If you’re an entrepreneur, you should try to outsource as much as you can possibly get away with.

In the tech industry, ‘outsourcing’ is a dirty word. Outsourcing. The very word invokes thoughts of high technology jobs being sent overseas from the US to be fulfilled by people in India or China. This is seen to be unfortunate for tech workers in the US. It’s a widely accepted misconception that if you don’t speak English well, then you’re somehow less intelligent. If you don’t speak English at all, you’re somehow better off than if you spoke it poorly. No English means you never learned and it’s not your fault. Poor English translates to idiocy. This is obviously wrong, but I digress.

What many people don’t realize is that outsourcing is an entrepreneur’s best friend. Now, before you track me down and smash my car headlights with a baseball bat, let me explain what I mean.

Most businesses outsource various functions and it’s widely accepted as standard practice. Don’t believe me? Go look up the definition of “outsource“. I’ll wait.

Done yet? I didn’t think so. Seriously. Go read the definition, it’ll take you 10 seconds and prove the point I’m about to make.

Basically, the definition of outsource is to subcontract work, to contract work out, or to obtain goods or services from an outside supplier or source. While in the paragraph above, I mentioned outsourcing from the US to China, that’s not in the official definition at all. The idea of outsourcing to China or India are connotations of the word that we have become accustomed to. To help out the every day entrepreneur, I’ve put together a list of five things you should always outsource which illustrates the areas for outsourcing that you can clearly benefit from as an entrepreneur.

1) Payroll – You can do your own payroll, but it takes time and effort. You can also be on the hook for any mistakes that you make. Is it worth it to do it yourself? In my experience, it isn’t. Payroll services from either ADP or Paychex will only cost you around $25 per pay period. If you assume it would take you an hour to do the work, then $25/hour isn’t a bad price. If it would take you 2 hours, then this is an absolute bargain. Unfortunately, as companies expand beyond one employee, the cost increases for each employee and it can add up quickly. Most companies still outsource this function, if for no other reason than to shift liability and to get the benefits of direct deposit.

2) Tax preparation & Accounting – I still do my own accounting, mainly because I feel like I need to have a solid handle on my business finances. On the other hand, I haven’t done my own taxes in ten years. I remember the first year I owned a business and tried to do my taxes on my own. Ten hours later, I wasn’t even half way done. I cut my losses and paid H&R Block to do them from scratch. It took them two hours and about $350.

3) Health/Dental care – I’m not going to bother buttering you up with this one. I know some doctors self diagnose and all, but I’m hardly a qualified physician, and even if I was, I can’t write myself a prescription for Vicodin, as nice as that might be sometimes.

4) Website/Email hosting – Website and email hosting is one of those situations where if you know enough about running your own server to be dangerous, you can easily make the wrong choice. There are a lot of things you need to think about if you’re going to host your own website and mail servers. I’m not referring to colocation or dedicated hosting. I’m referring to running a server out of your basement/office that is publicly accessible and hosts critical business services. There are so many things that you need to worry about. Sure, it’s cheap enough to take an old computer that’s lying around and slap a Linux distro on it, but what about a static IP address? It costs a lot more for that. How about UPS backup systems? Tack on a few hundred for a good one. And what happens when the power goes out for two full days? Your measly UPS isn’t going to cut it. I actually considered doing this for a while to save myself an extra $50/month and eventually decided against it. When your business depends on things like this, it needs to be reliable. There are plenty of low-cost alternatives out there.

5) Legal services - This is basically the same as health/dental care. You’re just not qualified to do it. If you know what to look for, you can certainly cut down on the amount of work that your attorney has to do by pointing out your concerns, but don’t think that you can completely replace him. There are nuances to the law that you’re just not familiar with.

There are certainly many other things that companies outsource, but this list clearly illustrates a number of areas where most companies outsource services and don’t think twice about it and you should too. These forms of outsourcing are perfectly acceptable because for most companies, it is not the core business to provide health or dental care for anyone, let alone company employees. The same goes for payroll services or utilities. Last I checked, I wasn’t aware of any company that had a giant hamster wheel in the back of the factory where workers could run to turn a generator so the lights would stay on in the warehouse. For the record, if the “employee hamster wheel” ends up in a Dilbert cartoon, I want the credit.

Hiring your first employee is hard. In a single founder company, the job is even harder because there are many complex issues that you need to juggle simultaneously, some of which aren’t remotely related to evaluation of the person you’re trying to hire. In this article, we’re going to completely ignore how to evaluate a developers’ technical abilities and focus on the business problems that are associated with hiring and some mistakes that you need to avoid.

What do I want this person to do?
One of the biggest mistakes you can make when hiring is not determining job responsibilities in advance. This seems like a no brainer. After all, when you’re writing up the job advertisement, you need to put this together, right? Unfortunately, in a single founder company you’re probably barely keeping up with what’s going on. If things are moving quickly, what you need in an employee can change very quickly as well, regardless of the size of your company.

The solution is to determine what you want from your new employee long term. Try to think 3-5 years out, not 3-5 months. If you hire for short term needs, you’ll solve the short term problems, but you may be creating long term problems. You never want to be in a position where you have to even consider getting rid of an employee because you didn’t think about both his short and long term role with the company.

Can I afford to hire someone?
This is a very hard question to answer for many companies. It seems straightforward but there are many unknowns to consider. For example, potential employees can have wildly different salary requirements for the same position. One person might only want $75k, while another is looking for more than $100k. And these expectations may be much different than those of the employer. These variations are largely based on experience and where someone is in their career. It’s probably best to know what everyone’s expectations are in the beginning, but due to convention, salary discussions don’t typically take place until much later in the interview process.

If you’re running a small company, feel free to discuss salary in the very first interview session. You need to be careful here because it’s possible that two similarly qualified people might have salary expectations that differ by quite a bit. Some employers give more weight to the person requesting the higher salary, while others do just the opposite because the lower salary means more profit for the business.

Don’t get trapped by this situation. The third and best scenario is to ignore salary as a hiring criteria unless it falls significantly outside your anticipated offering range. The requested salary should have very little bearing on whether you make an offer to hire someone. Whether the prospect accepts your offer is an entirely different story. If you are running your business correctly, then hiring the right people is far more important than saving a few thousand dollars on an employees’ salary. The right person will more than make up for the cost of their salary in the work that they do for your company.

From a strictly monetary point of view, you need to consider several factors because salary is not the only cost associated with a new employee. There’s salary, employment taxes, health & dental benefits, workers comp insurance, vacation time, holidays, computer hardware, and computer software. There are also indirect costs associated with office space, office furniture, electricity, and any special perks that you want to offer like comfy chairs, free lunches, free parking passes or special company outings. You need to meet all of these financial needs for however long it takes for the new employee to start generating revenue for the business. Ideally, your business will have enough revenue to meet these costs on day one, but that’s not always feasible.

Can I afford to not hire someone?
This is simply another way of asking the previous question, but it’s an important distinction. If the sole reason for hiring someone is to have a minion, you need to wait. If you’re hiring for an upcoming or future need, you should wait. Never hire before the business needs and financial capabilities of your business can support the new employee. It’s easy to find meaningless work for an employee to do, but it’s much harder to find work that is generating revenue for the business. Don’t spend thousands of dollars going through the hiring process, and doing training for someone only to be in a position where you have to let them go a short time later because you can’t support the employee any longer. If you think this is the case, then you should hire a contractor, not an employee.

How much overlap do I want?
A lot of people when they’re hiring tend to lean towards hiring people who have the same background as they do. This is bad, or at the very least, it’s not good. People who are like you will have the same strengths, but will also have the same types of weaknesses. Web developers aren’t likely to know a lot about pointers in C. Windows developers seem to have a hard time with Linux. I like to think I’m pretty talented with SQL Server. If I hire someone else with the same talents, how much good are they going to be if I start developing a DB2 or Oracle application? You can say that SQL code is SQL code, but it’s not. Compare T-SQL to PL/SQL and they’re different enough that you will run into trouble when developing an enterprise level application.

You should look for is someone with a set of skills that will complement your own while still contributing to the business. This is one of the things that Venture Capitalists look for in development teams. It’s also what most entrepreneurs look for in a potential partner to start a business and be successful. It’s hard to argue against complimentary skillsets but people do it all the time when they hire their own personal Mini-me’s.

Should I hire an experienced employee or an entry level employee?
There are pros and cons to hiring any employee, regardless of whether they are experienced or entry level. Entry level employees cost less, but are probably going to make mistakes. They’re going to need a bit more oversight than experienced employees and are going to ask for more feedback about whether what they’re doing is right or not. Experienced employees can usually be given a task and more discretion about how to get the job done. They are expected to require less oversight and be more productive out of the gate. Their salaries are also higher. In either case, if you have very specialized software that they will be working with, there are training costs that you are going to need to bear.

These are somewhat sweeping generalizations and they don’t always hold true, but the real issue here is the size of your company, and who the new employee will be reporting to. If you’re a single founder who is 25 years old, would you feel comfortable hiring someone who has 25 years of software experience as your first employee? It wouldn’t bother me at all, but it’s something that you have to think about. While it’s obviously illegal to discriminate based on age, it’s not illegal to turn down an applicant if you think that problems will develop due to differences of opinion on issues that come up. Will this person be easy to get along with? Are you going to be comfortable being a manager at all? If not, you might need to rethink how you grow your business by hiring a manager or some entry level developers first.

This is something that you may or may not be able to determine during an interview. I’ve interviewed people who I immediately felt would be problem employees because no matter what was said, the candidate was right. Sometimes it’s what a person says. Other times, it’s not so much what a person says, rather how he says it.

It’s important to realize that with your first employee, you need to get it right. Most mistakes you want to make early on in the development of your business because later on they are going to cost more. Hiring is not one of those mistakes. In fact, hiring mistakes can be your most costly, no matter when you make them. But if your first hire is a bad one, you could go out of business. I don’t want to scare you, but don’t screw this up. The bottom line is that there’s no right or wrong answer to whether your first hire should be entry level or experienced. You need to do what makes sense for your business in terms of what needs to be done, and how much money you have at your disposal to do it.

What benefits will I offer my potential employees?
When I first started the hiring process, I had a decent idea of what sort of things I would offer as employee benefits. My office is in downtown Worcester, and parking costs around $7 per day, which is roughly $140/month. I strongly disagree with asking employees to pay to go to work so I pay for parking passes at a nearby garage out of company revenues. I also had an idea of what I could offer for health, dental, vacation time, etc. What I wasn’t prepared for was questions about things like telecommuting. What exactly was my holiday schedule? What did I think about part time work? What was my ‘exact’ timeline for hiring, because apparently some potential employees are on a timeline as well.

These kinds of questions threw me the first time they were asked, so I started making a list of what people were asking, and then put together what my answers would be the next time I was asked. By the time I was finished with my interviewing process, I had answers to pretty much everything (except the holiday schedule, which I still haven’t nailed down completely).

If you search the web to see what kinds of benefits you can conceivably offer your employees, you’ll find that they are as numerous as they are varied. Everything from free soda, free M&M’s, cell phones, company cars, and more. Some companies bring in arcade games, pool tables, televisions, and other stress relieving gadgets to keep their employees happy and ‘in the game’ so to speak.

Ultimately, the choice of benefits to offer is up to you. However you should think long term about the type of employees you want to attract and how you intend to keep them around. The hiring and training process for new employees is a significant cost to your business, if not one of the most significant costs. As the SAS business model clearly demonstrates, the right perks can significantly reduce the turnover rate at a company and improve your bottom line. In any case, give some serious consideration to what you want to offer your potential employees and use it to help sell your company to potential candidates. After all, hiring isn’t just a one way process. Just as you are interviewing the candidate, the candidate is interviewing your company to figure out if you’re worth a career change. They’re also going to ask themselves if your business is solid enough to support the proposed addition of an employee and whether they will still be employed in six months.

Tips for hiring your first employee:
Having gone through the process myself, I can tell you that hiring your first employee is a completely different experience from hiring as an employee of another company. It’s somehow a lot different when the money is coming out of your own pocket. With that in mind, I’ll leave you with a few tips for hiring your first employee.

1) Be very selective. The first employee you hire could drag down your entire company.
2) Decide on a salary range and make that clear to prospective candidates. You can’t go outside of that range without jeopardizing your business and consequently, their job. Don’t take chances you can’t afford.
3) Above all, be honest with the people you’re hiring. Don’t make promises you can’t keep. You will need to explain a lot about your business, how you intend to keep it going, and how this employee fits into your plans. Keeping it all a ’secret’ will simply turn people away rather than attracting them to your cause.
4) Use the phone screen to tell people about your business. Don’t waste valuable face to face time doing that. See if they’re interested in what you’re doing. If not, then move on. I had a candidate tell me over the phone that he didn’t feel qualified for the position. This kind of thing will happen and it saves both your time and theirs. Be thankful, not irritated or disappointed.
5) Remember that money isn’t everything. Most people are willing to work for a salary that is relatively competitive for the region, especially if they are working on interesting stuff or you’re treating them a lot better than they were being treated at their last job.
6) Think long term. If you’re not, you might as well close up shop and start looking for a “real job”.

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My previous article, Startup Myths Debunked, seemed to attract quite a bit of attention in the developer community. In particular, people who left comments seemed to agree with “Myth#3: I need a partner”. Paul Graham who is one of the more influential voices in the startup community recently wrote an article titled “The 18 Mistakes That Kill Startups” and apparently thinks otherwise. Weighing in at mistake #1 on his list is “Single Founder”.

*sigh*

I hope that Paul reads what I have to say and rethinks his stance, or at the very least clarifies that what he means does not apply to all startups. Let’s take a look at this.

Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.

To recap where the Oracle reference comes from, in my article I had pointed to Oracle as having one founder, and one of the first comments on my blog was a correction. Paul Graham alluded to the same correction, having probably read the article himself. I did some further research, and it turns out that I was incorrect. Larry Ellison did indeed have a partner named Bob Minor. In fact, my research showed that Oracle had four co-founders: Larry Ellison, Bob Minor, Ed Oates, and Bruce Scott. My apologies.

After finding that I had been incorrect, I delved deeper to make sure that my other examples of Michael Dell and Thomas Siebel still held true. Thus far, they have held up to additional scrutiny. If anyone else has corrections to these examples, please let me know via comments or the contact page.

In any case, I agree with Paul that given the statistics, it seems unlikely that this is a coincidence. So why are so few successful startups founded by just one person? My examples seem to indicate that it is possible to succeed, but why is the figure so lopsided with multi-founder companies holding the lion’s share of the success stories?

One Word: Funding
I believe the answer lies with where these companies get their funding. Paul Graham’s Angel Investor group called Y Combinator refuses to work with individuals. I suspect that most VCs probably feel the same way and refuse to fund a company with only one founder. Neglecting their reasons for operating this way, the most popular way to fund a startup, historically, is through Angel Investors and VCs. If Angels and VCs requirements for funding a company also require co-founders, then it stands to reason that the majority of startups will have more than one founder. This only perpetuates the myth that it cannot be done, or is excessively rare.

It’s not an absolute fact that angels and VC’s refuse to fund single founder companies, but is generally accepted as such. I’m sure there are exceptions to the rule in other angel groups, but Y Combinator flat out refuses to work with individuals and they are arguably more well known to developers than any other angel investor group. Paul has such a wide reach with his writing, that it’s difficult to believe that he has less market share than anyone else. So on one hand, Paul asks the question as to why so few successful startups are founded by one person and on the other, he and his Angel group refuse to fund single founder companies. I would think that the reason there aren’t more single founder companies would be self evident.

A contributing factor to this phenomenon is the fact that single founder companies are forced to find alternative forms of funding.Thomas Siebel was lucky enough to be on the sales team at Oracle from 1984 to 1990. After that, he was the CEO of Gain Technology and after only 3 years, the company was sold for $30 million. I’m told by a serial startup executive that CEOs of startups take in around 5% of the sale price when a company is sold. That means Siebel made somewhere around $1.5 million when Gain was purchased. Even after taxes, that’s plenty of cash to fund your own company and fast track it in the early stages with employees rather than co-founders.

Most single founder companies are not quite so fortunate. They have to fund their company using much more creative means. Without hundreds of thousands of dollars in the bank, they must watch their spending far more than well-funded startups do and can’t hire on a whim. Having started three different companies myself and worked for three more “conventional” startups (startups with Angel or VC funding), let me clue you in on the difference. Conventional startups have money to burn and are willing to burn it, trading dollars for fast growth. As Paul Graham points out in Mistake #13, VCs want their money to go to work, and that means spending it. On the other hand, self funded companies have all of their eggs in one basket and cannot afford to burn money indiscriminately because they need to be sure the steps they are taking are going to pay off, both short and long term. This means that unless the founder had money to begin with, the self funded company is forced to grow in a much slower, much more controlled fashion unless they’re willing to take substantial risks.

Contrast a startup company that hires dozens of people within the first few months with a self funded company that adds employees only when the current business can support that growth. The result is another condition that contributes to the seemingly skewed statistics whch appears to indicate that single founder startups can’t make it or are far less often successful than multi-founder companies. Angel and VC funded startups are given X dollars to get the company going, ramp it up as quickly as possible and sell it (or have an IPO). Self funded companies don’t have wads of cash in the bank to trade for the ability to build the business faster without accepting the significant risks that operating at a loss every quarter entails.

Guess who else noticed this fundamental difference between highly funded companies and self funded startups? Joel Spolsky. He wrote a fairly detailed analysis of this phenomenon back in 2000 with his articled titled “Ben and Jerry’s vs Amazon“. (If you haven’t read it, I encourage you to do so. It’s a very good read.)

Reasons You Might Wind Up Doing It Yourself

Let’s dig further into what Paul says about single founder companies.

What’s wrong with having one founder? To start with, it’s a vote of no confidence. It probably means the founder couldn’t talk any of his friends into starting the company with him. That’s pretty alarming, because his friends are the ones who know him best.”

Hmmm… Perhaps sometimes this is the case, but certainly not always. I can think of half a dozen other reasons why a company might have only one founder. All of them are plausible and I don’t see any reason why they would be uncommon for single founder startups.

1) The founder already had enough money in the early stages, thus enabling him to hire employees instead of trading equity for co-founders.
2) The founder might have had a bad experience in the past with a partner, or seen someone who did.
3) The business is making enough money to support the founder (and thus his family) but not enough to support another founder.
4) The founder has no interest in taking on partners because his aspirations are not to build a huge company.
5) None of the founders’ friends or former co-workers are qualified to be a part of the company.
6) The founder is contractually bound to not solicit former co-workers.

In fact, with the exception of the first reason, every one of these reasons applies to myself and Moon River Software. It has absolutely nothing to do with having friends I couldn’t talk into joining my company. I’ve considered hiring two different developers who I knew on a personal basis and declined to hire both of them, for different reasons. I have a friend who has an MBA, was best man at my wedding and I was best man at his, yet I would not hire him at this time because he doesn’t have experience in the software field.

Number 1 is beyond the control of most people unless they inherited wealth to begin with or managed to sell off a previous company, as in the case of Thomas Siebel. I would imagine that numbers 2 and 3 are probably very big issues for many single founders and are probably more common than some of the others. Number 4 is not as atypical as it might sound. Look no further than Thomas Warfield for someone who is extremely successful, has only one employee who basically helps with support and order processing, and who has publicly stated he has no intentions of growing bigger. I read somewhere that during the Super Bowl one year, he didn’t get an order for 15 minutes, which was the worst he did all year. Let’s see, $25 X 4 copies/hour X 24 hours/day X 365 days/year = $876,000/year. Not bad for a single founder if you ask me.

Number 5 is a sticky point, and can be a bit subjective. Are these friends not qualified because the founder is too arrogant to think they can do a good job, or are they really not qualified? For me, an additional wrench is thrown into the equation. Because of my somewhat older age, even if I knew someone who I thought was qualified it would be difficult for me to convince my friends, who are of a similar age, to move their families to Massachusetts. In addition, having only moved to Massachusetts in 2003, I have virtually no friends in the state outside of the acquaintances of my wife, former co-workers, and fraternity alumni (most of whom already own their own businesses, I might add).

Number 6 is an issue for any founders who worked in startups recently, including myself. Sure I’ve lived in Massachusetts for the past several years, but during that time I only worked at Pedestal Software, since acquired by Altiris and with whom I’m contract bound to not solicit for employees.

Going it Alone

But even if the founder’s friends were all wrong and the company is a good bet, he’s still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.

I’m not going to be too hard on Paul for this one. I believe he has good intentions and is doing his best to talk some good developers out of trying to make a go of it alone because it really is hard to do everything yourself. That’s important to remember – it’s really hard to do it yourself. But for Paul to say “Starting a startup is too hard for one person.” is incorrect and misleading. I’m doing it now. Is it hard? You betcha. In fact, you could say that I’ve failed twice in the past both with and without a partner. But I learned a lot during those failures and learned a lot as part of the success of Pedestal Software. Having been in the situation before, I’d prefer to have no partner and have to do all of the work than have a partner who isn’t pulling his weight.

Paul acknowledges that even if you could do all the work yourself, there are other reasons for needing co-founders. Some of the things he mentions may be true, but do you need a co-founder to provide them for you? You can brainstorm with friends without forking over equity in your company. You can hire salaried or contract employees to work for your company, thus providing you with brainstorming partners. If you talk to friends and take time to gather information before making decisions, you can help prevent stupid decisions. Just remeber that having more people involved in no way prevents people from making stupid decisions. I’ll refrain from pointing to any number of failed companies *cough* Webvan *cough* as examples where an entire executive team blew spectacular amounts of money.

Staying cheerful when things go wrong is incredibly important in any startup company and is arguably where Paul has his most valid point. But again, thinking that the only place you can find this positive reinforcement is in co-founders is also inaccurate. As developers it is in our nature to solve problems, and treating your morale as a problem to be solved is no different, whether you’re a single co-founder or whether you’re a multi-founder company. In either case, you will find it helpful to know in advance what sorts of things affect your morale and how.

Personally, I do a couple different things to keep my morale up. Due to the fact that my business is doing well enough financially, I keep track of my financials every single week in Quicken. It shows that the things I’ve done that week have made an impact on my corporate bottom line, and I can quickly see how much of an impact. Every time I’m able to show my cash on hand increasing, it’s a morale booster.  And when things get tough or don’t seem to be going my way, I’ll treat myself to a few video games which are challenging, but winnable. One of my favorites is to play Command & Conquer: Generals on an 8 player map playing 3 vs 5 with myself on the lean end. It turns out to be challenging enough that a victory shows that I’m not a strategic moron and should get back to work. After reviewing my failures to help me avoid them in the future, I focus on my victories, no matter how small and the things that I’ve learned from the experiences.

Not letting people down is definitely a significant motivating factor, but it is easy to replace a co-founder with someone else to obtain that motivation. As a married man, not letting my wife down would be more important to me than not letting down the co-founders that I don’t have. By staying in business I stay happy, and my wife is happy that I have a career I enjoy.

The one person that drives me to succeed more than anyone else is me. I’m more afraid of disappointing myself and not reaching my goals than anyone else. And guess what? My goals keep changing and increasing. Eventually I’m going to have to lower my sights because I keep raising the goal, which drives me even harder. My wife describes me as the most driven lazy person she knows.

With my business I’m driven to the ends of the earth to succeed. If Moon River Software fails, it will be because I’m dead. On the other hand, I’m too lazy to mow the lawn, clean the house, do laundry, fix things around the house, etc. I pay people to do that stuff so that I can work on my business instead. And you know what? It’s well worth the money. The value of my lawn will not increase nearly as much as the value of my business over any period of time. This principle is described in the book “The Millionaire Mind”. It’s a matter of priority and being able to get ahead. It’s not a matter of laziness.

On another weblog, I debated the topic of single founder companies with someone who claimed that you couldn’t run a company alone. After arguing a little bit, we realized that what the author had really meant was that you can’t truly run a company alone without delegating any of the tasks or hiring employees. While I don’t discount the difficulty of running a business without delegating anything, I don’t believe it would be impossible. It would just be far, far more difficult and time-intensive to do so. This is entirely different than being a single founder.

I hope that you’re now convinced that it is not only possible, but reasonable to become a single founder of a startup and be successful at it. If not, I invite you to leave feedback and comments.

Special thanks to Rob Walling for reading drafts of this article.

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Update: One of my readers contacted me and pointed out that Siebel Systems had another cofounder named Pat House and cited not one, but two references to back that up. Direct from the first link to InformationWeek.com:

“The company, funded entirely by its employees, launched its first application suite in 1993. By 1997, revenue was $206 million, and many of its original competitors–companies such as Brock Control Systems and Sales Technologies–had disappeared.”

It would seem that they were entirely self funded, which fits with the first of my six reasons for starting a company without a partner. Still, labelling Pat House as the cofounder of Siebel Systems bothers me. If she was really a cofounder, why is the company named after only Siebel? It would seem that it wasn’t an equal division of ownership, which doesn’t particularly surprise me. My best guess would be that Siebel had the money and asked Pat House to leave Oracle and take a chance with him so that Siebel could keep up on what had been going on at Oracle the previous three years.

In my eyes, this begs the question of what exactly constitutes a cofounder? If a cofounder defaults to your first employee, then by definition, no company of more than one employee can have a single cofounder. What if the “cofounder” owns less than X% of the company, where X is a number between 0.000001% and 49.999999%? Where is the line of being a cofounder drawn? Using that as a basis for the argument, one could say that I was a cofounder of Pedestal Software, since I was granted stock options and thus held some ownership of the company. To me that doesn’t make sense.

Similarly, if we base it on time with the company, if you hired an administrative assistant on day one, that hardly qualifies as a cofounder of the company.

Unfortunately, this starts to take us down the path of defining what a cofounder is and is not, which is not the path I wish to explore. I still maintain that it is possible with a lot of hard work to be a single founder and be successful. Perhaps not with Angel/VC funding due to their requirements for cofounders, but it is still possible.

In my previous article, I received a question in response to “Myth #1: I need to get VC funding to make my company successful.” I was asked to explain what it really takes to get a consulting company off the ground. How much money does it take to start a consulting company? How much constitutes a “little bit of money“? This is a great question, so let’s start at the beginning.

The Beginning
Starting a consulting business is no different than starting any other software company until you get past the paperwork stages. You file with the state, open a bank account, get a domain name, and do all of the typical software startup things. In fact, on paper a software company and a consulting business are exactly the same. You’re going to need hardware, software, developers, time, and a little bit of money. There’s that phrase again. How much!

I don’t think many people realize how easy it is to start a software consulting business. I started Moon River Software with about $5,000 and a couple of credit cards which I barely used. The plan was to start out consulting while writing software products on the side. When software sales exceed consulting revenue, it’s time to switch from consulting to full-time product development. That hasn’t happened just yet, and it will not happen for quite a while, but the software sales are slowly growing. The money that I had saved up didn’t go to software, hardware, or many of the other things that you might think. It went into my pocket. So, I put $5,000 into the company and promptly started giving myself paychecks.

Does that seem strange? Of course it does. That money should have gone toward resources that the company needs. Something important. Not back into my pocket. Right? Not so fast. For a consulting business, the lifeblood of the company is the incoming business, measured by the hourly rate times the number of billable hours. Guess what? You don’t get paid until the work is done. So, just like switching jobs, you need to have some money in the bank to help you get through what I call the paycheck gap. What schedule did your old company pay on, and what schedule does your new business pay on? Some companies withhold one full paycheck, which depending on the schedule could be 2-3 weeks. If the company pays on a monthly basis (and some of them do!), you might not see a paycheck for quite a while. Even if you want to pay yourself every week, chances are that you can’t because the business hasn’t made any money yet.

The Paycheck Gap
The Paycheck Gap is the time period when you must perform a careful balancing act between cashing incoming checks, writing checks for your own payroll, and sending money to pay business credit cards or other debts. The biggest problem with a consulting business is that there is a net terms payable agreement. That means that after you bill the company you do the work for, there’s still a lag between when you’ve done the work and when you get paid. Let’s say you start a job on June 1. On June 14th, you’ve done two weeks of work and you bill them. If the net terms are 2 weeks, you might expect a check around June 30th. That means an entire month has gone by and your company has had no income until you get that check. That’s hard.

To make matters worse, net terms of 15 days are not very common. Most companies use net 30, net 45, or even net 60. That means that even after you’ve done 2 weeks of work, it could be an additional 4, 6, or even 8 weeks before you see a check. That puts you into late July or even early August! The larger the company, the longer the net terms tend to be. This means that from the time you leave your old job to start consulting, it will likely be 6-8 weeks before you see a check. I’ve done work for companies that only allow you to bill them the last 3 days of the month. I did a two day job for a company the second week of last December. In addition to not being allowed to bill them for another 3 weeks, I had to wait another 4 weeks on top of that to receive my check. Total time from work complete to receiving a check: 7 weeks.

Let me make one thing perfectly clear before we go on: Do not expect your clients to pay early. Period.

You might get paid a day or two early. If there are quarterly or yearly accounting audits going on, you might expect a more timely payment. But there is only one situation I know of in which they will pay significantly early, and that’s if you start giving them discounts for doing so. In that case, you’re offering them an incentive, and are cutting their costs. If you’re desperate for the money, offer a 1%-2% discount for paying early and 9 times out of 10, you’ll be paid quickly. Otherwise, you’re going to have to wait.

Why does a 2% make a difference? Say you’re charging them $2,000/week. A 2% discount will save them $40. And for what? Writing a check a little earlier than it needs to be written. Accountants are penny pinchers for a reason. That’s what they’re paid for. Cash on hand is great, but if they can save $40 by writing a check a week early, they’ll do it. Because over the course of a year, saving 2% each week on your invoices alone could save the company more than $2,000 total. Arthur Anderson, eat your heart out.

Back to my example of not being paid for 7 weeks. That’s almost two months before you see any money for your business! Not only is that timeline typical, but who is to say that you’re going to be paid on time? What will happen to your business (and you) if you aren’t paid on time? What happens if you aren’t paid at all? Don’t think this will never happen to you. It happens to a lot of people and it very nearly happened to me, so be on your guard.

The Paycheck Gap ends when you are receiving checks from your clients on a regular basis.

Catch Up Mode
Once you have cleared the Paycheck Gap you are on your way to being successful. What happens is that your business will turn from being forced to survive on peanuts in the short term to what I will call ‘Catch Up Mode’. This is the time during which your business must issue back paychecks to you on a regular basis, typically for work done anywhere from three to nine weeks ago. Moon River Software’s Catch up mode period was six weeks of back paychecks.

Many people will be tempted to start paying off any business credit cards they have accumulated balances on, just to prove that their business has no debt. Take my advice. Don’t. Give yourself a paycheck and try to catch up on your back paychecks. Not paying yourself first is seriously demotivating. It seems like everyone is getting paid except you. Forget about the fact that you’re going to be paying interest on some purchases. Forget about the fact that your balance sheet could be closer to zero liabilities. Your salary is a big liability, and receiving paychecks is a huge morale booster. You start seeing the profits of your labor, and the fact that your efforts are actually paying off. Pay yourself first is typically a strategy used for retirement savings, but it works extremely well when growing your business. If you are constantly paying everyone else first, there will be very little or nothing left for you.

During this time period for Moon River Software, I had more than enough money in my bank account to pay the credit card bills for the equipment I was buying, but instead let the bills linger while the cash sat in my account and instead went to my payroll. Why? Well, my business credit card gave me a 0% interest rate on all purchases for one year, starting in October. Guess what? I had no incentive to pay them off early. Instead, the money went to me in the form of paying off the money I loaned the company to get off the ground and in terms of my payroll. In fact, I just paid off a $10,000 balance that I’ve accumulated over the last year because in October, interest would have started to accumulate. Had they offered me a discount to pay it off early, I would have.

At this point, if you’re running your consulting business properly, then you’re making a profit every week, and will slowly catch up with your payroll. In the case of MRS, every two weeks that went by I caught up by another week or so. Once you’ve caught up and are writing checks for payroll every Friday for work completed the week before, you will start logging a legitimate profit. Now you can put money away for those times when you will not be working, be it because you have taken a vacation, or are between clients.

Just to be clear, the billing cycle between you and your business is different than the billing cycle between your clients and your business.

Profit
It should go without saying that being profitable is a bare minimum requirement for running your business. If you’re not profitable, you’re going to go out of business, plain and simple. At the end of every quarter, you read about companies who log tens of millions of dollars in losses every quarter. The first quarter of this year, GM posted a $323 million dollar loss. That’s a lot of money, by any standard. How do they keep going you ask? How could they possibly stay in business while losing $323 million in a single quarter. That doesn’t even count the previous five quarters where they also logged losses of more than $1.3 billion the year before. Yes. Billion with a ‘B’.

Let’s switch gears and talk about the profit stage of a company. I think here is where a lot of people get confused about the long term goals of a company. As soon as a company is profitable, the owners start thinking about all kinds of things that they can do. Buy more equipment, hire more people, get a bigger office space, increase corporate benefits, buy gadgets and gizmos for employees as rewards, etc. These people have lost sight of the true goal of the company, and there is really only one.

Your primary goal is to stay in business.

Now repeat those words with me. “My primary goal is to stay in business”. The single best way of ensuring this is setting up a rainy day fund. Financial planners the world over recommend that individuals should have no less than a 3 month safety net. This is money in the bank for you to pay your bills, your mortgage, car payment, meet your monthly expenses, live a little bit, and still be able to make ends meet for at least three months with no income. You need to do this for your business. And not just for the founders. For every employee in the company, founder or not.

Rainy Day Fund
Moon River Software recently crossed the six month Rainy Day Fund threshold. Right now, in the business bank account I have enough money to cover all corporate expenses, including the office lease, payroll, internet access, colocation server costs, phone bills, and several thousand dollars in additional ’surprise’ expenses for six months with zero additional income. The business has zero debt beyond this months’ credit card bill and upcoming payroll expenses. It’s been said that running your own business is one of the most stressful things in the world. With this Rainy Day Fund behind me, running my business is one of the least stressful things in my life. I know that I can screw up all kinds of things and still be in business. Here’s why.

Let’s go back to the example of GM and figure out how they’re still in business. Their loss of $323 million in the first quarter of 2006 was on revenues of $52.2 billion dollars. Let’s assume they did the same thing that I did, and could theoretically operate for 6 months with no income. That would mean they had over $100 billion in the bank. Losing $323 million is a mere 0.3% of that. For arguments sake, lets triple that loss and say they instead averaged a $1 billion loss every quarter for the next X years.

With a $100 billion Rainy Day Fund, even losing $1 billion every quarter, they would still be in business for the next 25 years. Yes, that’s correct. 25 years! Isn’t that impressive? Between you, me and the engine block, GM doesn’t have that kind of money to spare. They’re in pretty poor shape. I think that untrained monkeys could do better by flinging poo against a ‘Corporate Strategies’ mat on the wall, but that’s why I work for myself instead of GM.

The point I’m trying to make is that once you get a 6 month Rainy Day Fund under your belt, you’re in good shape. Now is the time that you should start looking to expand your business, hire more employees, buy more equipment, and do all those other things with your money. While large corporations measure success on a quarterly basis, I would recommend measuring it every other week. Every day or every week is too often, and once per month is probably not often enough. Here’s why every week is too short.

If I bought a new laptop this week because my old one died on me, it would set me back about $3,000. By spreading out this expense over multiple weeks, my profit margin will be much lower for those weeks, but longer term, the profit is still there. If I were measuring my corporate progress on a weekly basis, adding $3,000 worth of expenses in a single week could kill my profitability curve. Depending on how much my consulting income is, it could put me into the red that week. Measuring every other week tends to smooth out the wrinkles in the curve. When you start hitting millions of dollars in revenue every year, that’s when you can measure every month or every quarter. Until then, stick to every other week.

Summary
No matter what niche market you’re trying to serve with your consulting business, you don’t need a lot of money to get started. All you need is enough income to get you through the next six weeks or so, and the willpower to not melt down into a steaming pile of mental ward biomatter. If you make your situation clear to your first couple clients that you need a reasonably fast turnaround on the first couple of invoices, most of them will be willing to help out a little bit. Push for 10 or 15 day net terms. If you negotiate well, this won’t be a problem.

The hardest part about the process is having the willpower to make the leap into being self employed. After that, it’s really not that hard.

Special thanks to Rob Walling for reviewing drafts of this article.

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Like thousands of other software developers, I have read the majority of Paul Graham’s blog both past and present. He’s a fantastic writer. He has great insights into software startups and building a startup
software company. I even went to one of the Startup School
presentations that he helped organize at Harvard last October, and you
know what?

I was sorely disappointed.

It occurred to me that Mr. Graham has a huge following of developers who all want the same thing. They all want to know how to start a company, get VC funding, sell the company, make millions and retire at a very young age. It’s a worthwhile goal, and I don’t blame anyone who makes the attempt. Paul and several of his colleagues even started Y Combinator, which is essentially an early stage investment group for software developers who want to make the attempt. If Paul and the other Y Combinator owners think your idea has merit, they’ll fund you and up to four of your colleagues with $6,000 each for 12 weeks to work on your idea.

Unfortunately, there’s some fine print.

First, you have to move.
You and your co-founders are asked to relocate to Cambridge, MA for three months during the summer or the Bay area during the winter so that you can work on your idea and interact with the people at Y Combinator. Doesn’t seem like a big deal.

Next, you have to be willing to give up around 6% of the company.
Again, nothing major. If you’re going for VC funding, you’ve already come to terms with the fact that you’re going to give up roughly 80% ownership over multiple rounds of funding.

Third, you have to be selected.
This is the part which you have very little control over. Y Combinator only accepts a handful of groups twice per year. My best guess is that the actual number is probably less than a dozen groups per year total. At the Startup School presentation I went to in Cambridge, the auditorium was packed to the gills. There were people sitting on the stairs so they could listen to the presenters. This was more than a year ago. With all the publicity since then, I’m betting that the field of competition is pretty fierce.

Overall, the Y Combinator program seems like a great deal until you do the math and take the fine print into consideration. Then you realize that there are vast numbers of developers who simply couldn’t participate in the Y Combinator program, even if they wanted to. The entire program is geared towards developers who are young and don’t have anything to tie them down. If you have a mortgage, it will likely be difficult to manage an apartment in either the Bay area or Cambridge while still paying your mortgage. And to get that mortgage, you had to have a job, which you will need to quit in order to take this chance. And don’t delude yourself; you are taking a chance.

Are you married, or involved with someone? Well, you’re going to be gone for the next three months. You’ll be gone for much longer if things go well for the business. If you’re married, it’s going to be a hard sell to the wife (or husband) that you intend to quit your job and move away for 3 months at a minimum. I suppose this might be a good time to get divorced if you were seriously thinking about it.

All of this begs the question that myself and thousands of other developers have probably asked themselves.

“What about me?”

I’m going to let you in on a little secret since I believe I’ve found the answer. You don’t need Y Combinator.

Go back and reread that because it’s important. I’ll wait.

Ready? Good.

I mean no disrespect to the people at Y Combinator but given that they’re ignoring the rest of us, I think they’re going to understand. They’re running a business and are targeting a specific group of developers because they think it is the best target audience for them. Any business needs to segment the market and target its members aggressively to do well. Y Combinator is no different. They openly state that although they originally had benevolent intentions, it is not a charity. They expect to make money on their investments.

But the requirements that will come as part of the offer leave a hollow feeling for the rest of us who can’t uproot our lives and shirk our existing responsibilities for a chance like that. What if you’re a little bit older? What if you have already graduated from school, maybe bought a house, moved in with someone, your student loans have kicked in, or can’t live on $2,000/month for one reason or another? What if you have kids? Then what do you do? Shirking responsibilities like those is just not cool my friend.

As I said before, you don’t need Y Combinator. It would certainly help to be associated with them because you can never have too many business contacts, especially people who know people. But the fact is, if you’ve got what it takes to make it big with the Y Combinator program, you can make it big on your own, too. It’s just likely to take a little bit longer and will be a bit more work.

Last August, I spent the money to incorporate Moon River Software and since October I have worked for my new company full time. Approximately 10 months later, I have an office in downtown Worcester, a decent list of clients, a great deal of incoming work, enough money in the bank to survive with no income for the next six months, and am currently looking to hire additional help to keep up with the workload.

All that and no outside investment capital. I did have a chance to accept outside investment early on and I never actively pursued it beyond the initial stages because I wanted to be the master of my own destiny. That’s the reason I started the company to begin with.

I could certainly continue with my accomplishments thus far, but I fully believe I would inadvertently cross the line from being proud of how far my business has come and waltz into the realm of bragging.

What I’m really trying to accomplish with this article is to illustrate that anyone can do it. I don’t think you need to be a hotshot programmer who can do crazy hard things like write a compiler to translate C into Lisp. You don’t need to “know the right people” to be successful, although I won’t deny that it would help. In fact, there are only three things that you really need to get a software company off the ground and build it into a successful business.

First, you need to be dedicated.
If you don’t tend to follow through with side projects you’re never going to make it as the founder of a new company. Building your company needs to be at the front of your mind. It doesn’t need to be at the top of the list mind you, but it needs to be in the top five in the same slot that a real job would be. Putting family first is fine, and in fact I would encourage that. You’re going to need a motivational support group anyway. Just don’t expect them to understand in any way, shape or form what you’re going through. The bottom line is that if you’re starting a business because you want freedom, you’re going to have to sacrifice a lot of it in the beginning

The second thing is you need to be a decent developer.
You don’t need to be in the top 1% of the world, but you need to be decent. I’ll be honest and say that this is really hard. Not because this is governed solely or even mostly by innate ability, but because it is governed first by perception and then by ability. We developers are an arrogant lot, and it’s difficult to look at things that other developers have worked on and think that we couldn’t do a job that was equivalent or better, hence our perpetual desire to rework and rewrite what we consider to be ‘bad code’. During interviews, we make snap judgments based on 30-120 minute conversations that sum up the career experience of a total stranger and inevitably determine that the person is either not as good as we are or is equivalent to our experience. It’s difficult for our fragile egos to fathom that a complete stranger could be a far better developer. This is why nearly every developer describes themselves as an ‘above average’ programmer. A more accurate measure than the people you interview is your peers. If you find that you can hold your own in a group of your peers who have about the same level of experience that you do, then you should be alright. If not, you’ve got your work cut out for you.

Finally, you need a little bit of money.
You didn’t think you’d get away that easy did you? It takes money to make money. Anyone who tells you otherwise is selling something. Whether it’s hardware, software,internet access, phone lines, office equipment, paper for your printer, pens, notebooks or whatever. You’re going to need a little bit of money. If you’re planning on quitting your job outright to attempt starting a business, you’re going to need a lot more money than if you worked on your new business in your spare time. If Y Combinator can invest just $6,000 per person, chances are good that you can build a company with less than that.

If you can manage just those three things, you’ve got what it takes to build a successful software business.

Special thanks to Rob Walling for reviewing drafts of this article.

It’s that time of year again. I’m not talking about Christmas, Chanukah, Kwanza, or <insert your personal holdiay here>. It’s getting towards the end of the year, and it’s typically around this time, that companies start doling out bonuses of one sort or another. I’ve been giving some thought to this, as my own personal bonus is something I still need to decide on. Moon River Software can certainly afford to give me nearly any bonus that I desire, but there are a few lingering questions in my mind about this. Many questions in fact.

Will giving me a bonus make me work harder? Will I be grateful for that bonus? If I had a dozen employees working for me, would I give out bonuses to all of them, some of them, or none of them? On one hand, a nice bonus at the end of the year is a little something to tell your employees how much you appreciate all of their hard work. You appreciate their contributions to the company, and those late nights they’ve spent making sure that the products you make are perfect and well tested.

So how do you roll up all of those “thank you’s” into a gift? It turns out to be far more difficult than you might think. You see, there’s something about the corporate reward system that strikes me as odd. For the most part, it applies to end of the year performance reviews as well. In my eyes, performance metrics are pretty worthless. Lines of code, bugs opened, bugs fixed, customers called, calls fielded, money spent taking clients to dinner, etc.

I used to run a game called Cry of the Ancients. It was a simple, web browser based game that at its height, had around 400 players or so. I learned some valuable lessons running that game that are very applicable to any type of reward system. Any time that I added a new feature to the game, I had to be extremely careful to think about the consequences of that action. Once given a new tool or an option, it is very difficult to remove it without causing an incredible uproar.

I learned this when I decided to add assassins to the game. In the original version of the game, there were Generals that you could train, and use for various things in the game. Basically, they accomplished a number of tasks, and each had attributes which helped him to accomplish that task better. As players used their generals, they became increasingly better and better at their tasks. This eventually resulted in huge power swings that could literally topple the mightiest player within a few hours. So, I introduced assassins to help get rid of some of these ‘Uber-generals’. It didn’t quite go as I had planned.

It turned out that instead of solving the problem, I had made it worse. Originally, players with these Uber-generals would attempt to topple one another and that was generally the end of it. By allowing players to purchase assassins to kill these generals, players started creating multiple accounts to buy these assassins and then use them to topple their enemies anonymously. So, I limited the number of assassins that any one player could have to only 5. Players created still more accounts to house these assassins.

Eventually, I grew tired of the back-and-forth game I had entered into and decided to simply no longer allow assassins in the game. Fortunately, since assassins were not a renewable resource and could only be used once, I was able to simply let the game run its course. Not many people realized that new assassins were not entering the scene until it was much too late. By then, most of them had been used, and the few that were left were somewhat inconsequential.

Similar situations arose when I wanted to implement a reward based system for getting more people signed up for the game. I had wanted to get a few thousand people playing, and knew that only through the help of the players could that be achieved. Even before I implemented anything, I could quickly see that rewarding players for helping to attract new players wasn’t going to work out very well. To reward a player for attracting new members to the community, you need to measure their contribution. And in measuring that contribution, you open up the doors to abuse that reward system.

The reward itself needs to be significant enough to entice people to make an effort. It also needs to be low enough that it doesn’t create imbalances in the game. Giving additional gold for each new player you attract would create an army of fake accounts, each drawn by current players who are getting bonuses for doing nothing more than creating fake email accounts. The entire game was such that even small changes could make a world of difference in how the game played.

And this is the inherent problem with reward systems. How do you reward someone for doing a good job on something that they should be doing anyway? If they do a poor job, should they be rewarded? If you say yes, then you are reinforcing their poor performance. If you do not reward them, then you further alienate the person, who will be upset when he or she may think that they are doing a good job. When you implement a system where additional incentives are given for specific performance metrics, the people in question will do things to meet those metrics, regardless of the surrounding variables.

Many corporate executives are given this very incentive, typically via stock options. The value of these stock options is often so incredibly high that it overshadows their salaries. For the sake of someone to pick on, take a look at Microsoft. Bill Gates is listed on Yahoo! Finance as having a salary of $1 million per year. He currently has over $40 billion in assets, the vast majority due to the stock options he was granted when he started the company. Indeed, looking at any number of publicly traded companies will show you that corporate executives hiring packages and bonuses far outstrip their salaries.

In addition, their sole performance metric is quarter over quarter growth of the company, both in terms of dollars generated and profit per employee. It is these same executives who decide that cutting 100% health coverage to 80% will save the company a bundle because the employees will bear that other 20%. All so Bill Lumbergh’s stock can go up a quarter of a point.

I have personally seen people run projects over budget, cutting into company profits in order to meet their personal performance metrics. It would be a crime for an employee to write himself a check for $25,000 but it’s perfectly acceptable to run a project $100k over budget just to meet another deadline on a checklist that results in a $5k bonus for the employee instead of a $2500 bonus. Is something missing from this equation? Are companies really this dumb?

It would appear so. The scandals of Enron, Adelphia, and many others have shown that people are willing to do incredible things to the companies they are supposed to be helping to the best of their abilities in order to achieve some measure of personal gain. And why is this? Because they have been giving performance metrics to meet, and if they don’t meet them, bad things happen.

These examples merely show that when nobody is looking, incentive based plans don’t work because people look for ways to actively meet their objectives easier, thus manipulating the system. One of the reasons you implement an incentive based system is because you simply don’t have the time or resources to stand over people telling them exactly what to do every minute of the day. This is entirely self defeating.

But lets come back to my own personal dilemna. Will a bonus really make me work harder? Probably not. In fact, I know that it won’t, just as the lack of a bonus won’t make me work any less hard. I work for Moon River Software because I want to. I work long hours, I work very nearly every single day. I don’t recall the last time I went more than 24 hours without turning on my computer and working on something, or using my notebook to jot down business ideas. I have been doing this for nearly 2 months now with no compensation other than my salary, which started only this past weekend.

Should I get a bonus every week that I work more than 40 hours? The company could certainly justify it, and as company doing consulting for the time being, those extra hours are certainly benefitting the company monetarily. I keep returning to the very same idea though. Giving myself a bonus will not make me work harder, and the lack of one will not be detrimental to my work. Why is this?

I’ve come to the conclusion that it’s for a number of different reasons, all of which are rolled up into a single concept.

I’m happy here.

It turns out, that most people hate their jobs. The reasons generally tend to vary widely, but they seem to revolve around inept managers, insensitive policy decisions, and a lack of recognition for individual accomplishments. There’s a common theme here, which is lack of communication, between employees and the company. The remedies for this vary, but I’ve got my own set of rules that you can follow to help ensure that your employees stick around for as long as you want them to.

1) Set clear goals for the company and make sure the employees know what they are. This sounds simple enough, and many managers do a half assed job here. I’m sure all of the executives know what the company goals are, since they were likely in the meetings that these goals were set. But does anyone else know? Are they published somewhere? Does everyone else have access to the whiteboard where they are listed?

Chances are, probably not. By keeping the company goals in plain view for everyone to see, employees will have a fair idea of what needs to be done to achieve those goals. Even if they’re not certain what needs to be done, most people are smart enough to see the need for the things that they are doing. Why am I stuffing envelopes again? Oh yea, it’s because we’re trying to hit $1 million in sales by the end of the year, and these envelopes are going to all the CFO’s of the Fortune 1000 companies. If I don’t stuff these envelopes and send them, the CFO’s won’t see them, and our company won’t make its goal.

People need to be able to appreciate the significance of their actions. Understanding why their job is important is key to this appreciation. Without it, people start to slack off because their work is somehow devalued. Eventually, this leads to unsatisfied employees who leave the company for better opportunities, typically those whose responsibilities do not include stuffing envelopes.

2) Set clear goals for the employee with the employee. The key here is really the second piece. Sitting down with the employee is very important because it helps keep them involved in their own career development. Simply telling an engineer that you want them to learn the latest .NET stuff so they can assist with an upcoming project just isn’t good enough. In fact, it’s incredibly naive. Does the person even want to continue being an engineer? If not, then you’ve got a problem. If you have an open communication line with your employees, then finding out they’d like to do QA instead of Support, or Support instead of Engineering is really a blessing in disguise.

It means that your employees can look inside the company for new opportunities, rather than outside of it. You will certainly run into cases where the goals of an employee are not in line with those of the company, as was the case in my previous job. I wanted to run my own software company, and they wanted me to continue doing development for them. These seem to be mutually exclusive operations, but we found that they were not. Since then, I’ve been doing some contract work for them here and there. I get to run my own company, and they get my engineering talents. It’s a win-win situation.

By sitting down with employees on a regular basis, you can gain valuable feedback about their career paths, what goals they want to achieve, and what is important to them. I’ll give you a hint. It’s not always money. Personally, I took a 5% pay cut to work for Moon River Software. But I can still pay my bills, Moon River Software is still in business, and I am master of my own destiny, which suits me just fine.

3) Let people own their projects. People like to own things, even if they’re not even real. There are hundreds of thousands of people out there who are buying and selling virtual property all the time. Want to buy a sword in Everquest? What about World of Warcraft? Even most software is licensed, not sold. Ideas and project responsibilities are no different.

Early in my career, I worked for a company called Clearwire Technologies in Buffalo, NY. I ended up there mainly because someone I knew turned down a co-op there and I needed a job. He referred me, I had a phone interview and was hired shortly thereafter. Within a few short months, I was learning all sorts of things about embedded systems, multi-threading, wireless routers, and software engineering. It was great. I got involved with the IT department there, and eventually my boss ran out of things for me to do.

He told me he’d have something for me to do in a few days, and in the meantime, he wanted me to pick something that I wanted to learn more about and read up on it. He didn’t care what it was. So, I started learning CGI programming using HTML and perl. Within a couple of months, I was writing the online order entry software for the company. Eventually, I was in charge of nearly every aspect of the project, from working with the sales team, the network team, clients, member ISP’s, etc. I was even flown to Dallas one week to give a presentation on the software to the CEO, CFO, and all of the VP’s. It was exhillerating to know that so much rested on my shoulders.

Eventually, people started to get scared. They were putting a lot of faith in me. Too much in fact they thought. Was my software really going to manage all of their operations? I was too young to be in charge of something so important, and there was a lot of VC money riding on the company. So, they brought in some consultants who had offered them customizeable software which would manage their company. The meeting started, and these two men started their presentation. Forty-five minutes into the presentation, the CEO starts pressuring them for pricing. They backpedaled a bit, trying to ease into it, but the CEO cornered them and asked “How much” three times in the space of 5 seconds.

$20 million, plus customizations. Needless to say, the meeting ended abruptly within the next 5 minutes as the entire executive team cleared the room, leaving me, my boss, and the two salesman. I was very happy with the way things ended, but I wasn’t particularly thrilled that the meeting had taken place to begin with. I owned that project. It was my baby. I poured my heart and soul into it, doing everything possible to make everyone happy. All because it was my project.

Let people own their projects. They will work harder all on their own, and amazingly enough, they’ll be happy to do it.

4) Maintain an open door policy. Make this known, and frequently reinforce this. Employee happiness should be your number one priority. I’ve worked at a number of different places over the years, and I think that the one that I felt the most comfortable talking to my boss about anything was at Clearwire. Perhaps it was because I was much younger then. I didn’t know nearly as much about software as I do now, and I thought I knew more about software than I do now. Apparently I was brilliant in my youth. I’m not sure what happened.

It turns out that talking to an employer about your employment satisfaction isn’t very easy to do. There are a number of reasons for this, but there’s one that sticks out the most in my mind the most. “Will it really make any difference?” Well, it depends on where you work. At Moon River Software, I’d like to think so. Making your employees happy should be your number one priority, for this very reason.

It’s more expensive to replace someone than it is to ask “What can we do to make your work more enjoyable?” and then go ahead and do it. Good people cost a lot of money to replace. And once they’re gone, you’re probably not going to get them back. Even if you hire them back as a contractor, they’re likely going to make more money than it would have cost to make the necessary changes to convince them to stick around in the first place.

At MRS, I decided a while ago that eating was important enough that the company should pay for it. I’ve worked at two different companies which provided free meals for the employees. You can’t imagine how much of an incentive that is for people. I know people who have stuck around for the free lunches alone. At the moment, money is still a little bit tight, so it’s mostly microwave meals, snacks, free beverages, and a number of other things. But it’s so worth the investment, and the cost is minimal. In the past 4 weeks, I think I’ve spent under $100. Over the course of a year, an additional $1,200 in expenses for food is minimal compared to salary, software, hardware, etc. In fact, I spent nearly $1,500 on the Wise Installer. The expense of free lunch for a year is less than the cost of a single software license. Not bad. Not bad at all.

5) Let your employees help make important decisions. It’s important to note that when you’re a manager or the owner of a company, you need to get feedback from your employees when decisions are going to be made which affect them. Cuts to benefits can be a huge problem. As I mentioned earlier, once you have given a benefit of any kind, it’s notoriously difficult to take it away. I like to think of this rule as being the opposite of the Open Door Policy. While the open door policy is about letting the employees know that they can come to you with their problems and concerns, you should also have the reverse policy where you can go to your employees with your problems.

Lets use my previously made up example and say that we have two companies who are suffering from low income and need to start cutting benefits to help make ends meet. We have “Employees Suck Up Our Profit, Inc.” and “Our Employees Rock, Inc.”.

“Employees Suck Up Our Profit, Inc.” has decided that laying off people is going to be worse than anything, so instead, they’re going to cut employee benefits to help keep people around. The executives make the decision, tell their employees that the decision has been made, they’re affected, and hopefully things will change.

“Our Employees Rock, Inc.” handles things a bit differently. The executives realize that they are not going to be able to meet the demands of payroll, benefits, and all the other expenses, and cutting the company health plan is probably the best way to keep costs down, without laying people off. So, they call a company meeting and explain that the company is in some financial trouble. They need to save money in every way possible, and this is the most likely way to keep the company in business. But if people are willing to work some extra hours, and help meet a few more of the company goals, it is likely that things will turn around and the health plan can remain intact.

Whose plan do you think is going to go over better? Where would you want to work?

Now I understand that depending on the size of the company, you simply can’t always do this. But calling a company meeting and telling people in advance that things are headed downhill and the consequences of not meeting the company goals is going to result in the loss of health benefits is a far better plan. It allows for options, and people appreciate being in the loop when things in the company are happening. I don’t think I could ever work in a publicly traded company because I feel so blind to what’s going on.

How is sales doing? What customers are looking at our products? How are people using it? What can we do to help land deal XYZ?

In a publicly traded company, unless you’re in management, you’re pretty much in the dark, due to insider trading laws. And that sucks. I’m the type of person who hates to fly because I’m not in control of the plane and I can’t see where I’m going. At least if I can see where I’m going, I can offer suggestions and be on the lookout for trouble. But if you don’t tell anyone that you’re in trouble, they can’t help you until it’s 12:01am on the day after the due date. Then it’s too late and there’s nothing anybody can do.

So, now that I’ve ranted long enough on this topic, it’s important to recap just a bit and say that the biggest incentive and biggest reward you can give someone is a great place to work. One where your employees don’t hate dragging themselves out of bed in the morning. I loved working at Clearwire. It was one of the best places I ever worked, because I felt like I was making a huge contribution to the company, and I was responsible for an important project.

Make your employees feel important, and they’ll be happy to work for you. Once you’ve accomplished that, any bonuses/rewards that are offered will be just a bonus for doing their best, which they will do regularly because they enjoy it. If your employees are looking forward to the bonus as something which is supposed to make them stick around, then chances are that you’re going to be posting on Monster.com sooner rather than later.

Starting anything isn’t easy and building a new business has historically been fraught with peril. I don’t have any hard statistics on how many fail. Those statistics are difficult to come by because small businesses are not required to file public financial statements. The best you can generally do is look at the number of businesses opened and closed during a given time period and do a bit of guesswork.

These numbers alone still need a bit of interpretation, since a business can be sold for a profit by the owner, or it can close and declare bankruptcy. It’s also possible that a business can remain open for years without really turning a profit, but not losing money either. There are other scenarios that can materialize, but these are the most common.

I’ve heard some failure statistics in the past, but nothing concrete. It’s just a conglomeration of speculations by guys with PhD’s or Economics degrees. Everything I’ve read points to a similar trend. The first few years, the failure rate for a new business tends to be quite high, regardless of the industry. As time goes on, the odds of a small business surviving become much higher. I suspect that this is partially due to the amount of debt incurred within the first couple of years, coupled tightly with the ability to make sales as a new business. It is certainly related to the number and type of risks that the owner takes during that time.

As the business owner learns about the industry, and how to be successful in that industry, the knowledge gained eventually becomes more valuable than the money the business is making. If this sounds counter intuitive, don’t worry. It is. In the early stages of a business, establishing income is more important than knowledge. Without cash, you can’t pay your bills, you can’t market your products, and you will quickly go out of business. More importantly, you can’t grow your business if you’re not making money. As time goes on, the role of knowledge and cash gradually reverse until knowledge is more important. Your knowledge of the industry will allow you to make better decisions, keep you in business longer, and make exponentially more money which helps to grow the business.

In the early stages, it’s quite possible to make a bad decision, spend too much time or money on a project that never stood a chance, and promptly go out of business. But it is early mistakes that make a business stronger and more viable. In fact, they can save you from a spectacular demise later on when you have tons of money in the bank and aren’t paying close enough attention.

You must make as many small mistakes as early as possible while avoiding the large expensive ones. Each of these mistakes will be a learning experience, so whenever you make a mistake, be sure to pay attention to why things went wrong, how you can avoid it in the future, and what you could have done differently that would have resulted in a success. As a new business owner, you should expect to make mistakes and realize that there is an associated cost to pay for each of them, because no business has ever succeeded without making some mistakes along the way.

The cost of these mistakes will come in two forms. Time, and money. Obviously, time is money, but given the two of them, I would prefer to spend money, rather than time on nearly any given occasion, because I feel that time is far more valuable. If I spend $2,000, I can eventually make that money back. But once you spend time on something, you will never get that time back, barring of course that time machine my future self has yet to send to me. I can’t wait till I get my hands on that lazy bastard.

So, let’s say I need to write up a functional spec for some software I’m developing. I have a couple of different options. I can either write my own word processor with only the functionality that I need, go with an open source solution, or I can buy Microsoft Word like the rest of the world.

Now, I have no doubt that I could write a word processing software package. But at what cost? Neglecting the extreme stupidity of challenging Microsoft in their home territory, how many hundreds of thousands of hours would it take me to write that software? I can get Microsoft Word for around $229, and the whole suite of Office for the list price of $499.

Let’s say I’m paying myself or another programmer $50/hour. Even if we shift the decimal place one slot and figure that I could satisfy the software needs of 10 employees for the one time cost, I’m fairly certain it couldn’t be done with only 100 hours of work. If you know someone who can write an entire software package that duplicates everything in Office in under 100 hours, drop me a line. I’ve got a job waiting for them.

I’ll be saving the merits of Open Source software for another article, so humor me while I skip that discussion right now.

Money is the other cost that you will run into. Every business spends money. Some of it is required expenses, such as computers, software, office supplies, and most importantly, paying your employees. Other expenses are calculated risks. Many programmers who start their own software company are not business majors. It will take a few attempts at some things to figure out what you need to do and how to go about it correctly. Each of these attempts risks failure and each of these failures will cost you money.

Whenever you make a choice to spend money on something for your business, you should run through a quick checklist of questions in your head.

1. Is this something that we could do without?
2. If this does not pay off, will the business have trouble meeting payroll?
3. Will the business be set back by more than a couple of months if it fails?
4. Could the time/money be spent later for this instead of now?

If you can answer ‘Yes’ to any of these questions, then you should seriously consider what you are about to spend your time or money on, because it could mean the end of your business. Now, this isn’t to say that you should never do something if you answer ‘Yes’ to one of those questions. It just means that you need to seriously consider the consequences of it not paying off for you. Remember that in the beginning, you will make a lot of decisions that can severely impact the viability of your business. One mistake can kill it outright. Your goal should be to make it past the first couple of years without making a mistake like that.

After you survive the first year of business, all the while putting money in the bank for emergencies and paying all of your bills on time, you are well on your way to owning a business that will provide you with an enjoyable and flexible career for years to come.

And that’s really the reason you decided to start your own business isn’t it?

Every hero has a nemesis. Frodo had Gollum. Batman had The Joker, and Harry Potter had Voldemort. In nearly every case, the hero finds himself with his back to a wall, the end of the world is near, and people are going to die.

Well, it may not be quite so dramatic when you’re a startup company treading on your new ground, but you still have a major nemesis to deal with. Several in fact. Today, I’d like to talk about what is arguably the most important one. Cash.

Ah, that most glorious of things, which venture capitalists crave like crack. Like 5 year olds crave sugar. Cash is quite a beneficial thing isn’t it? Well of course. But it’s opposite can be your nemesis. Run out of cash, and you run out of business. It’s a simple concept, one which I really wish the airline companies would take into consideration at some point. Incidentally, two of the top seven this week are filing for bankruptcy. The unfortunate thing about a brand new company is that typically, you don’t have any cash. No money at all. And that’s simply not good business.

So now, you’ve incorporated this business with the state, maybe you have a partner or three, and you have a product you’re looking at creating. Here’s the catch 22. You need to sell your product to get money. You need money to build your product. As much fun as it is watching a dog chase its own tail, or watching a cat chase a laser pointer, it’s not nearly as funny when you’re on the receiving end is it?

There are a lot of ways to raise capital for your company. The first, which I have very little experience with, is to get outside investors. These are people who invest in other businesses for a living, giving them money in exchange for ownership of the companies and voting rights on their board of directors. I won’t discuss these. I’ve seen how they work to some extent, but if you want to read about them, start looking somewhere else because I simply don’t know enough about them except to say that I don’t think that’s for me.

So, if you’re putting the ix-nay on outside investment, that means that you only have a couple of options left. Personal loans from friends or family, your own money, or getting a loan. Loans from friends or family can be tricky, because there’s a personal attachment there. If the company doesn’t fare well, was it really a loan? Was it an investment? Either way, it can get ugly fast if you fail.

If it was your own money that you had saved up and you fail, the situation isn’t nearly so bad. However, if you got a loan to fund the business by putting up the equity in your house as collateral, you could be in serious trouble. My advice is to take the path that you feel most comfortable with should the company go under. If I were 23 and fresh out of college with no loans, I’d be comfortable with putting it on the plastic. Unfortunately, I’m not. I’m married with a mortgage, car payments, utility bills, cable bills, etc. The whole nine yards really. So taking another mortgage on my house is not a risk I’m willing to take, and I wouldn’t recommend it to anyone.

The fact is that you absolutely must think in the back of your mind“What’s the worst I’m willing to live with if I fail?”. Once you figure that out, figuring out how to fund your company shouldn’t be terribly difficult.

I think the best thing to do is look for beta customers while you’re developing your product. Yes, I said beta customers, not beta testers. There’s one important difference. For new products, beta testers are usually given a free copy of the software for helping out. Beta customers are those who will get to directly influence the final product and in return, are nearly assured that it is developed to meet their needs. If you can convince them to pay you while it is still under develpment, then congratulations. You’re well on your way to being successful. Be be careful when doing this, because it’s easy to take someone’s money, but if they have a serious problem that you can’t address, they’re going to be very put out because they paid good money for a pseudo-custom application and you’re not delivering on your end.

The way around this is to be very up front with them and make sure they know where your priorities are, and that they can live with the basic functionality. You can also help alleviate this trouble by offering them a below retail discount on the software. It’s still not free, but it puts money in your account, gets you a paying customer, and provides you with some important feedback.

The first few months of business will be very difficult, especially if you’ve burned your bridges, quit your job and decided to take a chance on running your business full time. This certainly isn’t for everyone and unless your product is ready to ship and you already have customers beating down your doors, it’s probably not a good idea.

Instead, you should be looking to preserve all of the cash that you have on hand. The best idea is to work on your product until it’s nearly ready to ship to customers. You’ll quickly find out that writing the software is only about half the work. There’s a lot of work to do once the last line of code is written. You need to put up a solid website, revise your marketing plan to fit the product, research competition, price your product, get early adopters, talk to customers to get feedback which will help improve your product, etc.

It’s a long list to get through. Fortunately, most people have partners and can generally split a lot of the workload to get things done faster. There’s a really big impulse to start spending money before you have it. I myself was thoroughly tempted by a new deal that Dell was offering just a few short weeks ago. I could have snagged myself a 64bit dual core 3.0GHz Pentium D machine with 4Gb of RAM. The video card was just sick in this bad boy. I already have a pair of Western Digital Raptor drives, a DVD burner and a 20″ LCD monitor so I was all set there in terms of upgrades I wouldn’t need to pay for.

I could make the purchase, write it all off as a business expense, and have the greatest computer I’d had in a very long time for only about $100/month. There was only one problem. I didn’t have the money quite yet. Now, during the course of developing my first product at Moon River, I had the foresight to seek out potential customers and explain to them what I was doing and if they’d be interested in it. This market research landed me a sale based on custom features that were implemented early on because they were included in the design phase. Had I not been scouting around, these features would certainly not be there now, but they were requirements for purchase, so they’re in the product.

Once Moon River was incorporated, I could receive a PO from this pre-customer, send them a bill, and would have capital to spend on whatever I needed, such as this new computer from Dell. The computer I’m using isn’t exactly terrible, but it’s not as fast as I’d like it. Compiling is a little slow, it’s got only a limited amount of RAM, and it’s just not an efficient development machine. It would be fine for running automated tests and whatnot, but running our product through the debugger is a bit painful at times.

So, a faster computer is something that’s debatably necessary. Without this PO, which I know we will receive at some point, I had other options. I could apply for business credit direct from Dell, I could finance it, I could pay it out of pocket with the expectation I would be repaid, or I could lease the hardware. I could also get a business credit card and charge it. Seems like a lot of choices until you realize that none of them are really viable.

What happens if the PO doesn’t come through? What if funding is cut? What if I need money for something else (which always happens). What if the company goes out of business in 6 months and I’ve leased the hardware? Then I’m stuck with a payment for a computer that is meant for a business that doesn’t exist. Granted I keep the computer, but it’s no longer a choice of buying the computer. You have no other option. It really comes down to the fact that we would be depending on an income that simply isn’t there yet.

After anxiously awaiting for the PO based on the initial demo, I decided that it would be best to simply wait till the money was deposited into the Moon River bank account. And once the money is in the account, I will spend about $100 to upgrade the current development machine I have with an additional 1Gb of RAM. As I said before, the computer isn’t terrible, but it doesn’t have a lot of memory either. Adding RAM is very cost effective, uses comparably little capital, and will produce far better results for the money than a new computer. In addition, we’ll have money for other things that we really need, such as new installer software because Visual Studio’s built in deployment project really isn’t that good.

The bottom line is that you need to keep your expenses in check. If you can’t pay for something out of pocket and still leave the business with a reasonable amount of cash in the bank, then perhaps you should think twice about making the purchase. Note, that this is really related to capital expenditures, rather than salaries. Office space, network connections, and other utility costs typically can be avoided only so much. See if you can make do with sub-par hardware, or see if you can get a decent deal off of Ebay if you really think you need it.

You can work out of your basement for a while to help save money. High speed connections are almost a must, so if you need to spend money, here is the place. I would never choose anything other than broadband internet access. It would drive me absolutely insane. To some people, this wouldn’t seem like a big deal. But everyone has their pet peeves and slow internet connections are one of mine.

As your income grows, so can your expenditures. Just remember that on the balance sheet, if the cash on hand ever hits zero, you’ve got some serious problems. On the other hand, if your revenue stays at just above zero for a while before it moves at all, that’s not so bad. You’re bound to incur some corporate expenses before you start making any money. This is to be expected, but be careful not to get in over your head. Debt is a slippery slope for anyone, and it’s so very very tempting to spend money that you don’t have because you think you’re going to get it. It may not happen.

Tempt yourself with this thought instead. Is this purchase absolutely necessary, or can it wait until you have thousands of dollars in the bank? There will be times you must deviate a bit and splurge on a new software package that will really help you out. But in my experience, probably half of the expenditures you want to make in the first 3 months of business, are expenditures that you could safely ignore and will do better as a business because of it.

Creating a new business is a lot of work. Oh sure, you can run to the Town Clerk, file some paperwork for a DBA and be out of there in less than an hour, spending maybe $35, but if you want to protect yourself, you need to do things right. That means a lot of time, a lot of effort, and most importantly, a lot of work.

There are a bunch of things that you’re going to need to do right off the bat before you even think about registering your new company. For myself, the choice to be a software company was an easy one. I’ve wanted to run my own company for more than 15 years now, very close to 20 in fact. I always knew that it was what I wanted to do. Prior to creating Moon River Software, I started a company called Game Thoughts. It was never the great success that I had envisioned, and there were a number of reasons why, which I will get into at some other time.

But Game Thoughts had everything going for it at the time. It was started back in August of 2000. Granted, this was right around the start of the bubble burst, but the gaming market was projected to explode over the next 10 years, and explode it did. We thought we were bound for greatness, and it was only a matter of time. Fast forward 5 years. While the gaming industry has indeed taken off, Game Thoughts did not.

In line with my thoughts on learning more from failure than from success, I will elaborate on the failures of Game Thoughts at a later date. This article is all about bootstrapping your business and how you need to get started.

The first thing you need to do is figure out what you’re going to be doing. The fact that you’re reading this lends a lot of credence to the idea that you plan on creating your own software startup company. Not a guarantee, but plausible of course. Now beyond software, knowing generally what kind of software you want to write will help a little bit. To the previously mentioned example of Game Thoughts, we wanted to work with games. PC games more specifically. Our expertise was not with the Mac or Linux, so they were somewhat out of the question. Similarly, console games were out of the question, as they required developers kits and a significant outlay of cash up front to be able to do anything right away.

Knowing what you want to do will help guide your future. You should write a one line mission statement, something that will guide you when the future gets a bit hazy. Ours was more of a tag line than anything else, but it worked just as well. “Welcome to the future of your imagination.”.

Once you have your mission statement, or tag line if you will, think of a couple of products that you can create. I’m going to concentrate more on business applications than games, because that’s what Moon River Software will be doing. I want you to realize, that I certainly mean more than one product. There are very few companies these days which can survive with only a single product unless they are extremely small.

Also, think about what you want to accomplish. Your high school guidance counselor would ask you idiotic questions like “What do you want to do with your life?” and “Where do you see yourself in 5-10 years?” Unfortunately, these questions really need to be answered. While I’ll be a bit coy in my answers for Moon River Software, I can tell you a few details.

MRS is going to develop mainly business applications. Our first product, named Moon River Milestones is currently in beta. It is a software project management solution targeted towards small companies who want to put together complex software as quickly and efficiently as possible. Mid way through development, Milestones has become essential to the project management of Moon River Software. The fact that we rely heavily on our own software is evidence enough of the need for it in the marketplace.

Next, you need a name for your company. This will require a considerable amount of thought by you and your partners. Did I say partners? Well, lets discuss partners before we consider a name. Partners are essential to any budding corporation. Without partners, you’re going to have a hard time getting everything done. Remember that billion things to do that I previously mentioned? Well, your partners will help you burn through them a bit faster than you could on your own. Even better, most partners will bring something to the table. You might be an excellent coder, but a friend of yours is a brilliant marketer. You should choose partners who can help contribute something different to the new company.

It’s a common affliction that most people have to want to be with and around people who are very similar to themselves. This is extremely common in hiring new employees. Most people develop an affinity for people during an interview who are very much like themselves. This can be very dangerous to a new company. You’ll end up with lemmings. Everyone is moving in the same direction, but if the leader isn’t going the right way, nobody else will have the sense to question the direction and the lot of them will end up in the water. Not good.

So, make sure that you choose partners who can contribute, but aren’t lemmings.

As for the name of the company, there are a number of factors to consider. Is your company name easy to understand over the phone, will it be easily misspelled, is it too long, is it too short, does it sound too much like that of another company, is the name already taken, etc. Moon River Software was not our first choice, nor was it our second. The original name for the company was to be Bitclinic Software. Great name for an anti-spy ware vendor, but not for a business software provider. It was also pointed out that when you say ‘Bitclinic’, it’s somewhat difficult to understand what is really being said. Is it ‘Bid Clinic’? Is it one word or two?

It’s simply not clear. We purchased the domain name ‘bitclinic.com’ some time before incorporating because we weren’t sure what to go with and this was one of the options. In the end, an overnight sailing trip around Gloucester and Rockport yielded the name that we were looking for. After a brainstorming session, a few beers, some laughs, and a few days of contemplating our various results, we settled on Moon River Software.

Make sure that you have a list of your top five choices when you go to register your business. It’s quite possible that your first, second, or even third or fourth choices are taken. Some quick searches using Google will probably let you know right away whether they’re likely to be available or not, but you never know. It’s entirely possible that several years ago a company went out of business with the name that you’re trying to register.

Don’t get too attached to the name either. It’s only a name. I know that it’s very difficult to let go once you settle on one, but don’t ever forget that it’s only a name. The name of your company will have exactly zero dollars worth of value. It’s the work behind it that will make you money. I certainly don’t believe that the name of ‘Mike Rowe Soft’ would have any value if it weren’t for that other company.

So, we’ve got a rough idea of what the company will do, perhaps some ideas for the name of the company, we’ve talked about partners, the next thing you need to do is actually register the company. I would highly recommend that you seek out a suitable CPA to advise you on the type of company to register and find an attorney who you feel comfortable with to do the actual incorporation work for you.

There are several types of companies: Sole Proprietorship, S-Corporation, C-Corporation, and LLC. There are likely others, but these are the main ones. I can’t stress this enough. I’m not an attorney, and I’m not a CPA, so I take no responsibility for what you do here. But get a CPA and an attorney to keep on retainer. These guys will get you through the first couple of years. How do I know? I read it on the Internet of course. The first couple of consultations should probably be free, but once you request that these guys actually do any work, it’s going to cost you some money. Here’s where it can get ugly.

How do you pay to start up a company when you don’t have any money? Unfortunately, this is where I’m going to have to leave you. Tune in later for Volume II.