Category: Startup Myths

Why Startups ARE For Everyone, part 1

Why Startups ARE For Everyone, part 1

Peter Cauton

wag

“Startups aren’t for everyone.”

I’ve written this considerably in this blog. (very prominently here)

We’ve also heard it uttered by every other entrepreneur, it seems, right?

“Entrepreneur you say? Well, ho ho ho! You have to have a unique skill set: a combination of cast-iron will, uber-magnetic charisma, the ability to laugh in fear’s face, and space-age technical skills. Oh, and you need to be stupendously lucky.”

(I guess in a way, talk like this validates what we’ve done and makes us feel good about ourselves a bit)

Lately, however, I’m starting to feel differently.

I think startups are for everyone. 

Before you hurl tomatoes at me (especially existing entrepreneurs :), do hear me out…

Defining What a “Startup” Is

Obviously, I’m not talking just about the Googles, Apples, Facebooks, or even the Jollibees and Mang Inasals of the world. Not everyone will build startups like that (believe it or not, not everyone wants to).

One paradigm to take is that being a startup founder is all about independence and the quest for it. 

It’s about not needing a corporation to survive on salary. It means having the ability to build something which enables you to not only pursue a dream, but also to stand on your own two feet.

freedom

Under this definition, small micropreneur ventures who are able to eke out a living ARE startups. Fulltime freelancers who reside on Odesk and Elance? Yep, startups.

That small hotdog stand sideline business you manage to give you extra cash apart from your corporate salary?

It’s a startup if you plan on quitting your day job someday to commit to it. It’s mere sideline if its got no ambition.

Armed with this broader definition, startups are still the small, small minority.

Do witness the vast majority of fresh graduates enter corporate year after year after year.

I believe things are starting to change though. (related blogpost here)

Everyone NEEDS to realize – the perfect storm is here!

This is something I want to shout out with a country-wide megaphone.

I really believe that if one WANTS and DESIRES to, ANYONE can harness his natural talents and passions into a business which earns enough money to pay his monthly bills.

The perfect storm for doing this is now out there.

coming together

For one, information is free and flowing. 

ALL the resources on how to build a startup and be independent is available online.

You want to build a skill? There are FREE courses to be found on the web. High quality.

I know a doctor-turned-cake designer who started her new career viewing youtube clips and then just applying her natural talent.

There are meetups and courses galore, both free and affordable, for hundreds of different interests and topics. You just need to use this thing called Google.

Moreover, the other barriers to putting up a business are just falling like the rain.

Wanna build a website? You can do it for free.

Need to reach people? Social media allows you to reach thousands like never before.

Need a market for your skills? Odesk, Elance, 199jobs, and Freelancer are available at a click. (you will join a growing, great number of pinoys)

picking

The necessary infrastructure for startup success is THERE and ripe for the taking. 

You just need to bring something unique and special to the table.

“But I don’t think I have something unique and special…”

This is where my belief structure comes in.

I think God made each and every person unique and special. Every person HAS something compelling  to offer – enough to make (at least) a decent living out of.

If we add these elements then:

Uniqueness + Infrastructure = Startup Potential

I think there is an entrepreneur in each of us.

What’s stopping the 99% of us in pursuing this?

Information gap, Fear, and The Dip.

Will cover these on part 2!

The Software Guru tells the Real Story: On Startups, Bankruptcy, and Attitude (Part 1 of the Joey Gurango Series)

I remember texting Peter right after my interview with Joey Gurango, which was just days before Startups Unplugged. In my text, I asked Peter about what he thought about posting an uncut version of Joey’s interview on JGL. The reason for my suggestion was that after my interview with Joey, I was completely taken aback by the incredible knowledge that he was sharing with me; even though I wasn’t a techie, Joey’s stories resonated with me and schooled the heck out of me. Everything Joey shared with me just seemed so important, so I wanted to post everything that he said. While I must admit, I’ve omitted some parts of the conversation to be practical, this is still a very raw version of what Joey shared with me. I hope this piece will allow Joey’s stories and insights to speak for itself. The other portions of his story will be coming soon! In the meantime, sit tight and allow the sublime to take its course.

Joey Gurango of Gurango Software
Joey Gurango of Gurango Software

When did you start and why? 

Joey: My first business was in 1981. I was at the University of Washington and I did a pizza delivery business. Out of necessity, I figured that most college kids living in dorms were too lazy to go down to the pizza place to get their own pizza, so I just setup a phone and gave out fliers. Then, I waited for people to call me and ask for an order. I had Dominos, Godfather’s, and Pizza Hut menus and they [the customers] would call and tell me what they wanted. I’d put a 15% surcharge on whatever they ordered, but I would get their money first (Joey chuckles). The pizza delivery business was actually my first real business. My first real tech business was in 1984. I had worked for apple computer for a little over 2 years. The Macintosh just launched, and I got this idea to make something called desktop furniture for the Macintosh. So with that I started a company with some money because back then it was really expensive to build injection mold products by the mold. Everything was going great…and then in 18 months we went bankrupt, so that was my first experience.

Why’d you guys go bankrupt?

Joey: ‘Cos we spent more than we made. Real simple. We were making a lot of money. I think the first 6 months, we had over $1 million in revenue. But then the next 6 months, it didn’t quite reach a million dollars. Then after that, I decided that I didn’t want to be in hardware anymore. I started my first software company… that was 1987…Match Data Systems. I started that doing excel custom programming. In 1991, I decided to move the company back here [Philippines]. By then Windows had come out, so we moved from Macintosh to Windows. We were one of the first, as far as I know in Asia, that were doing Windows development work. One thing led to another. In 1999, by then we kind of branched out into ERP software, a company called Great Plains software acquired us, so we become Great Plains Philippines. Two years later, Microsoft acquired Great Plains, so I become a Microsoft employee. Then, I stayed with Microsoft for two years in 2001. I’ve basically had three jobs in my life. My first job was with Apple computer. My second job was with a training company for less than year. My third job was with Microsoft. Then I started my first software company and haven’t really worked for anybody else, until my company was acquired, so technically I was working for a multinational company, but it never really felt that way, which is why I left.

Why did you move back to the Philippines?

Joey: My first company did custom software development. First for the Macintosh. We did a lot of excel work…a lot of data base programming for the mac. The problem was, since we were doing a lot of excel work, I would train these fresh grads on developing for the graphic leisure interface, and then because Microsoft was really heavy into doing Windows development back then, they kept hiring them away from me. Microsoft would give them double the pay. I was getting frustrated because we were losing programmers in the US. Our office was literally a 5 minute drive away from Microsoft headquarters. At the time, my brother was visiting the States from the Philippines. He says, “You know we have programmers in the Philippines?” “Really? Do you even have PCs there [in the Philippines]?” I said. He replied, “Oh yeah! We have dBase programmers.” So that’s when the idea struck me that I could have the company in the Philippines and continue servicing my US customers. And it would be cheaper, and I wouldn’t have to worry about losing these guys because nobody else would hire them because we were doing stuff that nobody else was doing. That’s why I came back. We were doing offshore outsourcing before it was even a term.

What experiences or skills from abroad did you find most valuable for starting up in the Philippines? 

Joey: The one thing I’d say it’s not really a skill or experience, but more of an attitude. Through the years I’ve realized that the only difference, in general, between people in the countries like the US and here, when it comes to things like business and startups, is not knowledge, skills, IQ or EQ, but the big different shader is the willingness to risk and face failure. In the US, it’s not a big deal if you’ve started a company or even failed for that matter. My first real company went bankrupt after 18 months. We raised $250,000 in investor funds to start that company and in 18 months it was all gone. We never gave the investors back a single cent. Nobody was coming after to me trying to have me assassinated. There’s no shame in it. There’s no social stigma with that type of failure in the US. If I were to say what was the most helpful thing was to bring that mentality over here. Compared to most of the local technical guys, I was pretty fearless. I was willing to buy stuff that nobody else would consider. However, I’ve come to learn that taking the entrepreneurial path is not that risky. If you do it in the right way –like all the things I’ve learned just in the last five years- if you know how to do business modeling, practice lean startup and customer discovery, test and validate assumptions, it can be quite low-risk. It’s still not as low-risk as getting a job and a consistent paycheck, but it can get pretty close. I think if I knew what I knew today, it [the business] wouldn’t have gone bankrupt, but I would have shut it down a lot sooner. Now I can say that it’s not really that risky to be an entrepreneur, if you know how to do it right.

9 Startup Myths Part 3 of 3

Peter Cauton

This is part 3 of a 3 part series. You can find part 1 here, and part 2 here.

7) Bigger is better

Last year we were up to around 15-16 people. This year, while we’ve lessened our headcount to around 10-11 people,  we’re set to double last year’s revenue level. Guess which situation I’m happier with?

Early on, it was always an assumption of mine that the successful companies are the bigger companies – bigger headcount, bigger operations. So expansion was one thing I was conscious about. I also remember the saying that you MAKE room for an A-player in your firm even if there’s isn’t exactly an urgent opening.

This was until I experienced needing to fight to meet payroll. This was something that I’ve never experienced before – if I didn’t make a sale, my guys don’t get any money for the month. Remember, recruitment in a startup entails selling dreams and encouraging people to take risks. The LAST thing I wanted to do was to face them and tell them we don’t have any salary for them for this month. So we did everything we could to meet payroll (and thank God that in our 7 years, we’ve never missed payroll – I find this to be nothing short of a miracle, especially during the early years). We also exhausted all means necessary before having to actually hire a new person.

This also allowed us to look at opportunities in a totally different light – how do we help this new client and make it work with only our current manpower? We forced ourselves to reconsider our assumptions and leverage everything we had (technology, network, processes) into making it work.

The results?

Larger revenue per employee. Lower costs. Better efficiency. A more versatile team. A smaller team which feels more like family than anything else. If, 5 years we experience much revenue growth and we’re still at 12 people?  I’d be ecstatic.

8) There will be no more jerks

The term I wanted to use was this one (an interesting book – talks about the negative bottom-line effects of employing jerks, even super-talented ones). I changed my mind, thinking my kids might end up reading this someday.

So, jerks it is.

You know the type – every company would seem to have them – pompous hotshots who humiliate and specialize in public lashings. After 10 years of encountering people like these in all the corporations I had worked for, I said to myself, “No jerk shall ever set foot in my firm! If one of them slips throughout the cracks, I will fire the person immediately.”

You know what, we’ve actually never hired a jerk (well, maybe one teetering on the edge). Our office has always been a fun, light place to work in.

Alas, while our firm has largely been jerk-free (not a small feat, as there are stealth jerks who don’t register during the recruitment process), I had forgotten that I was now exposed to more of the outside world – clients, suppliers, partners, government agencies, etc. While a large majority of the people we work with are fantastic people whom we love interacting with, there are always one or two exceptions to the rule.

Sigh. So I guess there will always be jerks. The trick is learning how to manage them.

9)You can do it part-time

Sure, you can do small businesses and lifestyle businesses part-time. But a startup? (definition here)

In a lot of ways, growing a startup is like parenting. You need to spend TIME with your baby – nurturing, guiding, supporting. Like a parent, there will be some point where your startup baby can fend for itself without you. But during the formative years? Your startup will not grow to its fullest potentials if you are an absentee startup parent. Name one uber-successful startup with part-time founders. There has to be someone full-time.

He's going to need your full-time help...

What made STORM work was that for the last 7 years, either Pao or I were at it on a full-time basis at any point in its existence. Now that we are both back at it full-time, we are experiencing tremendous growth. That’s no coincidence.

So Peter, how can you do these other startups if you are full-time in STORM?

Just early this year I’ve had illusions that I could somehow pull this off – being CEO of multiple firms, in effect. This is a fool’s errand, I have quickly come to realize. For these other, newer startups to work, I know I will have to groom quarterbacks. I can coach, but only from the sidelines. Someone else needs to quarterback.

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9 Startup Myths Part 2 of 3

Peter Cauton

(The following post is the second of a 3 part series. You can find part one over here)

4) Business Plans Are Important

Yup, it's for dummies alright.

What 4 years of college business teaching hammered in me was that I needed to create a business plan for my startup. I needed to put everything in writing and project my financials – on a short-term, medium term, and longterm basis. So during our first foray, we spent several days crafting an 80+ page business plan, crammed with a boatload of projections and analysis. We had a five-year sales forecast with assumptions on pricing, costs, and market. We had complete projected financial statements across those five years. It was a nice plan. It was something you could submit to a marketing class and get an A with.

It was also a complete waste of time.

The investors we gave it to never read it and instead asked us for a “simpler” 2-page summary. Moreover, after our initial effort to draft this plan, we ourselves never bothered to look it again.

Why? We really had no idea how people would react to our company. None. Our initial product, a fully customizable flexible benefits system, was a first in that 2005 market. Who knew how people would react? Our assumptions were guesses.

Remember this very important quote from renowned entrepreneur Steve Blank:

No plan survives the first contact with customers.

True enough, the moment we talked for the very first time with potential customers, we threw the initial plan (our 80 page masterpiece!)  out the window almost immediately. Almost all our assumptions were wrong. 2 weeks of work flushed down the toilet in seconds.

So instead of a crafting a long, static business plan, draft a short, flexible 2-page one. Use common sense to check if your numbers look alright. Take note of your assumptions.

Then, MOST IMPORTANTLY, immediately talk to potential customers and check out all your assumptions. Most of them will be wrong. Using what you learned, redraft your 2-pager. Rinse and repeat. Test and iterate till you get your model right.

5) Things Stabilize

Pao and I always thought, “OK, in time, we’d stabilize.”

Uhm, no.

What we’ve discovered instead is that every year is different. Vastly different. The moment we’d think that, okay, steady na tayo, let’s just stick with this, the market throws us a curveball and forces us to change things. Twice, we’ve decided to kill off certain services, only to have a huge company come and ask us for exactly those services. When it happened a second time, we even joked that the best way to make a business line profitable is by killing it off. Once, we were excited to bring out this new retention tool in the market. We made a big launch and started getting new clients. In a few months however, the recession came out of nowhere. Retention was the last thing on our clients’ minds, and one by one, our clients pulled out.

Bring it on!

Running a startup involves navigating your firm through a sea of constant change. So, while there’s always that huge problem which can sometimes threaten your very existence, thank God there are always even more opportunities to seize and take advantage of.

Yep, it isn’t for the faint of heart, but hey, you can bet it’s so much more exciting – and gratifying – than being a cog in the machine.

6) You need to pump money into traditional advertising

For years, I would always bemoan the fact that most of our clients came from word-of-mouth. I would always say, “imagine if we did active marketing instead of…nothing” And I would dream of big marketing campaigns – but couldn’t do it either because of a lack of time, a lack of budget, or both.

Eventually, we did direct marketing campaigns and sent an untold number of letters and email to potential customers. For all the time, money, and effort this necessitated, we got meager results – we got very few clients through this route. I then realized when I was in corporate I would just shred unopened sales letters, and delete sales emails before I read them. I hated spam.

In the meantime however, the “nothing” marketing strategy was churning out client after client. There would be phone calls from strangers referred by people we worked with, even people whom we didn’t work with, but with whom we shared an interaction or two with. Our biggest clients are almost all from referrals.

It turns out, it wasn’t “nothing” at all. The good work we poured in with our current clients – the service levels, the innovation, how we made it easy for people to relate and work with us – created ripples we never realized were spreading. In 2011, we spent I think the least amount on traditional marketing as we have had in the last 4 years, yet, this year is shaping up to be our best revenue year ever, by far. This has really made me reevaluate what I think I know about marketing. The rules are changing.

Last three myths next post!

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9 Startup Myths Part 1 of 3

Peter Cauton

For the next three days, I’ll be talking about 3 assumptions I discovered were completely wrong as I went through the startup process:

1) You need a ton of money to start

Nope, you don't need it.

Back in 2005, we were rejected by 2-3 investors before we said, “The heck with it, let’s just pool our own money and start.” My initial cash-out as an owner was P30,000.00. Far cry from the hundreds of thousands we thought we needed. It turns out it was enough.

Nowadays, you could start firms with even less, as the cost barriers continue to fall.

Last Thursday, I had a productive brainstorming session with an old friend of mine who was in the printing/publishing business. I suggested, “Why don’t you try building a 2.0 version of your current business on the net?” He told me he thought it would take around P2-3 million to do a web startup.

I told him I could connect him to tech people so he can knock zeroes out of his initial investment assumption.

Web startups are the most cost-effective startup type of them all. If you can program, you can build an e-commerce website for less than a pittance and start a business. You don’t know how to program? Sell your startup idea to someone who does and offer her substantial equity. She can instead work on the website for the equity instead of you paying a salary or a fee.

A great entrepreneur will ALWAYS find a way to get things done without a huge initial investment.

2) You will be your own boss

This was one of the first myths I discovered just wasn’t true.

When Pao and I started, we immediately made business cards which said “CEO” and “COO.” Yeah, we just loved the sound of that!

The moment we worked with clients though, it became very apparent who the real boss was. Needing to prove ourselves and earn trust in the market, we needed to over-deliver every time with every new client. That usually meant being under the beck and call of each client who chose to work with us. They were the real bosses and dictated everything.

Oh, you want this 4 month project crammed into a month?

Sure, no problem!

Oh, so you want me to do this 20-slide presentation which isn’t in the contract we signed? For free?

Sure, no problem!

Even the titles themselves worked against us. Once, Pao was in a presentation with a bank executive,  to whom he gave his “COO” biz card. Upon looking at the card, the client smiled and replied, “Oh, COO ka pala eh, ibaba mo naman young presyo.”

From then on, we just changed our titles to “Consultant.”

3) My corporate life would prepare me for startup life

When we were starting, I thought my 10-year corporate experience would help me run things in STORM.

Wrong.

There is nothing in my corporate career that could have prepared me for life in a startup.

Here’s the big difference: in corporations, unless you are the CEO, you think only as far as your function is concerned.

Going up the corporate ladder in human resources, I only thought as far as HR was concerned. Yes, I was trained to be a “strategic business partner” and know the business better – but I never made decisions for anything beyond my departmental role, and I would always look at things through the lens of my function.

In a startup, you learn veryveryvery quickly how and why every decision affects every other business function. Since resources are extra-scarce in new startups, you are forced to make (quick) decisions considering ALL the affected functions. Nothing in isolation.

Let’s say you want to implement a particular marketing plan. You then make an analysis that you would need someone full-time on it for 3 months. You could do it yourself, but then who would do current consulting work you are doing for a current client? Let’s say you consider hiring a person instead, what would that person do after the 3 months are up? What sort of person will you need? Do you have enough money to afford her? Who would train her? What happens if she’s successful and lands projects within the first month? Who would do the account management for these new clients?

Corporations train us to do work on a per-department basis. Sure, you have your management trainee programs – but each of these trainees is ultimately assigned to a home department after their tour of duty.

Startup work demands immediate holistic, systemic thinking. A corporation trains us in a singular function, because this is the most efficient way to structure things (like an assembly line).

This is why I’ve always said to friends that in a single year in a startup, I learned more about business than a decade in corporate.

Three more myths busted in part 2!

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