it some consideration.

  8. Be Creative

    Be creative about your marketing, your products, and your services. Think outside the box for new customer solutions. As you increase your financial discpline, you should also increase your creative solutions. Perhaps it’s engaging in a catchy PR campaign or creating a viral marketing piece. Or a streamlined development process or distribution channel.

  9. Treat Your Customers Very Well

    If you aren’t getting any new customers, treat your existing customers really well. (Honestly, you should be doing this already.) Any practices you start here could be the start of new customer service practices later. Customer loyalty will come in very handy at a time like this.

  10. Prioritize, Prioritize, Prioritize

    Finally, be strict about your true priorities. What is absolutely critical to you? Every decision you make has trade-offs. If you really want those product features or direct mailers, think long and hard about the trade-offs you’ll be making – more design & development time in creating the feature or more design & supply cost in creating the direct mailers. Make a strict priority list and stick to it.

Another benefit of a recession is seeing weaker competitors drop out of the race. Businesses who don’t learn financial discipline won’t survive. So if you have a spend-happy competitor who’s been creeping into your market, don’t worry – they’ll soon be gone.

Do you have any other money-saving tips for entrepreneurs?

If You’re Not Failing Regularly, You’re Not Trying Hard Enough

I love great quotes. I’ve been reading the fantastic & inspiring book, Founders at Work by Jessica Livingston.

The book is basically a collection of interviews. In it, Livingston speaks with the founders or founding members of companies like Flickr, del.icio.us, PayPal, Hotmail, Blogger, Bloglines, Craigslist, Firefox, Six Apart, 37Signals, Hot Or Not, TiVo, WebTV, Adobe, Apple, Lotus, Groove Networks, Fog Creek Software, Lycos, Yahoo, and more. Quite a list, huh? Yea, I know.

I’m currently reading the interview with Stephen Kaufer of TripAdvisor. One line Kaufer said really struck me:

If we’re not failing at something on a regular basis, we’re just not trying hard enough.

He’s not saying you should be coming up with failures all the time. He’s saying you shouldn’t be afraid of failure. Let go of the fear. Be bold and try something crazy.

On the Web, you’ll soon know if a crazy idea is good or bad. It’s relatively easy to quickly deploy a new feature, get feedback, then pull it if it sucks. But if you hold back the idea because you’re afraid of, I don’t know, whatever, then you may have just held back a revolutionary idea.

Fortunately, companies like Blogger, del.icio.us, and Flickr didn’t do that. If they did, think of what they would have missed. What we would have missed.

How to Name a Business

Naming a business can be as hard as naming a baby. Well, maybe not AS hard. But it’s still pretty damn hard.

I’ve been reading Seth Godin’s Small is the New Big and came across his collection of riffs on business naming. Fortunately, he blogged about these as well, from as far back as 2003. (Hey, did he just grab blog posts to make his book??)

Here’s what Godin recommends:

  1. A name that is too descriptive could be too limiting. The less it has to do with your industry, the better. International Postal Consultants is too limiting. Starbucks, Nike, & Apple are good.
  2. Use real English words. Axelon & Altus are bad. Jet Blue, Ambient & Amazon are good.
  3. Make sure it’s easy to spell and pronounce. Prius is a bad name because it can be tricky for some people to spell and pronounce.
  4. Don’t obsess over getting a short name just so you can have a short domain name.
  5. Add a descriptive tagline. Like “Lemonpie, the easy way to learn scuba”.
  6. A name should be unique enough to appear in a web search without a lot of competitors and flexible enough to gain a secondary meaning if you wish to expand your brand.
  7. If you’re creating a whole new product or service, give it a whole new name, not an incremental one. Sneakers is better than athletic shoe.
  8. If you have lots of products and services, come up with a clear naming hierarchy, so customers can understand your offerings. Honda, Honda Civic, and Honda Accord are good. Apple, Apple iPod, and Apple Powerbook are bad, because the “i” prefix isn’t consistent or defensible.
  9. Names with generic words like Central, Land, or World are meaningless. They add no value and are difficult to defend.

Godin’s blog posts:

How to Publish a Popular Non-Fiction Book

Kathy Bates in the movie Misery So you want to write a book, huh?

A few friends of mine are interested in writing non-fiction books. I myself am also an aspiring author and would love to pen something when I retire, though I haven’t decided if I want to do fiction, non-fiction, or both.

In the meantime, to help all of us along, I threw together this guide for aspiring non-fiction writers.

  1. Write one chapter

    Start out by writing one chapter. It doesn’t necessarily have to be the first chapter—any chapter will do. This will be a representation of what your book could be. It doesn’t even have to be perfect—editors will help you polish your book later. Doing this will also jump start you into action.

    If it helps, write an outline for your entire book too. For non-fiction books especially, this tends to help. Your outline can lay out all the chapters, sections, sub-sections, whatever. It can also help you structure your research and any interviewing you may want to do.

    One formula I’ve seen work in contemporary books like Tipping Point, Blink, Freakonomics, Emotional Intelligence, Social Intelligence, Wisdom of Crowds, Fooled By Randomness, The World Is Flat, etc, is:

    • Start the chapter with an anecdote. The personal, “human” angle draws people in.
    • Go into the guts of the theory, the whats, hows, whys, etc.
    • Back up the guts with any data & research studies/reports you’ve found.

    You can pick up a book like Blink and read the first chapter to get a feel for how it’s structured. That will give you a good idea of how to organize a chapter. It’s a contemporary formula that seems to work for the mainstream audience right now.

    If you find yourself in a flow and want to write more than one chapter, go for it.

  2. Find an agent

    This part is kind of tedious. You’ll need to look through a combination of books & websites. On the web, there is WritersNet.

    Bookwise, there is Writer’s Market and Literary Marketplace, both of which you can flip through in a bookstore. The Guide to Book Publishers, Editors, and Literary Agents is also a good guide on selecting the right agent.

    Basically, you want an agent who does books similar to yours. Try to avoid agents that charge you a fee if possible, unless that agent seems to really kick ass. Make a list of 15-20 agents.

  3. Write a query letter

    Next, you’ll need to write a short letter to each agent. This letter serves as a hook to catch them and reel them in. Just make sure you avoid cliches and ending your sentences with prepositions. You can find some good outlines for query letters online.

  4. Send out query letters

    Send out your query letters to all 15-20 agents you’ve found. Some agents will request specific items, like sample chapters or a synopsis/outline/proposal/etc. Tailor your submission to each agent with the items requested.

    If one asks for a sample chapter, just send him/her one, even if you’ve written more. What you want to do is to give the agent a representation of what your book could be. Agents don’t care to read your entire manuscript right now. They’ll have editors to do that later.

  5. Wait then follow-up

    Remember, you only need 1 agent to say Yes to you. Expect many rejections. That’s just part of the biz. As you wait, go forward and write more chapters.

    Give yourself a month, then follow up with each agent politely. If they still don’t respond, then assume they’ve passed on your book. After two months, if you’ve still gotten no acceptances, start at step #2 again and find another 20 agents.

    I’ve read stories about how some writers plaster their walls with rejection letters. Even popular authors could warm themselves all winter with a fireplace and these letters. So don’t lose heart. The name of the game here is tenacity and perseverance. You’ve come too far to quit now!

    There are lots of good online guides that describe the proces of finding an agent. About.com has a good one—just ignore the part where this guide says you need a finished manuscript; that’s not true anymore.

  6. Work with your literary agent

    Once you’ve secured an agent, he/she will walk you through the rest of the book publication process, like finding a publisher, getting an advance, and getting editors to help with your writing. Be respectful of your agent, but remember that they’re working for you, not the other way around. They make money if you make money; you’re their boss.

If it sounds daunting, it is and it isn’t. I have a few friends who are published. They described the hardest part as doing all the writing and research. And it’ll be worth it once you’re on Oprah! (Make sure you jump onto her couch too.)

Good luck! Don’t forget to thank me in your credits!

Ridiculous Small-Business Plan Encouraged By Friends

Now for some Friday fun. This just in from the fabulously accurate and oh-so-informative news source, The Onion:

Due in large part to the encouragement of her so-called friends, 34-year-old Karen Sabin quit her steady job to make and sell homemade gourmet dog biscuits out of her home, the former hospital receptionist told reporters Monday.

It’s a heroic story of a small-town girl finding her entrepreneurial passion with the encouragement of her friends.

Sabin said she arrived at the idea of producing gourmet dog biscuits in May, not through careful market research, but through a discussion with [her friend Angie] Anderton.

Who needs market research when you have friends like Anderton?

In the past three weeks, Sabin has given out nearly 60 dog biscuits and sold almost twice that many, all to friends. By conservative estimates, unless she experiences a 4,000 percent increase in sales, Sabin will be forced out of business before the end of the year.

A 4,000% increase really isn’t that much. It’s like 4%, but with 3 zeroes behind it. When you look at it that way, it’s not so bad.

We all could learn from brave entrepreneurial Sabin here. Got an idea and some encouraging friends? It doesn’t matter if the idea sucks or not. Quit your job and start at it!

Props to: Eric Rodriguez

A Quote from Abraham Maslow

Every so often, I come across a quote that hits me smack in the forehead. Ouch!

I’ve been reading Peak: How Great Companies Get Their Mojo from Maslow by Chip Conley and when I hit Part Four, I went, “Ouch!”

In the introduction of Part Four, Conley includes this quote from Abraham Maslow:

The difference between the great and good societies and the regressing, deteriorating societies is largely in terms of the entrepreneurial opportunity and the number of such people in the society. I think everyone would agree that the most valuable 100 people to bring into a deteriorating society would be not 100 chemists, or politicians, or professors, or engineers, but rather 100 entrepreneurs.

If you’re an entrepreneur, know that you have the grand opportunity to improve society and make a real impact on our everyday lives.

Top 10 Reasons To Quit Your Job

Why are you still there? You know you want to quit, yet you’re still hanging around. Is it for the money? The free snacks? Or perhaps you’re a glutton for punishment.

Within the technology & Internet industries, it’s become normal to jump around a bit. So when do you know it’s time to jump? If most of this list applies to you… then jump!

  1. Most of your coworkers don’t wash their hands after using the bathroom (especially after a number 2)
  2. The company cafeteria is skimping so much that you suddenly notice all the cats in the neighborhood are gone
  3. Your company is doing so poorly that you’re embarrassed to tell people where you work
  4. You fantasize about a meteor striking your company headquarters, just so they’d have to shut down and give you a few days off
  5. There’s a personal stash of alcohol/pot/cocaine in your desk for those extra-hard days
  6. You bring novels or magazines with you into the bathroom and read read read
  7. You’re so bored that you spend most of your day playing games on Facebook or watching free South Park episodes
  8. You only attend the meetings with free food; every other meeting, you skip with the excuse, “I’m too busy”
  9. You’ve gotten really, really good at foosball
  10. You start posting Dilbert cartoons all over your cube

It’s time to quit! You know it!