Joshua Saunders

I was just sent an article on making the jump from a full-time job to starting your own business.  It is written by a founder of a new startup called Nutshell Mail.  Very good article, suggested reading for all of you contemplating the same things.  I have pasted it below in its entirety.

A Check List: Considering Leaving Your Day Job?

If you are considering leaving your day job to start your own business, there are some serious questions you must ask yourself. I did not erratically jump ship when I got bit by the entrepreneur bug. Before leaving my 9-5 (or rather my 8am-1am finance gig), I made sure that I assessed the risks and weighed the benefits.

If you think coming up with the idea is the hard part, you are mistaken. Certainly good ideas don’t come along everyday, but I can promise you that conceiving the idea is actually the easiest part. The process for determining if you should go off on your own is long, hard, and involves some serious introspective examination.

In general, investors look at three types of risks: 1) Market Risk, 2) Technology Risk, and 3) Execution Risk. When determining if you should go into business for yourself, you should weigh the same questions.

The first two are obvious. To quantify market risk, you need to ask “Is my concept/idea/product marketable?” “Does it solve a real problem?” “Will people pay for it or can I find a way to monetize it?” Most importantly, “Is this something that I need?” , “Will I use it?” To address the technology risk considerations you need to ask “Can this be done?” “Can I build it or find people to build it?” Both require extensive due diligence, and I personally spent a long time researching and writing everything down into a draft business plan before even considering leaving my job. Writing a business plan is a painful but critical step. (More on that to come later)

However, the third type of risk: Execution Risk can not be quantified by typical research. It involves serious self examination, understanding your personal limitations, financial situation and relationships with family and friends. To help you determine if you are ready to go off on your own, I have created a check list of questions I asked myself before submitting my letter of resignation:

1) Do I have an entrepreneur’s personality?

An entrepreneur is a person who thrives under pressure, enjoys challenges and is self-motivated. You must be a high-energy person who is not afraid of hard work and long hours. Passion is a must. If you are not passionate about your business, you will find it hard to wake up every morning.

2) Am I willing to make sacrifices?

Becoming an entrepreneur can flip your life upside down and usually involves sacrificing customary ways of life and creature comforts. It is about more than cutting back on luxuries and discretionary expenses. For some, it even means moving in with Mom and Dad. The strain can affect relationships; girlfriends, boyfriends, wives, husbands, and best friends can be lost. When you become committed to realizing your dream, you may find yourself alienated from those who are central to your life. Balancing work and life becomes much more difficult and you have to be prepared to accept that.

3) Do I have the proper support system?

Not every entrepreneur is fortunate enough to have a strong family, supportive spouse, or rich aunt. But every entrepreneur must be aware of the role the people in their lives will play and how their startup will affect those individuals. You must consider your family and loved ones when starting your own business as it will most certainly affect their lives as well.

4) Do I have the financial resources to quit my job?

Many experts say you must have a least one year of salary saved up before even considering going off on your own. If you have significant financial obligations, dependents, or responsibilities you can not give up, you better make sure you can meet those commitments in the absence of steady income.

5) Do I interact well with others?

An entrepreneur is someone who can find answers to difficult answers. To find those answers you must be able to interact well with others, convince them to help you, and if you are good, make them want to help you. This is also crucial for building your team, attracting investors, and most importantly acquiring and retaining customers.

6) Can I trust others?

An entrepreneur must wear many hats, but you can not do everything. Those who try, typically fail. Those who are able to find the right people and delegate task have a much better chance to succeed. To be successful you must not only delegate but also inspire. This often means letting go of the reins, trusting in others, and making sure everyone’s mission and interests are aligned.

7) Am I confident in my abilities?

There is a fine line between confidence and cockiness; and, optimism and stupidity. You will experience ups and downs, successes and failures. To succeed, however, you must be resilient and, in general, positive. You can learn many things on the fly, a key trait of most successful business people. But you must also have a core skill set that you can use as a base. Experience in the industry you enter, is not a must, but it is a huge positive. The most important aspect, however, is trusting in your abilities, knowing when to ask for help, and believing that you can actually do it.

There are tons of online resources that can help you make this very important decision. However, two of my favorite reads include Founders At Work: Stories of Startup’s Early Days - a compilation of interviews from successful entrepreneurs in the tech and Web2.0 world (a must-read for any internetrepreneur) and Change the Way You See Everything: Through Asset-Based Thinking - one of my favorite inspirational books.

A new division of SSE, Stanford Student Enterprises, is now offering a venture fund for undergrad and grad students to receive seed funding.  With ammount of $50,000-$100,000 available, the student run (but not school funded) organization has partnered with angels and VC funds to advise students on wise start-up investments.

SSE has been involved in various other areas of finance at the school and is one of the most impressive student organizations in the country.  Other business areas for SSE include banking, investment management, dealing with the student phone directory, and selling school apparel.  The new venture fund offers a great opportunity for entrepreneurial students to get involved and learn hands-on about the start-up process.  If only I could get this going at DePaul…

Innovative opportunities come from many sources.  When thinking of expansion or new products and services to offer, keep in mind the following innovative sources:

• New knowledge discovered by research
• Changes in public opinion or perception
• Demographic shifts
• Industry or market structure changes
• Innovation from a process need
• Incongruity between the actual and possible
• Unexpected events

The best way to think of an idea is to consider things that upset you or cause problems in your daily life. Don’t think of products, think of problems.

Come up with answers to the following:
- What frustrates you?
- What things slow you down or cause bottlenecks?
- In your everyday life, what bothers you?

Answers may be things like:
- I hate standing in a line of 10 grocery carts at the grocery store.
- I hate that stuff doesn’t flush down the toilet
- I hate that I have to take garbage bags out so much to the dumpster
- I hate that when I use an umbrella in the rain, it stays wet when I bring it inside.

Then think of a solution to the problems:
- A product or system which automates or speeds up grocery lines
- A consumer version of a portable trash compactor
- A plastic sleeve that rolls down the umbrella and wipes the excess water off

Start with problems and work your way towards solutions.  You’ll find it is much easier to find a market need by first identifying what the problem is.

Facebook is deciding to give one to all facebook users.  for years we have relied on AIM, ICQ, MSN Messenger, or more recently GTalk.  Instant messenging applications have been available on facebook through the use of their open API, but facebook coming out with their own product effectively kills these other apps, some of which are VC funded startups.

Something I always say… every business has competition.  If you don’t have competition, maybe there is no market for it.  If there is a market, the competition is the status quo.  As basic microeconomics theory states, as firms see a profit in a given field, they will enter that field until no more economic profit exists.  This is a simple case of this.  Did these startups not expect facebook to enter the instant messenging realm?  I guess so.

A blog war is brewing and know one knows who the winner might be.  Six Apart’s Anil Dash wrote a blog post encouraging users to switch to their platform instead of upgrading to the latest WordPress.  WordPress founder Matt Mullenweg quickly shot back calling them desperate and dirty.

While the battle heats up, from an outsider’s perspective this looks like nothing but immaturity and a lack of common business sense.  I understand a lot of startups are run by young entrepreneurs, but have some aptitude of how to run a business.  You don’t hastily shoot back at your competition right away saying the first thing that comes to your mind.  You let your public relations and marketing people strategically decide how to counteract an attack.

Having a typing war on the internet is not a sign of a mature business or founder who knows how to run a company.  I mean come on, I used to have internet chat wars on AOL with friends when I was in 6th grade.  Unfortunately, this isn’t 6th grade anymore and these companies that are receiving tens of millions of dollars in venture capital are acting like children.  Where are their board members, advisors, and VC’s to police them?

Recently there has been a lot of buzz about a blog post by Jason Calacanis about how to hire the right people and conserve money in your startup. I agree with most of the points in his post (some I don’t are the $5000 espresso machine and $600 chairs). You can read the post here: http://www.calacanis.com/2008/03/07/how-to-save-money-running-a-startup-17-really-good-tips/

The comments to the post attacked Jason on every front. An article on TechCrunch even fired with a post called “Calacanis Fires People Who Have a Life” (see it here: http://www.techcrunch.com/2008/03/07/calacanis-fires-people-who-have-a-life/)

Jason responded with a blog post “Can you have a life and work at a startup company” (post here: http://www.calacanis.com/2008/03/07/can-you-have-a-life-and-work-at-a-startup-company/)

All of this was followed by Michael Arrington more or less taking Jason’s side in his post on TechCrunch (http://www.techcrunch.com/2008/03/08/startups-must-hire-the-right-people-and-watch-every-penny/)

Very interesting debate. I highly suggest you read the posts and come to a conclusion on your thoughts. I know what I believe and maybe I’ll save that for a future post.

A new site has launched this weekend called First 30 Days.  The website is intended to provide self-help advice and information for people going through life changes.  For instance, the site will help you get through the first 30 days of becoming pregnant, a breakup, taking a new job, starting a business, etc…

The site is founded by Ariane de Bonvoisin, a former corporate strategist at Bertelsmann, Sony, and Time Warner.  Seed funding was provided by former Time Warner CEO Dick Parsons and a $5 million series A just closed with Parsons, Hearts Corporation and the New York City Investment Fund.

What’s appealing to me is that the site integrates the massive self-help industry in a web 2.0 atmosphere.  The site plans on launching two viral widgets, one a facebook app which provides stats on how many people are going through a similiar situation as you and the other is a widget that delivers inspirational advice to people’s personal sites.

Overall, I think the potential is huge.  One thing I thought was funny (and shown on TechCrunch) was two lists the site has posted.  One of the top five lists is for Switching to a Mac and the other is for Improving Your Sex Life.  Can you guess which one is which?

Modu made big headlines today as they revealed their product, which has been top secret for months!  What’s the product you are asking?  It is actually really cool.  Imagine customizing your cell phone however you want.  Adding whatever features you want.  Changing the cover with the season, or adding a new music player.

The product is a tiny modular cell phone.  Smaller than an iPod Nano, but still has an LCD screen.  The Modu module comes with basic cell features to make calls, but users slip on “jackets” to give it the look, feel and function they want.  Three cell carriers have agreed to sell it in Israel, Italy and Russia.  No providers in the U.S. have been approchaed yet by the Israeli startup.

To me it appears to be a great feature, allowing people to personalize their cell phone even more.  Providers like the idea too.  Instead of coming to their store every two years when you renew their contract, you can now come in every three months to get a new jacket.

Modu founder Dov Moran talks about the company and the concept:

I recently attended a panel discussion called Meet the Angels.  The panel included four angel investors from different angel networks who spoke about why they invest, what they look for and provided advice on how to pitch your business.  We also saw recent videotaped presentations from entrepreneurs to angel networks, and the presentations were critiqued.  I thought I would provide some advice for those of you who are currently or may in the future look to raise money from angel investors.

Key Factors to Establish Credibility with Angel Investors

1. When presenting, state the problem as early in the presentation as possible, and make sure your presentation includes the solution and execution.  Address how money will be made and a specific sales strategy.  I can’t stress enough that the sales strategy should be specific.
2. You must have the right team in place.  If you don’t have the right team, you should be in the process of getting the right people on board.  Surrounding yourself with other successful businesspeople boosts your credibility enormously.
3. Show a readiness to introduce the product or service to the market.  You can’t be years away from launching.
4. Sell both the idea and the team.  Be excited!  From watching several presentations, I can tell you first hand it makes a huge difference if the entrepreneurs are excited about the business!
5. Have skin in the game.  A definite must.  The entrepreneur has to be assuming risk with the venture.
6. Present a realistic view of the market.  You should know your market intimately.  Narrowly define your target market.  A target market is NOT 20+ year old males, it should include precise demographic and psychographic information.  Be specific.  Understand there are always competitors.  If there aren’t competitors, maybe there is no market.  If there is a problem and truely no competitors, then the status quo is your competitor and use that as a comparable.
7. Numbers always change, but having a well-thought out financial plan is essential.  And if you are already bringing in revenue, show the hard numbers.  Don’t count customers you don’t already have.
8. Evaluate potential exit strategies beyond the most common approaches.  Not every company gets bought out by a Google or Yahoo.  There are hundreds of thousands of businesses that look to grow through acquisitions.  Investors need to know they are getting a good ROI.  Most angels will look for 5X to 10X.  Some won’t even consider your business if you don’t immediately show a 10X return on exit.
9. Raising capital from angels is a learning process.  If an angel or network doesn’t like your business at first, don’t give up.  Keep working at it and show progression.  If you could come back six months later and show you made X development and gained Y additional customers, then it will show your determination.  If the angels still say no, keep working at it, show more progress and come back.  Showing progress in meeting milestones is a big factor that investors look for.
10. Know your needs, your audience and their requirements.  If you need a small amount of capital, consider individual angels, they will move faster than networks.  If you are approaching networks, make sure they have knowledge or interest in your field.  If you have a tech business, don’t approach a life sciences network.  Get an introduction to an angel before asking for money.  If you can get an individual angel to champion your business to the network, it will flow more smoothly.