humbledMBA

The feeling was palpable.  Y Combinator had sixty-five companies present (42Floors was one of them).  And we saw 500 eager investors, frenzied almost, excited to invest in entrepreneurs.  One investor emailed me four times, texted me three times, called me and sent me a message on LinkedIn -- desperate to get a check in before the round closes. 

No business plans, not even pitch decks this time.  One 2-1/2 minute pitch and a quick follow up meeting. Seven figure seed rounds that can be closed within days and oversubscribed 2x to 3x.  Founders with no experience fundraising and no pre-existing networks, making connections with top tier guys. It was really a sight to see. 

Let me take you back to Y Combinator demo day, summer of 2009. We launched FlightCaster.  I have this distinct memory of standing in the lobby, seeing these investors talking to each other.  I sheepishly introduced myself, giving them the 30-second pitch on FlightCaster.  They weren't rude, they weren't abusive, but they weren't hungry to talk to me. 

There had not yet been a Dropbox valuation. Airbnb had only recently launched.  And Heroku was still a small 12-person company.  The prevailing conversation was about how Y Combinator companies produce features not products.  How the companies had strong technical teams but would need maturity before being ready for a seed level institutional investment.  Even the top 2 or 3 companies of the batch struggled to raise money.

 

***

 

Well that time has passed.  The pendulum has swung.  

It's easy to lose perspective.  It's weird to see entrepreneurs compare convertible note caps of 7, 8, 10 million dollars from this lens of low, medium and high.  I see those numbers and I just can't believe that any seed company is receiving a 7 million dollar cap.  None of us could get over 3 in 2009. 

The Y Combinator partners have been really good about trying to teach everyone perspective.  They have seen several economic cycles so they know things come and go.  But it's hard to hear that amidst the frenzy of investors clamoring for shares of what could be the next Dropbox.   

So a word to every other founder out there enjoying the current (and temporary) good times we all face.  I urge you to go back and re-read my posts about Bubblicious Seed Rounds.  Times are good now but the trough of sorrow awaits.  And it might hit us at a time when the macroeconomics of fundraising are not so founder friendly.  There is currently more capital offered than capital needed.  And that shift in supply and demand has had inevitable results in terms of valuations.  

It should not, however, have an effect on the way in which we treat each other. The following may be preachy or even cliché (and the best of us don't need to hear it).  But we entrepreneurs are all part of the same startup ecosystem.  And what one of us does, affects the rest. 

 

How We Need to Conduct Ourselves in a Hot Market 

 

Mutual Respect

Even in the toughest of my fundraising attempts of the past, when I received literally thirty no's in a row, no one was ever disrespectful to me. In fact many of those investors who turned me down went way out of their way to help out.  Now we're in a time when we get to say no to investors, but we must still be respectful of them.  The startup world is very small, and we will all be working together for a very long time.  The manner in which we conduct ourselves now will not be forgotten, good or bad.

 

Optimize on People, Not Price

These caps are just astounding.  Ten million, twelve million, fifteen million?!!  This is just craziness.  Yes, it is your job as a fiduciary of your company to do what's best for your company.  And often that means achieving a high price for your shares.  However, valuation or cap remains only one component.  If you are trying to build a big company, one that will last through four or five rounds of funding, and go on for the next 8 years of your life, the value of the right partner will far exceed the marginal equity given up right now. 

At 42Floors, I know that we will be selling our shares at a high price.  But I tell every investor that valuation is no where near my top concern.  And I mean it.  This is not an EBay auction where top price wins.  We're looking for long-term partners and the cap table math shows that the marginal difference between this cap and that cap doesn't really matter in comparison to how big we build our company.  We want to build a billion-dollar company.  There are very, very few people who have done that before.  And to get them on board, they need to offer an equity stake that reflects their financial and emotional buy-in as an owner. 

 

Slow It Down

Your relationships will be an incredible asset for you.  But it's very hard to start a long-term, trusting relationship when you put the proverbial gun to the investor's head thirty minutes into a first meeting and require a check or you're walking.  Yes, you have plenty of options and you don't technically need their money.  Choose carefully.  You want to really know each other.  When that time comes and you need a bridge to your next round, you want those investors to think back fondly to how they were treated at the beginning of the relationship. 

 

Raise More

Right now the convention seems to be you raise 1.2 million in a seed.  I don't know where this number comes from.  When I look around at my friends that raised 12 months ago, I keep seeing the same thing. They're down to a couple hundred thousand dollars and their product is doing well, but not gang busters. 

So where are they?  Are they ready for an A round?  No, not really.  They don't have the metrics for it yet.  So they need a bridge, then.  Yeah, but bridges are really hard to get, especially when investors feel they overpaid for a tiny piece of equity in the seed round. 

If these startups had seven hundred thousand dollars in the bank instead of two hundred thousand dollars, they wouldn't be out fundraising.  They'd be out moving their company forward and would be getting to that A from a position of strength instead of limping into a bridge.  Raise more money now.  Take the hit on dilution.  With prices as high as they are, you'll never regret it.

 

Price Your Rounds

One of the incredible things that convertible notes did for us over the last two years is virtually eliminated the risk associated with simultaneous closes.  No longer do we look for lead investors as we cycle through people that are willing to write checks once a lead is in place.  With Series AA financing docs, you don't even have to negotiate terms anymore.  And what used to be a two-month process is for many companies now a five-day process. 

The problem with raising your 1 to 2 million on convertible notes is that those valuation caps are not valuations, they're caps.  If your company blows it out of the water, you'll be just fine no matter what.  But if you're like the 80% of companies that are in the middle, then you run the risk of having a priced round down the line that is below the cap.  

 

Shut up and get back to work. 

Once you close that round and you get your Techcrunch hit, it's all now in the past.  Having a syndicate of all these famous top-notch investors doesn't magically create great products.  The only metric that matters now has a binary outcome.  Have you built something that people want?  If yes, prove it.  If no, you didn't make it.  The name of your investors on your crunch base page, the number of followers on your Angelist profile, and the cap on your valuation— all will have no relevance if you fail to delight your users.  For this one period of time, fundraising is fun.  But now more than ever it's time to prove you're worth it.  Go do something incredible. 

 

***

 

And finally, a word to all the investors out there who are crazy-rushed right now with all of us.  Thank you for your support.  Thank you for putting your money into startups and not some other asset class.  Thank you for spending your time on helping this new generation change the world.  Thank you for your mentorship, both when we're looking for it and when we have forgotten that we need it.  Thank you for being there for us now when things are good, and thank you for being there for us later when things might not be.

The pendulum has swung.  For now.

 

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Here at 42Floors we’ve been on a maker’s schedule for the past several months.  The two most important things about being on a maker’s schedule are 1) getting yourself in the zone, and; 2) freeing yourself from distractions.

Once we’re in the zone we get incredible amounts of work done.  We have the ability to be far more productive than an ordinary company because we’re a startup.  And overall we’re pretty good about getting into the zone, but there are still those times when we can’t seem to focus.  

So we’ve discovered a way to restore focus when we lose it in the middle of the day.  It’s really cool and it’s a lot of fun, and I thought I’d share it with you all. 

Sometime around 2pm, in that post-lunch lull of the day, it just gets hard to reengage and I start spending a bit too much time on Hacker News and Reddit.  The problem with that is that my mind actually glazes over a little bit as I read and it actually becomes harder to refocus and produce again. 

So back in November, I told you all about Bughouse, this phenomenal variation of chess that we learned from the Dropbox guys.  If you remember, it’s a team-based chess where as you win pieces from your opponent, you give those pieces to your teammate and then play them on their board.  It’s really, really fun. 

At 42Floors, we discovered that we can actually play Bughouse one-on-one.  So, picture this—two boards, two different timers, one person playing each board against the other person.  Win on either board or have your opponent time-out on either board, and you win.  We play with either five or ten minutes a side. It’s really fun.

Almost without fail, one quick game of Bughouse and we can go right back to work with our minds totally primed.  Better than ping pong, better than chin-ups, far better than reading any news site.  A quick game of Bughouse and we’re back at it.

Okay, so I hesitate in posting this video at all, but I kind of thought that you need to see it to believe it.  So here it is, a full game of singles Bughouse:

At some point soon, we’ll host a Bughouse Tournament in the Bay Area and get you all to play.  So go out, buy your boards and timers, and start practicing.  42Floors Sponsored Bughouse Tournament is coming to SF soon! If you're interested in hearing more about it, sign up here.

 

 

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Okay, I’ve already said my piece on business school.  You all know that I think it makes people suck at startups.  And, yes, I know there are exceptions.  In fact, I believe there are some MBAs perfectly suited for startups.  But, those are guys who were going to be great entrepreneurs no matter what.  In fact, I go so far as to say they become great entrepreneurs in spite of business school.  And now, with the emergence of phenomenal incubators that match business school in terms of network and prestige, it’s becoming overwhelmingly clear that getting an MBA is not the best way to pursue your startup ambitions. And if all that wasn't enough:

 

Business school will cost you five years.  At least. 

 

If you want to learn normal business school stuff and get a normal business school job at a large company.  It may be the right choice for you.  If you are going to business school to 'learn' entrepreneurship and 'build your toolbox.'  You're just lying to yourself.  Even if you could learn that stuff in business school (which you can't), the time itself is not worth it.  While there are a few rare exeptions, most would've-have-been entrepreneurs find out that they lost 5 years of startup life.  Let me explain... 

 

Year #1 is applications plus GMAT.  Yeah algebra!

 The GMAT is just like the SATs; the critical difference is that the pool of people taking the test are more disciplined, more motivated and, frankly, more Type A than the population who takes the SATs.  A smart person that did well on the SATs and is destined for a Top 10 Business School will most likely get around a 600 on the GMAT, on their first try.  To orient you, most of the top schools average a 710.  What happened?

All those Type A people outwork the test.  It’s supposed to be an aptitude test, but everyone knows that that’s full of shit.  You can go from a 600 to a 710 by simply practicing more.  You buy the books, you take the courses, you take a dozen practice tests, and that score will inch up.  But it's a year of life to reach parity with everyone else.

And once you finish the GMAT, you have the application process ahead of you.  Most top schools ask 5 to 7 questions requiring, for the most part, unique essay answers.  So what do most of these Type A applicants do?  They outwork it.  The hours we’re counting up start to become unthinkable. 

 

Years #2 and #3 are business school itself.  Party on!

Two incredibly busy, intense years.  It’s not that the subject matter is hard.  There’s no test at the end that decides whether you have mastered the subject.  Everyone passes.  In fact, most business schools don’t even have grades.  What makes it so intense is that networking is fundamentally a part of the experience

I’ve never partied so much as I did in business school.  I lived in a killer house with four close friends and we threw 200-person parties.  It was awesome!  Hell, at $60,000 a year, it better have been awesome.  I tried to do a startup during business school, and I can tell you it's nearly impossible to find the time. 

 

Years #4 and #5 are spent on loans.  Indentured servitude!

Because business school costs $60,000 per year, you effectively owe time afterwards.  Unless you are independently wealthy or willing to take on tremendous risk, you will not be able to go without a salary post business school.  I did…by taking on tremendous risk.  And, if you’re okay with this much credit card debt, then maybe it’s for you, but I don’t recommend it. 

What most MBAs who have an interest in startups find out is that they can’t afford to go without a salary because they have to pay back their loans, and so they talk themselves into taking two years to “gain some industry experience.”  They have tricked themselves into believing that it’s actually good experience for a startup.

Two more years go by.  They've made a bunch of money, paid back their loans, and now they’re finally ready. 

 

Where in your life will you be in five years? 

 And will the risk/reward pay-out of a startup still make sense then? 

 What will your drag coefficients be? 

 

Time is your most precious resource.  Don’t waste five years of it.

 

 

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I was just hanging out with a bunch of entrepreneurs.  These are hardcore hacker types.  They may not possibly be the most socially polished people in the world.  They are far more concerned with the latest in node.js than the latest in fashion. 

So, I was surprised when I saw one of my buds walk in with a crisp blue shirt, khaki pants, and black leather shoes.  I almost couldn’t believe it.  It was like he had been zapped with an MBA wand. 

So I asked him, “Dude, what’s going on?”  He said, “Gotta look nice for investors.” 

Hmmmm. Something didn’t feel quite right.  And I couldn’t wrap my head around it in that moment, but with some reflection, I have realized what felt so totally off. 

Back when I was pitching investors for my first company, I was coming straight out of an MBA program. In that program, I had learned how to pitch during Introduction to Entrepreneurship.  In our final presentations, we would all wear formal business suits, present our PowerPoint decks to a panel of guest investors, and get feedback.  

It was so fake.

I think back to that now because it was probably the last time I have worn a suit in any type of business situation.  Usually my normal pitch attire is my tennis shoes, jeans, and whatever shirt I happen to have already been wearing that day. 

I had almost forgotten that some people hold onto an outdated belief that with investors, you’re supposed to dress to impress.

It’s just wrong. 

Investors are not looking for someone that looks like them.  They may wear suits.  That doesn't mean you should.  Investors are interested in getting to know the real you.  If you’re a little strange, that’s okay.  They like strange.   They like people who do things that normal people aren’t capable of, and they know that that capability often correlates with eccentric people.  The last thing you want to do is wash away your own personality in some doldrums of blue and khaki. 

The other thing that really stuck with me from talking to my entrepreneur bud was that he was trying too hard to be something he's not.  He’s an awesome entrepreneur, passionate about his product, ambitious, and crazy enough to think that he can change the world.  And when investors really get to know him, they will see that he’s a great bet.  But he may not ever get there if they perceive him as inauthentic. 

Most good investors see hundreds of pitches a year.  The good ones are never fooled by the fakers.  They are looking for authenticity.  Don’t rob yourself of one of your greatest assets.  And if you look a little abnormal, that’s okay too. 

Be yourself.  Abnormal people produce abnormal returns.

 

 

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We've always prided ourselves in launching really quickly.  When we built FlightCaster, we went from first line of code to launching a sophisticated flight delay prediction system in eight weeks.  It was an incredible effort.  We were doing Y Combinator, and we launched the day before demo day. 

Now at 42Floors, we recently launched after another Herculean effort.  We have been working on 42Floors for much longer than eight weeks; however, we hadn't landed on our current iteration until just before Y Combinator started.  We built this entire initial version in only the last two or three months.  It's far from perfect, but our goal with the launch was to provide the Bay Area the single best place to search for office space anywhere on the internet.  And I believe we've accomplished that. 

It really pays off to launch quickly.  In our pre-launch delusional optimism phase we didn't know what would work and what wouldn't.  Everything looked like a good idea on our own whiteboard.  Launching made everything real.  We wanted to be working with brokers, helping tenants find office space, solving the problems of commercial real estate for real -- as soon as possible.  And now we have debt to pay back.  It's a bitch. 

Fundamentally, it's absolutely still worth it to launch quickly.  But, be ready to pay back that debt.

source

Types of Launch Debt

 

Technical Debt

We're just starting to uncover the technical debt we now owe on 42Floors.  In FlightCaster we had massive technical debt because we had built a system that was really complicated.  We built it so fast that we didn't really have the opportunity to learn about how it should be constructed.  The toughtest type of technical debt is when you realize it's fundamentally built wrong.  At FlightCaster, we started with a pull based system to get flight data.  We had to re-architecture everything to become push based with real time data.  We got through it but it was tough.  We'll find out soon what we unknowingly screwed up with our 42Floors architecture :)

 

Mental Debt

After an exhausting program like Y Combinator, the incredible rush of launching by demo day, and the immediate onslaught of investor meetings—the whole process really takes its toll.  With both FlightCaster and 42Floors, we've been surprised at just how tired we get.  Our minds are like our code base -- in serious need of refactoring.  And yet the company is now launched.  Customer service needs to be immediate.  Features need to get shipped.  There's no time to catch our breaths. 

The reality is though, that mental debt needs to be paid back.  We never really understand just how important a break is until we're fully burnt out.  The goal is to take your break before that happens.

At FlightCaster, we surprised our cofounder Evan with tickets to the Yankees playoff game in New York for him and his dad.  We literally told him, "Your flight leaves in a few hours.  Get out of here, go have fun! Come back whenever you're ready."  

Administrative Debt

If you did your launch right, you should have a ton of administrative debt to pay back.  Pre-launch, the only thing that really matters are things that directly delight users.  So any shortcut that you can take so that you don't waste time, you should.  And a whole host of administrative items come into this category.  Things like properly setting up accounting and payroll and insurance and back accounts . . . all of that stuff doesn't matter at all pre-launch. 

So, now here we are, post-launch, getting ready to show our books to investors and it's time to clean this shit up.  Pay back some administrative debt.  Fundamentally, cutting corners was still absolutely worth it.  Cleaning up administrative debt afterwards may be a pain in the ass, but it's much easier to do when you have the time than at pre-launch when you don't.  And, if your launch went well, and you're able to raise a little bit of money, you can pay for this problem to go away.  At FlightCaster we hired Betty Kayton who came in and just fixed everything.  It was awesome.

Financial Debt

Yes, financial debt does happen, too.  For some reason, I've really never heard this talked about.  But in the course of launching your company, but before they've done an investment round, startups often run out of money.  FlightCaster, we came within $500 of running out of money three times before we finally closed a round.  For 42Floors, we did a better with the help of some awesome Angels and the Start Fund, so it wasn't such a close call. 

But in my first company, OpenVote, we significantly ran out of money.  We had enough money to get us through to launch, but we didn't have enough money to get us through the fund raising process.  And that investment round dragged on for a few extra months.  We were left with nothing in the bank account.  This is really tough debt to deal with. 

There are two issues at stake when you have financial debt to pay back.  The first is, if the company is going to keep going, somebody has to front the money.  In OpenVote, I fronted the money, but it did lead to some pretty awkward conversations with my cofounders.  We got through it okay, but I can tell you it wasn't easy.  The second piece is you have to decide if you want to try to be paid back.  The single most important thing to do is be transparent with your investors.  We told them during the due diligence process that we were running low, which was really the last thing we wanted to tell them at that point.  Fortunately, they were really good guys and they still completed the transaction and permitted us to pay ourselves back with the some of the invested capital. 

That was a really risky time, though, because if that round had fallen through, I was going to be out that extra money.  Worrying about that stuff, while also dealing with all the other debts you have -- I can tell you it's not a good feeling.  If there is any debt within your power to avoid when you're gunning for your launch, it's financial debt.

 

Personal Debt

This one goes out to all my wonderful friends and family.  Most of them I have not seen or really talked to in the last several months.  Since January, I have been on a hardcore maker's schedule and just had to cut off most of my social plans.  I kind of feel like I'm just returning from a long trip and now I'm going around and catching up on all my friends' lives.  Fortunately, they're super supportive.

 

 

 

If you're still pre-launch, take a hard look at everything you're doing and if there's anything that can be delayed until after your launch, go ahead and delay it.  Don't worry.  You'll be able to pay it back then.

 

 

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Michael Scott: Do you have any idea how valuable my time is?
Erin:  In your schedule it just says nine 'till noon is creative space. 
Michael Scott: Do you know how creative space works? Just cancel my afternoon.
Erin: You don't have anything in the afternoon.  It just says Free Plate.
Michael Scott:  Push Free Plate 'till tomorrow morning.

 

 

Shit’s gotten real with 42Floors.

Actually, it got pretty real quite a while ago, but I’ve been slow in adapting my work style.  In the early part of 2011, we were trying to figure out exactly what 42Floors was meant to be.  We knew we wanted to solve commercial real estate search.  Actually, no . . . at that point we didn’t even know that.  All we really knew was we hated the entire office space search process and we wanted a better solution. 

 That early phase when we were not yet a company was really just fun.  I worked on getting my broker’s license and meeting with lots of people in the real estate industry.  I learned about how brokers do their jobs and talked to frustrated prospective tenants. 

Having barely rolled off of FlightCaster's acquisition, I was also trying to recharge my own batteries.  I did a stint of “work-cations” where I set up shop in awesome places across the country.  I can tell you now nothing beats working from Maui.  I also gained some perspective by spending time outside the Silicon Valley echo chamber – like my trip to Tupelo, Mississippi. 

 I worked with a fantastic group of volunteers to put together the NFTE Launch program and together we mentored a group of aspiring entrepreneurs.  I spent a lot of time biking and rock-climbing with my then girlfriend (now fiancé).  Clearly that was time well spent. 

 And I talked to hundreds of entrepreneurs about their own startups and tried to be as helpful as I could.  It was a really cool time.  In my five straight years of doing internet startups, it was easily the most enjoyable period I’ve ever been through.

 

 

***

 

But now 42Floors has some serious momentum.  We’ve gone out and attracted a ridiculously awesome set of advisors who have given us not only their guidance, but our initial capital.  Our product is now mostly built.  So, now it’s time to really focus.  We’ve already gone to the mats and are living and working out of our startup house in Redwood City. Now it’s time to really focus.  We’re moving hardcore to what Paul Graham calls the Maker’s Schedule.  

Business people in Silicon Valley (and the whole world, for that matter) have speculative meetings all the time. They're effectively free if you're on the manager's schedule. They're so common that there's distinctive language for proposing them: saying that you want to "grab coffee," for example.  Speculative meetings are terribly costly if you're on the maker's schedule, though.

 

 

My Maker’s Schedule Battle Plan

Talk to users and write code

Paul Graham always describes such important concepts succinctly.  When I wrote my post, Don’t. Waste. Time., it was following some advice that he had just given that the only tasks worth doing before launching are talking to users and writing code.  So that’s what we’re doing at 42Floors.  That’s our overwhelming priority.  Anything that does not fit into those two is going to have to be de-prioritized.

No speculative meetings

In the glory days of mid-2011, I would take a meeting with just about anyone.  They kind of broke up the day nicely.  But now that we’re so focused, a planned meeting on the schedule really disrupts our ability to execute.  So, I’m sorry.  It’s really, really difficult for me to schedule a meeting right now.  Talking to you is important, but right now we've decided that writing code and talking to users is the more important.  I really am sorry, but I’ll try to catch up with you all again once we get this thing launched.  Thank you so much for understanding.

No planned social engagements

Again. Sorry.  I just can’t do it right now.  Don’t take it personally – I don’t want to blow you off – but I’m focused.  I promise I will catch up with you once it’s launched. 

No investor meetings

Our AngelList profile is off the hook right now: hundreds of followers, introductions flowing in.  It’s a really, really cool thing.  But I just can’t do it right now.  Hopefully, if you’re interested in investing in us, you’ll be even more interested when we make further progress.  Please still do reach out and I promise I’ll be back in touch when we’re ready to talk financing. 

 

Things That Won't Change on a Maker’s Schedule 

 

Exercise

Actually, I’m exercising now more than ever. During FlightCaster, I took such poor care of myself during our launch that when the stressful times hit, I felt crappy mentally and physically.  So this time, we’re über focused on health and I try to work-out four to five times a week.  Totally worth it.

 

Time with the fiancé

After taking care of myself, the next most important priority in my life is spending time with my fiancé.  We continue our weekly date night where I don’t check my email or spend (too much) time thinking about 42Floors.  Of course, she’s in the commercial real estate industry so we do end up talking about 42Floors...  She is incredibly supportive right now and has given me the time and freedom to do this, but it’s not like that is time when our relationship stops. 

 

Blogging

Actually to be clear, it easily could’ve been given up and almost was.  I decided to hold on to it.  I also found that it’s a really good mental activity for me because it allows me to think creatively about something other than 42Floors. And like being in a good work-out routine, it’s actually returning good mental energy to me.

 

Sleep

I don’t ever mess with my sleep schedule.  It’s simply not worth it for me to pull late nights.  As many of you know, I have horrible insomnia, and I’ve done an incredible job of almost a hundred percent managing it.  This time, more than any other, is when I want to be maintaining stable sleep habits.

 

Calls with aspiring entrepreneurs

I won’t schedule any meetings with anyone who wants to chat (sorry), but I still do talk to entrepreneurs.  My system right now for speculative meetings is to just ask for a number, and then I try to reach out by phone whenever the timing is right. 

 I started this a few months ago, and it has actually worked out really well.  With only a few tries, I almost always am able to reach someone at decent time. So, if you want to talk startups and it can wait a few months, that would be the best; but if not, go ahead and reach out.  But, please be patient while I get back to you. 

 

 

So, a note on efficacy:  this system is totally working.  Our productivity as a team right now is massively higher than any other point in the year. Not like 10 percent or 20 percent more productive—like 3x to 4x more productive. 

 So thank you all again for your patience and understanding.  I truly appreciate it.   I hope that you love what we have created.  See you soon!

 

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We're thrilled to announce today that humbledMBA has been acquired by 42Floors.  To all of our users out there, we want to thank you so much for being a part of this incredible success.  We've been working on this dream of ours passionately for the past two years.  And we're excited about how much we have accomplished.  With your help, we've put the "humbled" into MBAs everywhere, and it's been our pleasure serving you.

When 42Floors approached us about a possible acquisition, we weren't at first interested.   But as we got to know the team there, we realized that their values were 100% in line with our own.  It was almost like looking into a mirror.  And we realized that with their resources, we were going to be able to spread humility to MBAs everywhere on a much larger scale. 

humbledMBA has always been about sharing startup lessons learned the hard way.  In that way, it's pretty unique in that there are no other entrepreneurs currently blogging.  We feel like we've created a new category here.  This whole concept of a lessons learned via web log—or "blog" as we call it—I think it's powerful.  But in order to be truly disruptive, we need to be speaking from inside a startup.  As a part of 42Floors, we have been promised total editorial freedom.  We'll be able to blog about anything and everything that happens in 42Floors even when it goes against the interest of the company.  We have this directly from the founder himself. 

Now I know a lot of you are thinking that this is just going to be another Arrington - Huffington battle, and I will admit there is a chance that several members of the humbledMBA team get pushed out over power struggles. But, at the very least that will make for good tech drama. And I think we can all agree that that alone is worth it. 

So, starting today the entire team (that's actually just me) will be starting full-time at 42Floors.  All of our blogging will now be posted on 42Floors first.  We will continue to repost here on humbledMBA with some delay.  There are no immediate plans to shut down humbledMBA any time in the future. While we are not disclosing deal terms, we can tell you that everyone on the team (again, just me) and all of our investors (as if) are thrilled with the outcome.  This was far more than an acqui-hire; 42Floors is getting all of our technology (actually it seems Twitter is getting most of that) and all of our customers (note to self: Can users that don't pay be called customers?  hmm. Return to that thought later). 

So Long and Thanks for All the Fish.

Find discussion of this post on Hacker News

 

 

I just gave a presentation on 42Floors to 150 people.  It went well. I was really proud of:  1) our team, 2) our product and 3) the way we were able to present it.  It was as if we were telling people about it in our living room, but there just happened to be 150 people there.  Afterwards, several people told me that it felt like it was a very polished presentation.  But the reality is we didn’t practice at all.  In fact, three minutes before we went on stage, my co-founder turned to me and said, “Jason, we really should’ve practiced.” I said, “Nah, don’t worry.  We’ll be fine.” And we winged it, and it came off ever so naturally. 

Before I pat myself on the back too much, let me tell you how I felt inside.  Thirty seconds before I was supposed to go on, I was standing there on the side and all of a sudden my heartbeat went from normal to racing like I was in the middle of marathon.  Uggghhh.  I hate it when this happens.  It's kind of like how you feel when you blush: you're reminded how little control you have over your own body.  For a brief moment, I was upset with my body for reacting this way. I was upset with myself for reacting this way, actually.  I should be more confident than this.

For some background, I’ve done a tremendous amount of public speaking. I did speech and debate in high school, I’ve spoken to lots of large crowds, I have given this type of presentation many, many times before. This was also a really friendly crowd, and it was super informal. There was no reason for me to be nervous. But, there I was ready to go on, and I was worried that people standing near me would literally be able to see my heart beating this fast.  

However, in those thirty seconds, from when my anxiety took hold until I started speaking, I squashed that nervousness almost completely.  And that's what this post is about.

The key to public speaking is establishing a routine that solves for the thirty seconds between when your anxiety starts and when you need to go up on stage.  After that nothing else really matters.  Most normal people do not engage in public speaking regularly enough to be able to actually change any of the fundamentals about how they speak.  The very best you can hope to do is to not sound worse than you do when speaking in your own living room.  And that itself is actually a really good axiom to start with:

 

Don’t try to become a good public speaker, just try to speak like a normal person while in public.  

 

And the key to speaking normally in public is to squash your anxiety thirty seconds beforehand. Here are a few tricks that I know. Give them a shot.

 

 

How to Speak Like a Normal Person While in Public:

 

Dribble Twice, Spin Once  

So this trick will take a little bit of time to develop, but it’s probably the single most important thing that I’d recommend.  When you watch a basketball player go to the free-throw line with the game on the line, he or she does the same routine every single time. It's always some sort of dribble twice, spin once routine.  With the spotlight on him, he doesn't want to think about some small aspect of his form.  He wants to not think at all.  So he focuses on his trivial routine: dribble twice, spin once, shoot.  The best he is hoping for is to shoot as well as he normally does in practice.  

I do the same thing with public speaking.  I have found a very specific set of physical actions that I do seconds before I start speaking.  For me, it’s a specific stance that I get into where I stand up very straight, my toes are slightly pointed out, I take my hands and I clap them together.  I grasp my hands together really firmly and rub them slowly with my elbows held high.  

I do it this way for one key reason – this is what I usually do anyway.  As in, if you see me in my own living room, surrounded by friends, recounting a story of a time when I did something really awesome, you will often find that I am naturally in this stance.  This is my natural confidence stance.  So, when I’m feeling nervous, I force myself deliberately to take on my confidence pose.

Jumping back to this public speaking event the other day.  At T minus 30 seconds, my heart was beating incredibly fast, but at T minus 25 seconds I had one thing on my mind – hands clasped together, assume the pose, everything else will work out.

You need to find your confidence pose. Whatever your two dribble, spin once routine is going to be, you need to find it long before your public speaking moment.  The single best way to find it is to ask your co-founder or friends to find it for you.  Show them this post, tell them you want help finding this pose, and then at some point in the next several weeks, they will see you do it naturally and can point it out for you.  And then, you need to figure out exactly what it is about this pose that feels good and practice it over and over again.  So the next time when you’re up on stage and you’re getting really nervous and you have that weird feeling where you just don’t know where to put your hands and you just know that in your pockets is like the most awkward thing in the world...at that point – dribble twice, spin once, and shoot.

 

Death to Powerpoint

Powerpoint is this devious device that takes reasonably good speakers and makes them painfully bad. Traditional bullet-point laden Powerpoint decks are only useful for communicating your ideas with visuals and emailing them to people. They are not useful for aiding you in your speaking ability.  And that’s why most really good speakers stopped using Powerpoint in the traditional way. Throw away all slides that have more than ten words on them (or move them to an appendix).  

It’s okay to use slides when they takes almost no focus off of you, the speaker.  That’s for two reasons.  The first is, the focus really should be on you, so having an Apple-like slide with one or two words on it is totally fine because it communicates a point and gets the focus back on you.  (Note—the only exception is when you demo your product.  Then you do want the attention on the screen.)  The second reason is even more important:  Powerpoint bullet slides take away your attention from your audience.  When you turn around to read a slide, you are forcing yourself out of your own rhythm. 

 

Speak to Two People

Remember our goal is to speak like a normal person in public.  The best way to speak like a normal person is to actually talk to a real person, and not hundreds of people.  So, as I stand there about ready to speak – in my stance, rubbing my hands together – I look to the left side of the room and to the right side for a random person that seems comforting.  When I actually start speaking, all I want to do is speak to those two people. I’ve never met them but I want to lock in on those two people and just tell them a simple story as if they were sitting in my living room.  I can pace back and forth and look left and right in the crowd, and yet all I’m really doing is going back and forth between my two people.   It’s super simple; it totally works.

 

Embrace Your Ums

Um is a verbal tick.  It is unconscious and nearly impossible to remove.  If your career is going to be an actor, public speaker, politician, whatever . . .  go work on your ums and this post was never for you anyway.  If you are a normal person, you are not going to get rid of them.  And anyone who harps on you because of them is actually doing you a disservice because they are forcing you to speak differently than you speak as a normal person.  Paul Graham is one of my favorite public speakers, and he says um all the freaking time.  But, he’s a powerful speaker, he’s lucid and most importantly, he’s authentic.  Focus on what really matters.

 

Don’t Memorize

Memorizing does absolutely nothing for you.  The only thing worse than a scripted, memorized speech is a ‘read’ speech.  So, don’t ever read your speeches, either.  You are pitching your start-up and trying to inspire people to believe in your vision.  It doesn’t matter what the actual words are, they’re all judging you anyway.  And when you memorize your speech, or read your speech, you are communicating that you suck at this.  And you don’t.  You’re a normal person – you have the capacity to speak like a normal person.

 

Practice with Live Ammunition

Over-practice can really hurt you, especially if you do it in a fake way.  One of the worst things you can do to prepare is to practice over and over again alone.  Because that is nothing like the situation that you are going to be in.  We speak very, very awkwardly alone.  When you are making passionate speeches inside of your car, you look like a crazy person and you feel like a crazy person.  Your performance there will be nothing like your performance on stage. Your goal, always remember, is to get back to how you speak in your living room.  So do that.  

Ask your co-founders to put you on the spot in front of groups of people.  So, if you guys are at some random party, empower your co-founders to play this little trick on you:  Without giving you warning, they can yell out for everyone to get quiet because you want to tell them something.  You will have zero time to get nervous, you will have to start immediately, and you will do the best job that you can.  And if you do that five times before your big public speaking engagement, you will be far better prepared than if you had spoken to the mirror a hundred times.

 

One final note to that group of 150 people that just saw me speak:  Yes, I was absolutely, totally, freakin' nervous.  If that’s you as well, you already know how to reach me, let’s practice together.

You're acting as if the current bubblicious fundraising environment will continue indefinitely. 

You're acting as if all of your unproven hypotheses will turn out correct.

You're acting as if your seed round valuation increased your likelihood of success.

You're acting as if your investor excitement at the seed round automatically transfers to a bridge round.

You're acting as if you won't need to pivot.

You're acting as if Good Times RIP never happened.

You're acting as if you already have product-market fit.

You're acting as if you already know that you're the next Dropbox.

You're acting as if headcount is a definition of your success as an entrepreneur.

You're acting as if you've forgotten how to be scrappy.

You're acting as if being a cockroach is a bad thing.

 

 

Stop Acting As If

 

 

If you're seed-funded, you're probably spending money too quickly.  I'm seeing it everywhere right now.  Take honest stock of where you are in your startup.  What  true risks do you face?  What are proven data points and what remains as a hypothesis? 

The traditional criteria for Series A funding is stable and significant month-over-month growth in traction and, for many of us, revenue.  If this isn't you, you need time to get there.  The ideal time to raise your A round is when you have stable growth for at least 4 months.  You still need 2-3 months in ideal situations to do the raise and you never want to be signing documents on fumes or they'll smell your desperation.  Combine all that with the fact that it's difficult to raise in Nov/Dec and June/July.  Now work backwards, how much time do you actually need?  Are you spending money too fast?

I bet most of you have to answer yes.

The Series A capital crunch is very, very real.  But it's not externally motivated.  There is no liquidity reason that explains why there's plenty of money available to seed concepts and not enough money available to A rounds.  In fact, the A rounds have just stayed the same, while the seed round funding has exploded.  My own view of the situation is that investors realized that it was worth throwing money at a good team in a big market in case they go on to build Dropbox.  By the time that team spends its seed money, it's pretty clear whether they're going to be a hit.  If you don't look like a home-run like Dropbox did that stage, you're not going to sail through your A round.  Investors are going to judge you through all the traditional Series A metrics and not the dreamy team-based standards that got you through the seed stage.

So what happens when you start to run low on seed cash but you haven't proved Dropbox-like traction or revenue yet?  You start thinking bridge round.  You go back to your investors and you gauge their interest.  These are the same investors that you forced to decide on you in less 39 seconds during your bubblicious seed round.  The same investors that felt like they overpaid for that initial equity or signed convertible debt with sky-high caps.  Even if they're good guys, even if they like you, even if they believe in your vision...they have a fiduciary duty to their LPs.  You will be significantly diluted or you will cease to exist.  For many of you, it will be the latter.

 

 

And it will be your fault.  You spent your money too fast.

 

 

For those that make it through bridge financing with heavy dilution, you will still report it to the world as a success.  Why wouldn't you?  Your investors will reiterate their faith in you to everyone that will listen.  Why wouldn't they?  No one will know that you had heavy losses.  As a startup community, we don't share our losses openly when the startup is still in process.  And for that reason, the data that backs up all my assertions won't be available for several years.  By that time, the hands will all have been played.  Don't wait for overwhelming evidence before you act.  Go get some advice, think hard, and then act decisively.

 

Prepare Now for The Series A Capital Crunch:

 

Adjust your runway to 18-24 months

For the typical seed-funded company that raises $750k to $1.5M, you should give yourself at least 18 months until you need your A round.  With 2 months of buffer, 2 months to raise the money, and 4 months of traction needed as evidence, that's 8 months taken out of that 18.  At least.  That gives you, at most, 10 months to find product-market fit.

 

Keep headcount low, low, low

Stop thinking that your headcount defines your progress as an entrepreneur.  Stop asking everyone how big their team is.  Keep your team small until there's overhwhelming proof that more people will equal more growth.  The BackType guys had a team of 3 and they did just fine!  Be a cockroach.

 

Raise more when you can

When things are going well, raise more money.  If your seed round was raised on convertible debt, don't wait for that equity round.  You may have 3-6 good months which are providing additional data on your company, but still far off from what you need for an A round.  If you can add on more money on good terms through more convertible debt, do it!

 

Keep AngelList up-to-date

AngelList traction will explode in 2012.  If you have the ability to raise additional funds between rounds, AngelList is going to be the way you do it.  Keep your profile up to date.  Keep engaging with investors.  AngelList makes it easy on both sides to keep everyone aware of your progress.  If you have pent-up demand from an over-subscribed seed round, AngelList can help you broadcast some recent progress and pile on some back-up fuel.

 

Top companies get their A rounds pre-empted

If you're doing well, your A round will be pre-empted by smart investors. Recognize that the lack of a pre-empted A round means that you're going to have to really earn it.  If your investors are really pleased with your progress but not pre-empting the next round, than you should take their enthusiasm with a grain of salt.

 

Find an Adviser that will tell you straight

The best source of data on whether you're being realistic with your spending is from advisers that are still entrepreneurs and are only 18 months ahead of you.  Preferably a friend that has no financial interest in your company.  If you don't have someone like this, make sure you get one quickly.  Make sure it's someone that calls you on your shit.

 

Cut headcount now

If you were overzealous and you're reading this entire post with a sense of dread, the time to act is now.  Recall Sequoia's advice in the RIP deck--the CEOs that are decisive are the ones that last.  Believe me, I know how painful it is to let people go, especially good people.  But if you're running heavy, there's really no way to tighten the belt without reducing headcount. 

 

Embrace austerity as a company culture

I know how it feels to be funded with other people's money.  After months or years of bootstrapping, of promising your cofounders and employees that everything would be better once you're funded, you just want to fulfill that promise.  It's so natural to overspend.  Resist that temptation.  Don't believe for a second that expensive perks are necessary to retain great talent.  The same truth in hiring holds now as it always has: engineers stay with companies that respect them and challenge them and, in the end, provide them a real opportunity to change the world.   

 

 

That's it.  I've said my piece.  If I'm wrong, you'll just grow a little bit slower.  If I'm right, acting now may well reverse a failure into a success.  Slow it down.

Find discussion of this post on Hacker News

I got a really big response to this post:  Please, please, please stop asking how to find a technical cofounder.  There were three types of responses:

1. MBA friends pinged me to apologize for being that guy.  Several of them proudly informed me of their attempts to learn to code.  (Hell yeah!)
2. The Hacker News crowd applauded with approval.  Ranting on MBAs is pretty on theme in our world.
3. And a bit surprisingly, a bunch of hackers pinged me asking for help on how to find a good business cofounder.

 

I have to admit that I had never really thought much about that third one.  Supply and demand are so off when it comes to technical talent that I thought that all good coders must be able to find business cofounders easily.  Of course, this is just plain wrong.  Finding a great business cofounder to complement your technical abilities is a big challenge.  There are few great ones out there and they're usually great because they're already proven...which then means they aren't looking for a new technical cofoudner.  And just as MBAs don't have a prayer at evaluating technical talent, coders really struggle to evaluate unproven business cofounders.

This stuff is hard no matter what.  Finding the right cofounder is harder than hiring and hiring is already super-tough, bordering on impossible.  But there is more to finding a business cofounder than just iteration and luck.  You need to approach the problem correctly.  Start with this:

 

Don't search for a business cofounder.

 

It's approaching the problem from the wrong angle.  When you search for a business cofounder, you're saying that you can't handle the business side of your startup. That's just dumb.  I know hundreds of technical founders that handle the business side of their startup just fine.  And if you're not yet good at the business side of startups, you need to get good.  That doesn't mean you need an MBA (Hah!).  You just need to understand the basic fundamentals of startup economics: cost of user acquisition, lifetime value of a user, market size, etc.  If you're not learning this stuff, you're doing your startup a disservice.

Now, it does usually follow that if and when you find a good non-technical cofounder, he will take over most of the business side of the task list.  But that is usually because in pre-product market startups, building the product is the biggest bottleneck for moving forward so the non-technical guy just picks up all the lower priority stuff that gets left over...like the business stuff.  So, don't judge your potential cofounder on his business ability.  You need to find a different heuristic.  I have one key insight to offer:

 

Find a business cofounder that truly rocks at something.  Anything.

 

Something. Anything.  Well, almost.  FInd someone that is good at one specific, concrete thing that is valuable to your startup right now.  If you're talking to a 100% generalist, it's just not going to work.  Not yet anyways.  He may turn into an impressive entrepreneur someday but that will be on a future startup after he's burned your's.  Good non-technical cofounders need to be able to contribute on day one or they become restless and start causing trouble like invading product development with feature creep or distracting everyone with premature fundraising talk.

Also, being really good at at least one thing means that he's demonstrated the ability to reach high levels of quality.  Your hope is that he can then replicate that in all the needs that your startup will have over time.

 

Here are three types of non-technical cofounders that rock:

 

The Camp Director (motivation)

A camp director has this magical way of getting talented people to provide help.    It's mostly just sales, but being a straight-up salesman is not enough.  Camp directors sell a vision.  All the freakin' time.    If you're not good asking for help or don't enjoy it, this is the skillset in a founder that you're looking for.    

My technical cofounders almost never ask for help.  They solve coding problems by figuring it out for themselves.  Great engineers love the challenge of working through a solution on their own. 

Whether it be employees, investors, advisors, media, users, whatever, camp director style cofounders get people on board and generally love doing it.   Want proof that you found a great Camp Directot cofounder?  You'll see it everywhere in the quality of people that he attracts to help with all sorts of random things.

The Steve Jobs Protoge (product)