Chimps, Chumps and Tire-Kickers
Developers are to IT as drunk girls are to a night club. I was at one of the StartUp MeetUps held here in Victoria BC. When I announced myself as “a web developer,” the person I was talking to said, “Watch out in here, people will try to talk you into working on their thing.”
There are three types of people in dysfunctional start-ups: chimps, chumps and tire kickers.
Chimps. Many people don’t get the dynamics of a start-up figured out. They go out there and start selling their idea without a business, without a solid name and without a plan to execute. I liken this to the Seinfeld episode where Kramer goes to the store to refund the pants he was wearing. If it fails, what’s the point. If it succeeds, they have a problem. Chimps are bad because they can caper and present a lot of charisma. If you’re tied to a chimp and the bad planning sends your idea down in flames, you have to wear that.
Chumps. Some people are willing to work hard. At the end of it all, they get nothing. They hand over authority to others who in turn make lots of money; or the venture can stall out because others have no investment to lose. So many times have I heard, “I have this great idea and I’m looking for a partner who is able to do the programming.” Chumps are the suckers who answer those calls. I have been a chump, and I can say: Don’t be a chump.
Tire-Kickers. I have been to enough sessions with angel investors to recognize a pattern: our town has a lot of tire kickers. Tire kickers show up at these pitch sessions, listen to pitches then hand out money to the worthy ideas. If they invest their money, it’s gone-- locked into some start-up. If they don’t invest, they can stay in the room with the other investors. Outside of pitch sessions, you will find vast populations of tire kickers looking to snare prize chumps. Tire kickers will let someone else sink in the risk. They will play it safe and wait-- they will usually be full of opinions, but they will do little to no hands-on work. If it pays off, they’re there to collect the windfall. If it fails, they have lost comparatively little time. Watch out for tire kickers.
Ideas are easy to come by. Friends of mine will meet me for coffee and say, “I got this great idea!” Sometimes, it will be my turn to say, “I have this great idea.” For a few years, when I dreamed up a dandy idea, I would search for it online and if the ideal domain was available, I would register it. Cheryl and I have a phrase: “shiny!” It’s code for “this has my fascination for a few hours.” I used to run down these cool ideas for a day or two. Sometimes, I would do some coding to build the basics of a prototype. Now, I am more prone to forego all of the research, domain registration and prototyping. I will just write an email with “shiny” in the subject line and call it good.
Business ideas are so easy that I usually drop their value to almost nothing. Business ideas need:
- Drop testing. Is the idea sturdy?
- Novelty. Novelty is nice, but not necessary. In fact, novelty is almost a problem, not a lure.
- Talent. Can people execute the minutiae? Programmers, designers, business development, marketing, management, financials,
- Commitment. What is everyone bringing to the table? Will they define their commitment? Will they stick it out?
A few Novembers ago, I thought: “Christmas is just around the corner. Hot-Or-Not is cool. Why not build a Hot-Or-Not for cool Christmas Trees?” I spent 30 minutes looking for Hot-Or-Not website clones. I thought about ways to market it. Then I thought, “What’s at RateMyChristmasTree.com?” -- it turns out that they so wholly executed my idea that I was dumbfounded. Total synchronicity. That’s an idea of a plan that totally wouldn’t survive in the wild were I to develop it. It’s done and there’s likely no room for another Christmas tree rating site-- it’s too narrow a niche.
Ideas need to be batted around to see if they can theoretically work. Classically, this is what is called “market research.” Can the product find users in the marketplace? Can the product generate revenue? We had one site called, “FrugalVictoria.com” -- it was great, but it had a core problem: it marketed to frugal people who were not keen on spending money. That made them a hard to sell to market. A few years ago, I was hired by a company to develop a thing to improve the user experience on every site it was installed on. It was so nebulous that there seemed no way to make it come into play.
Novelty is a double-edged sword. People say, “you have to be unique” but I have moved all the way across the spectrum from that standpoint to the polar opposite. If you don’t have competitors, it’s not a well worth drinking at. Businesses can come at something with a unique take. They may take a trusty tool and use it in a new way or in a new field. I am past pioneering. My mindset is that the world has been mapped. You may not know which spider hole is hiding someone, but you know where the oceans are. I take a post-modern look at how technology can serve a purpose: it’s about the innovative application; it’s about good marketing; it’s about doing it right. Whenever people say, “There will never be another Facebook” I scoff. Yahoo was dominant until Google caught on. MySpace had its niche before Facebook showed up. If something works, someone else can make it work better. If someone comes to me with a never-before-tried idea, I am immediately skeptical.
Even if your idea is a near copy of a successful product or service, who cares? Facebook is runaway popular outside of China. Inside of China, Baidu serves hundreds of millions of users with a similar service. There are so many users out there (well over a billion and that number is going to climb to meet the population size in a generation). It’s not about being the dominant player. It’s about getting enough users to succeed. I measure success as the money/time-in to the money/time-out ratio. If your total product cost is $50,000 and the product earns $100,000, that’s a win. Your product costing has to be sober. It has to include hard costs (cash) and labour. I took on one project wherein I developed it for 500+ hours. That’s 500 hrs. of time not spent being a gun-for-hire. Likewise, waiting for the application to take off, has a cost. I either have to hold on to bandwidth (ie. time and attention) that I can turn over to the business when/if it takes off, or I use that time with the bizarro hope that the product doesn’t take off. Until that product earns more than (my rate X 500 hrs.) I consider it, “in the hole.” If your product is entirely novel, you don’t have a way to chart its potential for success-- there’s no yard stick so you have to do solid market research to get an idea of market size and the economics involved.
If your only talent is programming, you have a program in the making, not a business in the making. Everyone who is involved in a hands-on way in your start-up is putting in sweat equity. Talent can be manifested as physical artifacts: emails to read, contracts that are signed, code that runs, designs that pop. Talented people will get involved in a hands-on way and that's what it takes to succeed. Sometimes people will just walk in opinions and expectations. Everyone has an opinion. Opinions are worth as much as ideas. There are several roles that a start-up needs to fill:
Programmer. It's a neat idea until coding makes it real. You want the wheels to turn and the dashboard to work. That’s where a programmer comes in. They will get all of the functionality to work. Either you need a programmer who is a jack-of-all-trades (system architect, developer, database architect, etc.) or you need to consider specialized people early on. Some developers don’t rationalize what the code does to a server when in production-- that’s a sysadmin’s job. I always consider “what’s this going to do when it goes live.” The code compiles, but it doesn’t succeed if it knocks down the server because of server load. That creates a lot of tension when the sysadmin is stingy with resources and the proponent wants to break the laws of physics.
Designer. Linux has been around for years. It’s ugly and prone to alienate most people who look at it. If that pig had some lipstick, it could be a competitor to Windows. The Mac OS and Android came to the table with slick designs and accomplished exactly that. A great product with a lousy user interface is worse than useless. A product needs a designer’s touch to engage with the public. That designer can permeate the project: the product’s look/feel, the marketing, the mindset of the product and the market segment it attracts.
Business Development. It’s a business you’re developing! Someone has to do the market research, the budgeting and the forecasting. They have to be unafraid when asked to make a business plan. Heck: there’s business plan software, so it’s a low barrier skill. Business development talent will be able to assess the market and potentially course correct the product. Course correction is very different from being a ‘yes’ man to all comers. I have encountered business development people who made the product into whatever the funder or client wanted to hear. This guy would bring me into sales meetings, he said this web site add-on was good for digital TV boxes and then get me to say, ‘yes,’ to the client and then make me hold true to my pledge. In that situation, a developer has to cave or rebel. I tried to spin it, but I really wanted to hang up. It was little coincidence that I quit three weeks later.
A business development person needs to come to some agreement with all parties. A developer’s code works or it doesn’t. A designer’s work looks pretty or pretty awful. A good business development will have no problem committing their deliverables to paper: what tasks will they accomplish, what their goals are and what dates they intend to deliver those goals:
- market research
- sales forecasting
- business planning
- business registration
- end-user feedback
There is nothing wrong with your business development person not selling; or not taking on all of the tasks. These elements land on their plate, if they can delegate to another person, that is terrific. The tasks have to be accomplished and it needs that level of focus. You can't ignore the effort of a business development person, but it has to be more than talk. There has to be results.
Other jobs. The org chart of many companies show what a full-fledged business looks like: HR, secretarial, finance, sales, testing, shipping, etc.. Those are all important roles. As soon as there is budget capacity and a business case, they are all needed roles to fulfill. The three roles I mentioned (developer, designer, business dev) are critical for an IT start-up: something needs to work; something needs to be attractive enough to draw in an audience; and someone needs to make sure the business works like a business (ie. a cash engine that takes in small dollars and pumps out large dollars).
One thing will derail my collaborative projects: a disparity of commitment. When I get on board, it is usually in the role of developer. I know how to execute the business development steps. I have written business plans. I have done sales. I have done marketing. But when I get into a project, I have an expectation of the business development role. When I am in that business development role, my expectation upon myself is iron clad. When someone else is in that role, I am more flexible, but I still expect the hard waypoints to be met: sales and business readiness. I have gotten into hot water by leaving the expectations undefined. We can talk, we can agree, but there is no substitute for “Get it in writing.” This piece is about start-ups in general. It comes from my default lens: that of a developer. As a developer, I am always committed to getting the lights to turn on. Designers will be pretty apparent in their output. Business development people are harder to nail down. Lots of market research can be sucked down from Wikipedia and made to look like information. Excellent market research may only look like a few pages. Results comes from quality; and quality sometimes comes in small packages. If you have a nose for business development, you may be able to smell that something is not right. Here are some key things to get nailed down:
- Who owns what? I was presented with an idea last year. The proponent wanted me on board for sweat equity, in exchange, I would develop the service for 30% of the company. He was a very capable marketer; and he had the idea, so it seemed reasonable. He was also a tire kicker. Tire kickers are important to suss out. They get into business discussions but they go cold when money outlay is mentioned. The proponent promised me the 30% and when I pressed him for the paperwork to back that up (incorporation, share certificates, etc.), the lawyer was working on still. An incorporation costs $350. Most law offices will do it all up for $750. A developer who brings sweat equity to the table at a heavily discounted $50/hr. will get to the $750 mark inside of 15 hours. If the business development person cannot work out an incorporation and issue shares, that’s a big red flag. If there’s no paperwork to back-up who owns what, you own nothing.
- Who is writing the business plan? When will it be due for internal review, peer review and then shown to friendly investors and partners? Where are the numbers coming from?
- If they are behind drumming up investment, what does that look like? Is the company configured in such a way that should investment be sought, that it can be taken in?
- What will the selling cycle look like? How will the sales happen (in-person selling, on an online marketplace, to a niche audience, etc.)?
- What are the sales targets? Don't be a douche to the sales person on this one. The sales targets kick in after the product is ready to go to market. And, the product sales depend on the audience and the quality of the product. If people don’t like the product, that’s not the fault of the sales people. That said, if people love the product, it's all systems go! The target is a target not a minimum or a maximum. If you can't hit the minimum, review what's out of whack. If you hit the target, keep selling!
- How is revenue divided? With two products I built, I went with a 25% commission. Maybe that’s heavy; or not heavy enough. Online marketplaces sometimes take upwards of 40% of the gross price. I am okay making 60% of $1,000,000 instead of 90% of a $1,000. When the revenue is divided, there always has to be a generous amount left for sundries (taxes, expenses, fees, dividends,etc.).
To define these and other questions, a contract would be great, likewise a Memorandum of Understanding (MOU). But really, an email where all parties pledge what they can do is the minimum required. If you ask for deliverables, as a developer you must be prepared to offer deliverables that you will meet. All parties must know what is to come and what the expectations are. I had one business guy want me to build this massive system as my part of the sweat equity. He would be waiting to catch the money if I finished the development-- he brought nothing else to the party.
A good start-up idea needs no chimps, no chumps and no tire kickers. Ideas need to be pragmatically planned out. All of the players need to come in with an understanding of the roles. People who come in need to commit in some practical way: effort, cash and often both. Those contributions need to be commitments. Those commitments need to be a teepee of pledges. If they don't follow through, press them to follow through. As soon as it looks like they're not delivering, take your tent pole and go home. A successful project needs active participants or the project will not succeed.Here's a handy road map to getting your start-up started.
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