I wrote this article 2 months ago as an e-mail to share some of the entrepreneurs I worked with at the KAUST Innovation Center in Saudi Arabia after an entrepreneurship summer workshop I took in the Silicon Valley that changed my life and ended up in me creating a Startup named SeedShock.
My colleagues found it quite useful and thus I decided to share it publicly now. Most of this information comes from presentations and discussions with Stanford business school Professor Tom Kosnik, all good credits go to him. This is just a way for me to present and share what I’ve learned, so if there is any mistake here it’s all my fault. I’m a business newbie and I’m doing my best to learn the best way, so please if you see something that is just nonsense don’t hesitate to point it out.
Other people in the workshop such as Paul & Josh (from Adby.me), Jay & Kay (from VanillaBreeze), and Elton & Jindrizka (mexican entrepreneurs) contributed in creating a google docs file which helped me organizing the structure of this article. Thanks a lot guys!
With this said, here you have the…. “Startup Lessons from the Silicon Valley”.
1. Building your startup
There are some key components when building a startup, all of these play a major role in the success of it. If one of this points is not very strong or properly established, then the your startup most probably is just not gonna make it.
1.A. Your Startup Team
When you are in the process of creating your startup, the first and most important thing is the team. From all the things that could be discussed about the team, there are some points which are fundamental.
1.A.1. Motivation
Every single member of the founding team should be extremely motivated and excited about the project/company/idea that you are/will be working in. Everyone must believe in the future of the company and be willing to work all of their time on it. If there is lack of motivation most likely the team will fail and the whole company will fail.
1.A.2. Diversity
It is of great importance that the team has diversity in age, disciplines, experience, cultures, and nationalities. This will open the doors when the time comes to sell the product, but besides this, it will bring key players in the company that have different points of view and skills that can be used for the company. As an extra note, in software company is essential to have engineers, but the founding team should also have people from other majors.
1.A.3. Commitment
Even with a very motivated and diverse team, if they are not willing to spend every single second of their lives in building the company, most likely things won’t work. A team needs everyones full commitment, even if one of the team members is fully commited and he happens to be a genius, that won’t be enough since building a company and make it happen for real requires much much work than you would actually expect since the beginning. If a founding team member is not willing to give 100% of their time, then they better focus on something else.
1.A.4. Shared values
All members should have very similar moral values, since this will make the team more united and it will prevent any type of problem related to the focus of the company. You should completely trust each one of your cofounders and they should completely trust you back. If after some time of knowing him/her, you hesitate about one of them then maybe he/she is not the right person to work with you.
1.A.5. Shared vision
The vision of the company should be clear and everyone should be just in love with it, everyone should see it as their medium/long term dream. This vision is the one that will make everyone stand strong even at the toughest time in the startup. It is tightly related to the commitment. For each member of the company their biggest dream must be the company working and becoming giant. If the values and visions between you are shared, most likely there will be a click. Believe me, when you find the right cofounder, you will know.
1.A.6. “A” players.
Each co-founder should make people go “Wow” by himself/herself in one way or the other. (you can read this article for further discussion in identifying A players wether its for cofounders or hires )
1.A.7. Size
From many people in the SV it has been said that the best size for a startup team is between 2-5.
Extra- In a Team, each member should do what he is the best at, and should work really hard in his/her responsibilities. However, in a startup everyone should work pretty much on everything, since there only a couple of people at the beginning, everyone should work in as much as possible. This means that the CEO will be in development, sales, marketing, business, administration and janitor if necessary. The rest of the team should also be involved in pretty much everything as well. The company should be very horizontal where everyone must contribute at is best.
1.A.8. Advisory Board
While advisors are not part of the cofounders, they play a key role in the success of the company. Advisors will be giving advice (obviously…) and mentoring to the company of where and what to do, however they don’t make any decisions. As Tom said: “We are your sidekicks, you are the jedi“.
Advisors should have much more experience than the founding team, and should be well connected to help the team develop. It is of great advantage to have advisors that are experts in fields where the founders are ignorant, these way the weaknesses of the team are covered. Also try to find an advisor that has experience with the market that you are dealing with. Usually advisors get between 0.1% and 1% of the company depending on their role and the stage of your startup (Check out this techcrunch article for more info about this). Some investors and even customers in the future care a lot in who is your advisor (specially if you don’t have any business record behind your persona, like me), so they know they are not putting their money in novice and ignorant hands. From Kenneth More’s speech at KAUST: “You better get someone with grey hair or none hair at all on your team“.
Extra: Be sure to read this great answer to What is the perfect startup team? at Quora. (Quora requires to be invited, so if you need an invitation, let me know 
)
1.B. Your Startup Idea.
A great team usually can create great ideas. For these ideas there’s a lot of things to consider before even building the product. The idea/product must have the following things:
1.B.1. Solves a problem
Probably the most important part of the idea is this. The idea must aim to solve a problem. This problem must be very clear, and when presented to possible customers and investors, it should be focused in showing the big pain that this problem is causing to people/users/customers. Obviously this leads to have the idea as the solution. The team and customers, pretty much everyone should feel that your idea = THE SOLUTION. This solution should be clear as well.
1.B.2. Unique
The idea should be innovative and unique.
1.B.3. Simple
It should be something simple. Simple to use and simple to understand. If you cannot explain the problem and the solution in one line or in less than 30 seconds, then forget about it, you have to work much harder.
1.B.4. Delight
Your idea/product should solve the problem, but that is just the functionality, besides that it should give a delight. The delight is that part that makes your idea and company just unique and make people go crazy about it.
1.B.5. Profit and Business Model
At the beginning it is good to think and propose different revenue models. Ultimately a company is meant to exist to make business and thus have revenue and make profit. It is important to know what is the potential of the project in the market, and develop different strategies of how it could be solved. Note: This point is very very extensive and I recommend to do a lot of research related to it and the market that the company is aiming at. A great book to easily learn the basics of this is “Business Model Generation” by Osterwalder and Pigneur.
Extra: As an entrepreneur you might think that your idea is the best that exists in the entire world and won’t be willing to even share it with people. However, if you want to grow, if you want people to join your team, invest on you, or talk about you, you will have to cross that boundary and talk about your idea almost all the time (and don’t expect anyone to sign an NDA for you). Ultimately it will help you even further in getting much better feedback to what you are creating or planning to create.
1.C. The funding.
A great team with a great idea usually needs some investment in order to make things happen. Most of what you will hear about successful startups is how much money they are raising, who invested and in which series they are. This investment can be from different sources, which are typically the following.
1.C.1. Family and Friends (and Fools) aka FFF .This people usually invest at the beginning of a company because they believe in the idea and you, mostly you, definitely you. Their investment is the lowest along the history of the company, but it is also the one with the highest risk. The share of the company they get is determined mostly by the founding team. It is important to consider how much share of the company they are given, since this will create the initial value of the company. Usually the total amount of investment from FFF ranges between 10,000 to 300,000 USD. It is also a good advice to start with this type of investment since in general, FFF won’t try to pull the strings of your company. Important: Since they are giving their support since the beginning be as fair as you can with them, but also remind them before accepting the money that the probability that they lose all their money is really high, almost 100%.
1.C.2. Angel Investors
They are independent individuals who usually seek new ideas, projects and teams, into whom they invest their personal money. The share that they get can be pretty high depending on the stage where the company is at the moment of the investment. The round of Angels investment usually has a total of 1- 3 M USD, where each angel invests somewhere between 100,000 to 2,000,000 USD.
1.C.3. Venture Capital. aka VC
This is usually a private group, where many private investors allocate their money, but the people that put the money don’t choose the company to invest. Instead, the VC decides where to allocate all the money of the investors. VCs can be involved in the Angel’s round or in the further investment series called Series A (~ 5 M USD) and Series B (10-50 M USD). The share VCs get also depends on the amount of money they invest and the stage that the company is at.
1.C.4. Initial Public Offering. aka IPO.
When a company becomes super big and usually very profitable, then at some point it becomes a public company by announcing its IPO. This basically means that everyone will be able to by shares or actions in the company. People who buy these shares own a small part of the company.
1.C.5. Government Grants.
These are usually given to promote entrepreneurship in a country, and they are usually given with very little or no share at all. KAUST Seed Fund is an example of this.
1.D. Legal issues.
These points are important to make sure everything is working in the proper way and that your company is legally backed up in many different aspects.
1.D.1. Equity of cofounders.
It is of great importance that since early stages of the company it is determined by common agreement who is gonna own how much percentage of the company. The % should be based on how much the person has invested in money and time, and how much time is he/she willing to continue investing in the future, skills and expertise are of great importances in deciding this as well. In all companies it is the CEO the one that gets the most share, then the rest of the cofounders. In a software company the CTO or CIO is the one that usually gets the second place in shares. Share must not be divided equally since this can cause problems in future decision (e.g. if there are 3 cofounders the shares amongst them must not be 33.33%, 33.33% and 33.33%).
**VERY IMPORTANT:
– Vested equities. aka. Sweat equities. After diving the percentage of the company among the founders it is extremely important to define the roles that each member will be covering, and define in how much time they are going to earn their share. This time of earning the % of the company little by little is called vested equity or sweat equity, because you are it by working on the company. This means, that even if the CEO is allocated 40% of the company, if he/she stops working for the company for any reason, he will only get the part of the company that he earned, but not the full percentage. The amount of time that the share is earned should be decided with the founding team and attorneys. Probably this is the most important lesson learned in the silicon valley. Imagine that found your company and one team member leaves after one month the company was founded ,he owns 20% of the company and it was not a vested equity. That would mean that his person will still own 20% of the company even he hasn’t worked in the company at all!
Vested equity is also very important at the moment of getting more investment. Since the possible investors will be looking at the current shares of the company, and most probably they won’t invest at all if the equity is not vested. Vesting will also ensure that you keep in your team everyone extremely committed and motivated.
1.D.2. Intellectual Property (IP).
It is necessary to check if you are not infringing any copyright or patent since the conception of your idea, but most important it is necessary to register any patent related to your product (if any). If dealing with advertisement or institutions it is also important to discuss how to deal with private assets that customers are giving to you and how to avoid legal issues when using them in your product. For example, if you advertise some brands in your product, get all legal documents to avoid being sued for using them, or avoid being sued by any problem that they might be involved in. Another example would be if you are getting information from any institution, process all the legal papers so it is stated that the institutions own the data, but give you permission to use it for the sake of the product. (there are thousands of different cases and the attorney will help you dealing with each one that concerns your company).
Customers/Investors NOTE: Remember that is important to incorporate all this as soon as possible, to avoid being illegally copied, and to give tranquility to future investors and customers.
1.D.3. Attorneys and Law Firms.
Making everything legal and having an attorney on board since the beginning of the company is extremely useful. He can advise in everything related to equities and investors, as well as to deal with IP. Usually choosing an attorney is important, because he will work with you for a long time, hopefully, and you need to trust him. Try to find an attorney that you like, trust, that shares the same vision as you, believes in your team, and that has expertise in your field. Before going out to find investors, find yourself some good attorneys (they could even help introducing you to investors). Some attorneys are used to work with startup companies where they are willing to get paid until the company gets a big investment, or in rare cases they can be paid with equity.
2. Making the company succeed
2.A. Developing the product.
Here is where the idea gets life and becomes something tangible that someone can use or pay for.
2.A.1. Fast development.
You must develop your product really fast even if it is not perfect, because you will see the shape that its taking and wether or not it can actually solve the problem.
2.A.2. Early feedback.
This is also an extremely important part in the development, we want to build fast, becasue we want to know fast if this works or not. As soon as you get a very early version of the product, approach potential customers and users, let them use it, ask them what they liek, what they don’t like. Ask your customers if it is something that covers their needs, fi not, what is is that they want. It is sad to face times when you developed a product that works really well and looks really nice, but nobody actually wants to use it or pay for it. Not having early feedback just means catastrophe for almost every startup.
2.A.3. Improve or pivot.
After you talk with your potential customers, learn what they liked and improve it, learn what they didn’t like and improve it. It can happen that they won’t even consider using the product at all, in such situation, if you cannot find big interest in your product don’t be afraid and pivot. Pivot means to change direction. This means that if you think you are not going in the right direction, that your product doesn’t solve or raised interest as you expected, then just design a new product, come up with new ideas that focus on real problems from your potential customers.
2.B. Hiring workers.
When hiring people for your company, specially at the beginning (until you are about 100 people) focus on the following:
2.B.1. Motivation.
They got to love and be crazy about the startup. This is because in a startup you want things to go fast and neat, thus you will need very motivated people that are eager to succeed with you.
2.B.2. Quality.
Your startup will be a very small size for a long time. You have to make each person count A LOT. Each person in the startup should be an A player and be the best people you could get. Great people will attract more great people later, if you have weak team members in your startup since the beginning, you are not only having a weak spot, but you will also be creating an environment where A players don’t want to join.
2.B.3. Employees equity.
At the beginning of the startup you will be working A LOT and you won’t be able to pay much. Even if your future workers love the idea, they don’t live with air only, you have to offer them some equity in exchange of the low salary. Besides this, the fact that they will own a little share of the company (about 0.3%) will motivate them much more, since they will also own part of the company and will be willing to work much harder.
2.C. Sales.
2.C.1. Sale early.
Start pitching and trying to sale your product even if it is not half finished. This is to get customers feedback, but also for you to practice in how to sell your product and what do your customers care of. Furthermore, if you get customers that are willing to pay even if the product is not finished, then it missed that you are hitting the right spot. Having customers at early stages when asking for investment will open your doors since it will prove to potential investors that people actually want to pay for your product/service.
2.C.2. Be very insistent.
The key in sales is number of trials. the more you try the more you get. If 1 out of 100 sales pitch gets you a customer, then pitch you product 10,000 to get the 100 customers you need.
2.C.3 Listen and always be positive with feedback.
Be always thankful to any sort of feedback that you get, even if many times it is very negative. Don’t be over defensive with your product, instead ask: Which other feature would you like to have instead?
2.D. Networking.
This point is simple but one of the most important points. Just go and meet everyone out there, possible investors, partners, customers, users, etc… get known in different circles and exchange hundreds of business cards. Next time you need someones help, or you want to approach someone people will know who you are. The only way to be introduced to big guys is to be introduced, so if you don’t get your name out there, your not going anywhere. Many times it matters much more who you know rather than what you do.
2.E. Entrepreneurship is Endurance.
Wegra - First Employee of SeedShock - being a great example of an amazing coworker and showing the passion for our project (picture taken by me at 3 am)
One of the most consistent and important lessons that my father always gave me was to “never give up” and this happens to be one of the key points when making your startup happen.
Work hard, be patient, never give up, have your vision clear and keep motivated. Most likely it will take more than you first thought to boil the water, just don’t lose track.
“The problem with the Internet startup craze isn’t that too many people are starting companies; it’s that too many people aren’t sticking with it.” (Steve Jobs)
Of course this is not an all-incluse guideline for everything that a startup needs, however I think it can be of great use, specially for those who are new in this. I hope this can be very useful for many entrepreneurs out there as it is being useful to myself. There are a lot of great resources out there to help in almost every single aspect, and I’ll try to share many of them in my next posts.
Thanks for reading and remember to follow my company by liking our Facebook Page or on twitter @SeedShock and @Stadioom . You can follow me as well on twitter @norumoreno .
