On Start Ups, Developers and Equity

I skimmed a post on FlexCoders today that posed the question "If you had the chance to start up a RIA development company, How would you go about acquiring amazing developers without start up capital?". Being an entrepreneur and also being a developer, I wanted to put some thoughts out there. Keep in mind these thoughts are not directed at the original poster, but to the community at large who is constantly offered interesting and creatively worded business propositions by the non-development community.

On Entrepreneurs

Entrepreneurs are an interesting breed. They function much like a proud parent of a reasonably untalented child. I don't mean this to offend anyone, but I do want to draw a metaphor. Have you ever been forced to sit through a child singing a very clumsy, off-key, screeching song, only to have the proud parents and prouder grandparents beam at the end and ask you what you thought? Parents are often blinded by their love and their involvement in their children and often value the allure of the child (and the metaphorical singing) much more than others with less involvement. This is a natural phenomenon, and I believe vital to the continuance of the human race.

Entrepreneurs often have the same blinded fascination and love for their own business ideas. They categorically believe in the success of their idea and will move heaven and earth to see the idea come to fruition. This often means sacrificing all else, family, social relationships, outside hobbies, etc, to further the idea of the business.

Entrepreneurs often consider their business to also be their principle hobby, effortlessly spending nights and weekends developing the idea and the business around the idea. Business is fun, for them.

Another noteworthy thing about entrepreneurs is they are perpetually short of funds, time and talent to carry out these ideas. See, ideas are cheap and any visionary can have several really good ideas per day. Ideas are easy to think of, and internal optimism and intuition can cover any potentially glaring holes.

On Ideas

Reality is, ideas actually do not matter. What matters is execution of those ideas. Actually, execution takes a back seat to getting paid for the use of the idea. Getting a check from a customer or a client is the highest form of flattery for an idea and often requires a series of efforts from a multi-disciplinary team all working in the same direction. The end reward for the entrepreneur is successful fruition of their idea.

Let's look at software for a moment. Software requires development. Selling software requires marketing, sales and legal expertise. Running a software business requires people skills, management expertise and financial acumen. Oh, and it requires an idea, but we already discussed the worthiness of ideas, didn't we.

In a start up company, the entrepreneur will probably fulfill a number of those roles. This is key as it helps the entrepreneur marshal the scant resources available to bring the idea through the phases leading to a customer writing a check. Often, the entrepreneur is not a developer, but knows he/she needs developers and developers are somewhat costly in the grand scheme of things. So the wily entrepreneur seeks to procure developers for as little expense as possible. An economy of resources is a good thing.

However, I submit to you that the original question prompting this article is near a impossibility. The question was "If you had the chance to start up a RIA development company, How would you go about acquiring amazing developers without start up capital?"

Software developers have ideas too. Many of them are creative problem solvers and gain tremendous business experience by writing software that solves real problems in business. Most of them enjoy their work and often put in extra hours working on side projects to entertain themselves. So wouldn't it seem logical to procure a few good software developers that will work for free while the business got started?

As a software developer, my time is money. If I am going to divert my attention from a steady paying job, and away from my side interests, money is going to be involved.

I don't mean future money, like "Instead of paying you, we'll give you a trainload of stock options" but today money. Today money is money that I can go to the bank today and receive the rectangular green yuppie food stamps I'm accustomed to using for groceries and gas.

On Working With No Pay and Open Source

I often work on open source software for which I receive no pay. Is this the same as working in a start up for no pay? I submit there is at least one vital difference. In open source software, there is no money. Thus there is no schedule. We may publish a schedule of our intent, and are free to move that schedule as priorities change.

In a start-up business, the prospective client or customer controls the schedule. If you tell a prospect a demo version will be ready on Friday, you must meet your deadline. Missed deadlines communicate untrustworthiness and unreliability to your prospects. This is anti-cool and usually means less checks. So while I'm perfectly happy to spend inordinate amounts of unpaid time writing software, I'm not willing to have my schedule controlled by those not paying for the right to set my priorities. I'd bet most competent developers feel similarly.

On Evil Investors and Entrepreneurs

Most successful entrepreneurs have been through a money-raising event, like a bank loan or venture capital. These events are usually painful for the entrepreneur because the entrepreneur is not in control and has to listen to the unvarnished opinion of sophisticated investors who deal with hundreds of business ideas all the time and aren't blinded by the vision or the visionary.

I learned everything I know about entrepreneurship from my Dad, a serial entrepreneur. His last business was a contracting company. I would never be able to imagine my Dad offering stock options or deferred payments to his workforce, in lieu of payment. If he did, none of them would show up for work, and I wouldn't blame them for it.

As an entrepreneur, I want to instill the highest confidence in my prospective clients and customers, thus, I demand the right to set priorities and schedules of any team member in my group. For that right, I pay them. Since I pay them, they consistently deliver over and above expectations. This makes us look good to our prospects and gives me confidence to reach across the desk and shake hands to close the deal.

On Bootstrapping Thoughts

So, is it possible to assemble a team without start up money? I'd say there are some ways to make it work, but only for a little while.

1) Cult of Personality. If you have a very strong community reputation as a smart person who gets things done, you can probably get some reasonably talented people to drink your kool-aid for a little while. Make sure to deliver on your promises. Missed promises=diminishing team.

2) Project Work. If your business is service related, land a big project as the way to start up the company. Developers might accept a lower rate on the first contract if promised a higher rate on future contracts. This is certainly preferable to no pay at all.

3) Get funding. Why is it you have no funding? Financial Investors are trained professionals and want to invest in businesses to earn a profit. They MUST earn a profit so if your idea has appeal and your team is competant, you can usually get some funding.

4) Grants. There are a multitude of Entrepreneurial grants and programs available. Many of these have a simple application consisting of a few pages. Working on the application will likely help you refine your idea so even if you don't get the grant, you'll get something out of it.

5) Business groups. Find business groups, like Business Networking International or the Council for Entrepreneurial Development. They can often help you find interns which might help you get over the hump.

To the entrepreneurs out there, good luck to all of you. I know the road is interesting, challenging and rewarding like no other.

-Dan Wilson

P.S. To the reader: What sorts of opportunities have you been presented with? I invite you to share your stories and ideas in the comments.

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8/25/09 12:55 PM # Posted By Joshua Cyr

I have been involved with numerous pitches to Angel investors and VCs. While none have yet to result in $ a few times they resulted in changes for the positive for our business.

Doing the pitches requires an interesting thought process in the preparation. In addition the investors as great questions that both help the entrepreneur better think of their business in the broader world, but also help focus on directions that may result in better revenue/sales, etc. Often when we are insulated in our company working to move it forward we make decisions based on emotion and the past. Getting feedback from outsiders is a great way to clear away some of those hindrances and see the road ahead much more clearly.

One of my favorite events last year was an angel/vc 6 minute dating event in NH. 30 or so startup's signed up, had a 5 minute pitch to a group, got feedback, then bam off to the next group. Really fun, met some good people and got some great feedback.

Also, if you haven't already check out the show Shark Tank. It is basically a hand full of entrepreneurs pitching half a dozen investors on their idea. Investors ask some questions, tell them they are crazy, or make an offer on how they would invest. Some great dialog, ideas and examples of good and bad decisions in each episode.

As a web shop, we have been offered a stake in businesses in exchange for not charging for our work. More then a few times. Not once would that have been a good choice. I think that scenario in all its forms is a big gamble.

8/25/09 11:08 PM # Posted By Brad Wood

Heh-- I have a friend who is one of those so-called visionaries. I think he dreams up 2 to 3 "ideas" a week and argues passionately that they could each make him millions. Of course he always wants me to help since he has no money and can't really program :)

8/26/09 4:47 AM # Posted By bill shelton

Great post, Dan.

It's nice to see folks thinking outside the realm of code and explore how it's applied. I agree with the "faith without works" approach, however, I speculate that both the idea and it's execution are proportionately important. A bad idea with good execution would likely lead to the same result as a good idea with bad execution.

"How would you go about acquiring amazing developers without start up capital?" As a preliminary answer, I would ask this, "What about a startup would attract amazing developers?"

surf's up,

8/27/09 1:03 AM # Posted By Chris Hayes

I'm smack in the middle of development process on my first true startup. I've run a relatively successful consulting firm in the past and I've grown tired of my fortunes being dictated by another person's whim; as is the case working for somebody else. IMHO the only way to make it into the upper echelon of success in business is to strike out on one's own. But the crux here is product, without a quality product the business goes nowhere. If you can build something truly great often times that with just a modicum of promotion can really propel a product. But Dan is absolutely right in many of his regards, and I stress the very same thing as him implementation is key.

8/27/09 10:55 AM # Posted By Zach

I think another inherent rub between entrepreneurs and developers that you're hitting on is that entrepreneurs are typically risk tolerant. If an idea doesn't work out they move on to the next. Software developers are very risk intolerant - they don't like variability - someone clicks a button and something happens.

Just to clarify something to - I don't see those poor souls with one lifelong idea that sell their house, car, kids, and max their credit cards as entrepreneurs - they are typical people with a single vision they can't shake. Typical entrepreneurs I know will simply walk away if it just isn't working - they are married to the money not the idea.

8/31/09 7:05 PM # Posted By Dan Parker

Great post, Dan. I'm a programmer and an entrepreneur. My partner and I have more good ideas than I have hours to be able to put toward programming. I've tried recruiting fellow developers for the hope of future rewards, but it makes it hard to hold them to any real deliverables since they are basically working for free.

I agree with your assessment...in the end, cash money in a developer's hand is a better motivator than the dream of a future cash cow. Hey, that just leaves more dinero for my partner and me when that cash cow comes in :-) I'll let you know when I write my first blog from the beach..thanks for the post!

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