How to build a tech business from scratch
I was only 19 when I moved to Berlin to study Computer Science and International Management. My big dream was to start a global tech company that would have a lasting impact in Europe. Now, Wunderlist is almost three years old and looking back, things have turned out so much more differently than what I had expected. So far it has been the best time of my life ?What a ride!
I am living my dream. With Wunderlist we are building an international product with a huge opportunity to transform the productivity market, both in personal life and business collaboration. It?s a long road to success, but I?m happy and grateful for where we are today and looking forward for all the things to come. I decided it?s time to share my learnings and encourage all of you to start your own adventures whether it?s in Europe or any other place in the world. The time has never been better to take action and start building the companies and products you want to exist.
Here are 15 steps to launch your own startup:
1. Dream big and start small
If you are dreaming about starting your own company, but you don?t know exactly what it is you want to do or if it?s even the right time, use your time to study. Starting a fast-growing tech business is incredibly challenging, and requires a variety of skills. The time you take to study allows you to explore your talents and find the one thing you really excel at.
If you have a passion for design, programming or business ? try to become incredibly skilled in one of those. The skillset of a founder often defines the focus and the culture of a company. At Wunderlist we are always looking for great individuals, that have a broad understanding of the things we are doing and share an entrepreneurial spirit. At the same time, we have a cultural guideline, that says ?a Wunderkind is a master in something?. So, as an aspiring founder, invest your time and energy in identifying your talents and then follow your passion.
Success is not dependent on your university degree. Still, if you choose your university wisely, you?ll gain much more than just factual knowledge. By attending the best university in the field of your talent you?ll have the opportunity to meet like minded people and build a great network amongst many other benefits.
Don?t believe the myth of the college dropout who becomes a disruptive entrepreneur. There are plenty of examples where it doesn?t hold true. Early-stage investors look very careful at the education of founders and their years of industry experience. Be aware of this if you are thinking of starting your own company.
The US has excellent universities for entrepreneurs, most famously Harvard (Mark Zuckerberg, Bill Gates) and Stanford (Elon Musk, Larry Page).
Stanford University in California
Germany is also a hub for the best universities for entrepreneurs ? here are my personal favorites specializing in the tech industry:
- Hasso Plattner Institut http://www.hpi.uni-potsdam.de
- TU Berlin http://www.tu-berlin.de
- KIT http://www.kit.edu
- TU Mnchen http://www.tum.de
The bottom line: Building up a company, leading a team and sustaining a highly successful international business is hard work and requires a lot of knowledge. There are many ways to gain this knowledge. Depending on where you stand in your life, take the time and find a university that lets you find, explore and grow your personal dream. Ideally, you will even find your potential cofounders, right there on campus. Investing in your own knowledge and skills, means investing in your dream.
2. Work to learn, not to earn
Now that you?ve studied hard and really gotten deep into a particular discipline, it?s time to broaden your skill set. While it?s critical to become deeply skilled in one area of the business, the required skill-set to start and run a company is much more varied. Starting a tech business requires a strong sense for products, timing, trends and markets, which you can only acquire through experience.
When I was 16 or so, I discovered a book called Rich Dad, Poor Dad ? What the Rich Teach Their Kids About Money. I might have even read the childrens edition ? but I loved it! I?ve recommended it to many of my friends because it contains a solid piece of advice: ?Work to learn, not to earn.?
In order to be successful in life, it helps to understand the basics of successful leaders and successful companies. I?ve worked for different entrepreneurs, various startups and larger businesses as both an employee and partner. I did this by starting my own design and web agency right after I came to Berlin. We worked for all types of businesses for about three years.
There were times of high profitability, but also times when we were close to bankruptcy. We didn?t earn much money, but it sufficed to pay our rent, food and universities degrees. In the end, this experience proved to be the foundation of starting our own tech company. The reason we learned so much was clear: we weren?t focused on money, we were focused on learning. Our personal goals in those first few years, were to start a tech business out of the agency business and that?s exactly what we did.
When we started Wunderlist, we put all of our learnings from the agency into the new company and product. We learned how to win and lose customers, how to manage and mismanage projects, and how to hire and fire developers and designers. Most importantly, we learned how to fail at many things ? the basics of any tech business. In retrospect, learning to face failure was my biggest takeaway. Each time you fail, you become more resilient. And as long as you do what you love, it will keep you going.
Having a period in my life dedicated to starting my own thing was critical. However, this doesn?t mean you should start your own agency. There are many alternatives to get similar experience. I would recommend you acquire experience at both a large and highly-profitable tech business and also a small, but fast-growing startup.
Experiencing both types of businesses and the challenges they face will help you understand firsthand the reasons for their success. Learning how different businesses are structured, how they build their products, how management and leadership works is a long process. There is no way you can learn everything, but trying to understand most of it, is incredibly helpful in starting your own venture.
As a founder, you will focus on finding the right idea and building your product. Defining company culture will be equally important for you. By working at different companies with varying missions and ways of doing things, you will learn what kind of company that you want to build. You will also know what skills you?ll need among your co-founders and first employees. Try to vary your experience even further by alternating between design, product, and sales-focused environments.
If you?re looking for a startup job in Berlin, join the Facebook group Berlin Startup Jobs or visit http://berlinstartupjobs.com.
3. Join the community and meet founders
Spending time with ambitious and like minded people shaped my own path. Most of my friends are developers, designers, entrepreneurs, and work for different kinds of startups. When you move to a new city, like I did, it can take some time to connect with other founders. Leo Widrich, one of the co-founders of Buffer, wrote a great, provocative piece about the importance of the people you spend time with, and quoted the entrepreneur Jim Rohn:
?You are the average of the five people you spend the most time with.? Jim Rohn
If you start an international tech business, you?ll be competing with intelligent, ambitious, and highly skilled people from all around the globe. It?s a huge challenge and having a great community of entrepreneurs, developers and designers for support is key.
I?m lucky that Europe, and especially Berlin now has a strong and fast-growing community. But, when I first moved here, I didn?t know anyone from the startup scene or anything about related events. I had no clue how to go about meeting with founders or investors.
To help aspiring entrepreneurs facing the same issues, I started a Facebook group called Berlin Startups. My goal was simple, I wanted to build a community to connect people and allow them to share knowledge. I invited founders, investors, lawyers, developers, designers and many more. The group now has more than 17,000 members (updated Nov 2014), with people representing almost every German startup. It?s now the easiest way to discover startup events and connect with great people.
Besides connecting with founders, I would also recommend you identify potential mentors. These can be entrepreneurs who you think are doing a phenomenal job in building great companies. Surround yourself with them, learn from them. You?ll find out it?s easier than you think to get in touch with these people. It?s incredible how much you can learn from a single 30 minute meeting. I spent a lot of time in the beginning just reading about entrepreneurs and watching interviews on YouTube. I recommend you watch interviews on PandoMonthly, Foundation,Stanford?s Entrepreneurship Corner and This Week in Startups.
I follow many founders, CEOs, industry leaders, venture capitalists and other startups on Twitter and Facebook to learn more about who they are, and what they do. It?s a quick way to learn more about trends and important topics.
Read blogs like TNW, TechCrunch, and The Verge to keep up-to-date. I also love to read the blogs of founders and investors, especially Fred Wilson, Brad Feld, Ben Horowitz, Tom Tunguz and many more.
4. Find the right location
When I started my first company in Berlin, I lived and worked in my apartment with one of my co-founders. There was no need for an office, we built our product right from our living room. The apartment was incredibly cheap, and we had such a fun time. We were living in Berlin Mitte, right in the very center of Berlin and constantly had people stopping by for a chat. That?s how ?the early days? look for a lot of founders and I believe if you rent a space in the center of a startup hub, you will find it much easier to connect with like minded people and share ideas. It?s inspiring and motivating.
The main hub for starting a tech business is currently San Francisco. It?s an amazing city, full of people working at tech businesses, and ready to start the next big thing. But, the challenges you will face there as a first-time entrepreneur are huge. The costs of living are incredibly high and you will compete with the world?s most successful tech businesses for talent. Then if you?re successful in finding them, you will spend more money for recruiting talented people than in any other city in the world. Jason Evanish wrote a great post about 25 Things I wish I knew before moving to San Francisco.
If you are a first-time entrepreneur, San Francisco is most likely not the best city for you to start your company. Luckily, San Francisco isn?t the only city in the world, there are other great places nowadays to start a business. New York, Tel Aviv, London, and Berlin are vibrant tech hubs too. Depending on your new business, location does matter. If you are an internet/software business, take care you pick a location that helps you to start. We chose Berlin based on the following:
Does Berlin host and attract world-class talent?We wanted to keep a healthy balance of young and talented people, but also very experienced ones. The success of Wunderlist helped us to attract top talent, but Berlin also provided an additional motivating factor for people to join us. Thanks to its underground music scene, cutting-edge art galleries, stylish bars and low rent Berlin has enormous international appeal. Over the past couple of years Berlin has attracted talented developers, designers, marketers and creative people from all across the globe.
What are the costs of living (and working) in Berlin?Berlin has one of the highest and at the same time cheapest living standards of all capitals worldwide. Living and working next door in the city center is still affordable, even though the city is growing at a fast pace.
What companies do we compete with in terms of recruiting?When we started our business, only a few global tech businesses were also located in Berlin ? most famously SoundCloud. There already was a lot of talent in Berlin, and it was relatively easy to hire. Nowadays, it is starting to be more challenging, as you are competing with a lot more startups, but it?s still incomparable to San Francisco.
Does the mindset of Berlin?s culture fit to our mission?One unique thing about San Francisco, is its energizing culture around building new companies. Everyone talks about it, everyone is part of it. It?s a lot more vibrant, but Berlin is catching up. We decided to go for Berlin also because we want to shape Berlin?s startup culture, always with the goals to expand to the US at a later stage.
In Berlin, most startup are based in Mitte, Prenzlauer Berg and Kreuzberg. Try to rent an apartment in one of those districts. Or if you?re on a tight budget, Wedding is a great choice to find something affordable yet still central. Those districts are not only right at the epicentre of the community, but also very beautiful and lively.
If you need an office to work, look out for co-working spaces, there are quite a few in Berlin: Betahaus, Ahoy!, co-up, mobilesuite, Raumstation.
5. Identify good and bad ideas, early
As founders we all have a ton of new product ideas, each and every day. Some of them sound promising, but only a few have the real potential to become a successful, fast-growing and highly profitable business.
Before we started with Wunderlist, we had juggled a few different product and business ideas, but in the end we followed solving a problem we all shared: having one utility to organize both our personal life and business. We never used to-do apps before, but we sure used project management systems to organize our projects, and to coordinate work and communication with clients. We?ve tried many solutions, but were never satisfied. We quickly started building our own solutions, and realized, if we do this right, this could become its own business.
Most of the project management tools we?ve used were highly profitable products, but equally hard-to-use, ugly and poorly integrated. Those were problems we thought we are able to fix, but there was an even bigger opportunity in this market ? many didn?t see. Most project management systems are powerful solutions to organize projects of any kind, but they lack intuitive design, and what?s more complicated pricing and poor integration prevented people using them in their private lives. No one really used a project management solution at home, but there sure was a need.
That?s where we saw our opportunity of inventing a utility that?s as simple as a to-do app, but as powerful as a project management tool. It also helped us to start lean and simple, and grow Wunderlist into something bigger. Wunderlist, as you know it, was our MVP, our simplest approach to solve a problem that?s huge ? helping people to organize their private and business life. A simple solution, with the potential of serving hundreds of millions of happy users. Once we reached that proof point we were able to grow our product step by step to get closer to our vision.
So, how do you actually pick the one idea, that has the chance to change the world?
I believe it starts with the ability to identify your own problems, and think about clever and smart solutions. One big problem, can be solved by thousands simple solutions, it?s your job to find the best one. You need to become your biggest critics. Challenge every single idea with your team to the extreme. Be aware that most ideas that seem great in the first place, are either already taken or not so great once you?ve challenged them further. Try to play devil?s advocate. A great idea also doesn?t necessarily mean doing something entirely new. Sometimes it?s even better to just do something better. In our case, we took an entirely different approach to productivity software, without reinventing the wheel.
We didn?t focus on productivity methodology, but rather on making productivity simple, human and fun to use. We also learned that it?s important to get a working prototype into the hands of people really early in order to get feedback. Being open to feedback is something you have to learn, but don?t listen to everyone. Learn to identify the nay-sayers and ignore them. Find people that give you honest and valuable feedback. Don?t wait for an idea everyone likes, because most likely it doesn?t exist. What were the most ridiculous startup ideas that eventually became successful?
Kevin Systrom gave an inspiring talk about Instagram and he explained the reasons why it became such a success. I think you can nail it down to these 3 precise problems Instagram fixed:
- Before Instagram, capturing beautiful images was hard. The camera of the iPhone and the invention of photo filters on mobile phones solved this problem.
- Before Instagram, uploading photos was hard. Again, the mobile phone and Instagram?s smart uploading process solved this problem.
- Before Instagram, sharing images was hard. The integration of Tumblr, Facebook, Foursquare, Twitter made sharing photos incredibly easy.
As you can see, often it?s about identifying the problems, but also about finding clever ways to fix them. It?s a difficult and long process. There are certain methods that can help you to set up your process and processes that lead you to fast ideation and iteration. Make sure you check out http://theleanstartup.com, it?s one of the best books to identify and develop great new ideas. Another one I can really recommend is http://www.businessmodelgeneration.com/book. Both books can help you and your team to sort out which idea is worth exploring and which is the one you should settle with in order to start your business. As a founder, all methods and books aside, I can also only encourage you to trust your own gut. With Wunderlist we solved a big problem we all had in our own lives. It just felt right to start our business based on that idea.
6. Understand trends and markets
When we?ve launched Wunderlist, Dropbox and Evernote have been two of fastest-growing cloud businesses world-wide. Both had a great traction, and demonstrated that it?s possible to scale a productivity app to a huge customer base. Both companies helped pushing the trend around the cloud ? amongst users, journalists and investors. The cloud itself is a huge topic in the tech industry, and it helped us tremendously to gain attention and to grow into the business we are today. But when we initially started raising money ? for building a new project management tool ? investors fell asleep. Seriously, when I just mentioned the word ?Project Management?, their eyes started rolling. No one believed in it.
But when we?ve redefined the story to ?to-dos in the cloud?, the reaction was quite different. We?ve explained how Dropbox and Evernote have invented a new type of market ? a market that scales, and a market that?s profitable. There was a trend around cloud business, and now also around productivity apps. When you build your own business, try to understand what the trends currently are, and build a story around it. When I came to Berlin the trending topics were all ecommerce, communities and software-as-a-service, and it then became social, mobile and cloud. Trends can help you to get attention, but be cautious. Trends are temporary and your goal should be to build a company that lasts.
As an entrepreneur you start a company with long-term goals. You want to create something that stays and adds value to people?s lives, both your customers and your employees. The challenge is to balance the awareness for trends and momentum without making yourself or your product a slave of those. It?s like surfing. You can?t change the ocean, so you need to observe and read the water and get on your feet in the exact right moment to ride the wave.
Niklas Zennstrm, co-founder of Skype, invested in Wunderlist one year after we?ve launched it. He started Skype in Sweden. One of the first things he talked with me about was ?World Domination?. I didn?t quite get it in the beginning, so he said the following:
?Look at Skype. If we would have been successful in Sweden, we wouldn?t have been successful at all. Build Wunderlist in a way so it can be used all over the world, in every country and every language. Dominate the world.?
This has been a key piece of advice for me. Right after launching Wunderlist, we open-sourced the first version to get additional help from our community. It took just a few days until Wunderlist had been translated into more than 20 languages. It?s now a global product, in US, Asia, Europe and Africa. It was an important learning for us, that Germany, even though we started here, is not our only market. Our market is the world, we build a product for everyone.
The more we grew, the more we also understood about the differences of countries and cultures. Our top countries today are the US & China, Germany, United Kingdom, Netherlands, China and Japan, but all those countries have key differences. Germany for example ? it?s easy to scale and grow, it?s harder to satisfy and monetize though. US, is much easier to monetize, but it?s really tough to gain attention.
Do your homework before you start with your idea, understand how big your market is, understand in which countries you can grow the fastest. Build a brand and a product that works globally, not just in your country. The world is your market.
7. Think like an athlete ? Define your mission
When I talk about entrepreneurship, I often talk about athletes. Athletes always train with a clear objective, like participating in a competition, or more specifically winning it. If you want to be an entrepreneur, think like an athlete and define your own mission. Why do you want to build a business? What?s your main objective as an individual? What do you want your own career to look like in 30 years? Don?t be small-minded! Widen your horizon and think how you want to influence the people around you, and maybe even change the world. Define the purpose of your business, and you as an individual.
When I think about my company, I often think about it like a football club. If I want to compete with other world-class football clubs, my motivation can?t only be winning. It also has to be passion ? for what we are creating and the hard work that must go into making our goals a reality. I need world-class trainers, mentors, medics and most importantly, a world-class team. Attracting world-class staff can be done through money, but there is also a further important factor that increases your chances of winning talented people ? and that?s culture.
It?s not just the money that defines the success of your business, but also your very own approach of doing things. If you define your style of how you want to build up a team, you can boost the quality of your team without money, and you can build a self-motivating environment for ambitious people. Define how you want to motivate your employees every day to produce high-quality and industry-leading results. It?s one of the main reasons why companies like Google, Facebook or Apple attract world-class talent and are able to keep it. Or if you like the football analogy, it?s the reason why clubs like Barcelona, Manchester or Bayern Munich are consistently successful. Yes money play a role, but it?s also their unique and strong culture that holds everything together.
I regularly watch documentaries about different trainers, to understand how they motivate their teams. It?s unrelated to the startup world, but I can highly recommend to watch ?Being Liverpool?. When you watch it, replace Liverpool with your own business, and you will understand what I mean.
At Wunderlist, our motivation is a combination of passion for what we?re doing (creating the best productivity software in the world) as well as our strong and endless will to build up an impressive team and business. My mission as an entrepreneur always was (and still is) to build a world-dominating design-driven software company. A company that goes beyond a one-hit-wonder, and is able to iterate and improve from success to success. That?s what drives me and motivates me.
I think an issue many talented entrepreneurs and European founders (especially German founders) have is, they don?t think big enough. They have great ideas, but they often don?t have the ambition that is necessary to build something big and long-lasting. One reason for this is fear. Fear to be seen as naive or even crazy. When I was 18 and started my career in Berlin, I was often expressing my ambitions in public, and I personally experienced that ?roll-eye-moment?. You will have that too, and honestly, fuck it.
Ignore the naysayers, stay true to yourself, build the company you want. Finding the right mission often is a long process that requires a lot of thinking and learning. If you want to attract great talent, your mission is key. People want to understand why they should join your company, and it?s often an emotional decision. Try to be the next Steve Jobs, the next Elon Musk, the next Bill Gates. Dream of building a huge company, a billion-dollar business that can last for many years. A company that can employ thousands of engineers and designers, acquire companies, and support a creative working environment. If you ask me, that?s exactly what Berlin (and Europe) needs ? ambitious, creative and successful billion-dollar businesses.
8. Prepare to fail, 95% do
That?s a tough one, but it?s so important. Starting a global tech business with international, well-educated and highly-skilled people, generating millions of revenue per month, is incredibly hard. You will experience unbelievable lows, including running out of money, or seeing important people leaving or shutting down a business you worked so hard for. Remember, that?s preciously your job. Being an entrepreneur means taking risks, because without that you will never be truly successful.
It?s important you understand the risks, and start managing them. If you blindly run into a new adventure, these lows will hurt much more than they should. The better you do your homework, the more likely your company will be able to survive. I wish, I would have prepared better, because there were so many momentsI was on the verge of giving up.
This is what happened to me, while starting 3 different businesses:
I launched a product, and everything went wrong.Building something for weeks or months, and then launching it is an amazing moment. It?s fun, and well, you are incredibly excited. You expect a lot of interest from press, great traction from users and pure celebration. But that?s the case for only tiny amount of startups. Launching a product means you need to be incredibly prepared, for downtimes, bugs, or the worst part: nothing. Prepare for the case no one cares about your product, be unemotional about making fast and bold decisions.
I ran out of moneyWith Wunderlist we always had great traction, but starting our business wasn?t that easy at all. Before we got our first round of serious funding, we were pretty close to not being able to pay our team. I managed that by simply being completely transparent about our financials (I still am). Thankfully it never became a real issue, because everyone was aware and could prepare. Be honest and transparent ? people will honor your courage as well as your determination to stick at it.
I (almost) burned outThe success of Wunderlist was as overwhelming as the failure of Wunderkit. Both times the pressure on me (and my team) was enormous, and I often didn?t deal with it the way I would have wanted to. It?s incredible what pressure can do to people. I worked around the clock, I forgot to eat, I never exercised, I hardly slept, I completely ignored the warning signs my body was giving me, and I often didn?t behave appropriately. Those times almost lead to either a mental or physical burnout, but luckily I had great mentors that always helped me. Be disciplined, listen to yourself and the people around you!
I couldn?t deal with people leavingFor me that?s definitely the toughest part. Many founders don?t deal well with people leaving, but I am probably one of the worst. I started my business with close friends, my girlfriend, and most people I now work with I know better than any of my best friends. I?m fascinated by businesses that act like families, and this is certainly the type of environment that makes me happy. Our culture is definitely challenging for many, it?s ambitious, often intense, but we truly care about each other (more than most). We build and foster our own talent ? we don?t just pay people to work with us. When we?ve been through tough times (like the shutdown of Wunderkit), I experienced for the first time that terrible moment when people decide to leave you and your team. They each had different reasons, and in a few cases it was a better result for each side. But in most cases I would have loved to continue working with those people, simply because we had become friends. My reaction was often intense (and for sure inappropriate). Learning to deal with those moments is a process, and it takes time. Try to become professional, and always be prepared.
Startups fail. It?s normal. Learn to deal with it. Our German culture can?t deal appropriately with failure (or success) yet, but it is improving, more and more. Founders need to leave their comfort zone, they need to take huge risks to become successful.
9. Find the right co-founders and advisors
Starting a company isn?t easy. However, there is a way to help manage risks and to deal better with day-to-day challenges ? and that is by having great co-founders. Having the right co-founders is incredibly important. You deal with them every day and you will fight, win and lose together. It?s hard to find them, because you will only know you?ve made the right choice, after you start or complete your adventure together.
Founders don?t necessarily need to become managers also. I started my company with 5 friends ? one developer, one user interface designer, one visual designer, one marketing person, and a finance person. I was the most experienced developer at that time, and after we had built the first version of Wunderlist I quickly focused primarily on the business side. We were a junior team, everyone with just a few years of experience. We had never built a Mac app before, nor a iPhone app, but we had 3 years of experience working together as an agency, building websites and designing brands and products for various clients. This team helped me to start our business incredibly fast. Within weeks of starting the company we already launched a product. This is totally unique. It worked for us, but, that doesn?t mean it will work for you. Finding co-founders is hard, and I would never recommend to hire a co-founder ? usually you start a business with people you know for years (as there is already an existing level of trust there and you also know they are capable of fulfilling their duties).
For a tech business I recommend to start with a founding/management team of 4 people:
A product personThis person should be obsessed with the product details and strategy. They should be able to hire great designers to help build a better product. They should constantly think about the little yet big details of a product. They also (ideally) should have experience in building different kinds of products and understand not only how it?s designed, but also how it?s made (technically).
An engineerThis person needs to be incredibly skilled in engineering, and should ideally be an experienced CTO. They should know how to hire engineers, how to define a scalable architecture, how to build up a strong engineering culture ? and how to build a maintainable product.
A marketing/sales machineThe next person (most companies forget) is an experienced sales/marketing founder. The person in this role should be able to define a world-class brand and develop it globally. They need to build up a strong team that can tell great stories to attract new customers, while keep the existing ones interested.
A business/finance personHaving a financial mastermind is an incredible asset, and reduces the risk of making financial mistakes in the beginning enormously (e.g. agreeing to the wrong investment terms). I would never start a company again without having someone taking over that role.
Also, traditionally 1 of those 4 people should take over the leading role. There are ways to build up a company without a leading role, but I think it?s more than healthy to ultimately give someone the authority to make the final call. It helps you keep up the speed.
When it comes to equity, be fair. Everyone should invest the same energy and the same amount of time. Also think about your first employees, it?s normal to let employees participate in the companies financial success by giving away virtual stock options (I will talk about that more next in the next part of this series). Make sure you hire an experienced lawyer for setting up the company. If you decide to start your business in Berlin, I can recommend working with Lacore, but feel free to search for ?Laywer? in the Berlin Startups group.
10. Raise your first round of money, or bootstrap your company
There are two ways of starting a tech business. You either do it on your own, taking all risks and responsibilities yourself (?bootstrapping?), or you find investors that believe in your company. Both ways are great, I?ve tried both, but personally I wouldn?t try to start something again without partners. Wunderlist is the first business I secured the interest of experienced investors, including Atomico, Earlybird, Sequoia & Thrive. They?ve worked with hundreds of entrepreneurs, and built huge tech companies themselves, and I wouldn?t be where I am without them.
Working with investors, or without, are both challenging paths to starting your own business. An investor?s job is to provide assistance and guidance while at the same time challenge you. They need to challenge your way of thinking, your way of doing business, and your way of building products. Beware, it?s not always fun. If you don?t like to work with many different opinions, don?t do it. Investors can make your life much harder than it has to be, especially in tough times. But they can also boost your business into completely new dimensions, that you may not have even thought possible on your own.
When you start your first tech business, avoid the common mistakes. Don?t pitch too early, and don?t pitch to world-class venture capitalists before you are ready. Prepare a working prototype, showcase the product you actually want to build, or at least demonstrate that you are able to build it. If you want to get an investor on board, try to understand what investors care about ? it?s mainly the team and the product. Most first-time entrepreneurs write huge business plans, instead of creating a short pitch-deck. Focus on building a prototype, test your business model and create a clear strategy to become a sustainable and scaleable business fast. Talk to investors when you are ready, not when you have something on paper ? build up your story.
Before you start talking to large VCs, find some early stage investors. Stefan Tirtey, created this document with Berlin early stage investors.
If you raise money for the first time, you better understand the basics of venture capital. Brad Feld wrote a great book about Venture Capital. Still, raising money for the first time is difficult.
Another important factor investors care about is how the business is structured (like who owns what). I?ve seen a few businesses where the first investors took huge pieces of equity for very little money. Avoid making those mistakes and define a fair structure. While every business is structured differently, here is how I believe you should structure a tech business in Europe (as a first-time entrepreneur!):
15?20% equity for first investors
Depending on your team and the risk of the business, you should reserve 15% to 20% of equity for the first investors you get on board.
10?20% for employees
Be generous with shares to your employees, they are your capital and most important resource. But never give away shares without clear vesting rules.
60?70% for founders
60?70% sounds like it?s not a lot, but at this stage, at least 80% of the company are owned by the team ? that?s a fantastic way to start.
Again, starting a business with investors may sounds ?easier?, but it clearly isn?t. You just share the risks (and the outcome). If you decide to start something without an external investment, you usually start more carefully and slower with a lot less room for mistakes.
11. Learn how to hire and maintain your company culture
Determining who to hire is a powerful skill to have and it?s very difficult to learn. As a founder you need to develop this skill very quickly. You will make mistakes early on, and it?s vital that you identify them and correct them very quickly. Creating a sustainable, healthy and positive company culture in a fast-growing and fast-changing startup environment is tough, and many companies fail at it.
When I started my first business, I often got advised to hire ?A people?. I had no clue what it meant, but I assumed it meant ?very good?. Now, after having hired more than 60 people, I think it?s pretty much nonsense. ?A people? do exist, but if you start a business for the very first time they are most likely not in your reach.
When I started hiring my first engineers, designers and marketers, I was mainly focused on passion, energy and most importantly potential. I hired very junior people, many directly from college, or from their first jobs. When I interviewed, I tried to quickly get an understanding on how much they understood their actual role, how fast they wanted to improve, and how badly they wanted to be successful. I also tried to determine how well they would fit into the team, and I specifically I wanted to get a feeling if they could develop as quickly as the business would require. I didn?t hire them because I thought those people were incredible, but because they showed promise. I often get asked, where do I find these people. I honestly had a very simple strategy, I hired Wunderlist users to build Wunderlist. We?ve had a lot of success promoting job openings through newsletters to our user base as well as through our social media channels. More than half of our team has been recruited somehow through our product.
The next big lesson you need to learn is to fire people. If you are a passionate entrepreneur, and you care about your team, firing is the hardest thing you will do. You will fire people for different reasons. Maybe they don?t fit, or they aren?t good enough (which means it?s your mistake for hiring them), or you need to reduce costs. Letting people go is emotional, and hard. People tend to cry, or get angry. Same goes for people who decide to leave, for whatever reason. Respect the decision, don?t stop a traveler (but try really hard to keep the ones who struggle), and always be professional. It?s a long road to learn those skills, but you will get there.
It?s very hard as a young entrepreneur to correct hiring decisions. Don?t be scared to correct your mistakes quickly. Also, if your business grows, don?t lose the skill to objectively judge your team. It?s often hard for your initial team to keep up with the progress of the business, you are entering new stages very quickly. It?s often hard to talk about, but when a business grows up, it?s often time to improve the team, rather than grow it.
Fred Wilson wrote about this phenomenon:
The people you need at your side when you are just getting started are generally not the people you will need at your side when you have five hundred or a thousand employees. Your technical co-founder who built much of your first product is not likely to be your VP Engineering when you have a couple hundred engineers. Your first salesperson who brings in your first customer is not likely to be your VP Sales. And your first community person is not likely to be your VP Marketing.
I wrote this a couple of times now, but I want to make it clear. I think the key to create a healthy and sustainable company culture is serious transparency. I know, everyone is talking about honesty and transparency as a good thing, but many entrepreneurs simply suck at it. Don?t try to hide anything from your team, talk openly about any kind of expectations and challenges, and try to be positive about it. Being a good motivator is very hard, but it can be learned.
12. Prepare yourself to become a manager
The road from being a founder, to becoming a CEO or a manager is a very long and bumpy one. Most good founders somehow are crazy, in a good way. They often have ridiculous work ethics, are naive, and ignore what others say. They are often simply not the ideal person to work with. It rarely ends good if those founder attributes meet the pressure of a young company trying to survive.
We had a pretty intense year in 2012, experiencing an unsuccessful product launch. Most of us had a hard time dealing with the pressure we had, many were close to giving up. Startups are not always fun, and for us, last year was not much fun at all. Luckily we?ve managed to get through it, but it seriously wasn?t easy. Those times are tough, but you know what? Those times see you earn your stripes. They help you to become a seriously good manager.
There is an insanely good article written by Ben Horowitz, that I recommend every founder read, both in hard and in good times ? it?s What?s The Most Difficult CEO Skill? Managing Your Own Psychology.
Being a manager and being a founder are two different things. You need to learn this very quickly. A founder often sets the tone, the mission, the speed, the ethic, the culture. Being a founder ? a programmer, or a designer, or a salesperson ? requires a totally different skill set than being a manager. Being a founder means to work ? being a manager means to think. The job of a manager is to carefully make decisions, easy ones and tough ones. You need to define the business strategy, recruit people, build teams, motivate employees, set and measure goals, empower ownership, create partnerships, take care of financials etc. These skills are hard to develop, many founders actually decide to hire a CEO at a later stage. Becoming a CEO is not for everyone, it?s a huge challenge in addition to the challenges you already have as a business.
I remember clearly, when I started this business, I didn?t want to be the CEO most of the time. I was a programmer, building the first version of Wunderlist for Windows & Mac. I loved helping our developers to build the first sync servers, I loved designing the product and defining the marketing strategy. I had a seriously hard time to reduce myself from the actual work and focus on the business side. The additional pressure as being ?the person in charge? didn?t make it easier for me to deal with that transition, and I honestly think the transition process will still take a few more years to be finally over. I?m a hands-on manager, I love diving into things. But it also often makes me operate as a micro manager, which rarely gets us where we want to be.
As a founder I was involved in every little detail, from design, to development, to PR and marketing, but today I focus mainly on internal tools and processes, defining goals, business development and other more high level areas of the company. I still am (and want) to be part of our product team, but the time I can spend on the little details is very limited (down to a few hours per week). I became a CEO, and I wasn?t fully prepared. I would strongly recommend that if this is the role you want to take on, prepare yourself early, right from the very beginning.
13. Find advisors and mentors to build your business
Throughout this guide I?ve mentioned a couple of times that I?m lucky to have mentors and advisors on my side, helping me to define a strategy for building Wunderlist. In retrospect, after working on it for more than 4 years, and going through some intensive ups and downs, I can truly say: having these people around me is one of the biggest reasons it all still exists. To be even more clear, without these people, I?m convinced it would have never started in the first place.
Back when I was thinking about starting a new company, I was running an agency business. Together with my co-founders, we started by building a simple web app based task manager on PHP called Lunchbox. We planned to launch it as a web app you can use for a monthly fee with no plans for a mobile app, nor a desktop app ? it was a really old school concept for building a Software-as-a-Service task management app.
We had no money to start the business on our own, so I posted a simple status message on LinkedIn: ?Who?s with me to build the next-generation project management app?? Minutes later a guy I met months earlier at a tech event reached out to me ? Frank Thelen. An entrepreneur himself who was running his own photo-print business in Cologne, and had also invested in a few German tech companies. We had a call, and I explained the idea to him. A few days later, he and his partner Marc visited us here in Berlin. We demonstrated the prototype, and presented a few design concepts. We met for a few hours, went out for lunch, and they decided to invest in our idea.
Together, we took our prototype, defined a product roadmap and started building it. Because those guys made investments in other tech companies, they had a lot of experience in critical success factors of software businesses. Together, we turned Lunchbox, which again was a simple web-based SaaS app, into a cross-platform productivity app named Wunderlist. With their initial investment we were able to focus on developing Wunderlist for Mac and Windows, and launched version 1.0 in November 2010 (just a few months after we registered the new business). With the launch being a great success, we then decided to raise capital from a German government fund called Hightech Founders Fund.
Without posting this one message, and without the experience of Frank and Marc, Wunderlist would not exist. We would have never started the business, we would never have built mobile and desktop apps, and we just wouldn?t have executed it the way we did. Not only because both guys invested in the company, but because they worked with us on business strategy, product, design, marketing and technology. Together, they allowed us to start this company in a big way ? they were investors and mentors. Now that the company is 3 years old, we?ve added many more, including Atomico, Earlybird, T-Venture, and even a few individuals who are helping us to define the right strategy for a specific segment of the company, whether it?s product, technology or anything else. Mentors became crucial for me. They help us reflect and decide. Every time we?re not quite sure about the next step we should take, we ask for advice. Every time we need a partner to ping pong some new ideas, we ask for their feedback.
Mentors are a great way of widening your horizon when you start a business, and I believe every founder should have one or more. Actually, most successful tech entrepreneurs have incredible, experienced and strong mentors ? Meet Behind-The-Scenes Mentors Of 15 Top Tech Executives. I?m incredibly grateful for the support of our mentors who most definitely saved us years of learning everything on our own. I?ve become a strong believer of mentoring. And while connecting with our first mentors was luck, nowadays when we decide to get an advisor for building or growing a specific part of the business, we create a list of people who would be super helpful, and we connect with them.
When people talk about mentors, they often use the term ?advisors? as well. There is no official explanation for it, but I would clearly define 3 different types of supporters you can add to your company:
Investors, Mentors & Advisors
Investors are often wealthy individuals or organizations who invest in your business, with the clear goal to have a great financial return. At the early-stage, investors are also often your mentors, but it can be hard to connect with investors as much as you can connect with individuals who respect you and are simply interested in your personal success. Investors are usually more interested in building and scaling up the business and less in your personal development.
Mentors are focused on helping you to grow as an individual and a leader. Mentors invest time in understanding your business and challanges and more importantly, in you. Especially as a young or first time founder it?s incredibly helpful to get mentorship from experienced entrepreneurs.
Advisors can add strategic value to your business (e.g. if you want to enter new markets or work with big corporations). They help you to understand networks, markets and try to advise you to make the right decisions. You can have advisors for every part of your business (like partnerships, or product, or marketing).
You can offer both advisors and mentors equity in exchange for support, but be careful not to create artificial interest. They should be interested in you and less in your company. They are not employees, but first and foremost they help you to succeed as an individual. At an early stage, be sure, he or she commits to at least spending some hours each week working with you. Advisors can be very helpful, there is no guarantee. Choose them carefully. Make sure they deeply care about your success.
14. Be ready for constant change
I learned many painful but great lessons over the past few years. One was how to deal with constant change. When you decide to build a technology company, you are faced with one of the fastest moving industries on the planet. Technology changes so quickly, and along with it, markets and people.
When we started, Facebook and Twitter were exploding, transforming the way companies handle marketing. Apple had just created a gigantic app market, making the development for mobile incredibly important. There was almost no Android, no Mac App Store, and no iPad. The market was moving so quickly, we had to constantly adapt our product strategy. Being in a constantly changing environment like the tech industry makes it really difficult to forecast trends and developments, and requires a massive focus on flexibility. When you are building a product, be ready to change essential parts of it within weeks, if not days. Be ready to expand and to tackle new opportunities quickly. And more so, make sure your team is ready, too.
Constant changes in startups happens everywhere. You are constantly adjusting and optimizing internal processes, adapting your development strategy due to changing markets, modifying a fundraising strategy because of a financial crisis, replacing managers because of bad performances ? this list just goes on and on and on.
From a pure software perspective, within the last 10 years there has been an incredible change. 10 years ago, building software was fundamentally different. Software was very business focused (e.g. Office), complex, and feature-driven. Building such products was complicated, and required years of development. Then suddenly, software went mobile and got simplified. Within a few years, the requirements of building a great software product completely changed. Today, software is winning by design, intuitiveness and availability ? not just by features. Mobile devices and apps made software a mass market phenomenon and changed the way software is built entirely.
Identifying changes in a market, and knowing when the time has come for a strategy shift becomes critical for any kind of tech business. Many startups fail because the technology stack doesn?t fit the requirements of the market, or because the key platform changed completely. Make sure to not only build your product in the most flexible and scalable way, but also invest time in creating a company culture that embraces change in order to use the full potential of your team, no matter what the new challenge is going to be. The more flexible you run your product and company, the more likely you will have a chance to win.
15. Work hard and be nice to people
Being mindful while maintaining just the right sense of urgency is incredibly hard. It requires a lot of experience to give people the freedom to learn and more importantly, to fail.
Our industry is full of young millionaires, and that?s not necessarily a good thing. It?s very easy to meet people with bad intentions, people who don?t care about anyone but themselves. Define your personal values, think carefully how you want to be successful, and how you want to celebrate it.
Becoming successful will change your personality, either in a positive, or in a negative way ? it?s your decision. When Steve Jobs got asked what his biggest weakness was, he answered: ?I think all of us need to be on guard against arrogance, which knocks on your door whenever your are successful.? For myself I found that through being honest and transparent and sharing my knowledge I am getting a lot back every single day. Work hard, take risks ? and always be nice to people.
(Originally published at christianreber.com in 2013)
