Guide for Launching a Startup

It is better to get the best person for 2 hours than a mediocre person for 20 hours

There is a saying among software engineering managers that the best programmers are 10 times more productive than an average one. Building software is a high leverage activity, for example, a little bit of improvement for the speed of the website, may yield a lot more purchases because the site responds quickly and you can breeze through the shopping process.

A lot of the jobs surrounding a startup are also high leverage ones. Creating a blog post that becomes viral because it is just entertaining enough to spread virally, the return of that 500 words may be a 100 times what a run-of-the-mill blog post would be.

Essentially, instead of trying to fill roles that need to be done and evenly allocate money to the different roles, you should look for exceptional people and compensate them disproportionately to see if they can create something that has 10 times more leverage than a similar competently executed work. Regrettably the marketplace is full of average people, but keep your eyes open for great talents and be ready to sacrifice coverage of roles for a few of these exceptional results.

Once the bar has been raised, and the gems created, you can push average people to emulate and do better work.

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Build the smallest possible team you can get away with

The greatest enemy to productivity is communication overhead. The success of your startup depends on what you produce and not who produced it. The most valuable players in a startup are what we call unicorns. They are the rare group that are simultaneously two things. They can do two roles or more—a marketer who can build their own web page, a designer who can write very well, or a salesperson with a law degree. You want to condense the skill sets to the fewest number of people to cover all the needs of your organization.

To reduce the communication overhead, you should carefully design and delegate responsibilities, so projects don't have a lot of dependencies on getting everyone on the same page. Agree on a philosophy for your company that is consistently applied against projects to judge their success or failures. The best projects happen when you pick the right person to do the work, and the right person to oversee it. Finding alignment between people and their talents is arguably more important than any process of status checks or formal reviews.

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Partner with people who need access to technology

Sometimes startups want to build partnerships with other startups because they feel like the recognizable names of similarly hip ventures will improve their standings within their hierarchy or respectability. The truth is the respectability does not translate to customers and acquiring customers is the real measure of success in turning your startup into a real business.

Instead of pursuing partnerships within the echo chamber of technology or even social media, try to offer your startup to "old world" organizations that may not have the same access to technology and the new markets. Offer to be their partner to provide a conduit between their existing base of customers and the new tools and opportunities that your business has to offer. Winning these more traditional partnerships will allow you to show traction and give you a compelling story about transformation.

If you can bring a part of the incumbent market into your vision, then you can certainly expand on that and be a leader in bringing together the new entrants to the market as well. Devote time to explore these partnerships with less sexy companies—they may just be the hidden gem that gets your ball rolling.

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Establish a fair employee stock compensation structure by being formulaic

The founders' collaboration agreement should have been decided upon at an early stage of structuring the company. It is important to include in the founders' shares a vesting agreement so that people have the incentive and expectation to contribute and carry the load of the new venture for at least a few years.

Beyond the pool of founder shares, you should establish a very formulaic strategy of allocating stock to employees who join the company after the founders. There are various literature online that describes the model to fairly distribute equity but the basic idea is the same—employees that join around the same time get an equal slice of the stock that is allocated for that year. Every year that goes by, you get exponentially smaller slices. This encourages people to get involved early and rewards them disproportionately with a potential upside. The exact number of shares and percentage in the formula can be tweaked and you can find online calculators and modelings to help you arrive at a fair number. The key is that equity compensation should never be varied by perceived value of the individual because it is di"cult to get that right before people can show what they can do. Thus it is best to allocate them depending on how early or how late they join the venture. You can always issue additional equity reward as people step up and fill in greater roles and non-performers are possibly going to leave some unvested shares on the table.

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Game the real estate market to get the workspaces you need

In the age of web products and apps, it doesn't matter where you build your product. Many successful startups started in garages and out of people's homes. Converting a founder's residence into a temporary workspace is often the most cost-effective working option at the early stage of development. It is important that everyone is comfortable while working but be sure to keep boundaries between personal and shared space. If this arrangement isn't possible, co-working space is a more expensive alternative.

As your space needs grow beyond what a private residence can accommodate, subletting office space from companies that has excess space is preferable over getting startup incubator space that is much more dense and sometimes noisy. On the other hand, the coworking or incubator space does have perks of shared conference space that would be important for meetings with your boards and key customers. When looking for office space to sublet, explore your personal network. Sometimes companies that are not doing well are more likely to share their unused space.

Commercial real estate agents may be willing to help you game the system and get some unusual office space in the near term. They are hoping when your company needs a larger space in the future, they are in for a large commission when you sign your first big office lease.

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Look for trust and honesty in your Board of Advisors

Do not give equity to people only because they are a big name. A seat on your Board of Advisors should really be a reward mechanism for non-employees that have contributed generously throughout the formation process of your company and your product. They may be a friend that has been doing work for free, a partner that has been giving you advice, or someone that has made key introductions. In each case they have interacted with you and your business and have a deep understanding of it.

Unlike your Board of Directors, these advisors don't provide oversight as your superiors. Instead, they provide suggestions as a peer. They should be the people you respect and trust for their brutally honest feedback.

There are many ways to find people who can help or advise you along the way. Advisoray hopes to provide you with tools to make these connections. When these relationships mature and your company starts to bear fruit, the small equity reward that is the typical share is one of the sweetest gifts you can give to someone who has earned it. We hope you find just the right mix in your Board of Advisors that can give you an edge in this journey that is your startup.

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