Six Lessons in Entrepreneurship

Karbasfrooshan is the founder and CEO of WatchMojo. You can follow him @ashkan.

January 23, 2012 marks the 6-year anniversary of my company WatchMojo. In today’s post, I’m taking a look back at six of the most essential lessons I’ve learned over the years, starting from the beginning.

YEAR 1 (2006) — LEGAL: GET EVERYTHING IN WRITING

There’s no such thing as true loyalty in business; instead, it’s all about mutual interests at a given time. Clichés aside, businesses have a mob mentality with employees and employees in turn have a mercenary outlook towards their employer. As such, when you decide to leave a company and start your own business: get everything in writing. When you announce your resignation and tell folks you want to start a business, they tend to be supportive. But once they see you actually launch it, their jealousy and pettiness comes to light.

I left with verbal promises that “we look forward to investing in your company” but was greeted with alawsuit alleging I violated my non-compete (which I wasn’t). Thankfully I had other documents in writing and managed to win.

Lesson: Not just with legal matters, but sales, finance etc. – get things in writing no matter how awkward it might be to ask for it.

YEAR 2 (2007) — FINANCING

“And bad mistakes, I’ve made a few”
– We are the Champions, Queen

Reading TechCrunch, you’d think that every company under the sun has just raised millions in series A and is about to “change the world”. Reality is most companies don’t fit the VC’s profile to begin with, let alone actually raise capital.

I’ve already discussed how I’ve bootstrapped my company — initially because I didn’t have to raise capital, then because I tried to convince myself that I didn’t want to — only to refuse to acceptwhat came with the territory when I came around, then simply not playing the game properly when the money was there.

So while as much as I love being master of my own domain, I also want to stress that VCs tend to get most excited about a company early on — when their imagination can run wild about a company’s future hockey stick growth curve prospects (no matter how foolish that may be).

Lesson: There’s a degree of “ageism discrimination” by VCs against companies that actually some operating history but don’t show the hockey stick curve growth in revenues.

YEAR 3 (2008) — CORPORATE DEVELOPMENT

“The Only Rule Is That There Are No Rules”

Negotiating is tricky when you’re buying a $10 shirt at a flea market, but when you’re trying to sell a company for $10 million or $1 billion, it kinda gets trickier. Ultimately, however, companies are bought, not sold (I heard that from LUMA Partners’ Terence Kawaja, but that saying is as old as M&A).

Sometimes you need to sit back and wait for someone else to make the first offer, other times it’s best to throw out a figure to anchor the range. Sometimes it’s best to strike a commercial deal before holding out for the exit, other times giving away the milk (be it for free or not) ensures that no one pays for the cow.

Sometimes you need to run a process with as many bidders possible to create tension, other times that will alienate an interested party who’s a great fit and really wants to buy you.

Lesson: While the only rule is indeed that there are no rules, I think the overriding advice is 1) be a challenge and 2) make sure the demand vs. supply dynamics work to your favor, if you have ten competitors who can fill any need a buyer would have by buying you, you’re not going to get bought.

YEAR 4 (2009) – HR: NOT HIRING SUPPORT

The best entrepreneurs and executives realize what their weaknesses are and hire or partner accordingly. However, sometimes it’s helpful to reinforce the functions where your strengths lie, too. When the company is small it’s easy for you to do it all as the jack of all trades, but when the company grows you’ll suddenly find yourselves stretched too thin. So while I’m not recommending you to have an entourage everywhere you go, don’t think that “bench support” only refers to staff in areas you’re weak at.

Lesson: If as the CEO of the company you’re also the chief bottle washer and cook, you will fail to address the true success drivers for economic growth.

YEAR 5 (2010) – SALES: TIMING MONETIZATION

In investing, the efficient-market hypothesis claims that financial prices always exhibit random walk behavior and thus cannot be predicted with consistency, and as such, market timing is impossible. We’ll debate that in a separate article.

Applying market timing to when a young company should hire its sales force, however, is just as challenging.

Lesson: Even if you’re flush with cash, hiring a sales force too soon will alienate good people who will be disappointed when they’re left to sell empty boxes. Conversely, hiring a sales force too late will prevent you from ramping up sales when your product is ready for the big time – regardless of whether you are selling advertising to marketers or software to enterprises.

YEAR 6 (2011) — GROWTH VS. PROFIT

As much as we all strive to build sustainable and stand-alone companies, we’re living in a period of massive transformation and thus, consolidation and acquisition. As a result, many entrepreneurs build their businesses with potential acquirers in mind, choosing to grow at any cost instead of actually building a sustainable business that is solvent and profitable.

GRP VC Mark Suster (and occasional Techcrunch contributor) published an article on this theme
recently. The very short version of the post is: “Most companies (98+%) in the world (even tech startups) should be very profit focused. Being profitable allows you degrees of freedom you don’t have when you rely upon other people’s money.”

For 5 years I “grew the company at any cost” and year 6 I decided to focus on being profitable — or at least breaking-even.

Lesson: In hindsight, I probably should have focused on profitability a bit sooner, but better late than never.

How to Bootstrap Your Busines

I was wondering around with different marvelous business ideas in mind, but non could seem to be a good idea since I fail every time to raise capital for the project to start. until I read the article about sitting around zidel. Thanks to the post that has shown me the right and good way of bootstrapping any business idea. Here is the zidels ideas on bootstrapping your business >>

erica zidel

Erica Zidel knew trying to raise funds for her startup would be a full-time job. She worried that chasing after capital would distract her from building the best product she could. So, rather than sweat the investment game, she has spent two years holding down a day job while bootstrapping her new company on the side.

During business hours, the Boston resident works as a management consultant. Evenings and weekends, she puts on her startup hat.

“I’ve basically been working two full-time jobs,” says Zidel, founder and CEO of Sitting Around, an online community that makes it easy for parents to find and coordinate babysitting co-ops in their neighborhoods. It’s a hectic schedule–schizophrenic, even–but it’s also thrilling. “When I woke up this morning, I realized that it was Monday, and I got excited,” Zidel says.

What’s perhaps more thrilling is that she’s been able to self-fund Sitting Around with the money she earns from her consulting work. Besides not getting sidetracked with fundraising, Zidel and her business partner, CTO Ted Tieken, have been able to retain 100 percent ownership of the babysitting venture.

“Bootstrapping early on means I have complete control over the vision and the product at a time when even small changes can lead to big consequences down the road,” Zidel says. “I wanted the flexibility to make the right decisions, free from a board or an investor’s influence. When you have just the founders making decisions, you can innovate much faster.”

That focus on innovation has paid off. Sitting Around serves families in 48 states, as well as in Canada, Australia, Hong Kong and the U.K. Since the site launched in June, its user base has doubled every month; the company is on track to have 5,000 users by year’s end. Sitting Around also was one of 125 finalists in this year’s MassChallenge, a Boston-based startup competition and accelerator program. Perhaps most exciting of all? Shortly after launching the company, Zidel was honored at the White House as a champion of change for her contributions to child care.

Money vs. Time
The beauty of moonlighting with a startup is that it lets you test a business idea without jeopardizing your financial well-being, says Pamela Slim, business consultant and author ofEscape from Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur.

“When you don’t know where your monthly income is coming from, it often sets up a fight-or-flight response in your brain,” Slim says. “And that’s not a good place to be when you’re trying to be creative. So having that psychological cushion is often very important for the development ofbusiness ideas.”

Juggling jobs: Erica Zidel of Stting Around works days as a management consultant.

Zidel will attest to that. Thanks to her day job, she’s been able to pour $15,000 to $20,000 of her own money into her business. Not having to take on debt or live like a monk has been a point of pride–but it has also been a necessity. “Since I’m a mother, I have to maintain an adequate standard of living for my son,” Zidel explains. “While I’m definitely frugal and very conscious that a dollar spent on lifestyle is a dollar not spent on Sitting Around, I’d rather work two jobs than feed my son ramen.”

But as anyone bootstrapping a business on top of a day job will tell you, seed capital isn’t the only ingredient in the recipe.

“When I started my journey as an entrepreneur, I thought the most precious resource was money, but it’s actually time,” says Aaron Franklin, co-founder of LazyMeter.com, a web-based productivity tool that launched in August.

Franklin and LazyMeter co-founder Joshua Runge initially began “messing around” with their idea nights and weekends while working full time at Microsoft. After four months of brainstorming and development, the two felt they could no longer do their day jobs justice. With LazyMeter still in the product-development stage, they resigned from Microsoft at the end of 2009, trading in their steady paychecks for a more flexible web-consulting client.

“We needed a source of revenue to buy us the time to build the right product. Consulting was really the perfect way to ease this transition,” says Franklin, who is based in San Francisco.

Taking project-based work did more than just allow Franklin and Runge to bootstrap the startup. Because they performed their consulting work under their business entity, they were able to stretch their income further by putting their pre-tax earnings back into their new company.

Today, LazyMeter has more than 10,000 users. Although currently a free service, the founders plan to introduce premium subscription features as soon as the first quarter of 2012.

Juggling Act
Bootstrapping a business is not without its challenges. Besides the long hours and the strain on personal relationships, it can be tricky to split one’s creative juices between two professional pursuits.

“Being pulled in multiple directions is the hardest,” says Sitting Around’s Zidel. “It takes a while for your brain to switch gears. And when things start to collide, it can be hard to say [what] you should be working on.”

To stay productive and sane, Zidel schedules her workdays down to the hour and sticks to a list of non-negotiable items to accomplish each day. Still, she admits, “it’s hard to stop working. I really have to force myself to carve out some personal time.”

Bootstrapping with income earned from not a single employer but a cadre of consulting clients comes with its own set of obstacles.

“Sometimes customers require a lot of attention, making it difficult to carve out time for your startup,” LazyMeter’s Franklin says. Likewise, he adds, “When you start consulting, it can be tempting to work as many hours as they can pay you.”

Either way, your startup loses–which is why it’s important to make an exit plan and stick to it. “If you make enough revenue to last another month but slow down your startup by a month, you’re not getting ahead,” Franklin says. “Make sure your efforts are moving you forward, not backward.”

Knowing When to Leap
How will you know when to quit your day job? Author Slim advises that once you’ve tested your idea in the real world and know there’s a market for it, you should set specific, tangible metrics.

“For some people, it can be getting a significant amount of traffic on their website or selling a certain number of units,” she says. “For some people, it’s when they have X dollars in their savings. For some people, it’s a date–say, ‘Come hell or high water, Dec. 31, 2012, I’m quitting my job.'”

For Nick Cronin, co-founder and CEO of ExpertBids.com, which connects business owners with lawyers, CPAs and other consultants, the day came when his web startup began to bring in revenue. After spending 15 months growing his site to 10,000 users–7,000 of them experts–Cronin left his gig as a corporate attorney to work on his startup full time in November 2010. Now, he says, “We bring in enough money for a developer and myself to work on [the site] and to cover all expenses, including office space and advertising/marketing.”

Before quitting his job, Cronin spent a year lining his savings account. “I knew that things were going to take time and that we were going to need a little bit of a runway before I could take a salary,” says the Chicago-based entrepreneur. “My goal was to have nine months where, if we didn’t make a dollar, I’d be totally fine.”

The escape route looks completely different for Sitting Around’s Zidel. “It’s less the number of users and more the rate of growth. We’ve been testing different components of our business to see what works before we go out to raise money and turn the gas on,” she says. “Now we have a lot of great data: what messages resonate, what products make money.”

While she won’t specify revenue, Zidel says her site is making money from its premium subscribers, who pay $15 per year, and from advertisers. In 2012, the company will launch discounted product offers to site members (such as backpacks for kids) and a pay-per-transaction scheduling tool for booking babysitters.

Until Sitting Around brings in enough to pay a comfortable salary, Zidel says she’s content to juggle CEO duties with her consulting work. And to those who say you’re not a true entrepreneur unless you quit your day job, she cries foul.

“A lot people think that to be a successful entrepreneur, you need to be sleeping on an air mattress and working on your business 80 to 90 hours a week,” she says. “But I think that definition of success is silly. I’m living proof that if you have a quality idea and you spend your time well and execute it well, you can wind up with something great.”

Protecting Your Rep at Your Day Job
Your boss may not be thrilled to learn that you’re cultivating a side business. To avoid biting the hand that feeds you, follow this advice from Pamela Slim, author of Escape from Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur.

Check your employment agreement and employee handbook. Some companies have a no-moonlighting policy. Others have non-compete agreements that prohibit you from doing your own business with their clients. Others–particularly technology companies–have policies that nab the intellectual property rights of anything you create on your own time.

Keep quiet about your side project. Unless your employment agreement requires you to come clean about your after-hours venture, Slim recommends staying mum with managers and colleagues. Yes, some might be supportive of your side pursuit. But, Slim says, once the cat’s out of the bag, “be prepared to be fired, as a worst-case scenario.”

Don’t work on your startup on company time. Just because you love your side project more than your job doesn’t give you license to slack off. Resist the urge to use your work phone and e-mail to conduct startup business. “Take the calls on your cell on a break, and, if possible, use your own laptop or mobile device to check personal e-mail,” Slim says. “Remember, everything is tracked and monitored in large corporations.”

Don’t burn bridges. Guard your professional reputation as though your life depends on it. “It’s never a pleasant thing to be fired for performance,” Slim says. “That’s not the way you want to go out.” Besides, your current employer might be a future customer or investor.

Source : www.entrepreneur.com

 

Stop Online Piracy Act

The Stop Online Piracy Act (SOPA) is a law (bill) of the United States proposed in 2011 to fight online trafficking in copyrightedintellectual property and counterfeit goods. Proposals include barring advertising networks and payment facilities from conducting business with allegedly infringing websites, barring search engines from linking to the sites, and requiring Internet service providers(ISP) to block access to the sites. The bill would criminalize the streaming of such content, with a maximum penalty of five years in prison.

User-content websites such as YouTube would be greatly affected, and concern has been expressed that they may be shut down if the bill becomes law. Opponents state the legislation would enable law enforcement to remove an entire internet domain due to something posted on a single blog, arguing that an entire online community could be punished for the actions of a tiny minority. In a1998 law, copyright owners are required to request the site to remove the infringing material within a certain amount of time. SOPA would bypass this “safe harbor” provision by placing the responsibility for detecting and policing infringement onto the site itself.

Lobbyists for companies that rely heavily on revenue from intellectual property copyright state it protects the market and corresponding industry, jobs, and revenue. The US president and legislators suggest it may kill innovation. Representatives of theAmerican Library Association state the changes could encourage criminal prosecution of libraries. Other opponents state that requiring search engines to delete a domain name begins a worldwide arms race of unprecedented censorship of the Web and violates the First Amendment.

On January 18, English WikipediaReddit, and several other internet companies coordinated a service blackout to protest SOPA and its sister bill, the Protect IP Act. Other companies, including Google, posted links and images in an effort to raise awareness. An estimated 7,000 smaller websites either blacked out their sites or posted some other kind of protest. A number of other protest actions were organized, including petition drives, boycotts of companies that support the legislation, and a rally held in New York.

Source : Wikipedia

M.I.T. Expands Its Free Online Courses

While students at the Massachusetts Institute of Technology pay thousands of dollars for courses, the university will announce a new program on Monday allowing anyone anywhere to take M.I.T. courses online free of charge — and for the first time earn official certificates for demonstrating mastery of the subjects taught.

“There are many people who would love to augment their education by having access to M.I.T. content, people who are very capable to earn a certificate from M.I.T.,” said L. Rafael Reif, the provost, in a conference call with reporters Friday.

M.I.T. led the way to an era of online learning 10 years ago by posting course materials from almost all its classes. Its free OpenCourseWare now includes nearly 2,100 courses and has been used by more than 100 million people.

But the new “M.I.T.x” interactive online learning platform will go further, giving students access to online laboratories, self-assessments and student-to-student discussions.

Mr. Reif and Anant Agarwal, director of the Computer Science and Artificial Intelligence Lab, said M.I.T.x would start this spring — perhaps with just one course — but would expand to include many more courses, as OpenCourseWare has done.

“The technologies available are much more advanced than when we started OpenCourseWare,” Mr. Agarwal said. “We can provide pedagogical tools to self-assess, self-pace or create an online learning community.”

The M.I.T.x classes, he said, will have online discussions and forums where students can ask questions and, often, have them answered by others in the class.

While access to the software will be free, there will most likely be an “affordable” charge, not yet determined, for a credential.

“I think for someone to feel they’re earning something, they ought to pay something, but the point is to make it extremely affordable,” Mr. Reif said. “The most important thing is that it’ll be a certificate that will clearly state that a body sanctioned by M.I.T. says you have gained mastery.”

The certificate will not be a regular M.I.T. degree, but rather a credential bearing the name of a new not-for-profit body to be created within M.I.T; revenues from the credentialing, officials said, would go to support the M.I.T.x platform and to further M.I.T’s mission.

Educators at other universities applauded the M.I.T. move.

“It seems like a very big deal because the traditional higher education reaction to online programs was, yeah, but it’s not a credential,” said Richard DeMillo, director of the Center for 21st Century Universities at the Georgia Institute of Technology. “So I think M.I.T. offering a credential will make quite a splash. If I were still in industry and someone came in with an M.I.T.x credential, I’d take it.”

M.I.T. said its new learning platform should eventually host a virtual community of learners around the world — and enhance the education of M.I.T.’s on-campus students, with online tools that enrich their classroom and laboratory experiences.

The development of the new platform will be accompanied by an M.I.T.-wide research initiative on online teaching and learning, including grading by computer.

And because the M.I.T.x platform will be available free to people around the world, M.I.T. officials said they expected that other universities would also use it to offer their own free online courses. Mr. Reif said that M.I.T. was investing millions of dollars in the project, and that it expected to raise money from foundations and others.

This post is taken from NewYork Times.

Liveblogging Platform CoverItLive Hacked

CoverItLive, the Demand Media-owned liveblogging platform used by many outlets to cover major events in real time, has just alerted their users of a potential data compromise.

According to the alert e-mail sent to CoverItLive customers, the company noticed that “certain proprietary data files were accessed without authorization” beginning last Saturday. While they say they’re currently unsure as to what exactly was accessed (though they claim that payment details were definitely not), they urge their users to change their passwords be it they use the same (possibly exposed) password anywhere else. While they say that all user passwords are encrypted, they do not say what sort of encryption (and thus what level of security) was used.


The full text of the e-mail follows:

CoveritLive recently discovered that certain proprietary data files were accessed without authorization starting on or about January 7, 2012. We have not yet determined if, or to what extent, CoveritLive account information (i.e., user names, email addresses and/or passwords) was accessed. We do know, however, that no financial account information has been compromised.

Our investigation is ongoing, and, as a precautionary measure, we will implement required password resets for all active CoveritLive accounts. We plan for this process to begin Saturday January 14, 2012 at 12 AM EDT (5 AM GMT). The next time you log in after the process has begun, you will be asked to change your password before you will be allowed into your account. NOTE: we do not anticipate that you will experience a disruption in your event if you are using CoveritLive while the change is invoked.

Your password and all account passwords are encrypted as a standard CoveritLive information security practice, and we have no evidence that an unauthorized individual has actually retrieved, or is using such data. However, out of an abundance of caution we recommend that if you registered for CoveritLive using an email address and password combination that you use for other online accounts, you should immediately create unique passwords or new login credentials for those other sites and accounts.

We take this matter very seriously and will continue to work to ensure that all appropriate measures are taken to protect your personal information from unauthorized access. We also would like to take this moment to remind you of a couple of tips that should always be followed:
Do not open emails from senders you do not know. Be especially cautious of “phishing” emails, where the sender tries to trick the recipient into disclosing confidential or personal information.
Do not share personal or sensitive information via email. Legitimate companies will not attempt to collect personal information outside of a secure website.
We regret any inconvenience that this password change process may cause you. Please do not hesitate to contact us at passwords@coveritlive.com if you have any questions.

A City Is A Startup: The Rise Of The Mayor-Entrepreneur

On stage at last month’s Le Web conference Shervin Pishevar, a Managing Director at Menlo Ventures, stated “The World is a Startup.” It’s an interesting perspective, and I think what’s true for the world is also true for countries, states and municipalities. With developments like last month’s announcement that Cornell was selected to build a new tech campus in New York City, it seems to follow that if “a city is a startup,” then the best mayors are the ones who are looking at their cities in much the same way as entrepreneurs look at the companies they have founded.

The ingredients for a successful startup and a successful city are remarkably similar. You need to build stuff that people want. You need to attract quality talent. You have to have enough capital to get your fledgling ideas to a point of sustainability. And you need to create a world-class culture that not only attracts the best possible people, but encourages them to stick around even when things aren’t going so great.

Paul Graham has written extensively on this topic in essays like How to Be Silicon Valley and Why Startups Condense in America. Much of his thinking no doubt played into the decision to base Y Combinator entirely in Silicon Valley. Boston’s loss was the Bay Area’s gain and a striking example of why it’s important for mayors to view their cities through an entrepreneurial lens. Paul viewed Y Combinator through that lens and it led him to believe that Silicon Valley simply had more of the ingredients that would make his companies successful than Boston did.

So let’s take a look at those ingredients. Making products and services people want to buy has to be at the top of the list of any forward-thinking mayor. Extensive research by the Kauffman Foundation shows that virtually all job creation comes from companies less than five years old. So if you’re running a city and want to increase the number of jobs in your city, you should be doing whatever you can to encourage more viable startups. It’s something that Ed Lee, San Francisco’s newly-inaugurated mayor seems to understand, telling TechCrunch back in November “I want them [tech companies] to start here in San Francisco, and I want them to stay and to grow.”

Talent is another important factor and lies at the heart of Bloomberg’s efforts in New York City. Creating a world-class engineering campus in New York can be thought of as the municipal equivalent to Facebook’s acquisition of FriendFeed or Gowalla. By having more talented people in the city, New York is better able to compete with other cities in the same way that Facebook better competes with rivals by having more talented engineers under its roof. (What’s more, Facebook recently announced that it will open an NYC engineering office in 2012.)

Of course, getting top engineers and designers to actually work for a city might prove challenging (with a notable exception to be seen in the success of the Code for America program), but mayors can have a significant impact on helping a city to attract the best and brightest.

I recently spoke with Daniel Huttenlocher, the dean of the Faculty of Computing and Information Science (CIS) at Cornell University, who played an integral role in Cornell’s bid for the Roosevelt Island campus (read more about this effort in Eric Eldon’s interview with Huttenlocher).

His observation that Bloomberg’s history as both a technologist and an entrepreneur helped him and others in his office to better understand the need for New York to increasingly be a hub for the best technologists on the planet. Bloomberg is to New York City as John Calipari is to Kentucky basketball, intuitively adhering to Vinod Khosla’s notion that CEOs should be spending a very high percentage of their time recruiting.

Capital is another necessity for a city’s success. In some cases this might mean mayors actively courting angel investors and venture capitalists. The success of the Silicon Valley ecosystem is due, in no small part, to the availability of early-stage capital and its density of investors. Other metro areas have historically struggled to replicate this investment ecosystem but more attempts are underway.

Sergio Fernández de Córdova, the founder of Fuel Outdoor and chairman of New York Entrepreneur Week, pointed me to an effort underway in the state of Connecticut to provide more funding to early-stage companies in the state. In addition, New York City announced $150 million in funding solely devoted to startups in the city as part of the tech campus announcement. While these efforts might pale in comparison to the latest billion-dollar fund raised by a Silicon Valley venture firm, they are a step in the right direction for states and municipalities trying to spur innovation.

A final ingredient is culture which can loosely be translated to livability when we think about cities. This was impressed upon me recently during a meeting with Eric Garcetti, the former Los Angeles City Council President and leading contender to become the city’s next mayor. Garcetti recognizes the challenges that LA has when competing against the Bay Area to be the home base for the next great technology company. Indeed, Los Angeles has lost a number of its most promising companies to the north such as Lookout and Yammer (born out of Los Angeles-based Geni).

Still, Los Angeles is one of the most desirable cities in the country to live in and the recent Silicon Beach resurgence is due in part to this. Listening to Garcetti talk about LA’s strong points reminds you of Larry and Sergei discussing why Google’s culture made it possible for them to attract so many outstanding engineers or Tony Hsieh sharing why Zappos’ quirky, fun work environment helped them retain top performers. By emphasizing LA’s strengths, Garcetti hopes to retain talented USC, UCLA and Cal Tech grads who might not be so keen on spending “Junuary” in San Francisco.

As we roll into an election year, many cities are in a state of crisis. Budgets are a mess and job growth has been minimal for a good swath of the country. Cities in need don’t just need strong leadership, they require transformational leadership. It’s no easy feat but it’s likely that the more that mayors view their cities through an entrepreneurial lens, the better they will be able to adapt to a rapidly-changing world.

Bloomberg seems to be leading this charge with his efforts in New York City and mayor’s offices around the country are taking notice. Others like Ed Lee, Garcetti and Newark mayor Cory Booker appear to be taking a similar tone in their respective cities. Perhaps these are the first examples in what will become a long line of mayor-entrepreneurs.

Excerpt image by Greg Knapp via Creative Commons

This post originally was taken from TechCrunch.com

How To Start Smart: The Five Things To Know When Approaching An Incubator

Incubators are playing an increasingly vital role in acquiring meaningful investment for first-time entrepreneurs. TechCrunch reported that elite accelerators like Y Combinator receive on average one application every minute, and AngelPad reminds its participants that it is many times more selective than the Harvard Business School.

Incubators ask for a 2 to 10 percent stake in your company, a sum that could alternatively be used to attract a junior co-founder or provide meaningful ownership to the first few engineers you enlist. In return, incubators offer intensive coaching, networking with other founders, and warm introductions to likely investors. Incubators give first-time entrepreneurs and international teams alike a crucial link to Silicon Valley.

In addition to the giving up meaningful equity there are other downsides to consider before participating in an incubator. Most have a schedule that’s built on a demo near the end of the program. While many companies view that external structure as helpful, others can find that working with such a timeline damages their business.

The long lead up to D-Day could mean a delay in fundraising or product lunch, which in turn can translate into missed opportunities. There are other potential pitfalls, from committing too quickly and prematurely to an idea, to trying to scale before properly understanding a market and the company’s place in it. And with any robust community, there’s the danger of succumbing to groupthink. Founders need to remember they understand their market better than anyone.

For most first-time founders, these downsides are far outweighed by the benefits. Below are some lessons I regularly share with prospective entrepreneurs interested in applying to incubators.

1. Know their interest and expertise

When planning to apply to such incubators as 500 Startups, Y Combinator, TechStars or AngelPad, watch any and every online video you can find of incubator leaders outlining what they are looking for and what they can offer your company. Numerous incubator leaders, including Paul Graham, Thomas Korte and Dave McClure, have explicitly mapped out what they can bring to the table and what kind of companies they are targeting.

Know what’s important to the investors: Dave McClure at 500 Startups will want you to have a deep understanding of the micro-economics; AngelPad loves great B2B opportunities; and Y Combinator appreciates founders who have already demonstrated their smarts with submissions on Hacker News. They all will make exceptions, but you should pitch in a way that will resonate with the specific incubator.

2. Understand their challenge

All incubators play an arbitrage game, curating great early-stage startups for the community of larger investors. They need to believe they can readily convince other investors to put in an even larger sum at the end of the program. It is your job to convince them you have the raw material, which usually means great engineers (preferably branded by great universities or companies), beautiful design, strong team dynamics, and an ability to get a meaningful user base. If you have these ingredients, the incubator can help you polish your pitch and get in front of investors.

3. Intros matter

Getting a friendly introduction from someone the incubator knows can prevent your startup from getting buried in the application avalanche. The best intros come from people they trust who have insight into what it takes to start an effective company. Founders, fellow investors or former colleagues (hint: search LinkedIn for shared connections) can help get that needed extra attention. Intros from their friends and family members outside the startup ecosystem will be much less helpful. I got a key intro to AngelPad from the MoPub founders and to Y Combinator through Posterous co-founder Garry Tan.

4. They will be watching closely

Many incubators now require a video submission with your application and will follow up with an in-person or video chat with you and your co-founder(s). While these might cause the incubator to miss great people due to some unconscious bias, they also give a glimpse of confidence, charisma and, perhaps most importantly, your relationship with your colleagues.

The least you can do is ensure that everyone pays attention to whoever is speaking. If the engineer rolls his eyes, yawns or corrects the CEO when he speaks, the incubator might regard your startup as radioactive. If you get a live interview, make sure everyone has defined roles, with the CEO answering all market and business questions, the CTO answering all technical questions, etc. And practice the interview dozens of times. Enlist smart friends to barrage you with questions in rapid succession until you can confidently provide short and clear answers.

5. You’ll get a new Alma Mater

Incubator provides fantastic coaching and rich networking opportunities with other companies and investors during their programs. This is especially helpful for international teams that can boast great products and meaningful traction, but lack connections to the Silicon Valley investor community. But the time in the incubator is just the beginning. Months out, the mentors continue to provide trusted counsel and meaningful introductions.

Our incubator class provided us with thousands of dollars in free services and have consistently been among the first to try our new products, provide honest feedback and give them a five-star rating in the App Store. The camaraderie runs deep, fostered by shared experience and an understanding that each companies’ success will elevate everyone’s status.

Many first-time entrepreneurs succeed without participating in an incubator, in the same way many professionals can have successful careers without going to college. But this will increasingly be the exception. Young companies passing on the incubators can squander time, even years, when they could be building their networks, getting greater market feedback and scale their business with investor dollars.

In the past year, I have seen four great teams with early traction and Stanford founders stagnate while trying to do things on their own. Each had a few connections with the investor community, but they didn’t compare to what the best incubators deliver. Don’t make their mistake — if you want to build a company with world-wide impact, joining an incubator may be your most important early step toward achieving success.

This post was taken originally from TechCrunch.com