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Inbound Networking: 42 People I Want To Connect With at SXSW

Dharmesh Shah — Wed, 10 Mar 2010 15:35:00 GMT

I’m going to be presenting at the big and boisterous SXSW conference in Austin, Texas this Saturday. I’ll be talking about Inbound Marketing. More specifically, I’ll be talking about some insider lessons we’ve learned building a marketing machine at HubSpot. We’ll even be sharing some relatively confidential data. The session is at 11:30 a.m. on the Day Stage. Here are the details: Inbound Marketing at SXSW

In any case, from what I hear, the event is supposed to be lots of fun, but huge. As an introvert, I’m generally not a big fan of huge events. So, I made a list of people that will also be at SXSW who I’d love to connect to. I figured by having a list, I’ll feel more guilty if I head back to Boston and haven’t talked to at least a few of them. I’m also hoping that a few of them will come across this article and be kind enough to reach out. I made it a bit easier on myself by including some folks that I know pretty well.

If you’re on this list and reading this, please leave me a comment. I’d be very grateful.

People I Want To Connect With At SXSW

1. Lane Becker, GetSatisfaction

Why: I met Lane at a Startup2Startup event in Palo, Alto. He was at my dinner table. Smart guy and I’m intrigued by this overall category (though I’m hoping Lane doesn’t ask me why I’m a customer of UserVoice instead of GetSatisfaction).

2. Chris Brogan, ChrisBrogan.com

Why: I always learn something new from Chris and it’s been a while since we had our list dinner plotting global domination. It’s unfortunate that despite living within driving distance of each other, we don’t meet more often.

3. Dries Buytaert, Acquia

Why: I’ve talked to Dries a couple of times on the phone and Acquia’s a local (Boston area), venture-funded startup. Have met several people on the Acquia team (they’re great). Want to ask Dries how Drupal Gardens is going. I’ve been meaning to play with it, but havn’t yet.

4. David Cohen, TechStars

Why: I’m an investor in the new TechStars Boston cohort for 2010 and will be a mentor again this year. David’s super-smart and a big supporter of early-stage startups. I love startups.

5. Evan Cohen, FourSquare

Why: My most recent project (currently in alpha) is SquareGrader (a free tool for analyzing FourSquare users)

6. Dennis Crowley, FourSquare

Why: As I noted in #6, I’m building a new, free tool for FourSquare. I reached out to Dennis just a couple of days ago and he was gracious enough to respond almost immediately. Would love to help FourSquare win in their market (and I’m an avid user too). HubSpot reaches over a million users a month -- many of them should be FourSquare users. We can help make that happen.

7. Chris Dixon, Hunch

Why: I’ve been reading the blog for a while (Chris has been on fire!), it’s one of the better, more practical ones out there on the topic of startups and funding.

8. Laura Fitton, oneforty

Why: I’m an investor in oneforty and Laura’s great. I’m always happier after having met her. She’s energy-generating. And, she might introduce me to some folks because she’s a rockstar and a networker extraordinaire.

9. Pete Cashmore, Mashable.com

Why: I’m an avid reader of Mashable. Mashable frequently writes about HubSpot or one of our grader.com tools — and I’ve love for them to write even more. And, Pete’s a social media celebrity that at least a couple of the women at HubSpot have a crush on (not naming any names or anything, you know who you are). It’ll raise my street-cred to go back to the office and say I met Pete.

10. Jason Fried, 37signals

Why: Jason was kind enough to let me interview him for my graduate thesis and we’ve stayed in touch ever since. Want to chat with him about how his new book Rework is doing and what I can do to help.

11. Paul Graham, Y Combinator

Why: He’s on my short-list of really, really smart entreprenerus and I’m a major fan of Y Combinator (and many of its portfolio founders). I also understand that the recent Y Combinator conference went well (Rand Fishkin from SEOmoz spoke there) and that the next one is going to be about monetization, lead generation and freemium. I’m going to see if I can finagle an invite to it.

12. Kevin Hale, Wufoo

Why: I just love what he’s done with the company and Kevin’s got talents that I’d give-up 10% of my net worth for. And, he says useful, practical stuff about how to actually grow a startup. If I accepted board positions (I don’t) or they’d invite me (they havn’t), Wufoo’s on the short list of companies I’d actually do it for.

13. Reid Hoffman, LinkedIn

Why: Major, major fan and not just because LinkedIn is so successful. He’s just a super-savvy, strategic thinker (and angel investor). He’s the kind of guy that I’d love to have involved with HubSpot some day. (Yes, I aim high).

14. Beth Kanter, BethKanter.org

Why: I first came across Beth because my wife is passionate about non-profits and was working on a paper for a Harvard class she was taking (the paper was on social media). Beth is just awesome. Smart, well-written and has done more to help non-profits than anyone I know. And, she was kind enough to provide some great feedback on a recent, mostly-failed idea I ran to help Room To Read. She’s speaking at the NewComm forum in California — but unfortunately, my session is at the exact same time as hers.

15. Guy Kawasaki, AllTop

Why: Guy’s written what I think is the best books on startups, ever. Art Of The Start and Reality Check. He’s also been kind enough to respond to my emails, write a back-cover blurb for my book and all-around supportive of my entrepreneurial efforts. Would love to actually meet him in person.

16. Ross Kimbarovsky, CrowdSpring

Why: CrowdSpring’s an interesting company, and I’m working on a crowdsource-based project for HubSpot this year. Want to hear how his new project is going and see if there are ways I can help. [Disclosure: I’ve also met the founder of CrowdSpring’s main competitor, 99designs, and like him a lot). I wish both companies well.

17. Jason Kincaid, TechCrunch

Why: Jason’s going to be talking about scaling LAMP applications (which I could totally use help with). He also writes for TechCrunch, and it never hurts to know people at TechCrunch (they’ve been kind enough to write about HubSpot and grader.com several times).

18. Marshall Kirkpatrick, ReadWriteWeb

Why: He fundamentally gets all of this new fangled social media stuff. I’m an avid reader of ReadWriteWeb.

19. Scott Kirsner, Innovation Economy

Why: He’s a great guy that I’ve gotten to know pretty well. I try to meet up with Scott every chance I get — will be interesting to see this “other side” of him (i.e. film/movie stuff). I always think of him as being a tech/startup kind of guy. He’s done a lot for the local tech scene here in Boston. I’m also speaking at his Nantucket Conference coming up next month.

20. Andrew McAfee, MIT

Why: He’s smart and witty and is now at MIT (instead of that other top-tier school in the Boston area). Andy’s a good friend of HubSpot so it’s always fun to catch-up.

21. Dave Mcclure, Founders Found

Why: He’s the hardest working man in show business. I wish I had half his energy or had done a tenth of what he’s done to help startups. It’s humbling, really.

22. Mike McDerment, FreshBooks

Why: All-around great guy and growing a great startup. I learn something from Mike everytime I meet him (which has been several times now).

23. Lori McLeese, Room To Read

Why: I’m a big fan of Room To Read and given my recent failure to generate much money with the Inbound Marketing Charity Challenge, would like to see how I might do better next time.

24. Marc Nathan, Bulldog Financial

Why: I feel like I’ve known Mike for years and am surprised we’ve never crossed paths in person. Hoping to fix that.

25. Charlie O’Donnell, First Round Capital

Why: Charlie and I go way, way back (he may not even remember). We’ve intersected many, many times online — but have never actually met. Now, Charlie’s an investor in Backupify (a company I’m a seed-investor in), so we have even more reasons to meet-up.

26. Jeremiah Owyang, Altimeter Group

Why: One of the more analytical and thoughtful writers on the topic of social media. Minimal hand-waving and such. Would like to hear his thoughts on weighted social graphs.

27. Aaron Patzer, Intuit

Why: Had dinner with Aaron during my last trip to the west coast. Smart guy. Would like to hear how things are going post-deal. I have a suspicion that he’d actually tell me

28. Aviva Rosenstein, Salesforce.com

Why: I’m really impressed with the business they’ve built at salesforce.com. I’m also a customer. I’d love to hear how Aviva is tackling some of the usability challenges in the product. We’re dealing with some of those same issues in my startup.

29. Darren Rowse, ProBlogger

Why: Much of what I know about blogging in the early days, I learned from ProBlogger. He gets this stuff.

30. Chris Sacca, Lowercase Capital

Why: He’s a legend in the tech/investor/startup world. Chris and I are now co-investors in Backupify.

31. Ryan Sarver, Twitter

Why: He’s from the Boston area and I almost met him several times. Now he’s at twitter so a little harder to connect with.

32. David Meerman Scott, WebInk Now

Why: The “Inbound Marketing” book wouldn’t have happened (literally) without him. Great supporter and an all-around fabulous guy. We need more of him.

33. Ramit Sethi, I Will Teach You To Be Rich

Why: Earlier tonight, I did a late night webcast/seminar thing for his members in the earn1k program. Oh, and he’s a NYT Bestselling author. Want to get some inside secrets as to what it takes to break into the list — and what impact it’s had since.

34. Brian Shin, Visible Measures

Why: Brian’s a friend and former classmate. I invested in Visible Measures, and he invested in HubSpot. We go waaay back.

35. Julien Smith, Blah Inc.

Why: He’s partner-in-crime with Chris Brogan on “Trust Agents” and I feel like I should know him.

36. Brian Solis, Future Works

Why: Great guy and recently came out with a new book “Engage”, which I’m reading on my Kindle. Want to show him Book Grader.

37. Jonathan Stark, Jonathan Stark Consulting

Why: Because he knows a thing or two about building iPhone apps. And, I want to do one of those this year.

38. Wayne Sutton, @waynesutton

Why: Wayne’s big in the whole social media thing and was nice enough to be one of the first alpha testers of Square Grader.

39. Gary Swart, oDesk

Why: Awesome entrepreneur that was kind enough to spend some time with me to talk about startups and fund-raising (we were raising our Series C at the time).

40. Gary Vaynerchuk, Vaynermedia

Why: Because he’s a force of nature. And, to congratulate him because he’s #1 in the web marketing books category on Amazon. And, I’m usually #2 or #3.

41. Tim Walker, Hoovers Inc.

Why: Heard him speak at the Inbound Marketing Summit and chatted with him briefly afterwards. Really nice guy — and he knows his stuff.

42. Chris Winfield, 10e20

Why: Have had the chance to spend a bunch of time with him in the last year. Great guy, and was kind enough to donate directly to Room To Read as part of my (mostly failed) experiment, the “Inbound Marketing Charity Challenge”.

—-

Phew! That took some effort. If you’re on the list, please leave me a comment if you’d like to connect (or if you’d like me to stay the heck away, that’s fine too). And, if you’re attending SXSW, and I happen to be on your list — leave a comment too. I’m planning on carving out some time while at the conference to meet with folks. The best way to (initially) find me is to attend my inbound marketing session at the conference. It’s going to be a busy few days.

Hope to see many of you there.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

The 10 Most Tempting Software Startup Categories

Dharmesh Shah — Mon, 01 Mar 2010 11:55:00 GMT

I’ve been in the software startup business for a long time. One thing I have found interesting is that amongst first-time software entrepreneurs, certain “patterns” of applications kept recurring. Time and time again, entrepreneurs are tempted by one of these application categories. Not that it’s always a bad thing — I just found it curious.

1. Project Management / Time Tracking / Bug Tracking

This is likely because the developer had to work at some point with existing software that just sucked and thought “Hey, I can build something better in a weekend and it will do exactly what I want. It’ll support custom fields, and query-by-example and persistent views and all sorts of neat stuff.”

2. Community / Discussion Forums

The developer was kicking off a new online community for whatever hobby area she was interested in. Poked around looking for something to meet her needs, but there was nothing appealing. “Hey, this is easy — the data model is trivial and I can use this project to learn about this new web framework I’ve been meaning to play with.”

3. Personalized News Aggregation/Filtering

I’m not exactly sure why this one keeps cropping up. I think the reason is that it seems obvious that there’s just much more information out there than any normal person can consume. The entrepreneur arrives at some interesting angle on how to better filter the information. Could be individual voting/learning mechanisms, social features (your friends liked this stuff, so you will too).

4. Content Management (website, blog)

Another one of those seemingly simple apps (“how hard could it be?”) combined with the fact that it’s often harder to learn some existing system and make it do what you want than just hacking together a “minimalist” application (that over time, becomes less and less minimal).

5. Social Voting and Reviews

This ones newer to the scene. These applications allow users to vote/rate/review something (movies, books, wines, whatever).

6. Music/Events Location Application

What the world really needs is a way to figure out when their favorite band is going to be in town. Connect with your friends! Figure out where they’re going! Hook-up!

7. Dating and Match-Making

This one requires no explanation. As is the case with most of these application categories, entrepreneurs often like to “scratch their own itch”.

8. Personal Information Management

I think this one is really common because it’s often one of the early applications developers build to learn something new. “Hey, I can use this new ORM system to track my DVD collection. It’ll take just 50 lines of code!”

9. Social Network For ______

These were happening well before MySpace and Facebook. In this case, the application is not completely trivial — but that’s what makes it a bitt more tempting. The data models can be rich and if one has some UI chops, it’s often a fun application to work on.

10. Photo/video/bookmark/whatever sharing

As humans, we like to share stuff. The appeal of this application is it’s broad appeal (hey, my girlfriend needs a way to share her photos from her recent trip to Brazil).

Don’t get me wrong, I’m not saying that building an application in any of these categories is doomed to failure. I just find it curious that these specific themes tend to occur again and again.

Did I miss any? Which application categories do you think entrepreneurs are lured by? Do you just happen to be working on a fun little project that falls into one of these categories?

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Why I Wish My Competitors Well And You Should Too

Dharmesh Shah — Mon, 22 Feb 2010 14:32:00 GMT

I’m going to start with a story — which includes a confession.

When I started my first company, I didn’t start with a grand mission. The idea behind the business wasn’t transformational. It wasn’t going to change the world. Historians weren’t going to write about it after I was dead. And all of that was OK. Even though there was no grand mission — I was solving a problem and meeting a market need that I cared about. Wait, let me clarify that a bit. I cared in the sense that if I didn’t solve it, I was restless. I couldn’t let it go. I wasn’t satisfied with the way the problems in that industry were being solved and the solutions that other companies were offering. That’s what drove me for 10+ years with that startup.

It wasn’t until much later (well after I had sold that first company), that I gave the topic some additional thought. How do you know whether or not you care about the problem you’re working on? Here’s my litmus test:

1. Define the problem you’re solving in reasonably broad terms.

2. Answer yes/no: If the problem was somehow magically “solved” (to your satisfaction), but you weren’t the one that solved it, would you be fine with it?

Let me clarify by shifting back to my story: In the niche market I was working in, the problem I was working on was relatively small. But, if one day, I woke up and learned that somehow the problem was magically solved — even if it was by a competitor, I would have been fine. A little miffed that they had beaten me, but still OK. As long as they really solved it. I could have stopped toiling away the sleepless nights working on that particular problem and I would have found other problems to work on. The concept here is: You care enough about a problem that you don’t necessarily mind if someone else solves it. What really frustrates us entrepreneurs is when competitors win, but they don’t actually solve the problem.

One way to explain this concept better is to look at an extreme example. Lets say the problem you were working on was curing cancer. Of course, you’d be passionate about finding a cure. You’d be working hard. It’s an important problem, and it’s not surprising that you care. Now, imagine if you woke up one day to learn that someone else had created a cure. You’d be glad that the problem was solved — even though it wasn’t you that solved it. Sure, it would have been great to get the fame and glory, but that surely wouldn’t cause you to wish the other scientists/researchers/doctors ill. Nope. You’d wish them well. Why? Because fundamentally, you care about having the problem solved.

Now, with my current startup, HubSpot, I’m still passionate. But the problem happens to be much, much bigger. This time it’s transformational. This time it’s a mission. I’m working furiously on this startup too. I co-authored a book, “Inbound Marketing” on the topic. I’m doing a fair amount of public speaking (despite the stress it causes me). I believe we’re on the path of truth and justice (we’re helping small businesses grow and reducing junk mail, spam, and marketing calls that interrupt you at dinner). We’re hoping to be the ones that end up transforming the marketing industry. But, if someone else ends up doing it, and winds up delivering on our mission, well, then, more power to them.

I care enough about the problem that I don’t mind if someone else solves it. That’s why I truly wish my competitors well.

But, just because I wish them well doesn’t mean I’m going to make it easy for those competitors. After all, like you, I’m an entrepreneur and as such, I’m fiercely competitive.

Summary: When possible, work on really big problems. They’re more fun, and it’s easier to get excited. But, even if you’re not working on a really big problem, it’s OK, as long as you at least care enough about the problem you are solving that you don’t care who solves it. You just want it solved.

What do you think?

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Why Venture Capitalists Avoid Innovation: They Like Making Money

Dharmesh Shah — Thu, 18 Feb 2010 12:33:00 GMT

The following is a guest post from Andy Singleton, the founder of Assemba. Assembla provides online workspaces for distributed software teams, and helps many startups build their products.

Any given innovation is much more likely to fail than to succeed. Innovation as a whole may even be unprofitable for the innovators. Fortunately, we keep doing it, because in economic terms, innovations are durable (they last forever) and non-rivalrous (anybody can use them), so over the long term, society benefits a lot from the successful innovations. As a society, we look for ways to get around the fact that innovation is generally unprofitable. We subsidize innovation. We honor it.

A recent conversation has me wondering anew about the question of whether venture capitalists actually further the process of innovation. They claim to be in the business of innovation, but they also talk constantly, often in the same paragraph, about how much they want to avoid innovation.

In this latest conversation, the VC said "We look for companies with a product and a proven business model." This should should sound familiar to you. I wish I could run a video montage of the pictures in my head of VC's saying how much they want to avoid innovation. Surely you would laugh. If you ask VC's what they look for, they use words like "traction", "proven business model", "reference customers", and "invest in marketing" or “sales and marketing”. This in itself is a big step forward from "We invest in teams that have done it before" (Greylock partner, 90's), or "We look for the second time around" (Sigma partner, 90's). It doesn't take a genius to understand what they are saying. As much as possible, they want to avoid all innovation (stuff that’s not proven). It’s risky and unprofitable.

VC behavior subsequent to making an investment is also revealing. After looking at hundreds of deals, and falling in love with one particular business plan, and persuading other investors and partners that it's great, VC's generally don't support subsequent changes to the business plan. A self-funded entrepreneur is constantly making major course corrections, to the point of driving his colleagues crazy. VC's will deny this, but a VC investment is basically a ballistic missile launch, without course corrections. They are likely to just shut down the funding, or even to continue investing a lot of money in a concept that is clearly not creating the forecast level of excitement.

In my recent conversation, the VC partner went over the top by saying "We want to invest in companies that own code and have protectable IP", and then going on give the example of SpringSource - a service company working with un-owned open source code.
Are these people as idiotic as they sound? Far from it. They are some of the smartest, most observant, and most successful business people you will meet. They have learned the hard way that innovation is more likely to fail than to succeed, and that the best way to make money is to latch on to a product that people already like. Even with this filter, and their cleverness and experience, and funding one in 100 opportunities, they still have a hard time making money in the current environment. Investors that stray from the established formulas of the VC business (2 and 20 on fees, 5 year fund cycles, "growth capital" for sales and marketing) - are often punished with poor returns.

Note the cruel irony here. In the VC business, a business that claims (with heartfelt feeling) to be devoted to furthering innovation, innovation is deadly. It is the least innovative firms that succeed. Successful firms may excel in a number of areas, but innovation isn't one of them.

So if innovation is actually risky and unprofitable, where does this leave us? It rolls the clock back 80 years to Joseph Schumpeter's observation that entrepreneurs are driven by "animal spirits" rather than money. Being a professional economist, he actually said, "Hedonistically, therefore, the conduct which we usually observe in individuals of our type would be irrational." He also claimed that profit maximizing, utilitarian theory is "unsurpassed in its baldness, shallowness, and its radical lack of understanding for everything that moves man and holds together society."

Limited partners are utilitarians, and they don't invest in irrational animal spirits.

I think that this has some bearing on public policy. Do we really want to be offering big tax breaks to VC's - the carried interest deduction - if it isn't going to get us the innovation which they have wrapped around themselves like a flag?

It also might have some bearing on the VC business itself. VC returns in the last decade are negative. VC partners are making less money now. Many limited partners are not going to reinvest on the old model going forward. VC's also have a diminishing reputation in the entrepreneurial community. They have a strong incentive to get rid of an innovative entrepreneur and just wash out his stock - which they often do. Suddenly, the old models aren't working for anyone.

And, maybe innovation is coming. There has been a burst of micro-venture initiatives that invest small amount of money at the earliest stage. That's a dangerous place for an investor (angel investors are incredibly brave) because one of the tenents of the old rigid VC model is that follow-on investors will usually try to squeeze out the early investors. Maybe this indicates that innovation is happening throughout the investor chain. I also recall a conversation with a partner at General Catalyst, one of the more successful new VC firms, about their practice of "home cooking", or creating their own companies. The speaker dismissed the appeal as "zero pre" (translation: our interest is purely economic, in that we get a better deal if we pay a $0 pre-money valuation) but I think something deeper is going on.

Is it possible that, once in a while, the VC business should look to innovation, for real?

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

9 Quick Tips Learned While Raising $33 Million In Venture Capital

Dharmesh Shah — Mon, 08 Feb 2010 07:48:00 GMT

As the market improves, my guess is that many of you will likely be thinking about raising funding for your company. With my latest startup, I’m now a venture-backed startup founder (I’ve raised $33 million in three rounds of capital for my marketing software company). So, I’ve got some direct experience with the process. Several of the companies I’m an angel investor in or otherwise involved with have also been in the fund-raising process. So, along the way, I’ve learned a few things, and I’d like to share them with you.

There’s already lots of great content on the web about raising capital and understanding deal terms. My favorite is the content on Venture Hacks (a must read, if you’re raising capital). But, I figured it wouldn’t hurt to share some of the “lessons learned” from my own experiences. Some of these you’ve probably heard before, but one or two will likely be new to you.

And, a quick note before we jump in: I’m doing a FREE live webinar with my co-founder at HubSpot, Brian Halligan this Wednesday, February 10th at 1 p.m. ET. The title is “Money, Marketing and Management with HubSpot’s Founders”. The idea is to share a bunch of practical tips we’ve learned while building HubSpot (including some insider stuff gleaned from raising $33 million in VC). If you’re intereted in this article, you’ll probably like the webinar. If you can’t make this specific time, you can still register and we’ll send you an email with a link to the recorded version. Oh, and did I mention, it’s free?

Sign-up for: Money, Marketing and Management (aka “Stuff we learned about startups that you’ll probably find useful”)

Ok, back to our article.

Insights From Raising $33 Million In Venture Capital

1. Get the first round right: The terms of your Series A deal are very important. Not just because of the impact on that first round, but because many of those same terms are likely to carry through to future rounds. It’s tempting to concede on some important terms because you’re thinking “well, that’s just life…and it doesn’t seem like that big of a deal.” Try to resist that temptation. One of the things I’ve learned is that when negotiating the term-sheet for your Series B or Series C round, the “base” terms (the starting point of negotiations) is whatever terms were in your Series A. So, if you agree to some non-favorable terms on the “A” round, you’re not just paying the price for that concession in this round, you’re likely going to continue to pay in future rounds as well. Factor that in.

2. Avoid valuation infatuation: Entrepreneurs often become obsessed with the pre-money valuation on the deal. Though this is certainly an important element of the transaction there are other factors at play that have significant impact on the raw direct economics of the transaction including the employee stock option pool (and who pays for it). If you get close to finalizing a deal, it is imperative that you have a spreadsheet that helps you understand the economics of the deal. You should read Jeff Bussgang’s article on the topic. It is worth your time.

3. Raise more than you need: Regardless of how much capital you raise, chances are, you’re going to have wished you raised a little bit more (or perhaps even a lot more). Within reason, if you have access to capital and the terms are decent, raise more than you think you need. Don’t get hung up on dilution. To help you overcome this fear of too much dilution, build yourself a simple spreadsheet that models the actual financial impact to your person bottom-line based on various outcome scenarios. What you will likely find is that if things go really well and your startup is the spectacular success it deserves to be, the extra dilution is not going to change things all that much. And, if things go really poorly, it won’t matter either (because those extra common shares aren’t going to make you money). You might be thinking “I’ll just raise the additional capital in a future round, at a much higher valuation” — which is somewhat right. But, what you should keep in mind is the transactional cost of the additional round. Raising a venture-round is a very time consuming process and when your bank balance is getting low, you’re going to really want to just keep working on the business instead of shifting focus back to the funding game. In short: If you have the ability to raise a slightly larger round, and the terms are reasoanble, you should probably go ahead and take the extra money.

4. Know what “market” is: It’s possible that you’ll encounter some not so favorable terms during your VC negotiation — terms that are not that common. It’s also possible that your potential investor is just pushing on the edges a little bit to see what they can get away with. You need to know which terms are actually rare/uncommon. Your strongest line of defense against weird, non-favorable terms is a line that goes something like “that’s not market”. This is sophisticated VC-speak for “what you’re asking for isn’t very common in VC deals right now.” This line of defense has two advantages: 1) it works 2) it demonstrates your savviness. To figure out what the common deal terms are now, track down the report that one of the larger law firms that does a lot of startup transactions publishes periodically. The report usually includes (among other things), what percentage of transactions have specific deal terms (like participating preferred).

5. Orchestration is important: Try to keep the interested parties moving along at as close to the same pace as possible. You don’t want to get a term-sheet from one VC and have had the first meeting with others. Orchestration is not easy, but it’s important. The reason is that to really get great VC terms in a round, the single largest contributing factor is competition. If you can get two or more VCs competing to invest in your company, you’ll get much better terms. As it turns out, this is not easy to do because to really get credible competition going, you’re going to need to have several VCs at the “termsheet” stage of the conversations. If one VC delivers a termsheet to you, but you still haven’t had the second (or third or fourth) meeting with some of the others, it’s going to be tough to get that competing termsheet. Meanwhile, the VC that gave you the first termsheet is going to be “anxious” for you to accept. This anxiousness could manifest as simple “prodding” or as an out-right “exploding termsheet” (i.e. a termsheet with a deadline). So, try to keep your conversations moving forward with several VCs are a similar pace. The good news is that nothing accelerates the process of other VCs more than knowing that you’ve already gotten a termsheet. Once you get that first termsheet, you’re likely to get more as the VCs try to jostle for position.

6. Beware deal fatigue: Even in good times, fund-raising is an arduous process. Be prepared for yet another round of meetings, yet another level of due diligence and yet another round of negotiations. Don’t try to sprint to the finish line and be exhausted when you get there — you may have another lap to go. And, it might be the most important lap. Much like any large negotiation, there are often relatively important deal terms that get finalized in the final stages of the deal. You need to maintain your energy so that you don’t just give-in on some of these seemingly unimportant “details”.

7. Don’t Use Your Uncle Larry As Your Lawyer: As entrepreneurs, it’s not often that we need to engage legal counsel. In fact, if this is your first startup, it’s possible you’ve never actually hired a lawyer before. If you’re raising venture capital — you need a lawyer. And, your uncle Larry who helped you out with that lease agreement last year is not good enough. You need a lawyer that has done many venture financing deals before. This is a high stakes game. VCs are super-smart and they negotiate financing deals all the time. They do this for a living, you don’t. You need someone that has competency in this area. A great lawyer understands the nuances of this game both from the perspective of which deal terms are important, what “market” is (#4 above) and when to stay firm and when to concede. I’ll say this one more time for effect: You need great counsel that has tons of startup financing experience. Don’t be penny wise and pound foolish on this. Oh, and by the way, you might want to know that you’re likely going to pay for the legal fees of the VC as well (it comes out of the funding round). I’m not sure why this is, and I don’t like it one bit, but it’s common practice.

8. Partner personalities matter: Yes, ideally you’ll be raise funding from a top-tier fund that’s a great brand. But, what’s more important is that you fundamentally like the VC partner that is investing in you. This is a long-term relationship and life is short. You might part ways with one or key team members along the way (which is never fun), but your venture investor will almost certainly be with you until the very, very end. If you have the luxury of choice, you should put strong weight on the person you take money from, not just the firm and not just the deal-terms. I followed my own advice on this in our funding rounds. We had higher offers than the deal(s) we took, but we solved for the best overall deal and the best partner.

9. Switching Partners Is Hard, Do Your Homework: It’s likely that in the early stages of your VC process, you’ll get introduced to a particular partner at a firm. Usually, this is based on what area that partner invests in (i.e. which one you “fit” with). But, in many larger firms, there might be more than one partner that could conceivably do your deal. Or, you might get bucketed wrong (because your startup straddles a couple of areas of intest for the firm). If that’s the case, you need to work hard to figure out who the best partner would be (from your perspective) and try to connect with that partner as early in the process as possible. Once conversations begin in earnest, it’s very, very hard to switch to a different partner within the firm.

So, what do you think? Are you going through the arduous process of raising venture capital now? Or, have you been through the pain before? Any of this stuff ring true? Would love to read your thoughts and experiences in the comment. Oh, and if you have questions you’d like me to address my upcoming webinar (which will spend a fair amount of time on funding), leave them as a comment. I’ll pick a few and address them. Thanks.

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Prehistoric Steve Jobs Introduces The New Apple iRock Tablet [cartoon]

Dharmesh Shah — Wed, 27 Jan 2010 11:07:00 GMT

Though it's easy to get caught up in Apple's new tablet announcement, let's not forget the original idea that sparked the whole thing. It's the iRock -- it transformed how people chiseled.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

A Geek's Guide To Hiring Marketing People

Jason Cohen — Tue, 26 Jan 2010 10:02:00 GMT

The following is a guest post by Jason Cohen.

Interviewing developers is easy.

OK, not easy. You have to generate resumes, you have to sift through the deluge of candidates, you have to pound your network continuously, you have to develop a phone-screen, you have to schedule interviews, you have to ask them questions and get them to write code and be fair.

But still, you're a great developer and you've worked with enough other developers that you can tell pretty quickly whether someone else is also a great developer. Do they say the right things? Do they make reasonable mistakes? Do they solve easy problems quickly? Do they give up? You can figure that out.

Not so with marketing folks. What do you ask someone in an interview to determine whether they have the ability to spread the word about your still-v0.9-quality product? How do you determine whether they can not just pull in potential customers but make them truly successful and thrilled with v0.9 while digging up the new features that will actually result in more sales?

For an engineer like me, interviewing marketing people is like interviewing a lawyer: You know there are vast differences in skill level but you don't know how to probe them to determine their skill.

But there's hope. Although you can't ask them to "solve" marketing problems as you would programming questions, there's certainly something you can detect: Do they have the attitude and skillset needed to succeed in a startup environment?

So here's a list of important qualities. Some of these you can ask about directly, others you'll have to intuit from your conversation.

Social Media doer. Everyone says social media is important, but does the candidate actually do it? Does she have a sizable Twitter following? Does he have experience getting 20,000 fans for a Facebook page? Does she have a quality blog about marketing? Did he devise and execute a blogger outreach campaign that actually worked?
Frugality. Traditional, big-company mantra is "You have to spend money to make money." It's no longer true. Now it's "You can spend money and you might make money." Of course spending money isn't automatically bad either; what's bad is if you don't measure whether the money is getting a return.
Customer-lover. A startup lives and dies by its customers. Not some marketer's initial conception of who the customer should be and what the customer should want, or even the developer's conception of which features should be useful, but what actually works in practice. That means the marketing person should be spending as much time as possible talking to customers. If you don't have many customers, it's their job to reach out and start the conversation. It's even their job to find potential customers who didn't buy and talk to them too. Make sure they drive everything from customers, not the other way around.
Humility. Startup marketing means working with unknowns. The product changes daily, the definition of the perfect customer changes as new data appears, marketing messages are invented and discarded, and just when you think you've got the right combination the world changes around you. Anyone who thinks they have the answers isn't paying attention. Anyone who thinks something that worked five years ago will automatically work again is wrong. So you need someone willing to admit what he doesn't know.
Domain Knowledge. This isn't a requirement, but it sure helps. If you yourself don't have good domain expertise (i.e. you're your own customer, or you worked in the industry), then this becomes more useful.
Can distinguish pain from feature. Customers often ask for features, and that's good. But you can't just implement everything they want, how they want it, because they don't have the big picture, they don't have to support everyone else's user-cases, they don't know what's difficult to implement, and they don't know what's idiosyncratic. So the marketer's job is to dig past the surface level "feature request" into the real information: What is the customer really trying to do? What pain is the customer trying to address? That information is critical, and bringing that back to development is one of the most valuable things she can do for the company.
Willingness to learn detail. It's a huge red flag whenever someone says "Every company is essentially the same -- we're selling widgets." This is a sign the person isn't interested in understanding your market, your customers, or your product. Fatal Fail.
Devotion to measurement. Few people truly embrace measurement. After all, if you don't measure a marketing campaign or a sales funnel, it's easy to explain away any problems and take credit for any successes. If you're measuring, though, you get credit for the successes but the losses are just on you. But you're a startup, so "failure" is only a failure if you refuse to recognize it and do something about it. Of course most marketing efforts won't be super-successful! That's OK -- what's not OK is to blindly forge ahead instead of identifying which ones to keep and which to cancel.
A/B tests and similar. A corollary to measurement is a desire for continuous testing like A/B splits for advertisements and web pages. If this people loves "strategy meetings" more than just "trying stuff and seeing what sticks," that's a problem. The goal isn't to be the one who came up with the best idea, it's to find the best idea through any means necessary.
Respected by developers. Traditionally developers and marketing/sales have an unhealthy mutual disrespect. Perhaps rightly so, often. But there's no room for that nonsense in a startup. If the marketer isn't a culture-match with the developers, it's not going to work. That doesn't mean they need to be able to write code, but for example someone who loves metrics and wants to talk about statistical significance as it applies to advertisement is probably going to fit in with engineers.
Branding is irrelevant. This often comes in the form of "We didn't know whether the magazine ad / tradeshow resulted in sales, but it was good branding / it got our name out there / people will remember us." Coca-Cola needs people to have a warm-fuzzy when staring at a shelfful of sugar water; you just need sales. "Branding" cannot be measured, so it has no place for you. The only branding you need is a strong culture that leeks into everything from the web site to follow-up emails to tech support. A culture, not a "corporate image." A marketer who ascribes value to branding isn't spending time on what's important to you.

P.S. This article was inspired by this question and these answers from Answers.OnStartups.com -- the Q&A forum associated with this blog. Come check it out! We solve problems like these every day.

What do you think? Are these effective in finding good marketing people? What other attributes or questions can you ask? Please leave a comment and join the conversation.

Oh, and if you're interested in more on this topic, there's a chapter in the wildly popular book "Inbound Marketing" from Dharmesh (host of this blog). Might be worth checking out.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Startup Advice In Exactly Three Words - #StartupTriplets

Dharmesh Shah — Fri, 08 Jan 2010 13:35:00 GMT

This article is a bit out of the ordinary. But, it's a Friday so I'm hoping you'll cut me some slack.

For some reason, I like wordsmithing and trying to make phrases smaller (but still have some meaning). So, late at night, I tried to come up with some of my best startup advice and see if I could reduce it down to exactly three words (which is why I call them "triplets"). One thing led to another, and I became obsessed with it. So, then I made 47 before I had to make myself stop. And, to ensure that you didn't take this too seriously, I included a photo of some puppies. You will now find the article irresistible and will share it with the entire world.

In any case, hope you enjoy them. It's likely not the most brilliant startup advice you've ever read -- but it has a decent chance of being the shortest. Oh, and please be sure to add your own in the comments.

Startup Triplets: Startup Advice In Exactly Three Words

1. Watch your cash. [tweet]

2. Pick founders carefully. [tweet]

3. Hire generalists early. [tweet]

4. Hire specialists later. [tweet]

5. Invest in culture. [tweet]

6. Avoid tempting distractions. [tweet]

7. Support customers maniacally. [tweet]

8. Avoid business plans. [tweet]

9. Write a blog. [tweet]

10. Never fudge numbers. [tweet]

11. Encourage diverse thinking. [tweet]

12. Guard your time. [tweet]

13. Defer renting space. [tweet]

14. Get enough sleep. [tweet]

15. Delay raising capital. [tweet]

16. Persist through downturns. [tweet]

17. Decide with data. [tweet]

18. Improve product daily. [tweet]

19. Recognize revenue consistently. [tweet]

20. Start charging early. [tweet]

21. Reward early adopters. [tweet]

22. Sell something today. [tweet]

23. Say “NO” often. [tweet]

24. Accept imperfect data. [tweet]

25. Recruit with zest. [tweet]

26. Nurture your best. [tweet]

27. Treat vendors well. [tweet]

28. Believe in yourself. [tweet]

29. Respect your competitors. [tweet]

30. Try something new. [tweet]

31. Build a brand. [tweet]

32. Focus, focus, focus. [tweet]

33. Iterate more often. [tweet]

34. Use your product. [tweet]

35. Live your vision. [tweet]

36. Encourage rational debate. [tweet]

37. Make decisions swiftly. [tweet]

38. Face harsh realities. [tweet]

39. Don’t break laws. [tweet]

40. Protect your health. [tweet]

41. Celebrate your successes. [tweet]

42. Cancel unnecessary meetings. [tweet]

43. Improve emloyee's resumes. [tweet]

44. Beware big bullies. [tweet]

45. Share the experience. [tweet]

46. Maintain your relationships. [tweet]

47. Keep it fun. [tweet]

Update: Guy Kawasaki (yes, the Guy Kawasaki) was kind enough to post some of his own triplets. Here are some:

48. Sales fixes everything.

49. Ship then test.

50. Do not partner.

You can see his full list here: Guy Kawasaki's Startup Triplets.

Challenge: You're way smarter than I am. Please come up with your own startup triplets and share them. Leave a comment or post it to twitter (with hashtag #StartupTriplets). I think you'll find it fun -- and addicting. I'll take the best ones and pull them together into a future post -- or even a book. You could be famous!

Ready? Go!

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Releasing Early Is Not Always Good? Heresy!

Jason Cohen — Mon, 21 Dec 2009 15:21:00 GMT

The following is a guest post by Jason Cohen. Jason's got a knack for stirring pots and getting us thinking a bit. And, thinking is a good thing. Even when the thinking makes me awfully uncomfortable and goes against my strongly held beliefs. I couldn't be a stronger advocate of "Release Early, Release Often", so it took a bit of effort to post this article "as is". But, as I hope you'll see, Jason does make some pretty good points. Well worth debating -Dharmesh

[UPDATE: I originally stated that Eric Ries was a proponent of "Release Early," but I was completely wrong.]

You can't throw a stone in the blogosphere without hitting someone arguing in favor of releasing software as early as possible. The idea is that it's best to push new software onto potential customers before it would be traditionally considered "ready."

Here's the general line of reasoning: In the beginning, you have a theory about who your customers are, what their pain is, what your product needs to do, and how it will be used. But it's just a theory, and it will always be wrong. That's OK! It's life.

Since you're wrong, your v1.0 is really just a foil to get people talking. Therefore:

Don't add a lot of features, because you don't yet know which features are actually needed.
Don't fix every bug, because half of this code might not be here in a month.
Don't pretty up the user interface, because it won't look anything like this in a month.
Don't obsess over the customer workflow, because it will change completely in a month.
Don't worry about scaling, because you won't have that many customers for a while.
Don't worry about architecture/extensibility/documentation because most of your code will be different in a month.

Now in general I agree with this line of reasoning, but I don't like how one-sided this discussion is. Even a casual glance through this discussion of the subject shows that people -- me included! -- are recommending this strategy as a knee-jerk reaction.

So for the sake of thoughtful debate, I'd like to present the case against.

The best ideas aren't built by consensus

Would the iPod have been invented if it were built by iterative customer feedback? I doubt it:

Do you want a portable music device without a radio? No.
Do you want a battery-powered device in which you can't change the battery? No.
Do you want a portable music device without Bluetooth? No.
Do you want a wheel-based user interface which you don't already understand and which makes certain operations confusing? No.
Do you want it to take 5 clicks to toggle "shuffle," one of the most-used functions? No.

Apple doesn't ask customers what they want -- they just go invent awesome stuff. People complain, sure, but in the end the success of the iPod and iPhone is undeniable.

In general, disruptive products by definition cannot be built by consensus. In fact, it's well-known that "design by committee" is a sure-fire way to get mediocre design.

Small, incremental changes pulled by customers blind you to bigger, better ideas.

You're misinterpreting the 80/20 rule

The typical 80/20 rule is: 80% of your customers use just 20% of your features.

The "release early" folks take this to mean: Just implement 20% of the features you think you need, because if that's good enough to get 80% of your sales, this is a much simpler, efficient, and therefore profitable way to operate a software company.

But this interpretation is wrong! To spell out the 80/20 rule more accurately: 80% of your customers use just 20% of your features, but each customer uses a different 20%. That implies you need more features, not fewer, otherwise there won't be enough for the various use-cases for your software.

Take Microsoft Excel. Every person I talk to uses a different subset of functionality. Some people are experts at PivotTables whereas others have no idea how they work. Some people can't live without the database connectivity stuff whereas others don't know what a database is. Some people drive key business data using conditional formatting, some people know just enough Visual Basic to save themselves hours of manual labor, and some are experts with the charting system.

The point is that you can't just remove 80% of the features from Excel and expect 80% of the people to still be happy.

Mock-ups are faster than code iterations, without some of the drawbacks

There's a variety of software and techniques for mocking up applications, both web-based and desktop. Mockups can typically be built in a matter of days and put in front of customers for feedback. Iterating with fake screenshots is always faster than actually messing with HTML, CSS, and back-end code.

Once the mockups for v1.0 are set, actually writing v1.0 is fast because you know the goal ahead of time. The complete cycle is faster than if you started coding in the first place, and the code is cleaner because you don't have traces of major false-starts. (Think database migrations, CSS styles, extra AJAX routines, unused dialogs.)

Releasing too early can ruin your reputation

When your first version is sub-par, you'd better hope very few people find out about it.

Back to Apple: The iPod worked on day one, but back in the 90s the Newton didn't. The Newton (the world's first PDA) was hailed as a revolutionary technology (just as the iPod and iPhone would be), but it didn't work well. In particular, the handwriting recognition sucked and there wasn't a lot of apps.

It never recovered from its early reptutation as "doesn't do a lot, and what it does do doesn't work well." Even when that was remedied, it was too late.

The typical counter-argument to this is that "release early" doesn't mean "release with lots of known bugs," but rather "release with fewer features." But we all know the difficulty in separating a "feature request" from a "bug report" -- what a customer sees as a devistating lack of functionality (bug) you say is missing by design (feature).

Ignoring architecture creates waste

Software architecture is something the end-user never sees, and is therefore usually cast aside in the arguments for releasing early and collecting feedback. But incorrect choices in architecture can bite you later on, causing an immense amount of waste, possibly enough to sink the company.

It's true that most companies don't survive, and therefore having a growing user base with a problematic architecture is "a good problem to have." But it's also true that an ounce of prevention is worth a pound of cure.

Take Twitter. Their scalability problems are legendary. Suppose they didn't have billions of dollars in funding to throw expensive people and hardware at the problem? It's not hard to believe that continuing scalability problems would have sunk their ship.

Or take Netscape. The architecture problems with their browser were so severe it required a rewrite, which took so much time and effort the product (and company) died.

Of course this doesn't mean you should dwell on architecture for six months before working on features, but it does mean you shouldn't just ignore future maintenance issues for the sake of releasing a month sooner.

Untrue: "The worst thing you can do is built an unnecessary feature."

This is frequently used as an argument for releasing early. The logic goes: Every feature is effort. Not just in creating it in the first place, but debugging it, testing it, training customers on it, integrating it into all other features, supporting it in the user interface, covering it in the user's manual, and keeping it even as the product's focus changes. Therefore, never add a feature unless it's absolutely necessary.

I agree unneeded features are a major expense, provided you retain them in the product. But having incorrect architecture is also expensive, yet the "release early" folks tell us that expense is OK!

The fact is, you can change or even completely remove features that have become albatrosses around the neck of your tech support and product evolution. The "release early" argument also includes frequent iterateration, morphing the software as evidence suggests. Changing and removing features is simply a part of that, and doesn't imply that releasing early is smart.

In fact, adding features is one of the few ways to test what customers actually want, because:

Customers are notoriously bad at providing feedback

Sometimes users will tell you that they want a time/date-based voting widget they can send by email, when what they really mean is that they need to coordinate schedules.

In my experience customers are terrible at deciding what features they need, which features they use, or how features should be altered. They're much better at describing what's difficult in their life, what frustrates them, or what takes up a lot of their time.

Customers aren't even good at explaining why they did or didn't buy your product. From Jo Owen:

My research showed customers thought they were rational purchasers of video cameras: it was all about price and performance.

But when I interviewed them as they left a store, they were often unclear about how much they had actually paid for the model after splashing out for warranties, batteries and accessories and sorting out a financing plan. They were also very confused about the relative performance of different models.

Of course it's necessary to gather as much feedback as possible from both customers and lost-sales! But it's not clear how accurate the feedback is or how to weigh it against your own vision and goals for the product.

Relying on unreliable information as the primary driver of product decisions is unwise.

What do you think?

In the end, of course it's better to have more feedback than less, better to be more agile than less, and better to have technical debt with a successful product than a failed product. However, it's just not fair to present only one side of the argument!

Do you have more arguments either way? Do you agree we're taking "release early" a little too far? Leave a comment and join the conversation. Or, if you've got a question, you can post it on Answers.OnStartups.com

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

How To Price Software Without Just Rolling The Dice

Dharmesh Shah — Mon, 23 Nov 2009 10:16:00 GMT

I’m going to open this article with a short (and true) story. I officially kicked off my marketing software company, HubSpot, about 17 months ago. If you’ve read my blog for any period of time, you likely know that I’m a big beliver in the “charge early, charge often” mantra. As it turns out, in order to “charge early”, you have to figure out what you’re going to charge people. That is, you have to have a price for your product. Thankfully, both my co-founder (Brian Halligan) and I had recently graduated from a top 5 MBA program. And, it wasn’t just any top 5 program — it was MIT. You know, that place where science and math and uber-geeky analytical stuff happens. So, you’d think that when it came time to figure out a price for our product, we’d really dig in, do some heavy-duty analysis, some really hard thinking and come up with a relatively well thought-out price. That’s not what happened.

When it came to deciding on the price for our software, we basically just rolled the dice.

I’d love to for the statement above to be an exaggeration. Surely, we spent some time pondering that oh-so-important factor in our business sucess. Nope. We didn’t. One of us (I think it was me) suggested “how about $250/month”, and that’s what we went with. And, that’s where the price remained for about 2 years.

Things turned out fine for me and HubSpot. But, you still shouldn’t do this. Don’t just roll the dice when it comes to pricing your product. Give it some thought, consideration and (gasp!) some analysis. Your first step towards this path should be to run over, right now, and get the book “Don’t Just Roll The Dice: A usefully short guide to software pricing” by Neil Davidson. Even if Neil weren’t such a nice guy (he is) and even if he doesn’t run my favorite conference (he does) and even if he didn’t build a really successful software company himself (he did), I’d still implore you to read the book. It’s got the highest value-to-length ratio I’ve seen in a business book in a long time. Go get it, right now. And, if you’re still not convinced, Neil’s even been nice enough to give it away for free in convenient PDF form. Yes, that’s right, you don’t even have to buy the freakin’ book on Amazon for $9.95 (though you could).

Just on the off-chance that I caught you at a particularly skeptical time and you’re still not convinced, here are some of my notes from the book.

Insights On Software Pricing From “Don’t Just Roll The Dice”

1. Your product is more than just your product. You might think that your software product is just the bits and bytes that your customers download (or access online), but you’d be wrong. What customers are actually paying you for is the entire experience of doing business with you. Everything from how you market and sell the product, to how you help people use it and how you maintain it going forward. All of it. Your pricing should be based on this reality.

2. There’s a difference between perceived and objective value. It doesn’t matter how much “real” (objective) value you have baked into your product if your customers don’t perceive that value, they are not going to pay as much for it. Hopefully, their perceived value is a function, to some degree, of the objective value. If not, you’re screwing something up.

3. Community matters. The group that your customers belong to, or want to belong to will impact the price they’re willing to pay. For example, some people buy hybrid cars not just because of the environmental benefit or the higher mileage but because they want to be part of that community. The same reason some people buy a BMW. Determine what kind of community you can build (or tap into) around your offering. Help people belong to the community they want to belong to.

4. As it turns out, people do buy drills (not holes). There’s the reasonably famous adage around “people buy holes, not drills”. The point is to focus on the benefit to the customer (not the product itself). I generally agree with that notion. But, it’s useful to keep in mind that holes can be a commodity, but people still sometimes pay $400 for a drill. Benefits are important, but the direct benefiit is not the only one that customers value.

5. The more differentiated you are, the more you control price. This one should be obvious. If you have a product that’s about the same as all of your competitors, then you don’t really set your price — the market does. Of course, nobody thinks of themselves as being identical to their competition (especially software companies). But, what we often forget is that it’s difficult — and very risky, to try and create a completely new category and be totally differentiated. Decide which dimension you’re going to differentiate on and make sure it’s reasonable given your particular constraints (like cash).

6. No battle plan survives contact with the enemy. This quote is not actually in the book, but I think it still fits the theme. When setting pricing, it’s important to consider what the “market response” is going to be — particularly if you’re in a well-defined category. Just because it doesn’t make economic sense for a competitor to get in to a price war with you, it doesn’t mean they won’t do it. Particularly if they’re big or well-funded. If you’re thinking about competing on price, keep that in mind. Better yet, don’t do it at all.

7. Remember to be fair. As humans, we often have a sense of what we think “fair” pricing is. Even though a particular pricing model is “theoretically optimal”, it might not be wise in practice. As software entrepreneurs, we often think we can get away with certain types of price segmenting simply because it’s enforceable in the software. Just because you can keep customers from doing certain kinds of things (unless they pay up), doesn’t necessarily mean it’s the right (optimal) thing to do. In the long term, it could actually hurt. Try to put yourself in the customer’s shoes and envision if they think the way you price things is fair. [Note: I’m not suggesting you be all rainbows and cupcakes and suggest that you price based on being “nice”. I’m just saying that you might actually make more money by being empathetic]

8. Pricing complexity has a cost. One of the things you learn in micro economics (and is discussed in the beginning of the book) is the concept of supply and demand curves and how you can segment your pricing in order to capture the maximum value (i.e. optimize revenues). This can be a wonderful thing. But, it’s critical to remember that this segmentation has a price — it’s not free revenue. For example, when HubSpot went from a single price ($250/month) to two prices (still pretty simple), life got a lot harder. All of a sudden, our marketing, sales and even our operational efforts got more complicated. The product got more complicated. All of our pretty charts that we used to talk about the business and measure success got more complicated. The reality is that when you add a new dimension to your pricing structure, you’re adding a new dimension of complexity. Oh, and by the way, the *second* price that you add to your product is the most expensive. After that (third, fourth, etc.) things get a tad easier because you’ve already built some of the infrastructure to support multiple prices. And by that point, your brain is already used to the pain.

Phew! I typed this entire article in one sitting while simultaneously reading a majority of the book for a second time. If I haven’t convinced you yet that you should go read it then I think I’m hopelessly inadequate at conveying the importance of this topic and the usefulness of the book. Or, maybe you’ve already got it all figured out. If so, may the wind be in your sails and may you go forth and prosper. For the rest of you, just download the book.

And, on a more selfish note, what are your biggest insights when it comes to software pricing? What challenges have you dealt with? What questions do you have about pricing your software? If you’re looking for some great answers, you can post a question on Answers.OnStartups.com where a bunch of smart folks like Neil Davidson (the guy that wrote the book) hang out. Hope to see you there.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

A Debate With Microsoft On The Departure Of Don Dodge

Dharmesh Shah — Sat, 21 Nov 2009 23:40:00 GMT

Here is a hypothetical conversation that might have happened (but didn't) with some high falutin’ person at Microsoft on the whole Don Dodge thing.

Imagine a scene where I’m sitting in a Seattle coffee shop having a clandestine meeting with the Microsoft individual that was involved in the recent, highly publicized departure of Don Dodge. (If you don’t know anything about this topic, you can get caught up with this TechCrunch article and it’s 200+ comments).

Dharmesh: How could you allow Don Dodge to quit Microsoft? Seems someone wasn’t working hard enough to keep him happy.

Concerned High-level Microsoft Person (CHMP): Well, um, he actually didn’t quit. We let him go…

Me: Choking on my decaffeinated coffee (which turns out does actually contain some caffeine, enough to keep me up at night, which I don’t really need any help with). What!? Why the heck would you do that?

CHMP: Well, it was part of a much larger reduction in workforce event.

Me: Um, ok, but weren’t there tens of thousands of Microsofties that weren’t let go? Why wasn’t Don one of those people? Seems if things were completely random, there’d be a higher probability that he’d wind up in that bucket instead of the “let go” bucket.

CHMP: Well, it wasn’t really random. It’s not like we pulled names out of a hat. At Microsoft, random is a 6 letter word. In any case, we actually put him on the list to let go.

Me: Oh, I see, so you’re really saying that the whole notion of attracting developers onto the Microsoft platform — particularly getting startups on board while they’re still young and impressionable is no longer a strategic priority.

CHMP: Well, I wouldn’t quite put it that way. We’re still all about “developers, developers, developers”.

Me: And you don’t think that Don was helping out enough in terms of putting a semi-tolerable face on Microsoft? Do you have a sense for how much discussion has been going on in the blogosphere now talking about how stupid this move was?

CHMP: Well, in our defense, all of the recent fall-out from his “departure” happened after the event. We couldn’t possibly have known that Michael Arrington and a bunch of other high-influence people would react so negatively. We figured, hey, we’re letting a bunch of people go. This is one of them. It’s a bad economy and all that…

Me: So, you didn’t consider the PR impact at a time when you can use all the positive PR you can get? You didn’t know that Don had a blog, or that you paid him to fly around the country and evangelize and build these strong connections in the tech industry?

CHMP: As I said, we couldn’t have known that the response was going to be so negative.

Me: And, what about the fact that he got hired by Google. And that he’s now switching to Google products — and writing about it. This can’t be sitting well with you.

CHMP: Well, yeah, we’d prefer that he had not gone over to one of our arch rivals. In fact, Google is the last place we wanted him to wind up. And in terms of his switching to Google technology, he’s just one user, we’re solving for the “long term”.

Me: So, let me get this right: You had him on the list to let go, you knew he had reasonably strong brand and a community of followers (including some high-level folks) and you knew that Google was high on the list of places that would likely recruit him.

CHMP: Yes, that’s kind of right. But, we didn’t KNOW that the PR cost was going to be so high.

Me: And what about the whole Boston thing? Wasn’t it kind of nice to have a well respected, likable guy that was singing Microsoft’s praises in the second-largest tech startup area in the world? Don’t you think it’s going to hurt your “long term plans” to lose some of that mojo?

CHMP: Ok, between you and me, we were idiots. In the whole grand scheme of things, Don wasn’t that much money. A mere rounding error in the PR and evangelism budget. And it’s not like there were 50 people like him running around at Microsoft. He had some unique value, some great connections and did an exceptional job evangelizing Microsoft while still maintaining credibility (and dignity). That’s not easy to do. And yes, we knew there was the risk Google would recruit him — they’ve been known to do some smart things. And yes, we’re kicking ourselves now because from a business perspective, Don was accretive. But, let’s talk about the real reason this all happened. Given infinite time, we could have likely figured out that this was a bad decision. But, realize that we’re Microsoft. We’re big. We can’t afford to analyze each individual decision like this. Thing of it as the price one pays for selective focus. You can fault us all you want, but hindsight is 20/20 and foresight is expensive.

[end of scene]

—-

This brings me to the startup moral of the story. You should be investing considerably in your team. If someone is profitable (creating more value for the company than they’re costing you), then there’s only reason to ever let them go: Their “payback” period is longer than your cash resources will allow. Said differently, they’re great, and they’re going to make you money, but you can’t afford to keep them. That’s a legitimate (and often common) situation.

You should also factor in the the likely outcome of letting someone go. Think through the likely scenarios. One additional high-level question I often ask myself that is looking to leave: Would I rather this individual work for me, or my strongest competitor? If I want them on my team, I fight hard to keep them.

What do you think about assessing the value of members of your team? Do startups tend to over-estimate the competitive risk of an employee leaving? Do we make mistakes in terms of choosing who to let go when it’s necessary to do so? What do you think?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Answers OnStartups Roundup 1 - March of the parentheticals

Jason Cohen — Fri, 20 Nov 2009 10:00:00 GMT

By now you've probably heard of Answers OnStartups, the new Q&A community for any topic about startups and entrepreneurship. If not, here's Dharmesh's announcement.

I have the good fortune of being asked to co-moderate the site with Dharmesh, probably as a result of the popularity of a few provocative but useful guest-posts here on OnStartups. (Note to those of you hoping to expand your influence in the blogosphere and beyond -- take the advice from Leo and Darren and Mary and, I suppose, me: Guest-posting is a good way to do it!)

What does "moderation" mean, you ask? I took it mean "Get the CSS in order, make sure there are no JavaScript errors, and correct everyone's spelling errors. Oh, and be the #1 highest reputation person on the site." Durn, that last one actually took some effort... (Yes I see you gaining on me Alex!)

But, you know, it's not a competition. Yeah, right. That's why there's voting and reputation, 'cause it's not a competition. Riiight.

As some of you know, there was an unexpected problem with the site at the beginning. See, Answers OnStartups is built on the same technology as StackOverflow, through Joel Spolsky's StackExchange program. (Yup that's our Dharmesh on the front page! Which reminds me, that's a good lesson in marketing. Q: How do you get your name and URL on the front page of a high-traffic, highly regarded, high-SEO website like StackExchange? A: Write a fantastic (but honest) review of the product and give it to the owners. Make it so awesome that nothing they could say about themselves would be as good or believable as your words. Then they'd be foolish not to!)

(And since I'm on the subject, and since I've already interrupted myself with this many parentheticals, you might be interested to learn that, technically, StackExchange is FogCreek but StackOverflow is Jeff Atwood.)

Anyway. Where was I? Oh yeah, problems bootstrapping the site.

See, Answers OnStartups has an automatic permissions system where you have to have a reputation of at least 15 to vote, and 50 to leave a comment. Even more for things like inventing new tags. It's smart because it prevents people from (too easily) gaming the system by creating accounts and tearing up the place anonymously.

That works well at StackOverflow because they get a million hits per day (literally), so if you start contributing properly you get up-voted fast (sometimes in a matter of minutes). Very quickly an earnest contributor is granted these permissions.

But at Answers we had a bootstrapping problem. All these kind and wonderful folks came to use the site... and essentially couldn't do anything. The only people with rights to up-vote were Dharmesh and me (because we are blessed moderators, pronounced "bless-head"), and even then we were limited to 30 per day.

So all the initial members had to run around and up-vote each other for about a week, and newbies would come in an invariably ask questions about why no one is voting, which, ironically and usefully, got them a lot of votes.

The lessons from this little mishap:

When you use pre-packaged software, you get the limitations along with the upsides. Just remember though, had you rolled your own you would have a different class of bug, probably worse.
It didn't matter in the end, because what we're really doing is building a friendly community for startup discussions, and little problems like that aren't going to matter assuming you have intelligent members. And if you don't have intelligent members it's not going to work anyway. In other words, don't sweat the small stuff.
Had we built our own, others would have beat us to the punch, and we would have lost the war.

As proof of that last point, there's now another StackExchange-based startups Q&A site! I'm not going to link to it because I don't want to give them the credit -- which I admit is kind of crappy of me, but in my defense I am writing in the throes of passion and cannot be responsible for my actions. Not buying it? Fine, but I'm linking to our question about it.

Anyway Answers OnStartups is better because we have a totally killer user base. Active users you've probably heard of include:

Neil Davidson (RedGate, Business of Software)
Joel Spolsky (FogCreek, Joel on Software)
Rand Fishkin (SEOMoz)
Bob Walsh (47 Hats)
Alex Papadimoulis (DailyWTF, Inedo)

(I linked to their Answers user profiles too so you can see they're actually active, not just name-dropping.)

(I love the phrase "name-dropping." It sounds like you're taking a dump on the conversation which, often, you are.)

But perhaps even more fun is meeting all sorts of folks who aren't already famous but who are running interesting startups and have terrific, new things to add to the conversation.

Over the next few weeks, watch this space for highlights of these users, as well as highlights from some of the more action-packed discussions that are going on.

To whet your appetite, one of the most popular questions is: How do you pick a platform for a Web 2.0 startup company?

See that link for the full discussions, but here are some highlights:

The platform is not as important as other factors. There are hugely successful companies based on any technology you can name: Java, .NET, PHP, Ruby, Python, Perl.
A major factor is existing competence. If you know a platform/framework well already, that trumps other considerations because it means you can get started fastest. Speed to beta is part of success.
If you have no existing competence, it's most important to find/hire the best possible developers. Because it's always hard to find awesome talent, whatever platform they love is the right choice.
It depends on whether you need to get something running ASAP or whether long-term maintainability is necessary right from the start. If the former, Ruby and PHP generally get applications going fastest. If the latter, Java and C#/.NET generally have the best tools for that sort of thing.
Both Sun Startup Essentials and Microsoft BizSpark make certain application stacks particularly attractive. If you like the other benefits afforded by those programs, either are a good choice.
Pick a framework that will stick around for the long haul. Ruby on Rails isn't going to be ditched. ASP.NET won't be ditched but Microsoft is a moving target. PHP itself is stoic but any particular framework is more questionable. Which community do you think has longevity?
If your startup fails, which technology will leave you best positioned for future projects?

As with many questions on the site, there's usually not one right answer. As it should be.

So join the conversation! Come visit Answers.OnStartups.com and see what all the fuss is about. It's fun.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Adam Smith Video On The Story Of Xobni

Dharmesh Shah — Mon, 16 Nov 2009 23:51:00 GMT

As noted in my previous article on startup marketing, I had the opportunity to speak at the MIT Startup bootcamp recently. My friend, and an all-around great guy, Adam Smith (founder of Xobni) spoke earlier that day. Adam did a great job capturing the experience of starting a company and watching a company grow. Adam's both brilliant and articulate. Well worth watching the video.

Here are some quick notes from the video (to help entice you to watch).

1. If you can improve email just a little bit, you can create a lot of value.

2. PG: "Go shake your friends tree, and see who falls out"

3. Met co-founder originally on Craig's list (when looking for apartment)

4. All our passwords in the early days of Xobni were "xobni rules"

5. Drew Houston wrote the first lines of code for his startup at our place.

6. In the early days, after the Series A, we hired about 1 employee a month.

7. Once we realized that Xobni Analytics (Google Analytics for your email) was interesting, but not something people used every day, we decided to change the product completely. I'm not telling you this so you can short-circuit this, but so you can forgive yourself if you do the same thing.

8. Expect and hope that a quarter of your projects fail. If not, you're not taking enough risks.

9. Focus on the user.

10. Have lots of experiments, but make sure they're strategically focused. That's one of the problems Yahoo! has, they're spread too thin.

11. If you're starting an enterprise software company (God help you), hire a VP of sales.

12. Hit the high notes. Find things that only you can do really well. This helps you raise the barrier to entry and please your users at the same time.

13. We decided to move out West, because when we asked people, half said it doesn't matter, the other half said, move out West.

14. Ron Conway (the biggest angel investor in the world) is getting more dealflow now than ever before.

15. Paul Graham's essays are required reading. They're going to be my kid's first reading.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Dharmesh On Startup Marketing: Video From MIT Startup Bootcamp

Dharmesh Shah — Mon, 16 Nov 2009 21:13:00 GMT

I recently had the opportunity to speak at the MIT Startup Bootcamp held at the MIT Kresge Auditorium (a great venue that President Obama spoke at just a couple of weeks later). This was a fantastic event with a packed house (1,000+ people in the live audience) where some great entrepreneurs had a chance to share their experiences and insights.

I was a little nervous in the beginning (as usual), but once I warmed up, I think I did OK.

Here's a recorded video of my talk.

Hope you enjoy the video. Would love to hear your comments and questions.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Startups: How To Build A Barrier To Entry With Inbound Marketing

Dharmesh Shah — Tue, 20 Oct 2009 08:16:00 GMT

I’ve been doing a fair amount of speaking lately. It’s partly driven by my recently released book, Inbound Marketing: Get Found Using Google, Social Media and Blogs (which is doing exceptionally well -- more below on this). The topics I usually speak on are startups (surprise) and marketing (surprise, surprise). And, when I’m really on a roll and feeling adventurous, I talk about startup marketing.

First off, a quick confession. I’m not really a marketer, and I don’t play one on TV. I’ve never had the word marketing in my job title, ever. The closest I’ve come to any formal academic training in marketing are two marketing classes I took in grad school. Neither of them were really about marketing a startup (they were about pricing and branding and other high falutin’ stuff). So, much of what I’ve learned about startup marketing has been through (gasp!) actually doing it.

Now, I want to lead with the fundamental premise of this article:

Exceptional marketing can be a formidable barrier to entry.

For those of you that are new to the investor game (which is usually where the phrase turns up), “barrier to entry” is loosely defined as that thing which makes it hard for competitors to enter your market and reduce your profits. In most cases, when VCs ask a startup about barriers to entry, the response usually falls into one of two categories:

Type 1: We’re doing something that is so hard to do that few others can do it. This is usually manifests in the form of some intellectual property (IP) like source code.

Type 2: We’ve got exclusive/proprietary access to some important resource that others can’t get to. This could be in the form of some product integration partnership (like bit.ly has with Twitter).

Of course, there are other types of barriers to entry, but the above two types capture most of what you’re likely to hear — and software entrepreneurs are often focused on the first one (i.e. "lets build a kick-ass product that’s really hard and others can’t replicate because we’re just so freakin’ awesome"). Nothing wrong with that. I’m a big fan of doing really hard things that you’ve got a rare talent for and others can’t easily emulate. However, it’s entirely possible that late at night, when you’re talking to yourself, you might say “Self, I know my application is cool and all, but honestly, I don’t think it’s that hard to build.” Be comforted in the knowledge that most software being built is not particularly hard to recreate. So, the question is, if it’s not the software that’s going to be your barrier to entry, and you’re not fortunate enough to have a lock on some proprietary resource, what do you do? My advice: Get phenomenally good at acquiring customers efficiently. The emphasis is on the word “efficiently”.

So, here are some thoughts and insights on how I think you can build a barrier to entry with marketing:

How To Build A Barrier To Entry With Inbound Marketing

1. Getting good at spending money doesn’t count. Your strategy shouldn’t be “go raise a bunch of money, then use that money to go buy your way to some customers. Then, make it up in volume.” Though that can certainly work, that’s not a defensible barrier to entry. Just about anyone can spend money (some smarter than others). You need to focus on creativity, not cash. More on this later.

2. PPC (Pay-Per-Click) can be effective, but will not protect you. One of the popular forms of marketing today is pay-per-click advertising through programs like Google AdWords. I’ve seen entrepreneurs get really, really good at figuring out just the right bidding strategy and figuring out precisely how much they can afford to spend on a given word based on their conversion rate and lifetime value of the customer. This is all fine and good, except for one thing. PPC programs like AdWords run as a real-time auction. She who pays gets the clicks. It’s easier to describe why this is a problem with an example: Let’s say that you’re building a web-based app for home theatre installers (random example that I just made up). Let’s also say that over time, and with some maniacal focus and PPC bidding ninja skills, you figure out that you can afford to pay up to about $2.76 a click based on the traffic that these clicks generate, how many clicks lead to purchases, and the value of each purchase. Life is good. For every $1 you put in to the PPC machine, something > $1 comes out. This goes on for weeks/months. Then, all of a sudden, you wake up one morning, check your analytics and discover that for some reason, the price for your most important keyword went up. Way up. Enough that your morning coffee comes shooting out your nose. After some poking around on the Interwebs, you find out that some lame startup on the other coast just raised $5 million from some lame VC. They just emerged from the shower freshly sprinkled with a new round of funding, hired a VP of Marketing who then went out and started buying AdWords. Your AdWords. The real tragedy with this story is that this competitor is not all that bright. They don’t know that they can’t really afford to pay that much for a click and make profits (they’re not thinking about profits — they just raised a bunch of money). Your problem is not that they’re super-smart, it’s that they’re super-ignorant. And that’s the thing with PPC. You’re basically at the mercy of the stupidest market entrant. Call me simple-minded, but that doesn’t sound like a particularly effective barrier to entry when someone can just come along and drive your cost of customer acquisition (COCA) up. And, it doesn’t happen overnight — it happens immediately.

3. Get spectacularly good at search engine optimization (SEO). Instead of becoming really, really good at PPC, invest in the time and energy to become an SEO-ninja instead. The first reason for this is that SEO is cheaper. Not free (generally), but free on a marginal basis. Here’s why: In PPC, each additional click costs you money (based on the cost-per-click). Want 1,000 more clicks? You pay for all of them. For SEO, once you’re ranking well and getting traffic, the clicks don’t cost you anything. It’s going to take some time/energy to rank in the first place, but once you do, life is good. Further, unlike PPC, SEO does not reward the stupidest market entrant. Someone that’s new to the game can’t just walk right in and snatch your #1 ranking. Granted, they can spend some money and eventually get there, but it’s not going to be immediate and you’ll probably see it coming. (All you have to do is watch the search engine results for your favorite keywords and see who’s creeping up on you). So, unlike PPC, the presence and skills you build in SEO-land are much more sustainble and defensible. In fact, if you’re out raising money, being able to demonstrate that you’ve got strong rankings for traffic-generating keywords is a major, major plus.

4. Create content that kicks butt. It’s really simple. If you produce things that are useful/interesting to your target customers — you win. You win by drawing people in to your business not because you had the largest marketing budget, but because you created something of value. The kind of stuff that people tweet about, link to in their blogs and and share with their friends. That’s magical. The type of content can be varied. At my startup HubSpot, we’ve tried lots of different things: “normal” blog articles, music videos, parody videos, songs, cartoons — and of course, free marketing tools. For most startups, if you took every dollar you would have spent on advertising to try and beat your prospects over the head in the hopes that they’ll buy from you and instead spent that dollar on actually producing useful content, you’d win. Seriously win. This worked so well for us that almost all of our increase in marketing spend is allocated towards hiring people that can produce content. They make videos, write blogs, create research reports and develop software tools. The beauty of this content is that long after you’ve invested in creating it, it’ll continue to generate traffic and leads. To this day, some of the early articles I wrote for our marketing blog drive consistent cash into our bank account. We don’t have to spend a penny for those leads. I’ll summarize again in four words: Create content. It works.

So, I want you to imagine this: Imagine that you’ve got a business that is exceptionally good at pulling customers in by the truck-load. Not by spending money on outbound marketng (like advertising, spam, telemarketing and direct mail), but organically because they think the stuff you have to say is just so freakin’ awesome. People are shouting from the virtual twitter rooftops about how great you are. They’re so mind-bogglingly happy that they’re writing entire blog articles talking about your company and your product. And you don’t have to pay them a penny. Now imagine that some competitor emerges, raises money from Sequoia and comes after you. Do you think it’ll be easy for them to reproduce that magic that you’ve built? Nope. It’s hard. And that, my friends, is what I call a bonafide barrier to entry.

On a closing note, I’m going to ask you a favor. It has been less than 36 hours since my book, Inbound Marketing has been available in bookstores nationwide. Today was the big “release” day. Already, it’s in the Amazon Top 100 business books list, and the #6 book on marketing (if you helped make that happen, thanks!) The entire book is about pulling customers in. I wrote it not to make money (it’s near impossible to make money writing a book), but to try and convince more people — especially startup founders, that inbound marketing is a better way to go. So, you should buy the book. To make it easier for you, I’ll give you my personal, one-question asked, money-back guarantee. If you buy the book and don’t find it useful, just tweet me @dharmesh and I’ll send you $25 via PayPal. (The only question I’ll ask you is “what should I do to make it useful so people that read the next edition don’t waste their time?”).

Oh, and for whatever reason, if you owe me a favor (or $25), this is a great karmic-loop way to pay me back. For some reason, even though the money made is miniscule, I get some emotional gratification from seeing the book do well. And, $25 is a small price to pay for my emotional betterment, don’t you think? OK, that’s enough guilt for one blog article. Go buy the book on Amazon. Then, copy-and paste this message into twitter — “I let @dharmesh talk me into buying his book (http://InboundMarketingBook.com). You should too".

Or, just click here to tweet it.

Thanks a bunch for your support and apologies for the shameless promotion this time (I don't do it that often). I promise to get back to my regular shameful promotion next week, once the newness of being a first-time author has worn off.

Oh, and what do you think about exceptional marketing being a barrier to entry? Agree or disagree that this could work?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Holy Crap! HubSpot Has Now Raised A Total Of $33 Million

Dharmesh Shah — Mon, 19 Oct 2009 09:12:00 GMT

It has been a little over a year since I announced the news that my marketing software startup closed it’s Series B round of funding. The article, “Insanity? Why A Bootstrap Entrepreneur Raised $17 Million in Venture Funding”, was a candid glimpse into the rationale for raising what seemed like a huge amount of money to me at the time (it seemed huge, because it was — at least to me).

Today, we’ve released news that HubSpot has just closed on another $16 million funding round (our Series C) bringing our total capital raised to a whopping $33 million.

As I write this, I’m a bit worried that this article is going to come off as arrogant and/or self-indulgent. I promise that’s not my intent. I’m just going to let you “inside my brain” in the hopes that some of you will find the excursion interesting, amusing or useful. Although not all of you are out raising money (thank goodness!), I thought you might want an insider’s view on why an otherwise rational and pragmatic entrepreneur would make this kind of leap. I promise, the decision to raise this kind of money wasn’t as crazy as you might think.

The Story Of How I Ended Up Raising $33 Million In Funding

1. Did we need the cash? No, we didn’t need the cash. We had over $6 million in the bank. But, if I’ve learned one thing about VC fund-raising it’s that not needing to raise money helps a lot.

2. Why raise money at all? As the company has evolved, we’ve learned a lot about the mechanics of our business. We have gotten pretty good not just at predicting our growth path — but actually solving for it. There’s no better way to illustrate this than with the graph below:

This graph shows the number of customers (people that pay us money) over time. Note that our revenue curve is even better than this (because the average revenue per customer has steadily gone up over the same period). In short, things have been going pretty well. As we’ve gotten more visibility into the business, we’ve gotten good metrics around the drivers in the business. The two most important are: COCA (cost of customer acquisition) and LTV (lifetime value). We’ve worked hard to ensure that COCA < LTV. And, this margin is getting better over time. Given that we’ve got a decent handle on things, it made sense to further invest in the business so that we can continue to scale it. Once we found a model that works, we figured it would be a good idea to iterate, execute and scale it. As I’ve noted here in the past, we’re swinging for the fences with HubSpot and have not backed off of that position one iota.

3. Should we raise now or wait? OK, fine that we decided to raise money, but why now? Given the state of the economy over the past year, some thought we were raising too early. The business has been growing exceptionally well. The question was: “Why not wait until the economy improves, the business is even further along, and raise at better terms?” That was a good question. Our primary argument was that we didn’t want to wait too long, because the longer we waited, the less leverage we would have (see #1 above). It was not a particularly easy decision. We’ve been fortunate to have great investors in the company (General Catalyst and Matrix Partners) who have been exceptionally supportive. We were reasonably confident that had we waited until next year, we would likely have had no issue raising funds. But, even during our best times, we’re cautiously optimistic at HubSpot. A few factors we were pondering: 1) Would the economy really improve? If so how, when, how much, and for how long? 2) Even if the economy improved, what would the VC industry look like next year? (We had already witnessed a fair amount of shake-out and expected more). 3) Even if things did get better, how much better would the deal be then vs. now? How much should we discount back for risk? 4) How would a “wait until later” approach impact our decision-making in the business right now? Would we take appropriate levels of risk or as time passed, would we start to act with increasingly more conservatism?

After all was said and done, we decided that there was a price (or more accurately a “set of terms”) at which we’d be willing to do a deal now, instead of waiting until later. We were able to beat that “minimum bar” (by a relatively large margin), so it made sense to do something now. Of course, in these situations, it’s never “knowable” as to whether we made the right decision or not. But, we’re relatively comfortable that we at least made a pretty thoughtful decision.

4. Did you really need to raise that much? Not really. Our model and plan called for significantly less than this. But, the other important thing I’ve learned about venture fund-raising is that you should always raise more than you think you need to get to the next milestone. We had a model and plan in place that would make this the last venture round we’d need. But, given the terms on the table, it made sense to leave ourselves some wiggle room and buffer. This increased the probability that we’d be able to get to where we wanted — even if things didn’t quite go precisely as planned (which they rarely do). And, it’s painful to go through the fund-raising process, so if you can condense things into fewer rounds, it saves a lot of pain and agony. We had the opportunity to raise more than we needed, with pretty “entrepreneur friendly” terms — so we took it.

5. What are you going to do with all that money? Well, we’ve always been pretty capital efficient. One quick calculation I’ve been doing in my head since the early days of starting the company is this: Figure out your run-rate annual recurring revenue. Multiply this by some conservative industry multiple (somewhere around 3X). Then, make sure that the total money you’ve “consumed” is less than this number. When it is, you’re basically operating on an “accretive” basis (i.e. the actual enterprise value built — even if sold to a conservative financial buyer — is greater than the amount of money used to build that value). In our case, we’ve been accretive from the early, early days. And, despite our torrid growth, we’re still accretive now (revenues and associated “enterprise value” is growing faster than our rate of capital consumption). So, back to what we’re planning to do with the money: #1 product. #2 product. #3 customer acquisition. We have a backlog of ideas that’s both uplifting and depressing at the same time. There are so many great ideas for how we can deliver more value to our customers. We plan to pick the best of these and execute on them maniacally.

We are out to build the next-generation marketing platform.

6. So what’s next? We’re also on to what we think is a massive opportunity that helps organizations capitalize on the major tectonic shift in the marketing industry. It’s a really, really big deal. But, with radical change comes the need for radical education. And that kind of education takes committment — and capital. We’ve got a burning passion to help people figure out how to better reach their potential customers by pulling them in. This is what caused me to devote most of the Summer to write Inbound Marketing (a book that captures a lot of what I’ve learned about marketing by helping startups and small companies figure out how to “get found”). But, enough about me. Let’s talk abut you. You’re likely in the startup game because you perceive something fundamentally wrong with the world that you know you can make better. I know how you feel. My advice is to dig in, understand the problem as well as you can — and go fix it.

OK, so reading back through the article, it came off as more self-indulgent than I had planned. But, it’s 2:00 a.m. here in Boston and I’m not sure investing more time is going to make the article much better. Such is life sometimes. I trust you’ll forgive me for this lapse. It’s a big day for me and my team at HubSpot. We’ve now got even higher expectations for ourselves than we had before. Like you, we’ll be working hard to live up to those expectations. I’ll close (once again) with my definition of success:

Success = Making those that believed in you look brilliant.

What do you think? Did I do the right thing in raising all this funding or am I just rationalizing my behavior decision? What would you have done?

Oh, and if you're a blogger/journalist/media type and are curious about details or want to write a story, feel free to email me at dshah {@} onstartups.com. Would be happy to chat.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Answers.OnStartups: Community Q&A For Startup Entrepreneurs

Dharmesh Shah — Thu, 08 Oct 2009 22:14:00 GMT

I’m a big fan of a site called Stack Overflow. It’s a surprisingly useful Q&A site for posting programming questions, and getting answers from the community. The site has been immensely successful and is now often the first place I go to find answers to those vexing questions. One of the things I like most about it is that both the questions and answers get voted on by the community. As a result, the best stuff surfaces to the top. You have to really use it to appreciate it.

In any case, I’m a big fan of the site. So, I was thrilled when Joel Spolsky (who, along with Jeff Atwood of Coding Horror) decided to make the software that powers Stack Overflow available to others. I immediately reached out to Joel to see if I could get early access to the software. (I’m speaking at Joel’s Business of Software conference coming up in San Francisco, so we had communicated recently anyways).

I got access to the software a little while ago and am pleased to announce that a new collaborative Q&A site for entrepreneurs is now launched and ready for your use.

Here's the link: Answers.OnStartups.com

I have a long list of exceptional entrepreneurs I know well enough to arm-twist into participating in the community. Here's a sample (in no specific order):

1) Adam Smith, Xobni

2) Drew Houston, DropBox

3) Jay Meattle, Shareaholic

4) Mike McDerment, FreshBooks

5) Neil Davidson, RedGate Software, Business of Software

6) Jeff Bennett, NameMedi a

7) Brian Shin, Visible Measures

8) Sachin Agarwal, Posterous

9) Peldi Guilizonni, Balsamiq

10) David Cancel, Compete.com, Performable

11) Brian Halligan, HubSpot

12) Alexis Ohanian, Reddit

13) Andy Payne, angel investor

14) Rand Fishkin, SEOmoz

15) Don Dodge, Microsoft

16) Nivi, VentureHacks

I've got many more, but you get the idea. I know, I'm name-dropping a bit here, but I promise I will do my best into guilting these people to share their experience and insights.

Here’s the link again: http://answers.onstartups.com

Hope you’ll find it a useful resource. If you have ideas on how we might make it better, please let me know.

Meanwhile, please help me spread the word. The early days of a community like this are always the hardest (in a “chicken and egg” sort of way).

Thanks for your support.

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

12 Facts About Entrepreneurs That Will Likely Surprise You

Dharmesh Shah — Mon, 21 Sep 2009 09:29:00 GMT

I have a picture in my head of what the average entrepreneur is like. I’d guess pretty young (think Facebook, Twitter, Google, etc.) living the red beans and rice lifestyle and working 80+ hours a week and sleeping under their desk. On some parts, I’m probably right — but on many, I’m flat-out wrong. This is demonstrated by a recent report from the Kauffman foundation for entrepreneurship. The report is titled “The Anatomy of an Entrepreneur”. It’s based on a survey of 549 company founders across a variety of industries (that’s my first mistake, as it turns out entrepreneurs start companies other than Internet software companies — who knew?)

In any case, here are some of the points from the report that I found the most interesting.

1. The average and median age of company founders when they started their current companies was 40.

2. 95.1 percent of respondents themselves had earned bachelor’s degrees, and 47 percent had more advanced degrees.

3. Less than 1 percent came from extremely rich or extremely poor backgrounds

4. 15.2% of founders had a sibling that previously started a business.

5. 69.9 percent of respondents indicated they were married when they launched their first business. An additional 5.2 percent were divorced, separated, or widowed.

6. 59.7 percent of respondents indicated they had at least one child when they launched their first business, and 43.5 percent had two or more children.

7. The majority of the entrepreneurs in the sample were serial entrepreneurs. The average number of businesses launched by respondents was approximately 2.3.

8. 74.8 percent indicated desire to build wealth as an important motivation in becoming an entrepreneur.

9. Only 4.5 percent said the inability to find traditional employment was an important factor in starting a business.

10. Entrepreneurs are usually better educated than their parents.

11. Entrepreneurship doesn’t always run in the family. More than half (51.9 percent) of respondents were the first in their families to launch a business.

12. The majority of respondents (75.4 percent) had worked as employees at other companies for more than six years before launching their own companies.

Which of the above surprises you the most and alters your mental model of what entrepreneurs are like?

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Why Raising Venture Capital Requires Helmets and Shovels [cartoon]

Dharmesh Shah — Fri, 18 Sep 2009 12:16:00 GMT

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

SaaS Startups: Knobs and Dials And Other Insights

Dharmesh Shah — Fri, 11 Sep 2009 11:12:00 GMT

If you're building a SaaS (Software as a Service) startup you're in great company. Most software entrepreneurs today are taking this approach -- including me. Below are some simple insights that I've learned in the process of being in the trenches with my own startup.

Insights On SaaS Startups

1. You are financing your customers. Most SaaS businesses are subscription-based (there’s usually no big upfront payment). As a result, sales and marketing costs are front-loaded, but revenue comes in over time. This can create cash-flow issues. The higher your sales growth, the larger the gap in cash-flows. This is why fast-growing SaaS companies often raise large amounts of capital. My marketing software company is an example.

2. You’ve got operating costs. In the shrinkwrapped software business, you shipped disks/CDs/DVDs (or made the software available to download). There were very few infrastructure costs. To deliver software as a service, you need to invest in infrastructure — including people to keep things running. Services like Amazon’s EC2 help a lot (in terms of having flexible scalability), but it still doesn’t obviate the need to have people that will manage the infrastructure. For a startup, the people cost to manage the IT stuff can be significant (since the team is very small). So, even though hardware and infrastrucutre are cheap, managing it can take a significant percentage of the startup’s time.

3. It Pays To Know Your Funnel: One of the central drivers in the business will be understanding the shape of your marketing/sales funnel. What channels are driving prospects into your funnel? What’s the conversion rate of random web visitors to trial? Trial to purchase? Purchase to delighted customer? As a SaaS startup grows, a lot of leverage can be found by understanding the shape of the funnel and removing the “leaks” (i.e. where are you losing business)? For example, if a lot of people are signing up for the trial, but very few convert to paying customers, you should dig into what the early usage pattern is. Are people logging on at all? If so, where are they getting stuck? Remove the friction that is keeping customers from getting value and you’ll unlock some revenue. Do this at all stages of the funnel (focusing on the easy stuff first).

4. Install Knobs and Dials In The Business: One of the great things about the SaaS business is you have lots of aspects of the business you can tweak (examples include pricing, packaging/features and trial duration). It’s often tempting to tweak and optimize the business too early. In the early days, the key is to install the knobs and dials and build gauges to measure as much as you can (without driving yourself crazy). Get really good at efficient experimentation (i.e. I can turn this knob and see it have this effect). As with most experiments, don’t change too much at the same time (even though you think several different things will all have positive effects). The reason is simple: If you change more than one thing, you won’t really know what really happened. Unless you have lots of data points, simple tests are usually better.

5. Value the Visibility: One of the big benefits of SaaS businesses is that they often operate on a shorter feedback cycle. You’re dealing in days/weeks/months not in quarters/years/lifetimes. What this means is that when bad things start to happen (as many experienced during the start of the current economic downturn), you’ll notice it sooner. This is a very good thing. It’s like driving a fast car. Good breaks allow you to go faster (because you know you can slow down if conditions require). But, great visibility helps too — you can better see what’s happening around you, and what’s coming. The net result is that the risk of going faster is mitigated.

Running a SaaS startup is a lot of fun. There are so many more things under your control than the traditional shrink-wrapped business. Use this to your advantage. Keep your feedback cycles short, maniacally track the data and invest in continual (but cheap) experimentation. In the long term, these things will give you a huge advantage.

What have you learned while building your SaaS startup?

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

7 Things Your Startup SHOULD Copy From 37signals

Dharmesh Shah — Mon, 31 Aug 2009 11:33:00 GMT

A little while ago, we had a great guest post here by Jason Cohen titled “Why Your Startup Shouldn’t Copy 37Signals or Fog Creek”. In it, Jason makes some great arguments on why you shouldn’t copy successful startups like 37signals. I (mostly) agree with Cohen. Blind copying just doesn’t work for reasons Jason Fried (CEO of 37signals) outlines in a follow-up article.

Here’s what Fried had to say:

“Here’s the problem with copying: Copying skips understanding. Understanding is how you grow. You have to understand why something works or why something is how it is. When you copy it, you miss that. You just repurpose the last layer instead of understanding all the layers underneath.”

I (mostly) agree with Jason Fried too. When you copy, you do miss a lot of what made what you are copying successful. But, although copying specific things is ill-advised, drawing inspiration from and copying certain practices can often work quite well.

Here are the things I think you should copy from 37signals:

1. Share your expertise. Whatever it is you are passionate about or an expert in — share your information. Contribute to the community. Help others learn. Blog, podcast, speak — whatever works for you. Jason and the 37signals team are phenomenally good at this. They blog, they speak, they wrote a fantastically practical book.

2. Be your own customer. Try (if you can) to eat your own cooking. A product works out much better when you use it yourself. Solve your own problems. Fix the things that annoy you the most. Beyond just 37signals, there are lots of examples where people built software that succeeded in part because they use it themselves. GMail comes to mind.

3. Minimize unused inventory. Don’t write a bunch of code that not a lot of people are going to care about and you don’t need today. We have a tendency to “design for the future” and add features or architectural elements with the expectation that they’ll be useful someday. Wait for that day. You might “overpay” if/when you do get around to needing it (because it’s more expensive to add things later), but on average, you’ll be better off not writing that code that you don’t need just yet. This is not an excuse for poorly designed software — it’s an argument for being selective as to where you design in future expansion.

4. Take a stand. Have an opinion and take a stand. 37signals does a great job with their “less is more” stance. They have a passionate position and are willing to defend and debate it. You don’t have to take extreme positions on everything, but there should be something you feel passionately about that you don’t just pick a happy, non-controversial middle-ground. Ideally, it’s this particular idea that your startup is centered around.

5. Charge early, charge often. There is no shame in putting a price on your product. Doesn’t matter how early it is. Just give customers an easy way out. Let them decide whether your product is worth paying for. If not, keep cranking. Too many startups feel like they need to have the “perfect” product before they can begin charging for it. That’s almost always a mistake. Charge early. Once you start charging money, all sorts of good things start to happen (for example, customer feedback starts to happen, because you actually have customers). Then, try to charge as often as possible. Instead of “big chunks” of money changing hands, try to move to smaller, recurring chunks. Many SaaS businesses function this way (with some sort of subscription or “pay by the drink” model). It works.

6. Contribute Some Bits Back: As you know, David Heinemeier Hansson, a partner at 37signals is responsible for the phenomenally successful Ruby on Rails. This benefits them more than the “positive karmic loop” thing. By contributing to the open source community, they’re able to leverage the power of that community and make the platform they use for their own stuff much better. But, please don’t misunderstand me. I’m not suggesting you should go out and try to build some platform/framework. In fact, please don’t try and go do that (99.9% of us should not be obsessing over building platforms/frameworks — particularly folks like you and me). Just find ways to contribute back — even if they’re small ways. It’ll help in at least two ways: You’ll develop better stuff and you’ll attract better people.

7. Build A Community: Software companies these days are about more than just the product — they’re about the people around the product. This includes both those that built the product’s users. Invest the time and energy to foster a vibrant community that connects the people that care about you, the company and the products. Allow customers to engage with each other. This is useful not just from a “more value in the software” perspective — but it also helps with respect to competition. If a big, 900–pound competitor comes after you some day, it might be easy for them to build some of your product features, but it will be much harder for them to steal your community.

Are you a 37signals fan? Did you read “Getting Real”? If so, what other practices or philosophies do you think they use that most other startups should emulate?

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

Burning Cash Is For Toasting Marshmallows [cartoon]

Dharmesh Shah — Mon, 10 Aug 2009 10:00:00 GMT

I’m going to go on a bit of a rant here.

I’m miffed that the industry term for the process whereby startups invest in building their businesses is called “burning cash”. If your startup is burning cash (as shown in the cartoon above), you’re doing it wrong. You should’t be burning money, you should be investing money — with the goal of growing your business.

I find it interesting that when venture capitalists (VCs) take money from their limited partners (LPs), they don’t say: Hey, we’re going to take your money and go burn it on a bunch of different startups. Why? Because that’s not what they do (not the good ones anyways). What they do is invest the cash in the hopes of generating a good return.

So, I’m going to ask that all startups that have raised funding to no longer use the term “burn rate”. Instead, lets call it what it is (or should be): An investment rate. As in "our startup has an investment rate of about $400k/month".

Oh, and if you really are burning cash, please start using smaller bills.

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Building Startup Sales Teams: Tips For Founders

Dharmesh Shah — Mon, 03 Aug 2009 12:48:00 GMT

First off, just to be clear, I’ve never been a sales person. I’ve never even played a sales person on TV. All the points below have been pulled from startup sales teams that I think work pretty well (including the team at my marketing software startup).

Building Startup Sales Teams

1. Don’t hire sales people too early. In the early days, the founders should be able to sell (and should be selling).

2. You don’t need sales people, you need sales. Don’t think VP of Sales — think “Revenue Engineer”. (Not the greatest analogy, but just like you won’t hire a development “manager” as one of the first 5 people in a startup, you shouldn’t hire a sales “manager” either). Don’t get caught up in fancy titles — focus on dollars in the door.

3. Don’t hire several sales people at once. Your goal is to figure out the “pattern” of what kinds of people are best based on what you’re selling and who you’re selling it to. You need some feedback from the system so you can continue to iterate on your hires.

4. If you’ve never hired or been around sales people before, be prepared for a bit of a shock to the system. They’re not bad people, they’re just different. If you're an introverted geek like me, it's helpful to remember that your startup needs to sell stuff.

5. Resist the temptation to create complicated compensation plans. If it requires a spreadsheet to figure out the commission, it’s too hard. You’ll have plenty of time to confuse sales people later — start simple.

6. Agile methodologies can work in sales as well. Iterate! Refine your demo script, your slides, and any other collateral information. Capture the lessons learned by the best-performing people and spread it to the rest.

7. Sales people will generall act in mostly rational (but often surprising) ways based on incentives. The rules of the game defines the behavior of the players. You were warned.

8. ALWAYS connect incentives somehow to ultimate customer happiness. If you reward just “deals getting done”, you’ll get deals — but at too high a price. You might get push-back that sales people don’t control/influence customer happiness, but they do. They “pick” customers, they set expectations, they control the degree of “convincing” applied.

9. Make sure you understand the economics of your business. Figure out your total COCA (Cost of Customer Acquisition). This includes sales people, marketing people and marketing campaigns. Quick example: Lets say you paid a sales person $10k, a marketing person $10k and you spent $5k on Google AdWords (for a total of $25k) last month. If you sold 10 customers last month, your COCA is about $2,500. Different businesses have different needs in terms of sales vs. marketing spend. Make sure neither is too far out of whack.

10. Your life-time-value (how much revenue you expect to generate per customer) should be higher than your COCA. No, I did not need a degree from MIT to figure that out. Once your LTV is a multiple of your COCA, you’re ready to start turning the knob and scaling the business a bit (hiring more sales people). But, if your LTV is way lower than your COCA, proceed with caution. If there is no hope for LTV getting higher than COCA, you’ve got a problem. Don’t try to hire additional sales people until the economics sort of make sense. If the car is pointed towards a brick wall, hitting the accelerator is not a good idea.

11. Track data maniacally (even if it’s just in a spreadsheet). Information you will want includes: What was sold, who sold it, when, for how much, etc. This data will be invaluable later as you start to scale. For example, you should be able to answer the question: We had 14 customers cancel last month — who sold those customers? Is there a pattern? In the early days, you likely won’t have the volume (or the time) to analyze the data — but you should at least capture it for future use.

12. Your pricing should be in line with your sales structure. For example, you can’t expect to have an outside salesforce (that meets with customers in person) if your average deal size is only $10,000. The math won’t work.

13. Once you get beyond three or so people, running your sales in a spreadsheet will become painful. Start looking at CRM systems (like Salesforce.com).

14. Start watching the shape of your “funnel” as early as possible. How many leads are you getting a month? How many turn into opportunities? How many of those convert into paying customers? Once you understand your funnel, you can slowly start tweaking your system to fix the “leaks”.

That’s all I’ve got for now. For those of you that have built early-stage sales teams, what are your ideas and insights?

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Speaking At Startup Idol Conference

Dharmesh Shah — Tue, 21 Jul 2009 00:33:00 GMT

Just a quick note that I'll be speaking at the Startup Idol Conference in Redwood City, CA this Thursday (July 23, 2009).

Registration is free: http://bit.ly/cMGnH

Looks like there are over 450 people already registered, so should be a fun event (and the agenda is unsurprisingly packed with lots of startupy goodness).

Please leave a comment if you're going to be at the event (and definitely stop by and say hello).

Hope to see you there.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that's @dharmesh).

37 Pithy Insights From Street-Smart Entrepreneurs

Dharmesh Shah — Fri, 17 Jul 2009 12:02:00 GMT

The response to an earlier article “Startups: 10 Things MBA Schools Won’t Teach You” has been overwhelmingly positive. The article has now received about 150 comments across various websites (on the OnStartups.com site, in the OnStartups LinkedIn group, etc.) Unsurprisingly, many of the comments are much better than anything I could have ever come up with on my own.

So, to further the conversation and discussion, I decided to collect, edit and share some of the fantastic insights from reader comments.

Thanks to all of those that contributed such great insights. Sorry I could not include them all.

Enjoy.

37 Pithy Insights From Street-Smart Entrepreneurs

1. Infect employees with pride of ownership. If the employees feel like they are part of something bigger than themselves, then they'll work that way.

2. Every company has "idiotsyncracies." Some crazy thing they do that works for them but would never work anywhere else. Trying to “correct” that ends up destroying what makes the company special.

3. You pour your heart and soul into a startup. Someone who hasn't done it won't understand the effort until they go through it.

4. Most start ups should start selling the product before they think they should.

5. Ritualize the work atmosphere -- everytime a contract comes in, ring a bell or gong and let everyone celebrate. There's a reason Survivor has rituals.

6. Competitors & customers can, do, and will do irrational things. Neither care about your title, your education, your pedigree, your investors, or your SAT scores.

7. Customers are defined as people or organizations who pay more for something than it costs you to make it. The relationship should be arms-length (which is why your dad is not a real customer).

8. A lack of competitors is almost always a bad thing because it means the market you entered doesn't interest anybody else.

9. Your core founding team needs to be smart, energetic and committed. It helps if they can fill multiple roles at the same time (sell, write software, deliver services and invoice).

10. Leave your ego at the door and hire people without big egos that can understand how to look at a problem and be open to solutions no matter where they come from. Keep those people.

11. Get exposure to potential customers as cheaply as possible and then make sure that all the information is there for them to make a decision.

12. If prospects won't open their wallets for the beta or prototype, then no amount spent on marketing or sales will matter.

13. No matter how great your service or product, there will always be very smart people who's advice you trust telling you that your service or product is crazy and will never sell.

14. S**t happens, but it's usually not as bad as it first seems.

15. It's tragic when good products never make it to market because they were never properly sold. If no one in your company knows how to find qualified leads for your product, you are in big trouble.

16. Take care of the people with integrity

17. Startup entrepreneurs need a handful of trusted, objective advisors who will share their perceptions of what's so - no matter what.

18. How are you continuing to invest in your customers and their experience after they have purchased your product? Value relates to the entire customer experience.

19. No one deal or opportunity should be worth damaging a long term relationship (business or otherwise).

20. The most successful businesses are ones where a group of friends help each other succeed.

21. Ultimately, the CEO's position is to simultaneously lead and serve others.

22. You never know when you will be working with people from your past, so always be respectful, and professional. Paths cross when and where we least expect them.

23. It is important that you like your customers. If you do not like your customers you will by design not do the best you can for them because they annoy you.

24. As any entrepreneur knows, you are pretty much selling all the time to everyone, whether VCs, prospective clients, employees or significant others.

25. Life will happen. Your best employee will quit to do something else..that doesn't mean that they don't care, just that it's their time to move on.

26. Keep doing good without being able to sight an immediate reward. The reward often comes unexpectedly.

27. A startup mentor is really like a therapist, if you think about it…

28. Tough times never last, tough people do.

29. The "iasm" in enthusiasm stands for I Am Sold Myself.

30. A bad decision is often better than no decision at all.

31. There's no better way to research a market than just launching a product.

32. Often you can start selling something simpler, to more customers, sooner than you think.

33. There are three primary ways to get cash in: 1) Customers 2) Financing 3) Sale/Disposal of Assets. Great businesses figure out #1 so they don’t have to worry about the others.

34. Just because you’re an Internet company doesn’t mean you are or should be a global company.

35. Distribution and channel partners don’t want to sell your product. They want to take orders and make money.

36. Startups have many diseconomies of scale: The more people, features, markets, products, business models, investors, etc. — the harder it is.

37. Be objective. Learn to listen to what the world is telling you (and often beating you over the head with).

Thanks to everyone who has contributed to the conversation so far. It’s great to see such energy, enthusiasm and experience from the entrepreneurial community.

Any of the above insights strike a particular chord with you? Which one is your favorite?

By the way, to get more of this kind of stuff, you should follow me on twitter here.

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Oh, and by the way, you should follow me on twitter here (that's @dharmesh).