Thursday, January 10, 2013

Beware of Startup Sharks

I've worked in the computer industry for over 25 years. I've started up two small businesses with cofounders, I've worked for FORTUNE 500 companies, I've worked as a contractor, I've done a lot of things. I learned over 37 programming languages and can learn almost any programming language. I've trained and tutored people and mentored them as well. Consider me retired, but I still receive job, contract, and business opportunities even if I took down every copy of my resume from the web and changed my phone number and email address.

I've been writing ideas and designs for projects on paper notebooks since 1995 using a method I developed myself when I couldn't find a better one. One might think why don't I at least do one of those projects and then make a business on it? If a person asks me that question, I know they are inexperienced with the way the business cycle works, and finding a market.

Sure some anonymous guy at Hacker News is offering MVPs $8000 yo develop for 2 months their project and then he will take 50% of their stock and market it for them. Uh, what's wrong with this picture? Seems like a good deal, you get paid $25/hr to develop your MVP and then take on a cofounder who owns 50% of your company?

What is the problem? So many let me list then here.

First you don't know who this person is, he is an anonymous contributor to a news web site, could be anyone. Did you run a thorough background check on him? Did you check for criminal history, credit history, educational degrees, immigration status, bank accounts, medical history? First off I don't want to say anything negative about this guy, but I just don't generally trust an anonymous person. Before you do business with anyone, check them out to see who they are.

Second what are the legal issues? Is he going to sign an NDA (Non-Discloser Agreement), or a No-Compete Contract, or even any contract at all? You'd better consult a lawyer to have some papers drawn up and have him sign them before you release anything to him. Also what if your MVP might infringe on an existing patent or copyright, how will you both deal with it? Will he just cash in his shares at the first sign of a lawsuit or even C&D (cease and desist) letter? Are you going to patent and trademark and copyright the company's IP so competitors cannot steal it? How is going to draw up the business plan, the incorporation papers, and issue stock?

Third who keeps track of the accounting? How do you know the books are not cooked and everything is fair? Consult with an accountant and have a CPA audit your books.

Fourth you don't create a market after making a product. You do research and development and analysis for your market and you find out who you are selling solutions that people in a certain market need and then cater your MVP to them. This guy wants you to do it completely backwards. That makes as much sense as building a house and then making the blueprint after it is built. Work on your blueprint first, and build the house that people need by designing the blueprint to serve those needs. Find a need, fill it, serve it. Find a problem, solve it.

Fifth marketing, is it really that hard that you have to give away 50% of your stock to do it? You mean to tell me you don't know how Google Adwords works, or how to give a speech at user groups that have an interest in your MVP, or how to create social networking pages for your MVP, or how to make a web page and use SEO to bump it up to the top of Google? You really don't know how to set the pricing strategy, product, promotion, placement, process, and people? You don't even know how to use Vistaprint for cheap Business Cards that you pass out to people in real life and meet them at conventions, business meetings, or just bump into them at sporting events or whatever? You don't know how to contact web sites that do reviews of MVPs and can help promote it? You don't even know how to submit your blog or web site about your MVP to Hacker News?

Sixth copycats, you will always have other organizations copying you as soon as your MVP hits Google and is searchable. Is this guy going to help you out innovate them? Is he going to design your business plan on how to deal with copycats and improve your MVP so copycats can't steal customers? Plan on copycats. Why did the Apple iPhone do so well? It was not the first smart phone, that was the IBM Simon from 1994. The Qualcom PalmOS based smartphone, the RIM Blackberry smartphone, and the Microsoft Windows CE smartphone were all out before Apple. Apple saw the weaknesses in every smartphone and used total quality management to make a better quality smartphone. Google did the same with Android. Now they are suing each other, despite tons of prior art. But Linux based smartphones are coming out now. Apple iOS 6 is buggy on older iOS devices but not new ones, and Apple Maps was a failure. If the Linux and Ubuntu smartphones can develop a higher quality product, then they have the edge. Always improve the quality of your MVP and add in new features that people want. Don't let the copycats do it first. The Japanese have a method called Kaizen, continual improvement process. It gave them the edge in the 1980's and 1990's because better quality products means less support costs and less of an overhead cost.

Seventh Human Resources, your company will grow how will you manage employees, who will run HR? Better study up on employment laws and business laws and consult a lawyer on what you can and cannot do with an employee. Is your cofounder going to do this for you, or just the marketing? Sure your business will grow, but when you need the right people and need to manage people without legal headaches, is he qualified?

Eight every business has risks. Has he told you the risks? For example say you are in a car accident and cannot finish your MVP by two months, what happens? What if your primary job requires you to work extra hours and you cannot finish that MVP? What if you are a consultant and you have to put off clients for that MVP, and it does not work out and you lose clients? What if your manager at your first job finds out your are 'Moonlighting' and decides to fire you?

Ninth user documentation, is he going to write it or are you? What about help menus, FAQs, tutorials and the API needed by developers to be fully documented so they can hook into your MVP? Will there be Youtube videos and podcasts?

Tenth graphics and illustrations, will he design them for you? Are you good with photo editing software like Photoshop etc? Do you use GIMP instead? Who is going to make Powerpoint slides to explain this to people? Will there be whitepapers?

Eleventh tech support and help desk, will he help with this or stick you with this task? Face it the Internet is full of people who can't figure out simple stuff. Sure you wrote an easy to use UI/UX, so easy a chimpanzee can use it.  But people are still going to struggle with it. People are still going to want their hands held. People are still going to request features be added to the MVP, that are already there but only because they don't know how to use them. You will get angry and upset people as well, how do you handle them?

Twelfth what happens when nothing works right, everything fails, and then he puts the blame 100% on you, and sues you for all the money you got? Worst case scenario I'm sure. What if you have a Dotbomb on your hands? Worse yet he issues more stock and buys it up and puts himself in control and then fires you even if the business does well. There has to be an exit strategy in the business plan for you. Either sell your stock to him, he sells his stock to you, you sell the company stock to a bigger company, and you outline in the contract what happens if the business fails, what happens so it isn't a surprise.

Who knows maybe this guy isn't a shark and knows how to deal with these twelve problems or even more I haven't thought of? After all he seems to be going after younger, more inexperienced developers who don't know these sort of things. I advise anyone considering such an offer to do research into these issues before taking such an offer. Before you go diving into an ocean, check for sharks first.

TL;DR First thing you should do is research your target market, fill a need, develop your MVP first, retain a lawyer and accountant, and then get VC money when you have something to show for it.

Edit: Wow, over 4000 page views in just a few hours time. Thank you Hacker News and Google GPlus, and for all the Tweets on Twitter that made Beware the Startup Sharks trending for a while.


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