Advice on starting your own company
I received several emails asking about advice to start a company. Some students wanted to start their own company when they are still in school; some developers after working in the industry for few years wanted to start their own company instead of working for somebody.
You need three things to start a successful technology company: You must have good idea that people want and willing to pay for it; you must have good people with technical and business skills; and you must have enough money to keep your company to last at least a year. (You must try to spend as little money as possible). Most startups that failed often missed one or more of these three things.
Starting a software company is not easy. If you think that you can start a company to get rich then you are dreaming. Based on industry data, most companies that succeed did not makes its owners rich, it only makes them financial comfortable. Getting rich is an exception. Do not think you can be Mark Zuckerberg or Bill Gates by having a software company.
You must start with an idea; it does not have to be a “Brilliant idea”. The way most software companies make money is to offer people better technology, better solution than they have now. Facebook is not a brilliant idea; it started as a social network for college students to meet each others. Google is not a brilliant idea, it started simply as web search site that help people to find what they are looking for. Microsoft’s original plan was to sell programming languages not operating system. Apple started as an “assemble kit” for electronic hobbyists to build a home computer.
An idea to start a company is only the beginning. The next step is to develop the idea into a product or service that people are willing to pay for it. An idea that has no customer is not a good idea at all. The important is how do you know that people will be willing to pay for them? You can do market research; you can build prototype; you can try in small scale before expand it but it all requires time and efforts.
My suggestion is why not copy the ideas of others? When companies were successful in the U.S., many ideas were “copied” in China, India and Europe and they all did very well. If it works well in one country, it can be easily adapted to another country and language.
When online travel companies such as “Expedia”, “Travelocity”, “Orbitz” were successful in the U.S, other countries copied it and build online travel companies in their countries. China has “Ctrip” and India has “MakeMyTrip”, “Cleartrip”, “Yatra” and “Travelguru”. When “Monster” became the largest online job portals with millions of job posted each day, other countries also copied it. China has “51dotcom” and India has “Naukri”. When “Mapquest” was successful navigation direction website in the U.S. China also developed “AutoNavi” and India has “MapmyIndia”. As “PayPal” was successful online payment company in the U.S. China also developed “99Bill” and India had “PayMate”. The list is endless with companies in different countries using similar ideas of others.
Today Baidu, Alibaba, SINA, Tencent, DangDang, and RenRen were the most successful technology companies in China. Actually they copied the ideas of Yahoo, Google, eBay and Amazon in the U.S. They made some modifications, add few features to fit their culture to attract Chinese users. The same thing also happened in India, and European countries so there is good reason to duplicate these successes elsewhere. Until you come up with unique idea for your company I do not see anything wrong with borrowing successful ideas from somebody who are successful, modify and adapt them to be used in your country and language. Everybody is doing it.
The second thing is having good people with technical and business skills? One of the most common causes for failure in startup company is people issue. It is important to clearly distinguish who are owners and who are employees. Owners own the company and everything; employees get paid for what they do. They may receive some incentives such as stock options and bonus but at the direction of owners. If you start the company with a group of friends, you must have legal document regarding the ownership of the company such as who owns what percentage of the company. Without it, there will be issue when company is doing well. Suddenly everybody wants a larger share of the company’s fortune. If you think that you know about people, you will be surprised to see some will change when the profits or ownership is divided among the group. I knew many small companies began with a group of friends but I often wondered how many were still remain friends after companies went up and down.
In the U.S, most companies start around universities, because that is where skilled people meet and share ideas. If you want to start a company, it is probably that you will start with people you know from college. As students you should try to make friends with as many good people as you can in school. You need to identify who could be trusted and who are not. Another common place is on Capstone projects where you have to work with each others. In this collaboration environment, it is easier to select good people from others. Ideally you want between two and four founders. It would be hard to start with just one. By having two to four, each with complementary skills, you will have more balance in the company than just one.
In most technology company, many founders are technical people but technical alone is not enough. You need business people to keep the company balance. Technical people often make bad business decision as represented in the Dot.com few years ago. Business people are bad at deciding what to do with technology, because they do not understand it well enough. For a company to succeed, you need both. Technical people prefer to work in a pure, intellectual world of software, they do not want to deal with financial or customers’ problems. They need someone who complements their skills by focusing on the aspect of number, of accounting, of finance and customers. However, there is a caution here: One of the things that Steve Jobs regrets was he did not know much about the business or management. He went out to hire the best business executive for Apple so he could focus on technical issues. “Big mistake” he said in his interview, “Without knowledge of how a business works, I allowed him to bring in his friends who took over control of the company. Suddenly I was fired by the company that I created. They gave me a number of stocks worth several million dollars as a reward for my creation and asked me to leave. The next day, I sold all of them, put money in the bank then went home and cried …”
If you look at the richest and successful billionaire on earth, 90% of them are technical people, not business people. Starting from the top 50 billionaires, you have Bill Gates, Steve Jobs, Mark Zuckerberg, Larry Ellison, Larry Page, Sergey Brin, Michael Dell, Jeff Bezos, and Gordon Moore etc. They are all technical people. Only at number 22, you find Phil Knight, the CEO of Nike who is a business person. There are only 5 business person in the top 50 billionaires. The data indicate that today technology rules over business. Successful companies tend to be technology, not business. So if you want to invest in education that will help you succeed later, the evidence suggests that you should study technology than business or finance.
In failed technology company, the number one cause is not technology or idea but the lack of money or “ran out of money”. The reason is many owners do not know how to manage money. Many young people have tendency to spend before they make money. Their reason is due to their immature, lack of experience and big ego. Many consider themselves as “heroes” or “Entrepreneur” and start to act like “Movie stars”. If you look at Bill Gates, Steve Jobs, Marc Zuckerberg or Sergey Brin, you do not see they wear fashionable clothes or having fancy cars. They are passionate about their works, they love technology but do not care about the “glamorous image” that they could have. They live simply like any ordinary people that you meet in any city, any country. Richness does not change them. You have a lot to learn from them.
You borrow money from parents, relatives, friends to start your company. Your capital is limited so you must be very careful with it. Contradict to the theory that there are “Venture capitalists” who will invest in your company in exchange for a part of your business. The fact is most of them do not fund startup company until the company get to phase two. It means they only invest when the company already operates and have customers. The funding is to grow the company, to expand the business to make more money but not to start a company.
If you start a software company, you must get the product or service out to the market as soon as possible. A better way to is get a “prototype” to customers and improve them based on customers’ reactions. My suggestion is to make money first, to have revenues to grow the company before consider any spending.
When most people think of startups, they think of companies like Apple, Microsoft or Google. However, there are millions of “Unknown” companies all over the world. Most occupy smaller markets or exist quietly in the technology industry. They do not make noise, their owners are not well known but they do well for who they are. I have many students who did that, they started companies that gave them comfortable living and most are happy with it. Many started by writing software for smaller market such as mobile applications because it is easier to sell to them. Some specialized in developing websites for other business or online stores. Few have grown their companies to several hundred or thousand workers. They told me that after few years, they have made several hundred thousand to million dollars. No one make billion dollars yet. So if you want to start your company, you may start with something like that, aiming at smaller market and customers.
There are interesting evidences in the history of high technology. Apple started as a small company in a garage but grew to be one of the biggest company in the world. Microsoft started with six people but grew to over hundred thousand workers. Facebook started as a social network for few hundred computer students to meet and share interests with each other but now have over billion of users. They all started small then expanded as things changed. You can do that too.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
