Introduction to the Course

Too many classes focus on theory and large, overarching issues instead of practical things that you will need to know to start a business.  Hopefully this class will prepare you to actually start your business by giving you the tools to do all of the nitty gritty work that is necessary to get started.  At the end of the semester, students will compete in a business plan competition in front of a panel of judges.

Week 1 – Introduction to Entrepreneurship

Class: There are many types of entrepreneurship, not just high tech.  It’s easier than you think and college is the best time to start. How to Live Before You Die.

Required reading: How to Start a Startup, What Startups are Really Like, The 3 Advantages of a Startup, Entrepreneurs Come in All Shapes and Sizes

Week 2 – Idea Generation and Business Plans

Class: How do you take an idea to a business plan?  How do you write a business plan? Malcolm Gladwell on Spaghetti Sauce

Required reading: The World is Flat, 9 Business Selection Criteria, 13 Sentences, College is the Best Time to Start a Business

Homework: Start thinking about a business to start for the business plan competition.

Week 3 – Types of Businesses Organization

Class: What type of entity should I use? LLC, Corporation, Non profit?  Learn how how to sign up for LLC.

Required Reading: 18 Mistakes that Kill Startups , The Top Ten Lies of Entrepreneurs

Homework: Sign up for an LLC, but don’t pay for it.  Start working on your business plan.

Week 4 – What are the Necessary Legal Docs Required?

Class: Operating agreements, partnership agreement and their  importance.  Guest speaker: A lawyer familiar with these issues.

Required Reading: Top 10 Geek Business Myths, The PayPal Wars

Week 5 – Taxes, Banking, Accounting

Class: How to setup a FEIN, get a free business bank account and start learning about Quickbooks.

Homework: Go to a bank and get a free business bank account set up (you don’t actually have to sign up), start exploring Quickbooks.

Week 6 – Quickbooks

Class: How to use Quickbooks in a small business or startup

Homework: Create a Quickbooks file for a hypothetical startup.

Required Reading: How to Get Taken Seriously Running A Startup Under 25

Week 7 – Credit Card Processing

Class: Teach how credit card processing system works, fill out forms

Homework: Call multiple resellers and see who can get the best rate.

Week 8 – Servers and SSL

Class: Overview of types of servers, server companies.   What is an ssl? Overview of ssl companies.  Test on first half of class.

Required Reading: Don’t Be Afraid of the Competition, My Rules for Startups

Homework: First draft of business plan due

Week 9 – Overview of Programming

Class: Types of programming languages, how programming works works, explanation of databases, what to look for when hiring a programmer.  How to register a domain name.

Required Reading: The Tipping Point

Homework: Register a domain for under $8.

Week 10 – Legal

Class: What to look for in a lawyer, what you need from them and the importance of a legal advisor.

Week 11 – Mentors

Class: Overview of why you need a mentor, who is willing to help, how you should look for a mentor.

Required Reading: Every Startup Needs a Mentor Team, The Entrepreneurial Push

Homework: Connect with a potential mentor on Linkedin, Twitter, email or phone.

Week 12 – Networking

Class: Why you need to network, strategies for successful networking, how to stay in contact with people.

Required Reading: The Business of Meeting People, Freakonomics

Homework: Get business cards for yourself, check out Brazen Careerist.

Week 13 – Blogging and Online Stores

Class: How to set up a blog, overview of WordPress, Blogger etc.  Overview of online shops.  Intro to Shopify.

Homework: Set up free wordpress blog.

Week 14 – Online Advertising, Social Media, Analytics, Document Sharing

Class: Overview of online advertising, CPM, CPC, Twitter, Facebook.  Intro to Google Adwords, Analytics, Docs and Calendar.

Required Reading: Made to Stick

Homework: sign up for Google docs, share a document with me.

Week 15 – Guide to Raising Money, Office Space

Class: How to value your business? Overview of friends & family, angel investors, VCs.  When is the right time to get an office?  How do you get the best deals?  Where should you look?

Required Reading: The Top Ten Lies of Venture Capitalists, To Office or Not to Office

Week 16 – Business Plan Competition

Final Exam – Business Plan Competition with panel of judges, based on Burrill Business Plan Competition.

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I really think that this sort of course would be incredibly beneficial to a student who is thinking about starting a business or even thinking about working for a startup.  These types of skills will give students a nice foundation so that they can start their own business.  Check out my full list of resources on my Entrepreneur 101 page for links to all of the companies I would use for each of these lessons.

So help me out: What am I missing?  Would you take a class like this?  Do you think universities would be willing to offer a class like this?

                          

My penmanship was pretty bad and the teacher realized that I was writing my letters backward.  Instead of writing some of my letters from bottom to top, I wrote from bottom to top.  I remember being annoyed and asking “what do we need to know this for?”  I could read my writing and so could the teacher, but I wasn’t following the rules.  In 3rd grade, I pretty much refused to learn cursive because I could print really fast and hated the new rules, again asking “what do we need to know this for?”  I continued this (probably incredibly annoying) refrain all the way through middle school: manually calculating slope instead of using a graphic calculator, diagramming sentences, specific types of bibliographies.  Even gym class wasn’t safe from my middle school ire.

Somewhere along the line, probably around freshman year of high school, I kept the questions to myself, but decided to tune out anything that I thought wasn’t going to help me later in life.  I loved reading about interesting things that had happened in real life and writing about current events, but hated theoretical or outdated lessons.  My favorite class in high school was consumer economics, an entire class devoted to balancing your checkbook, investing in stocks and personal economics.  It was real and I still use many of those skills I learned sophomore year.

I hated geometry because of the rigidity of proofs, hated calculus because I couldn’t understand why we had to do it by hand when we had graphing calculators to do it for us.  I hated memorizing the parts of a cell in freshman biology and reading about the Greek Gods.  It was boring and I couldn’t see the benefit later in life.  I haven’t used any of those “skills” since. This choice was the main reason why I got waitlisted at UW and almost didn’t get in, but I don’t regret it one bit.

When I got to college, I was expecting a change.  I thought we would learn how to succeed in the real world, but I quickly realized it was going to be more of the same inside the classroom.  I realized that if I was going to learn, I would have to do it myself.  After I bought ExchangeHut, I thought I’d try the business school.

After about half of a semester, I realized it wasn’t right for me.  Accounting 100 was rule driven and required you to do problems by hand.  After managing ExchangeHut’s accounting in Quickbooks for a few months, I couldn’t understand why we would figure out any of that stuff by hand.  Why not just use Quickbooks and save all of the trouble?  After the first four weeks, we started to learn about how Wal-Mart manages its inventory and how other large corporations prepare financial statements.  While I understand accountants need to know this stuff, I realized it was worthless to me.  I could use quickbooks for my accounting and if I ever got really successful, I’d hire an accountant.  Why bother?  I found the over reliance on theory to be extremely prevalent in business school classes.

I had a simple accounting question for ExchangeHut and asked four different friends who were Accounting majors with good GPAs.  None of them knew the answer, but they could sure solve the question on the exam about WalMart’s inventory system.  It happened again this year with an intern for Entrustet.  We have a finance major who earned a 4.0 from UW and is graduating in the spring.  He is clearly smart and learns quickly.  We have him doing some balance sheet work and other finance related tasks and he’s good at it.  He was working on our balance sheet and ran into a somewhat complex issue, so he went to his finance professor and asked for help.  The professor said “just use quickbooks, it’ll know where to put everything in the right place.”

At first I just laughed, but then I realized this was a microcosm of why students are having trouble adjusting the the real world.  I don’t think its our intern’s fault.  He just was never taught how to use quickbooks and as soon as he got to the real world, his professor says “use quickbooks.”  That’s what happens to graduates all over the country.  Rebecca Thorman’s post addresses how colleges are failing students, but I really think the over reliance on theory in the place of practice is what is hurting students.  Ellen Nordahl looks at the problem from the other side in her post about how students are unengaged.  Universities need to teach students more skills they will use in the workplace or they will not be prepared.  I bet if students weren’t asking themselves “what do we need to know this for” in their heads, they would be more engaged in their school work.

I am not saying that we should throw out all theory.  It is clear that you need to understand the basic theory in order to implement them in practice, but universities have swung way to far to toward the theory end of the continuum.

Schools are not the only place where the balance is out of whack. I ref a bunch of soccer each year and see the same basic problem.  I ref everything from U-11 to high school to semi-pro adults and I really enjoy it.  Each year, all refs have to take a recertification course that is supposed to refresh refs on the laws of the game and let us know about any rule changes.  It also gives instructors a chance to stress certain aspects of the game and teach better game management.  At the end of the class, everyone has to take a 100 question test and get at least a 75% in order to retain their badge. All USSF refs have to take this class each year, so attendees range from 12 year old first year refs to 70 year old guys who have been reffing for 35 years.  Sounds like a good system, right?

Wrong.  The test focuses on incredibly abstract game situations that would never happen, even to a World Cup level referee.  Here’s some actual questions from the test:

Q: An offensive player is dribbling toward goal, standing outside the penalty area.  A defender who is standing in the penalty area takes off his shoe and throws it at the ball, knocking it away.

Q: A player takes his shin guard off and slaps the ball with the shin guard in his hand.

There are a ton more, but you get the idea.  You have to know the rules to get these questions right, but they cause everyone’s eyes to glaze over.  It would be a test that would be great to do as trivia, but doesn’t really help a 12 year old new referee manage a game.

Because the test is so skewed toward situations that will never happen to you, the instructors have to teach to the test, just like teachers in middle and high schools do for state tests.  To make matter worse, the instructors use jargon heavy language instead of using concrete examples.  For example, at my most recent clinic, a kid of about 13 was confused about offside.  The instructor had said “as the assistant referee, make sure you stay with the second to last defender.”  The kid raised his hand and said “I thought it was the last defender.”  It was clear that the kid forgot that the goalkeeper counts as a defender, but instead of explaining it with an example, the instructor just repeated his sentence again, but more slowly and with more emphasis.  The kid didn’t understand until another ref at my table explained it to him with a diagram and an example.  There were so many other examples like this during the 8 hour course, my head started to hurt.

A huge percentage of kids quit refereeing each year because they get screamed at by coaches and parents.  The recertification classes should teach foul recognition (ie, when to blow the whistle and when not to), how to kick a coach out, how to deal with parents and the basic rules of the game, not what to do if someone throws a shoe at the ball or whether the correct restart after a chicken walks onto the field and knocks the ball over the end-line is a drop ball or a goal kick.  They should be showing videos of fouls from youth and adult games to keep people engaged.  A quick search of YouTube for “soccer violence” or “youth soccer red cards” brings up tons of teaching moments.  Additionally, FIFA makes rule changes each year, usually as a result of something that happened in an important game.  We could have watched videos of each situation to explain why FIFA decided to make the change, but instead we just read it from the book. Just like you learn how to succeed in the real world by doing things and learning practical things like Quickbooks, soccer referees learn from watching other successful referees work and learning from real life situations.

It is harder to come up with engaging, real life lesson plans than it is to teach theory.  Its also riskier.  I think educators are less likely to try to teach real life situations because it takes time to come up with more in depth lesson plans and it’s not the safe choice.  In The Wire (my favorite tv show ever), a teacher realizes that he can teach probability to his inner city students via dice.  The kids love it and learn because they can see how they will use this skill in real life.  I think everyone agrees that the US has to do a better job of preparing students for the future.  The first step is to stop teaching so much theory and start teaching things that students will use in real life.

                          

I think his latest piece titled More (Steve) Jobs, Jobs, Jobs, Jobs has the potential to impact the lives of even more people.  Friedman says:

The most striking feature of Barack Obama’s campaign for the presidency was the amazing, young, Internet-enabled, grass-roots movement he mobilized to get elected. The most striking feature of Obama’s presidency a year later is how thoroughly that movement has disappeared.

I remember getting inundated by posts from my friends on Facebook in the weeks leading up to the election urging me to support Obama, attend rallies or make sure to go out and vote.  The movement continued for the next few weeks, but has completely lost steam.  Even the most ardent Obama supporters among my friends aren’t engaged via social media anymore.  This in itself is pretty amazing, but not Friedman’s main point. He wants President Obama to re-engage America’s youth and doesn’t believe that going after Wall Street or other negative methods will work.  He continues:

Obama should launch his own moon shot. What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of “Start-Up America.”

Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge. The best way to counter the Tea Party movement, which is all about stopping things, is with an Innovation Movement, which is all about starting things. Without inventing more new products and services that make people more productive, healthier or entertained — that we can sell around the world — we’ll never be able to afford the health care our people need, let alone pay off our debts.

I am 100% behind this idea.  It makes perfect sense and would appeal to both sides of the aisle at at time when partisanship is at a seemingly all time high because of the fight over health care.  It would harken back to the Obama that many young people voted for, rather than the less than inspirational version of the President who we have gotten to know since his election.

I believe that entrepreneurship is our best hope for saving the US from its mammoth debt obligations.  We need to find ways to “grow the pie” rather than trying to raise taxes on a stagnant (or shrinking) pie.  I believe that all kinds of entrepreneurship are going to be necessary to solve our problems.  We are going to need traditional entrepreneurs like Steve Jobs and Bill Gates, but we will also need social entrepreneurs like Muhammad Yunus and the social entrepreneurs featured in Business Week.

I think that if President Obama were to make entrepreneurship a central portion of his presidency, he will find a huge groundswell of willing entrepreneurs who will be willing to help.  Friedman mentions National Lab Day and the Network for Teaching Entrepreneurship as examples of organization that are helping young people get interested in innovation.  Both programs would not be able to survive without older, successful mentors.  I think that entrepreneurs are willing to help out as mentors and young people are waiting to be entrepreneurs, but some are just waiting to be pushed.  Inc. Magazine contributor and author of Upstarts!, Donna Fenn says:

Over 75% of the entrepreneurs I interviewed for my book, Upstarts! said that they were very or highly likely to start another company; most had already founded two or more.”  She continues, “70% said their companies had a social mission. But make no mistake: they’re laser-focused on the bottom line as well and they understand why growing a profitable, sustainable company that creates jobs is a social good in and of itself. It’s pretty clear to me: this is a generation worth investing in.

Fenn‘s point is important because many startups are not only creating jobs and coming up with new solutions to problems, but they are also trying to make the world a better place.  If we can get more people to think with this mindset, the US and the world will be a better place.  So President Obama, please follow Friedman’s advice.  This is a no lose issue for you and the country.  You should be able to get support from both sides of the aisle.  You should be able to reconnect with an electorate that wants to support you, but has not because you have abandoned what got you into office.  Go back to the politics of hope, propose real solutions that everyone can get behind and see what happens.  I bet it will change lives.

                          

Justin Beck is the co-founder and CEO of PerBlue, a software startup in Madison.  PerBlue’s flagship product, Parallel Kingdom, is the first location based game built for the iPhone and Android and has over 80,000 players worldwide.  Founded in January 2008 while he was still in school, Beck and his team have worked to create a successful game and an interesting business model.  Beck graduated with a degree in Computer Engineering from the University of Wisconsin.

Nathan Lustig: Hi Justin, thanks for taking the time to answer my questions.  Can you give me a brief overview of your company?

Justin Beck: Sure.  PerBlue was created when we started developing our flagship game, Parallel Kingdom, in January 2008. The first version was released in October 2008 and we’ve been steadily gaining players and improving the game ever since. The game is on its 3rd major version and we currently have over 80,000 players.

We have 7 more or less full-time people working for us and are growing nicely. We have also developed several other applications for the iPhone and Android platforms but our most successful app remains Parallel Kingdom.  As we’ve grown we have found our business to be building great multiplayer games for mobile platforms.

NL: What kind of background did you have to be able to start a mobile gaming company?

JB: I have been programming since I was 12 years old and love to do it.  I graduated from UW-Madison with a Computer Engineering and Computer Science Degree and I interned as a software engineer at Google and as a program manager at Microsoft on their ASP.NET team.

NL: Many founders of startups have some sort of an “ah-ha moment” when they first got the idea for their company.  Did you have one and what was it?

JB: I’m thinking that could be true for us.

I was working on a different startup with some friends from Google.  We were going to build a community bar and real-time chat for webpages as a script mashup, which was going great.  But when Andrew Hanson (my partner) and I were doing homework one night, we starting thinking about the next game we should make.  I was like, we should build something mobile, something people actually would play, simple, and we should throw GPS into it somehow to make it interesting.

From that conversation, we started with Parallel Kingdom.  It was about a month later when I realized the mobile space was really growing and I should invest myself into build a company around that space.  This was before the iPhone Appstore even existed.  I would say that was my “ah-ha” moment.  I just knew it.  It wasn’t a tough choice.

NL: What is the biggest reason you founded your startup?

JB: I love adventure.   I saw building a company as the next challenge in my life.  Two of my life goals were to work at Google and Microsoft.  I had been there and gotten offers from them, but this opportunity came up and the timing couldn’t get much better.  Many people assume lots of things about people who run their own business, many of these are explicitly not true with me.

I actually really like working for someone else and trying to make them as successful as possible.  I also really have no interest in the money.  I took a 2 year pay cut to do PerBlue.  So for me, it’s the adventure and challenge.

NL: What is the biggest unexpected challenge you had to overcome?

JB: I would say my biggest unexpected challenge was how hard it is to be a really good manager of a creative team. I am still working on it, but doing it well is very hard.

NL: What advice would you give to someone who is thinking about starting a startup?

JB:

1.       Play to win, commit yourself to playing the game and be willing to be very flexible in how you navigate the pathway.   Watch and model people who have built successful companies and learn from them.  (Watching failure doesn’t teach you how to succeed)

2.       Have a specific goal: we are going to do “this.” Drive yourself and your team to this goal.

3.       Have a schedule, (roadmap) that is a reasonable plan of getting to that goal.

4.       Commitment and talent are the 2 most important traits of your teammates.

5.       Stay focused.  You can only build one business at a time.  Choose your business and stick to it till its done.

6.       It’s a marathon not a sprint, pace yourself emotionally, mentally, physically

NL: What are three websites you check everyday?

JB: Not many. Pandora, Facebook, Google Analytics, PKStats, Bug Tracking is my honest list. But websites I check weekly bi-weekly when I am thinking about strategy or competitive research.

http://techcrunch.com
http://news.ycombinator.com/

I have my executives I try to watch.  Marc Pincus (Zynga), Eric Schmidt (Google), Jason Fried (37signals)

I like watching talks, Google Tech Talks are amazing.

NL: Do you have any funny stories or amusing anecdotes about starting or running the company?  Do people ask you “when are you going to get a real job?”

JB: There are lots of funny stories.  One of the easiest ones to explain is DB Death Day and yes it is a PerBlue holiday.  We had some problems with the database and issued a statement that:  “There was a massive forest fire in PK, resulting in every tree in the western hemisphere being burnt to the ground.”  Along with the loss of every GeoBuzz post.  It was a sad day, but somewhat comical looking back.

I have actually never heard that statement about getting a real job.  Most people are very encouraging.  Most people don’t understand what it takes to build a business. So that makes their empathy hard. I think the most negative person towards PerBlue was my recruiter at Microsoft when I turned down their offer and counter offer, but that was her job.

NL: What/who has been the biggest help to you and your company?

JB: My mentors have been amazing.  During PerBlue’s life I have now had about 7 mentors, as the life stage of the company changes the mentors I use and depend on also changes.  But I can’t imagine doing this without mentors.  My partner Andrew has also been an amazing asset, starting a company with a partner is an extremely wise idea.  Team is what makes the company, without the PerBlue team, we would have never gotten off the launch pad.

NL: What is the most fun part of running your company?  The least?

JB: I would say the most enjoyable parts of running PerBlue, are working with the team, building and solving big problems, having things work, and seeing players love the game and play it so much and actually see our business become successful.  I personally get a lot of gratification when I see my co-workers growing and become excellent at what they do.  I think the least enjoyable part of my job are the days when it seems like everything “breaks” or when things just don’t go like you need them to.

NL: Thanks for taking the time to answer my questions, you had some great advice.  Good luck in the future.

                          

Startup friendly cities need to have a high density of smart people.  Potential founders of startups need other smart people who could be potential partners, contractors or employees.  Most cities that have a high density of smart people happen to be cities with large universities that attract a huge supply of smart people each year.  It helps that these cities have universities because it’s even better to have young smart people, rather than simply smart people.  Young people can afford to take bigger risks and are more willing to work longer hours for little or no pay than older people who may already have families, mortgages or other obligations.

Another helpful characteristic is low cost of living.  If founders can live cheaply and find cheap office space, it makes it much easier for a startup to get off the ground.  Additionally, having a low cost of living allows startups to stretch their investment dollars much further.  Employees, rent and just about everything else is cheaper.  I talked to one Madison-based founder who has successfully sold one company and is on his second startup who believes that Madison’s low cost of living is one of the most important reasons why his company succeeded and his competitors did not.

Access to affordable office space in a business incubator is another key characteristic of startup friendly cities.  Business incubators are an important asset for startups, especially if they are affordable.  Unfortunately, many incubators I’ve seen end up charging close to market rates.  Incubators are an important step for startups because they are usually the first move from working out of the founder’s bedroom.  They also provide camaraderie, connections and bring startups out of isolation because the rest of the people in your office are also running startups.  It’s much better for a startup to move into an affordable business incubator with other startups, rather than move into an affordable office space next to a lawyer, construction contracting company and a non-profit.

It is extremely important for startups to interact in a community of other startups. Having other entrepreneurs around, especially entrepreneurs who have been successful in the past, is important because founders can ask for advice when they have problems.  A mentor program like MERLIN Mentors is very important because it matches up experienced people who have been successful before with inexperienced startup founders.  These mentor programs not only build a community of startups, but they provide specific feedback to startups and help them overcome challenges that they might not if they were left on their own.

Another important aspect of an entrepreneur community is free networking events like the High Tech Happy Hour and Capital Entrepreneurs. Events like the High Tech Happy Hour bring smart people together who are not necessarily focused on entrepreneurship and startups, but are fertile ground for finding employees.  Local, free entrepreneurship groups like Capital Entrepreneurs offer founders of startups a place to meet others who are doing what they are doing.  It also creates a community and gives founders of startups some semblance of co-workers.  Starting a startup can be lonely if you do not get out and interact with others who are facing the same challenges and dilemmas that you are.

These free networking events provide a way for experienced entrepreneurs to mingle with people who are just getting started.  Experienced entrepreneurs set an example and show everyone in the city that starting a company is viable.  They can also provide advice, but simply having experienced, successful entrepreneurs in your city makes your city startup friendly.  Cities like Boston, San Francisco and Seattle have these networks.  Others like Madison and Boulder are just getting started, but are on the right track.

These experienced entrepreneurs can introduce inexperienced founders to professional service providers like lawyers and accountants who are willing to help entrepreneurs.  It also helps if your city cultivates a network of experienced, flexible professional service providers.  These service providers should be willing to take equity, give discounts or defer payments into the future for startups that they think are going to be successful.  It is extremely helpful if startups can still get top notch professional services, without breaking the bank during the company’s research stage.

These professional service providers can help startups gain access to capital that they need to fund their business.  Ideally, a startup friendly city will have VCs, angels and other rich people who are interested in investing in startups, but not all cities must have all three.  A strong network of professional service providers who work with entrepreneurs can make introductions to rich people who are willing to invest.  Some startup friendly cities can be heavy on angel and rich individuals, but light on VCs.  Another way cities can help entrepreneurs is by advocating for small business loans and other alternative ways of funding.

Startup friendly cities generally have support programs in place for entrepreneurs.  They tend to have low taxes.  It is much easier to start a startup in a city that does not have 10% sales tax, like the city of Chicago.  The state of Wisconsin provides a 25% tax credit to angel investors who invest in certified Wisconsin startups.  Wisconsin also offers low interest loans that are forgiven if the startup fails.  Both of these programs help entrepreneurs succeed.  Other states have implemented programs that fund early stage startups.

Finally, many people who start statups generally like living in cities.  They like walking to work and living in tolerant environments.  They like to be able to meet in coffee shops, go to interesting restaurants and enjoy life with their peers.  It’s best to have good weather.  Low crime and good schools are also helpful.  Overall, creating a city with high quality of life keeps the three most important ingredients, experienced entrepreneurs, rich people and smart, young people, in one place.

Cities can begin to implement policies that help foster entrepreneurship.  Cities can start by creating a business incubator for startups that offers offices (with windows) at 50% discounts.  They can start to create mentor programs like MERLIN and create entrepreneur networking groups like Capital Entrepreneurs.  Service providers can start offering discounts or equity for service deals.  Once one service provider has success offering this deal, it quickly becomes the industry standard.  I’m not advocating that government do all of this.  People who want to see their cities become more friendly to startups have to do some of the work themselves.

Government does have a place.  It can offer incentives for startups to move to their cities.  It can lower taxes or offer government programs that provide easier access to capital.  It could create a new business incubator and it could help create a community of entrepreneurs by publicizing entrepreneur success stories or the local startup community.  Government could help make cities more startup friendly simply by being more friendly to startups themselves.

Characteristics of Startup Friendly Cities

Figure out if your city is startup friendly.  Rate your city on a scale of 0-2 for each characteristic and score total the score at the end.  0 means that your city does not do it at all, 2 means your city does is very well.

1. Access to capital
2. High concentration of smart people
3. Low cost of living
4. High concentration of rich people
5. Network of experienced entrepreneurs
6. Mentor programs
7. Low cost startup incubator
8. Low taxes
9. Governemnt support
10. Flexible professional service providors
11. Free networking events
12. High quality of life
13. Tolerant, vibrant, walkable cities
14. Large universities
15. Culture of entrepreneurship
16. Educated workforce
17. Good weather
18. High concentration of science and technology workers
19. Direct national flights
20. Entrepreneurship advocacy groups

I would say Madison, WI gets a score of 23/40.  Milwaukee gets a 13/40.  San Francisco gets 36/40.

How startup friendly is your city?  Do you agree with my list?  Do you have any characteristics to add?

                          

It was no wonder that Belichick was universally slammed by pretty much everyone after his decision to go for it from his own 30 yard line in the 4th quarter last night’s Sunday night game against the Indianapolis Colts.  Here’s the situation.  The Patriots were winning by six points with a little over two minutes to go.  The Patriots faced 3rd and 2 from their own 28.  A first down in this situation wins the game.  The Colts defense stopped the Patriots on 3rd down, forcing a 4th and 2.  Instead of punting, Belichick ordered his offense back out onto the field to go for it.  They didn’t get it and Peyton Manning drove the Colts 28 yards for the game winning touchdown.

It’s obvious that the Patriots should have punted and forced the Colts to go 70 yards to try to win the game, right?  To steal a line from Lee Corso, not so fast my friend.  Belichick is way ahead of the curve.  According to research by David Romer at UC-Berkely, NFL teams punt way too often.

The Patriots convert first down from 2 yards out 76% of the time (ESPN’s stat from Sportscenter).  This stat means that by going for it, the Patriots had a 76% chance of winning the game.  Belichick only had to think that his defense would give up a touchdown to Peyton Manning and the Colts offense at a lower rate for it to be a good decision.  Manning had already driven the Colts to three 75+ yard touchdown drives in under two minutes in the game.  Belichick made the decision to go for it and this time it did not pay off, which brings me to why I love watching him coach a game.

Coaches in all sports, but especially football, almost always play it safe and go with conventional wisdom.  I’ve written about the lack of innovation in football before, mostly relating to play calling.  Last season I came up with a hypothesis:

I think it is because coaches fear being fired for not just doing poorly, but doing poorly a different way.  If coaches go with the conventional wisdom and fail, they will not be criticized as harshly as if they experiment and find new ways to fail.  If they succeed, like Mike Martz’s high-flying pass offense for the Rams called “The Greatest Show on Turf,” they are given some credit, but when the same coach experiences a minimal decline, he is criticized more harshly than a conventional coach.  For example, when Martz decided to pass in a late game situation, just like he had during other times in the game and failed, he was roundly criticized.  If he had run and failed, the players would have been criticized for not executing.   There is no upside for innovation here.

Today, I found out that this hypothesis has a name, via the Freakonomics blog:

If his team had gotten the first down and the Patriots won, he would have gotten far less credit than he got blame for failing. This introduces what economists call a “principal-agent problem.” Even though going for it increases his team’s chance of winning, a coach who cares about his reputation will want to do the wrong thing. He will punt, just because he doesn’t want to be the goat. (I’ve seen the same thing in my research on penalty kicks in soccer; it looks like kicking it right down the middle is the best strategy, but it is so embarrassing when it fails that players don’t do it often enough.) What Belichick proved by going for it last night is that 1) he understands the data, and 2) he cares more about winning than anything else.

It takes a leader to be willing to go against the grain, even when he knows that he will be excoriated by his peers.  He could have taken the easy way out.  If he did, today’s headlines would most likely read “Patriots defense no match for Peyton Manning and the Colts.”  Instead, we have “Colts make Pats pay for Bill’s unusually dumb decision.”

I think that this problem helps explain why big companies are slow to innovate.  They face the same problem.  Mid-level employees face the same problem as NFL coaches.  If they simply keep their heads down and do what 99% of the other workers would do, they will get credit if they succeed, but face much less criticism if they fail.  Most corporate cultures punish failing in a new way much more than failing the same old way.  If a mid-level employees actually do something innovative and it works, many times they are given less credit than they deserve.

I think this problem helps explain why startups are able to innovate much faster than big companies.  If big companies want to innovate faster, they need to empower their employees to go against the grain and make tough decision.  They need to actually mean it.  Companies need to view a failure for what it is, a failure, rather than get caught up in how the person failed.  This is not to say that someone who decides to pull the corporate equivalent of going for it on 4th and 20 from their own 5 yard line shouldn’t be criticized.  As long as the decision has a reasonable chance of success, they should be applauded for their innovation, rather than criticized for thinking outside the box.

                          

After two decades online, I’m perplexed. It’s not that I haven’t had a gas of a good time on the Internet. I’ve met great people and even caught a hacker or two. But today, I’m uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney. Do our computer pundits lack all common sense?

Reading it now, the first part seems like it has to be an Onion article.  While most are laughable now, I don’t want to focus on what he got wrong.  Here’s a quick taste of some of Clifford Stoll‘s predictions from 1995:

• “The truth in no online database will replace your daily newspaper”
• “No computer network will change the way government works”
• “You can’t tote that laptop to the beach”
• “We’ll soon buy books and newspapers straight over the Intenet. Uh, sure.”
• We won’t be able to find the information we want
• The Internet won’t be useful in government
• Computers in schools? “Bah. These expensive toys are difficult to use in classrooms and require extensive teacher training.”
• “We’re promised instant catalog shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obselete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet–which there isn’t–the network is missing a most essential ingredient of capitalism: salespeople.”

He was clearly wrong about pretty much everything in the first section of the article, but I think he gets the second part partially correct:

What’s missing from this electronic wonderland? Human contact. Discount the fawning techno-burble about virtual communities. Computers and networks isolate us from one another. A network chat line is a limp substitute for meeting friends over coffee. No interactive multimedia display comes close to the excitement of a live concert. And who’d prefer cybersex to the real thing? While the Internet beckons brightly, seductively flashing an icon of knowledge-as-power, this nonplace lures us to surrender our time on earth. A poor substitute it is, this virtual reality where frustration is legion and where–in the holy names of Education and Progress–important aspects of human interactions are relentlessly devalued.

I think he was right that ultimately, online connections are indeed “limp substitutes” for the real thing, but he missed that the Internet could help people make connections with people they never would have had the chance to meet in their non-Internet lives.  I’ve made connections with people though my blog, facebook, twitter and other networks like Brazen Careerist, who I never would have run across if I weren’t online.

This article brings up another interesting issue.  People love this article now because Stoll was so wrong about so many things.  How will people in my generation look 15 years from now?  We have created huge amounts of content on blogs and social networks, much more than previous generations.  Much of this content contains strong options.

Surely many of us will be as wrong as Stoll was in his Newsweek article.  In 1995, Stoll’s article was fairly reasonable.  He was well informed, involved in the industry and took a strong stand on an issue he believe in.  Unfortunately, today it looks ridiculous.  There is no way Stoll could run for office and win.  His opponent would have more fun than Republicans who make fun of Al Gore for “inventing the internet.”

If an informed stakeholder can get something so wrong, isn’t it likely that most of us will probably write something that will be completely wrong 15 years down the road?  Will articles like these preclude us from running for office?  How about getting a job?  Should we be worried about how history will view our blog posts?

Like unflattering pictures posted online, I hope that blog posts that history proves to be wrong are forgiven.   As long as the posts were well written, logical and thought out, posts where we are wrong should not count against us.  Knee-jerk reactions or Glenn Beckesque rants SHOULD be held against the writer.  If not, we will have some boring future leaders who weren’t even willing to take a stand when they were young!

                          

There are pros and cons to raising money from family and friends, but for your first round (especially in your first company), I think that the pros outweigh the cons (if your family can afford it), especially if you follow some common sense rules so that you can still go to your family reunions.  It seems to me that many in the startup world look down on companies that are funded by family and friends.  I think that’s a mistake.  I’m writing this post because I wanted to share my experience raising money from family and friends so that others can see it is a viable option.

When it came time to raise money with my first company, I had the choice of whether to try to raise money via angel investors or from family and friends.  After doing some research, I decided that family and friends was the route I wanted to take.  We were able to raise six figures fairly quickly from a good group of investors, which helped us stay focused on running our business instead of raising money.  Whereas many angels and angel groups would have wanted to get to know us for 3-6+ months, we were able to close our round in about 6 weeks.

How were we able to raise money quickly?  How do you actually go about approaching family and friends for money?  What if your family doesn’t have much money?  Why should you do it and why are they better than angels/vcs?

We were able to raise money quickly because we wrote a detailed business plan, did our research and found people who were willing to believe in us.  At first, we wrote a 2 page executive summary of our business that included how much money we were trying to raise, our valuation, how much 1% of the company would cost, why we needed the money and what we planned to do with it.  This exercise helped us really figure out how to tell our family and friends what we were doing.  It is especially important to avoid the curse of knowledge when writing your business plan, but its even more important when the investors are your family and friends.  Next, we developed our full business plan, making sure to be as clear as possible.  We made it clear that we were asking for investment in exchange for ownership in the company, rather than loans.

Next, we talked to our lawyer about how to raise money.  He helped us write up an offering summary, amended our operating agreement to allow us to take on investors and filled out all of the necessary forms for the government.  He also helped us add to our business plan to make it more understandable to non-tech people.  Our professionals that were working with us (lawyers, accountant, professors) were able to point us in the right direction of people with money.  This is even more important if your family does not have the resources to invest in your startup.

All of our investors were accredited investors, which means that they have net worth of at least $1m or a yearly salary of over $300k.  Accredited investors helped us in two ways.  First, since they were high net worth individuals, they could afford to take the risk of losing their money.  While we were confident we were going to be successful, we still knew we could fail and lose our investors’ money.  Second, having all accredited investors meant less paperwork for us and our legal team.  Having accredited investors helped us avoid the mistake that some people make: raising money from people who cannot afford to lose it.  This is a huge mistake, even if you think you are going to be successful.  It is the quickest and surest way to give yourself way more stress than you need and get yourself taken off their holiday card list.

We were up front with our potential investors.  While we were confident we were going to be successful, we told the investors that the worst case scenario involved them losing 100% of their investment.  We told them that they might not be seeing a return on their investment for 3+ years and tried to think up scenarios that would cause these bad outcomes to happen.  It was clear that our investors were more comfortable with us once we showed them that we had done our homework and were not simply selling them snake oil.  Don’t make promises you can’t keep just to get someone to open their checkbook.  They will not be happy with you when you are not fulfilling your promises a few months down the road.

Make sure you don’t set your valuation too high.  While you are trying to get a good deal for your business, you want to make sure that your investors are getting a good deal as well.  After all, they are your family and friends.  Another key is to not take too much money from one single investor.  In my first company, our biggest chunk from one single investor was $70,000.  While we ultimately made him money and he could have afforded to lose his investment, it would have been more comfortable for everyone involved to have gotten a little less from one single source.  It’s also not the end of the world if one of your potential investors turns you down.  Don’t press for money from someone who is uncertain because they will be the first to complain when things are not going as well as you had hoped.

Many angel investors will tell you that their investment comes with connections that you will not get from your family and friends.  While there is some truth to this statement, I think that it is overrated.  Your family and friends will get you money more quickly and be more willing to take you at your word.  A family and friends round will also set you up nicely for a second round from an angel or VC if it is necessary down the road.  If you can show that your family and friends believe in you, it gives you credibility.  If I see a startup without some amount of family and friends money, I wonder “wow, this guy couldn’t even get his Mom to believe in him, so why should I?”   It brings up questions in my mind, but is not a deal breaker.

I have had good experiences raising money from my family and friends and I think more people could benefit from thinking about going this route, rather than just thinking about angels/vcs.  Check out my list of Dos and Don’ts and Pros and Cons of raising money from family and friends below:

Do

• Write a simple executive summary and longer business plan
• Be upfront and honest about potential losses
• Be honest about the time horizon for payoff
• Make sure your investors can afford to lose 100% of their investment without any hard feelings
• Seek out accredited investors from your professionals

Don’t

• Oversell yourself, your company or the opportunity
• Underestimate risk
• Take too much money from a single source
• Set your valuation too high
• Get mad if they turn you down

Pros

• Raise money more quickly
• Better valuation and less stress than angels/vcs
• Potentially make your family/friends money
• Easier to get money than from angel groups for first time founder

Cons

• Can be awkward if you fail
• Doing business with family/friends can be nerve wracking
• No network

What do you think?  Have you had experience raising money from family and friends?  What did I miss?

                          

It’s important to have a mentor team for a bunch of reasons.  First, your mentors will be able to bring an outside perspective that isn’t as close to the business as you are as the founder.  Its amazing how many problems someone smart who is a little removed from your business can solve.  Second, having a mentor team builds credibility both with others in the business community like potential partners and customers and with potential investors.  When I look at startups, if the founder doesn’t have a mentor team, I start to wonder if their idea is any good or if the founder is totally committed.  Sort of like a partner, if the founder can’t find someone to like them and their idea enough to be a mentor, there might be something wrong with the idea or the team.  Third, mentor teams provide valuable insight into areas that founders many not have experience.  Whether its a tax question or how to approach investors or how to present to a partner company, people who are smart and have been successful before usually are able to help you out.

My mentor teams for my businesses have consisted of a lawyer, successful entrepreneurs, professors.  For my current company, my partner and I joined the MERLIN Mentors program here in Madison to add to our existing network of advisors and mentors.  If you are starting a company, see if there is a program like MERLIN in your area.  It is a great way to gain access to mentors who can help you succeed, especially if you don’t have an existing network.  If there isn’t a program, email interesting professors you find online or in your area.  Write a business plan and enter into a business plan competition.  Join LinkedIN and see if you have any connections who might be able to help you.  Ask your friends and family if they know anyone who might be interested in listening to your ideas.  Not only is it easier than you think to find a good mentor, it’s also one of the most important things a startup can do.  It doesn’t even cost any money!

                          

Back in April, I questioned whether the US Dollar is America’s Achilles Heel.  Each day, I am more and more convinced that it is.  Back when leaders like Chavez were the only ones questioning dollar hegemony, most of the rest of the would could safely ignore his statements as the ramblings of a dictator blinded by anti-Americanism.  Most people did.  When developing countries complained about the devaluation of the dollar, people could brush the complaints off as jealousy.  When Russia started rumbling about moving away from the US dollar, some people started to take notice, but were not concerned, as they viewed Russian statements as posturing to reassert itself on the global stage.

Finally, when China’s central bank head made statements that he was not happy with the huge increase of the money supply, people began to take notice, but were still not convinced that there was a problem.  Next, China signed currency swaps with countries like Argentina, Brazil, Thailand and others that allowed businesses to do deals in Yuan, rather than relying on the US dollar.  This was a clear shot across the bow at US dollar hegemony.  China has also stopped buying longer term US securities, prefering short term notes that they can roll over more quickly, while stockpiling raw materials, rare earth metals and precious metals.

Yesterday, the world had to take notice when the Middle East oil states held secret meetings with China, Russia, Brazil, France, Japan and others to discuss selling oil against a basket of currencies and gold, rather than US dollars.  The US was left on the sidelines.  Pretty much everyone is denying that these meetings took place, but where there is smoke, there is fire.  It is the logical progression for the rest of the world.

They cannot attack the US militarily and win, so they have to attack the US’s biggest asset and its biggest weakness: the reserve status of the dollar.   It is America’s soft underbelly.  I don’t believe that these countries are moving away from the dollar because they do not like the US or want to see the US fail.  They are moving away from the dollar because they are scared.  They are scared that the US will continue to print huge amounts of money to inflate away its massive $90T+ unfunded liabilities (yes, T=trillion) and national debt, making their dollar denominated securities go down in value.  I have seen people say that America’s unfunded liabilities between the debt, medicare and social security is over $120T, or about 10 years of GDP.  You can see their fear in skyrocketing gold, which hit a record high of $1,045 per ounce today.  The oil producing nations are tired of pumping their tangible, natural resources in exchange for dollars that are not backed by anything.  They are simply looking out for themselves.

Taken together, these country’s actions are a frontal assault.  They are saying “enough is enough.”  They do not want to accept our paper, which is backed by nothing, in exchange for their manufactured goods or natural resources.   Unless the US takes decisive action to stop the erosion of the dollar, I fear that the US will lose its biggest competitive advantage: the reserve status of the dollar.  If this happens, our standard of living is fated to go down.