The Art of the Start 2.0: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything

The Art of the Start 2.0: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything

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Product Details

ISBN-13: 9781591847847
Publisher: Penguin Publishing Group
Publication date: 03/03/2015
Edition description: Reissue
Pages: 336
Sales rank: 126,644
Product dimensions: 6.20(w) x 9.20(h) x 1.30(d)
Age Range: 18 Years

About the Author

Guy Kawasaki is the chief evangelist of Canva, a graphics-design online service, and an executive fellow at the Haas School of Business at the University of California, Berkeley. He is also the author of APE, What the Plus!, Enchantment, and other books. Guy has a BA from Stanford University and an MBA from UCLA.

Paul Boehmer is a seasoned actor who has appeared on Broadway, film, and television, including The Thomas Crown Affair and All My Children. Coinciding with another of his passions, sci-fi, Paul has been cast in various roles in many episodes of Star Trek.

Read an Excerpt

Acknowledgments

In giving advice, seek to help, not please, your friend.

—Solon

Write what you know. That should leave you with a lot of free time.

—Howard Nemerov

Read Me First

I have never thought of writing for reputation and honor. What I have in my heart must come out; that is the reason why I compose.

—Ludwig van Beethoven

If I knew then what I know now.” Most experienced entrepreneurs say this at some point. My goal is that you won’t have to because you read this book.

I’ve started three companies, invested in ten, and advised organizations as small as two people and as large as Google. I’ve worked for Apple twice, and I’m the chief evangelist of a startup called Canva. Hundreds of entrepreneurs have pitched me—until my right ear won’t stop ringing.

When it comes to startups, I’ve been there and done that several times over. Now I’m doing what techies call a “core dump,” or recording what’s in my memory. My knowledge comes from my scars—in other words, you will benefit from my hindsight.

My goal is simple and pure: I want to make entrepreneurship easier for you. When I die, I want people to say, “Guy empowered me.” I want lots of people to say this, so this book is for a broad population:

1. Guys and gals in garages, dorms, and offices creating the next big thing

2. Brave souls in established companies bringing new products to market

3. Social entrepreneurs in nonprofits making the world a better place

Great companies. Great divisions. Great schools. Great churches. Great nonprofits. Great entrepreneurs. That’s the plan. A few details before we start:


I assume that your goal is to change the world—not study it. Entrepreneurship is about doing, not learning to do. If your attitude is “Cut the crap—let’s get going,” you’re reading the right book by the right author. Onward . . .

Guy Kawasaki

Silicon Valley, California

GuyKawasaki@gmail.com

CONCEPTION

CHAPTER 1

The Art of Starting Up

The most exciting phrase to hear in science, the one that heralds new discoveries, is not “Eureka!” (I found it!) but “That’s funny . . .”

—Isaac Asimov

GIST (Great Ideas for Starting Things)

It’s much easier to do things right from the start than to fix them later. At this stage, you are forming the DNA of your startup, and this genetic code is permanent. By paying attention to a few important issues, you can build the right foundation and free yourself to concentrate on the big challenges. This chapter explains how to start a startup.

Answer Simple Questions

There is a myth that successful companies begin with grandiose ambitions. The implication is that entrepreneurs should start with megalomaniacal goals in order to succeed. To the contrary, my observation is that great companies began by asking simple questions:


“The genesis of great companies is answering simple questions that change the world, not the desire to become rich.”


“How can we make a boatload of money?” is not one of the questions. Call me idealistic, but the genesis of great companies is answering simple questions that change the world, not the desire to become rich.

EXERCISE

Complete this sentence: If your startup never existed, the world would be worse off because __________.

Find Your Sweet Spot

If you have the answer to a simple question, the next step is to find a viable sweet spot in the market. Mark Coopersmith, coauthor of The Other “F” Word: Failure—Wise Lessons for Breakthrough Innovation and Growth, and senior fellow at the Haas School of Business, helps entrepreneurs do this by using a Venn diagram with three factors:


Don’t get the impression that all three factors are necessary or even obvious at the start. If you have at least two of the factors, you can often develop the third if you try hard enough.

Find Soul Mates

The next step is to find some soul mates to go on your adventure—think Bilbo Baggins in The Fellowship of the Ring. However, people love the notion of the sole innovator: Thomas Edison (lightbulb), Steve Jobs (Macintosh), Henry Ford (Model T), Anita Roddick (The Body Shop), and Richard Branson (Virgin Airlines). It’s wrong.

Successful companies are usually started, and become successful, with the contributions of at least two soul mates. After the fact, people may recognize one founder as the innovator, but it takes a team to make a new venture work.

“The first follower is what transforms the lone nut into a leader.”

To illustrate this concept, Derek Sivers, the founder of CD Baby, showed a video at the TED2010 conference that starts with one person dancing alone in a field. A second person joins in, and then a third, and the crowd “tips” into a full-scale dance festival.

According to Sivers, the first follower plays an important role because he brings credibility to the leader. Subsequent followers emulate the first follower, not only the leader. In his words, “The first follower is what transforms the lone nut into a leader,” and in a startup, that first follower is usually a cofounder.

Cofounding soul mates need to have both similarities and differences. The key desirable similarities are:


The differences that are desirable include:


Finally, a few words of wisdom about cofounders:


Make Meaning

Now take your answer to the simple question, sweet spot, and soul mates and assume that you do succeed. Then subject yourself to one more test: Does your startup make meaning? Meaning is not money, power, or prestige. Meaning is not creating a cool place to work with free food, Ping-Pong, volleyball, and dogs. Meaning is making the world a better place.

“If you make meaning, you’ll probably also make money.”

This is a difficult question to answer when you’re two guys/gals in a garage who are writing software or hand-making gizmos, but it’s also difficult to comprehend how an acorn can grow into an oak tree. If, in your wildest dreams, you cannot imagine that your startup will make the world a better place, then maybe you’re not starting a tilt-the-earth company.

This is okay; there aren’t many companies that tilt the earth. And there are even fewer in that category that set out to do so. But WTF, I want you to dream big. When today’s humongous companies were only one year old, few people predicted their ultimate success or the meaning they would make. Trust me, if you make meaning, you’ll probably also make money.

Make Mantra

The next step is to create a three- to four-word mantra that explains the meaning that your startup is seeking to make. For startups, the definition of “mantra” from the American Heritage Dictionary of the English Language is perfect:

A sacred verbal formula repeated in prayer, meditation, or incantation, such as an invocation of a god, a magic spell, or a syllable or portion of scripture containing mystical potentialities.

Here are five examples (some hypothetical) that illustrate the power of a good mantra to communicate the meaning of organizations:


These examples illustrate the three most important characteristics of a mantra:


“‘Authentic athletic performance’ is much better than ‘Sell lots of shoes made in China.’”


EXERCISE

Write your startup’s mantra in this space: ___________________

EXERCISE

Think about how you serve your customers. What kind of meaning does your startup make?

EXERCISE

If someone asks your parents or your receptionist what your startup does, what would they say?

Pick a Business Model

You’re likely to change your business model several times, so you don’t have to make the right decision at the beginning. However, starting a discussion of this topic is important because it puts everyone in a moneymaking mind-set. All employees should understand that a startup either makes money or dies.

A good business model forces you to answer two questions:


These questions may lack subtlety, but making money isn’t a subtle process. More elegantly stated, the first question involves identifying your customer and the need that she feels. The second question creates a sales mechanism to ensure that your revenues exceed your costs.

The best list of business models that I’ve found is in a book called The Art of Profitability by Adrian Slywotzky. Here are my favorites from his book:


“My daughter once bought $2,000 worth of ‘treasures’ for an iPhone game, so I know this can work.”


There are a few other business models that are attractive too:


You’ll tweak your business model constantly—in fact, it’s scary if you don’t change your model or do some major tweaking along the way. Here are some additional tips to help you during the process:


EXERCISE

STEP 1:Calculate the monthly costs of operating your organization.

STEP 2:Calculate the gross profit of each unit of your product.

STEP 3:Divide the results of step 1 by the results of step 2.

Weave a MATT (Milestones, Assumptions, Tests, Tasks)

A mat is “a heavy woven net of rope or wire cable placed over a blasting site to keep debris from scattering,” according to the American Heritage Dictionary of the English Language. Preventing scattering is what’s necessary for startups because entrepreneurs need to do many things at once. To stay in control, you need to weave a MATT, which stands for milestones, assumptions, tests, and tasks.*

• MILESTONES. Accomplishing a large number of goals is a necessary objective for every startup. However, some goals stand above the others because they mark significant progress along the road to success. The five most important milestones are:


There are other factors that affect the survival of the organization, but none are as important as these milestones. Their timing will drive the timing of just about everything else, so you should spend 80 percent of your effort on them.

• ASSUMPTIONS. This is a list of the typical major assumptions that you might make about your business:


Discussing and documenting these assumptions at an early stage is important because they are a reality check on the viability of a startup. For example, assuming that the length of the sales cycle is four weeks and finding out that it’s a year will cause cash-flow problems.

• TESTS. You can come up with a solid list of assumptions, but everything is theoretical until you start testing them:


• TASKS. Finally, there are tasks that are necessary to reach milestones and test assumptions. Any activities that don’t contribute to achieving them are not crucial and are low priority. Essential tasks include:


The point of the list of tasks is to understand and appreciate the totality of what your startup has to accomplish and prevent important items from slipping through the cracks in the early, often euphoric, days.

Once you have your MATT, the next steps are to communicate it to the entire company, make revisions, begin implementation, and monitor results. Of all things, your MATT is not something to create and never refer to again. It is the epitome of a document to put to work and to alter.

Keep Things Clean and Simple

You will face hundreds of decisions during the startup process, and there’s often a temptation to optimize each one of them—sometimes by breaking new ground. However, it’s best to focus your energy and attention on milestone issues. For everything else, go with the flow and stick to your MATT by keeping things clean and simple. My experience and expertise is with U.S. companies, but these are generally accepted entrepreneurial practices:

“In the United States, if your goal is to create the next Google, you want to form a Delaware C corporation.”

• CORPORATE STRUCTURE. Every country has different commercial entities, such as corporations, partnerships, limited-liability corporations, and cooperatives. You want a corporate structure with three characteristics: one that is familiar, if not comfortable, for investors; sellable to other companies or on the public stock market; and capable of offering financial incentives to employees.

In the United States, if your goal is to create the next Google, you want to form a Delaware C corporation. This is a separate tax-paying entity that can accept outside investment and can issue multiple classes of stock. Owners are not personally responsible for debts and liabilities, and losses are not passed through to owners.

If your goal is to create a small business that isn’t going to seek venture capital and you don’t aspire to go public, then consider an S corporation, limited-liability corporation, or sole proprietorship.

• INTELLECTUAL PROPERTY. A startup should unequivocally own or unequivocally have licensed its intellectual property. This means that there are no lawsuits, or any risk of lawsuits, by former employers and no charges that the intellectual property infringes on someone’s patents.

Also, the intellectual property and licenses should belong to the startup, not the founders. This is because you never want a situation where a disgruntled founder leaves the startup and takes the intellectual property with him—crippling the startup.

• CAPITAL STRUCTURE.This refers to the ownership of the startup. There are four warning signs; they all belong to the If-I-Knew-Then-What-I-Know-Now-Hall of Fame:


• EMPLOYEE BACKGROUND. Areas of concern include executives who are married to each other and executives who are related to one another; unqualified friends in high-level positions; and high-level employees with criminal convictions. These issues may signal that the startup isn’t a meritocracy.

• REGULATORY COMPLIANCE. This refers to issues with state or federal laws and regulations, nonpayment of taxes, and solicitations of unqualified investors. Typically issues with regulatory compliance indicate clueless or crooked management—both are unacceptable and will hinder progress.

Experts have written entire books about these five topics, so don’t make decisions based on my brief explanation of such complex issues. These are areas where you only need to learn that you don’t know what to do, so that you can find an expert who does.

Do Something Cringeworthy

If you are not embarrassed by the first version of your product, you’ve launched too late.

—Reid Hoffman

When I go back and read the first book I wrote, The Macintosh Way, I cringe at its crudeness. When I remember the first Macintosh, I cringe because it didn’t have enough software, RAM, or storage, and it was slow. When you look back at the first version of your product, you might cringe too.

It’s okay. It happens to everyone. The first version of a product is always flawed, but how it evolves is as important as how it begins. The fortunate startups are the ones who are still around because they eventually got the product and business model right, so give yourself a break.

Addenda

Minichapter: How to Separate Contenders from Pretenders

Once upon a time there were two engineering PhDs who were clueless about how to start a company. All they knew how to do was code. They were so desperate for money and adult supervision that when an experienced businessperson showed interest and offered to help raise money, they, in their own words, “followed him like dogs.”

However, this adult didn’t know much about tech startups and caused them to make many mistakes in legal and financial matters. They parted ways but only after much aggravation and the significant legal expense of reversing incorrect decisions.

“There are many experienced, successful, and savvy business executives who don’t understand the particulars of startups and venture capital.”

This is not an unusual story, and it’s an understandable one. First-time entrepreneurs are looking for any particle of positive feedback, reinforcement, and advice, so they jump at the first sign of interest. The demand for adult supervision in the form of advisers, board members, and investors far exceeds the supply, so you may need to take a chance with people who are untested in these roles. If no one will dance with you, the temptation is to dance with the first person who asks.

People who started their own company or worked at a company before an IPO can probably provide good advice. People who have not started a company or joined a company after it went public probably cannot. Experienced, successful, and savvy business executives at large companies don’t necessarily understand the particulars of startups and venture capital.

For example, how much do you think a senior vice president of Microsoft who came from McKinsey knows about starting a company? Here is an EQ (entrepreneur’s quotient) test to separate the contenders from the pretenders. These questions will help you identify good advisers, board members, and investors (if you have the luxury of choosing investors).

1. What kind of corporation should we form? Answer you’re looking for: “C corporation,” assuming the goal is to create the next Google.

2. In what state should we incorporate? Answer you’re looking for: “Delaware.”

3. Do our investors have to be accredited investors? Answer you’re looking for: “Yes.” Answer that should scare you: “No.”

4. Should two founders split the company right down the middle? Answer you’re looking for: “No, you should allocate 25 percent to future employees and 35 percent to the first two rounds of investments. That leaves 40 percent for the founders to split among themselves.”

5. Should we sell common or preferred stock to investors? Answer you’re looking for: “Preferred.”

6. Should all employees, including founders, go through a vesting process? Answer you’re looking for: “Yes, everyone should vest because you don’t want a founder to leave with a significant percentage of the company after a few months.”

7. Should we pay consultants with stock options? Answer you’re looking for: “No, stock options are for long-term employees, not short-term consultants. If you can’t afford consultants, do the work yourself.”

8. Can we get a bank loan to start our business? Answer you’re looking for: “No,” assuming it’s a tech business. Tech businesses don’t have liquid assets to use as collateral.

9. Should we use an investment bank, broker, or finder to raise seed capital? Answer you’re looking for: “No, angel and venture capital investors view early-stage entrepreneurs who use a banker, broker, or finder as clueless.”

10. What do we need our revenue projections to look like in five years to attract investors? Answer you’re looking for: “No investor will believe them anyway, but they should be as good as the closest comparable successful company that has already gone public.” Also, you don’t want money from investors who do believe your projections, because they are clueless.

11. How long should our business plan be? Answer you’re looking for: “You shouldn’t write a business plan. You should get customers.”

12. Is there someone else you would also recommend who could be a good adviser? Answer you’re looking for: “Sure, my expertise is narrow, but let me come up with a list of other possibilities.” Answer you’re not looking for: “No, you don’t need anyone else; I know everything you need to know.”

13. Do you think we need a real CEO? Answer you’re looking for: “Maybe, someday. But probably not right now. What you really need right now is a great product.”

14. Should we use a headhunter to recruit people? Answer you’re looking for: “No, at this stage, you don’t have the money and can’t afford to spend what little you have on headhunting fees.”

15. What should we tell investors when they ask us for the valuation of the company? Answer you’re looking for: “Find out what three or four investors think is fair, and then get more market traction to push it up.” Wrong answers: “Price it high and negotiate down,” “Price it low and negotiate up.”

16. What do you think the KPIs are for our business? Answer you’re looking for: dependent on your sector and type of business. Answer you’re not looking for: “What’s a KPI?”

17. How do I build buzz? Answer you’re looking for: “Build something great and use social media.”

18. How big should our advertising budget be? Answer you’re looking for: “Zero dollars—use social media instead.”

Again, these questions are relevant to U.S. companies with Google-esque ambitions, but the same kinds of questions apply in other circumstances. Run away from anyone who wants to advise you who can’t answer most of these questions.

FAQ (Frequently Avoided Questions)

Q: I admit it: I’m scared. I can’t afford to quit my current job. Is this a sign that I don’t have what it takes to succeed?

A: It doesn’t mean anything. You should be scared. If you aren’t scared, something is wrong with you, and your fears are not a sign that you don’t have the right stuff. In the beginning, every entrepreneur is scared. It’s just that some deceive themselves about it, and others don’t.

You can overcome these fears in two ways. First, the kamikaze method is to dive into the business and try to make a little progress every day. One day you’ll wake up and you won’t be afraid anymore—or at least you’ll have a whole new set of fears.

Second, you could start by working on your product at night and on weekends and during vacations. Make as much progress as you can, try to get some proof of your concept, and then take the leap. Ask yourself what’s the worst thing that could happen. It’s probably not too bad.

Q: Should I share my secret ideas with anybody other than my dog?

(Continues…)



Excerpted from "The Art of the Start 2.0"
by .
Copyright © 2015 Guy Kawasaki.
Excerpted by permission of Penguin Publishing Group.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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From the Publisher

Praise for the original edition of The Art of the Start:

"A successful entrepreneur requires three things: a garage, an idea, and this book – Guy's irrepressible guide to the raw essentials of life in a young company."
—Michael Moritz, Sequoia Capital

"This is a delightful, complete, and consummately practical entrepreneur's handbook. Every person who wants to start a business should read it."
—Clayton Christensen, author of The Innovator's Dilemma

"Anyone trying to change the world should read The Art of the Start."
—Wendy Kopp, founder of Teach for America

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