Dharmesh Shah


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More Reasons Why Now Is The Time For Hatching Something New

By Dharmesh Shah on December 29, 2008

The following is a guest article by Neil Davidson.  Neil Davidson is co-founder and joint CEO of Red Gate Software. He also runs the annual Business of Software Conference with Joel Spolsky. His blog is at http://blog.businessofsoftware.org and you can follow him on Twitter at http://twitter.com/neildavidson.

A couple of weeks ago, Jason Cohen of Smart Bear wrote a guest post on 6 reasons why this economy is good for startups. Damn you Jason, both for your perfect timing and for writing the blog post I wish I had written. So I'm going to have to ride on your coat tails, scrape the barrel and come up with 6 more reasons why now is as good time as any for startups.

Here they are:

1) VC money is hard to get. Yes, this is a good thing. You only need VC money for a software startup in certain, very narrow circumstances: if this isn't your first startup, and if having the money would genuinely accelerate your growth (if you're Dharmesh, for example).  It takes time to get to used to running a software company. Mulla Rasrudin once said that good judgment comes from experience, and experience comes from bad judgment. Lots of money and bad judgment don't mix well. If you've not done this before then you will make many mistakes. Make small ones, not million-dollar ones, and make them without VCs breathing down your neck.

2) Even if you are unlucky enough to get VC funding, the odds are still good. In the late 1990s, in the days of Webvan, pets.com and Boo.com, the five year survival rate of VC-backed software companies was still close to 50%.

3) You need constraints to build great software. If there's one thing we've got plenty of in this economy, it's constraints. Make good use of them.

4) Constraints enforce discipline. You'll need to, among other things, manage your expenditure, focus on making products that people actually want to buy, learn the difference between cash flow and profitability and figure out how to market on a shoe-string. Now is an excellent time to forge those skills. You will need them the next time things go bad.

5) Times are turbulent, but the turbulence contains many pockets of opportunity. Big companies will be too large, or too clumsy or too slow to fill these pockets, but you, as a startup, can. And you only need the tiniest market niche to start up. Once you've started, you'll gather momentum, and you'll figure things out. Don't overanalyze: odds are you'll find success doing something other than what you intended anyway, so whether you pick a small market niche or a billion dollar opportunity doesn't matter. You'll end up doing neither.

6) In difficult times, skill and hard work, which you can control, become more important than luck, which you can't. I like this soccer analogy. If you want to compare my soccer skills with David Beckham's then don't put us both six feet away from an open goal and ask us to kick a ball into the net. I might get lucky, and he might show off and miss. Instead, start us off from the other end of pitch against a couple of defenders and a goalkeeper. Then you'll get a true picture.

Starting a business is risky, but not as risky as you think. The oft-stated fact that 90% of startups fail within their first year is an urban myth. In reality, the four year survival rate for IT startups is over 50%, and there's no evidence that this is significantly lower for companies founded in a downturn. And most start-ups that fail don’t crash and burn, owing people money and bankrupting their founders. They are quietly wound down, or sold on, and the founders set something else up or return to employment, with the added skills that even attempting, and failing, to build a business bring.

Starting up isn’t for everybody, but don't use the state of the economy as an excuse for inaction. Research shows that external factors such as the economy, or the industry you're in, aren't the only – or possibly even the main – factors that determine success. How much you love your product, and how deeply you're prepared to commit, count just as much. So choose something you are zealous about, think things through, save up some cash and quit your day job.

Topics: guest
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Start Now: 6 Reasons Why This Economy Is Good For Startups

By Dharmesh Shah on December 3, 2008

The following is a guest article by Jason Cohen.  Jason is the CEO and founder of Smart Bear, Inc. Smart Bear creates tools for peer code review.  Jason "gets" software startups.

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Doom and gloom. Layoffs, bankruptcy, insolvency, bailouts. Blah blah blah Wall Street, blah blah blah Main Street.

It's a terrible time to start a company, right?  Wrong!

Here are six reasons why you should start your new company right now.

1.  Low opportunity cost

When the economy is booming, staying in a regular job makes sense. Generous bonuses are common when revenues are soaring, stock option grants are valuable when an IPO is imminent, your resume is improving in direct proportion to the success of the company.  Upside and safety! Fabulous.

Of course that scenario is almost non-existent today.  Most companies aren't hiring; many are laying off. Salaries are low, bonuses are suspended, stock options are as worthless as a vote for Pat Buchanan.

So if the alternative is working for low pay without job security, why not work for yourself and build your startup? You'll be investing your time and energy into something with more potential upside in future. If you're talented and have always toyed with the idea of a startup, financially it makes sense to do it now.

2.  Cheap Talent

It's hard to hire good people because they already have a job.  But right now that's not true -- companies are exploding and laying off everyone, even the stars.

If you're starting a company you're probably looking for a co-founder more than an employee. Even better. In an environment where few companies are hiring, lots of stars (or, better, potential stars) are out of work.

The market is flooded with good people.  Maybe you yourself just got laid off with some co-workers you like!  Just keep your hiring standards high and dig into your social network. (Or go get a social network now. See? That Facebook account really was a good idea.)

3.  Cheap Stuff

Need cheap office space? Layoffs mean newly empty desks in empty offices with phones that still work. Look for subleases where someone is trying to recoup some costs -- often they'll throw in Internet as long as you don't abuse it.

Need cheap furniture?  Companies are dumping stuff into used furniture stores and there aren't a lot of buyers.  Drive a hard bargain.

Need cheap advertising? Ad revenue is drying up as companies down-size marketing budgets and miss their next round of funding. Combine that with lower readership (especially in print) and ad deals are everywhere. Don't listen to the protestations of ad reps -- they're under duress and will take almost any offer. (I'll post later on ways to wrangle with ad reps.)

With everyone hurting, deals are everywhere.  Your expenses will never be lower than right now.  Low expenses mean getting to profitability faster -- exactly what a new bootstrapped company needs.

4.  Eager customers

When budgets are tight, people need to get stuff for free.  Good for open source projects, bad for companies, right?

Good for startups.  Remember, with your first twenty customers you'll be giving away your product for nothing.  You need to -- your product isn't fully-formed, they're helping you work out the kinks, you're counting on them for testamonials, and you need to prove your product works in the market.

You'll be a Godsend to companies who need your product.  Their (lack of) budget prevents them from buying anything else, including competing products that are better than yours. They'll be ecstatic to get something for free or cheap.

Here's a trick: Trade your product for a customer story (that you write and they approve). They'll be happy to tell the world how you bailed them out of their crisis.

I'd like a side of grated cheese, please?

5.  Competitor carnage

Is there an 800 lb gorilla blocking your market?  Or a few hip companies you're afraid to compete with?

They're all in SOS mode now. They have overhead, recurring bills, 12-month advertising contracts and 5-year office leases. Their prices are high and are hard to lower.

They're eating cash.  Those that are unfunded are watching cash reserves fall, computing months-remaining before they'll have to close the doors.  Venture-backed companies are in a bigger pickle -- they weren't profitable before, cash is now disappearing at an alarming rate, and many of them won't get fed again when they run out.

Perfect, if you're a little startup.  You have none of these pains; you're sipping cash with no overhead and lots of time to devote to coddling new customers.  While your competitors convulse, shed talent, and invent stories to calm their doubting shareholders, you've got nowhere to go but up. While they're figuring out how to wring more money from their existing customers, you're acquiring new customers they can no longer entice.

6.  "Now" is always the right time

The most common day for starting a new company is the same as starting a new diet: Tomorrow.

Take the leap.  Not tomorrow.  Today.

The third-hardest thing you'll do is to take the leap. (The second-hardest is getting through the first fifty sales, the ones well before the chasm, when you're sick of tech support and wondering when the real money is going to show up. The hardest is firing someone.)

Never mind all that. Get started. "Now" is always the right time to start, because otherwise odds are you'll never start.

If you don't start, you're doomed to a life of trudging through jobs, depending on someone else for salary and bonuses and health care and retirement, a life's work without ownership or upside.

You're better than that.  That's why you're reading this blog.

So go for it.

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So, what are your thoughts?  Are you convinced yet?  Still think that toiling away at that (ahem) "stable" job at that Fortune 500 company is the right thing to do?  I realize that taking the leap is hard, and situations vary, but it's good to at least think about it.  Lots of other people are thinking about it (or doing it) too.  The OnStartups group on LinkedIn now has 34,000+ members.  Of the 170,000+ groups on LinkedIn, it's in the top 10.  So, you're not alone.

Topics: strategy
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