Paul Graham’s 13 Sentences

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Paul Graham is one of my favorite writers right now.  Here’s his bio from his website:

Paul Graham is an essayist, programmer, and programming language designer. In 1995 he developed with Robert Morris the first web-based application, Viaweb, which was acquired by Yahoo in 1998. In 2002 he described a simple statistical spam filter that inspired a new generation of filters. He’s currently working on a new programming language called Arc, a new book on startups, and is one of the partners in Y Combinator.

Y Combinator is a great idea that I wish would be replicated in other places.  I would love to see a similar program at the University of Wisconsin or in Madison.  Y Combinator:
[M]ake[s] small investments (rarely more than $20,000) in return for small stakes in the companies we fund (usually 2-10%).

All venture investors supply some combination of money and help. In our case the money is by far the smaller component. In fact, many of the startups we fund don’t need the money. We think of the money we invest as more like financial aid in college: it’s so people who do need the money can pay their living expenses while Y Combinator is happening.

For the last few years, he has written essays on life, business, startups, investing, education and many other interesting topics.  Some of my favorites, which I highly recommend along with the rest of his work, are After Credentials, Revenge of the Nerds, Why Nerds are Unpopular, How to Start a Startup and Why Startups Condense in America.

His recent essay titled Thirteen Sentences is a guide to what he believes are the thirteen most important things a startup should know about as it progresses.  His list is similar to what I tried to do for the Entrepreneur Deli last year in my post about the lessons I learned running ExchangeHut, but much better.
Here are a few of my favorite and what I believe are his most important pieces of advice:

1. Pick good cofounders.

Cofounders are for a startup what location is for real estate. You can change anything about a house except where it is. In a startup you can change your idea easily, but changing your cofounders is hard. [1] And the success of a startup is almost always a function of its founders.

2. Launch fast.

The reason to launch fast is not so much that it’s critical to get your product to market early, but that you haven’t really started working on it till you’ve launched. Launching teaches you what you should have been building. Till you know that you’re wasting your time. So the main value of whatever you launch with is as a pretext for engaging users.

5. Better to make a few users love you than a lot ambivalent.

Ideally you want to make large numbers of users love you, but you can’t expect to hit that right away. Initially you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It’s easier to expand userwise than satisfactionwise. And perhaps more importantly, it’s harder to lie to yourself. If you think you’re 85% of the way to a great product, how do you know it’s not 70%? Or 10%? Whereas it’s easy to know how many users you have.

8. Spend little.

I can’t emphasize how important it is for a startup to be cheap. Most startups fail before they make something people want, and the most common form of failure is running out of money. So being cheap is (almost) interchangeable with iterating rapidly. [4] But it’s more than that. A culture of cheapness keeps companies young in something like the way exercise keeps people young.

9. Get ramen profitable.

“Ramen profitable” means a startup makes just enough to pay the founders’ living expenses. It’s not rapid prototyping for business models (though it can be), but more a way of hacking the investment process. Once you cross over into ramen profitable, it completely changes your relationship with investors. It’s also great for morale.

Check out his essays at  They are worth the read if you are interested in startups, education or creativity.

Facebook Must Be In Trouble

I recently blogged about the Facebook ads called “Get Your Obama Check.”  Those appear to be gone already, but they have been replaced by new ones with a similar message.  These ads are called “Ball out of control at 23”  “I make more than my dad” “Make $169 between classes” and a bunch of others.  They all feature really nice cars or just wads of cash.  Here are a few of the captions from the ads:

Make insane amounts of cash during class. Stop being broke.
I know its not fair.  Hes been working his whole life.  Its easy.
You can afford this car.  Its easy.
Stop being lazy.  Google makes you $5000 per month.
Again, they all link to the same “blog” complete with fake replies.  They all claim they only want $1 for delivery of their “info packet.”
Facebook must be really, really, really desperate for revenue if they are accepting this type of ad.  Facebook must not be able to get any reputable company to pay for CPM ads because, by now, everyone knows about their abysmal click through rates and the CPCs are pretty high for most college campuses.  That’s another tipoff that these sites must be scams or promise more than they deliver.  If they can afford to the CPC necessary to get play on the University of Wisconsin network, they must be paying at a bare minimum $.10 CPC.  Most likely its higher, closer to $.50, as that’s what I have paid in the past.
I understand that revenue is revenue, no matter the source, but Facebook should not be known for sending its customers to shady, get rich quick schemes.  Even if they are legal, I would not want to be known as a company to be dealing with these types of companies.  I wouldn’t want to direct my customers to these sites.
It will be interesting to see if these ads will generate a backlash eventually.  I’m thinking it will, as these types of ads bring Facebook into the MySpace realm, a move that Facebook has been trying to fight since its beginnings.

This is why we should have let the banks fail

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Steven Pearlstein writes in today’s Washington Post about how the President of one of the smaller banks used some entrepreneurial skills to put some TARP money to good use.

Kim Price, the President of Citizen’s South Bank, located across the river in Charlotte from Bank of American and Wachovia, did not need TARP money because his bank was failing.  In fact, his bank was conservative and planned for a $3 million loss this year, but ended up with a $3 million profit.  Here’s what he did:

Like many healthy banks, Citizens late last year figured it was in for a tough couple of years with the national recession and the continued turmoil in financial services, which anchors the regional economy. So it applied and won $20.5 million in bailout funds from the Treasury Department on the usual terms requiring a 5 percent annual dividend payment to the government. A few weeks ago, while reading a newspaper article, Price came up with an ingenious plan for how to use it.

The article was about the reluctance of people to buy a house in the current market, and what kinds of incentives had been used successfully by builders and bankers to get them to close a deal. Two stood out: lower rates and the waiving of closing costs. And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?

Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs. So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.

Its great to see smaller banks succeeding while the big ones are failing.  Its unfortunate that an executive like Price who makes under $500,000 is not rewarded more for his success.  I would love to see someone with his talents have the ability to rise up in the banking industry during the current upheaval.  Instead, by bailing out the big banks, the same execs who got us into this mess continue to run their companies, huge salaries and all.  It’s crazy to me.  I understand that rationale behind the bailouts, but one would think at a bare minimum, the money could have been used in more interesting and worthwhile ways.

Pearlstein ends with this:

So here’s a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?

Besides for the subtle dig at Appalachian State, which I would assume he would use for any banker who has a degree from any non-ivy, I would love to hear how these CEOs would respond.

The Stimulus and Health Care: A Bad Idea

Betsy McCaughey’s article on Bloomberg titled “Ruin Your Health With the Obama Stimulus Plan” shines a light on a portion of the stimulus plan that I had not heard of until today.  Her article is impeccably sourced and links directly to pages in the stimulus bill.  It starts out with a provision that I don’t think many people will argue with, as the benefits are obvious:

The bill’s health rules will affect “every individual in the United States” (445, 454, 479). Your medical treatments will be tracked electronically by a federal system. Having electronic medical records at your fingertips, easily transferred to a hospital, is beneficial. It will help avoid duplicate tests and errors. 

From there, the bill moves farther, into more controversial and I think potentially disastrous territory:

One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

I don’t like the idea of some government bureaucrat possibly thousands of miles from my doctor’s office dictating what treatments I can and cannot receive. I do not want my doctor reviewing a script and a set of rules every time I come into the office. I would rather my doctor think critically about each decision and make a diagnosis and remedy on a case by case basis. The bill continues:

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far. Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

So the plan is to “enforce uniformity” for doctors who are not “meaningful users” with “penalties” decided by the “HHS Secretary.”  This sounds like a plan for disaster.  It is even worse than the current HMO/Insurance company model because if this bill passes, people will not even have the option to pay for an experimental or risky procedure because the doctors will face “stiff penalties” for deviating from the bureaucratic regulations.  Daschle is seemingly in favor of an unelected body to make “tough” decisions on who should live and who should die.   In fact that is exactly what the bill would do:

[It creates] the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system. 

The goal is to “slow the development and use of new medications and technologies because they are driving up costs.”  While I agree that new treatments and technologies are driving up medical costs and that we should have a national debate on what to do about it, this method is asinine.  The article goes further:

The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis. 
In 2006, a U.K. health board decreed that elderly patients with macular degeneration had to wait until they went blind in one eye before they could get a costly new drug to save the other eye. It took almost three years of public protests before the board reversed its decision.

This solution for health care would be a disaster for America.  It would be like if when the car was first invented, the government stepped in and said “the car is getting too expensive, lets not innovate anymore, we are happy with where we are.”  If this had occurred, everyone would still be driving black model-Ts, without airbags, headlights, windshields, windshield wipers and all of the life saving innovations that have occurred since then.  It makes no sense to stifle innovation and experimental cures to appeal to the lowest common denominator.

We are supposed to accept that we are going to die earlier than necessary because our lives will not be cost effective?  We are supposed to trust a government appointee to run a formula that will let us know if we can get a treatment or not?  Further, if we are supposed to trust all of this, why is it being included in the stimulus bill?  If it passes, some entrepreneurial doctors will likely start clinics for experimental cures in other countries, leading to medical tourism like 70,000 British citizens do each year.  These doctors will leave America and begin to innovate other places, just like how some stem cell research left the United States after Bush forbid federal funding to some projects.

I think everyone agrees that something needs to be done to try to solve the rising costs of health care, but America needs a frank and open debate on health care.  Whether we end up with universal health care or some other plan, Americas need to know what is going on.  A bill of this magnitude should not be attached to a stimulus bill that is being pushed through Congress at top speed.  Hopefully this gets struck from the bill and it is brought up again at a later date.