Frequently Asked Questions

This is a list of frequently asked questions about entrepreneurship that I've collected over the past few years.  See the questions and my attempt at answering the questions next . . .

Frequently Asked Questions

Was it scary to quit your job and start a company?

Yes, but it wasn't as bad as I expected it to be. I was a contract software developer, so I didn't feel like I was giving up a lot of job security. I thought there was a chance I could go back to AT&T since I'd already left once and returned. Even if AT&T wouldn't take me back I figured I could find a job somewhere else. Someone told me once that "Job security is your ability to find your next job - it's not something a company can give you."

While planning the company I had saved enough cash to go without a pay check for awhile. My business partner and I bootstrapped the company, meaning we started without much cash and we had no outside investors. It really wasn't a choice we made because as far as we knew no one would invest in our idea, and we were probably right. The company was started in my apartment in 1991 with $10,000 in cash and some donated office furniture.

I figured the worst case scenario was that I'd lose all my money, go in debt and have to work a couple years to recover. Best case was I'd end up with a successful business. It really wasn't that hard of a decision.

After planning for nearly a year, I decided to go for it when a person at AT&T said he could "send me a lead a week. We really need someone to help us." I gave my two week's notice a few days later and my last day at AT&T was July 3rd, 1991. I thought it was a great omen that my first day at Gold Systems was Independence Day. I should have also seen the irony that my first real day at work was a holiday for everyone else. The AT&T person who was going to send us all the business - he never sent us a single lead.

The real fear doesn't come from starting your company. It comes later when you are running your company.

At what point did you feel like your company was going to make it?

It took about a year and a half, maybe two years, before I really started feeling like we were going to make it. I had heard all of the statistics about how unlikely it is for a business to succeed. If you haven't heard them yet, tell your friends and family that you are thinking about quitting your job at the biggest company in the world to start a business. They'll start sending you newspaper clippings, studies and all sorts of other evidence for why you are doomed to fail. Don't freak out and don't blame them because the common wisdom is that it is nearly impossible to create a successful company.

Starting a business isn't rocket science, unless of course your business is building rockets. The statistics that support the notion that you are unlikely to succeed are flawed for several reasons. Some studies I've seen are too simplistic because they take a list of new companies for a given year, and then check a few years later to see how many are still in business. Any business that doesn't show up is assumed to have failed. That doesn't count businesses that change their name, businesses that are acquired or businesses that are closed because the owner wants to move on to an even better business.

There is another reason that the odds of failing are overstated. Some businesses shouldn't be started in the first place and are doomed to fail almost from the beginning. (My assumption is you won't do this!) How many times have you seen a restaurant that is starting up on a shoestring in a poor location with a hand-made sign out front and you said to yourself "they won't last." How about the pottery shop that really is just a hobby out of control that lasts as long as it takes the owner to realize they don't enjoy their hobby now that they are depending on it to pay the bills?

Of course even the best planned business in the greatest market can fail, but the odds of your success increase every day you don't quit. In my first few years of business the only thing that kept me going at times was my unwillingness to quit. When I did want to quit, and there were plenty of times, I was lucky to have my wife, my business partner or one of my other friends talk me out of it.

Should I have a partner?

I think so. My business partner, Jim Fudge, was (and still is) a good friend who I trust completely. Neither of us had much business experience but we both wanted to be entrepreneurs. It was fun sharing the experience with him and we kept each other going when times were tough. Make sure you work out ownership issues and responsibilities right at the start. Having a business partner is like being married and if you go into the venture with unrealistic or incompatible expectations you are headed for trouble.

In my case my partner and I are completely different in a lot of ways. He enjoys the details and I enjoy moving from one idea to another. I like getting up in front of people and talking about our service and our company while he'd rather deal with people one on one. I like technology because it is new and exciting and he just wants it to work properly.

Until we understood that we thought differently it sometimes made it difficult for us to understand each other but I think our differences are important because we compliment each other so well. Some of the most successful partnerships I've seen are between people who are very different.

Should I bootstrap or get venture capital?

I'm happy that we bootstrapped but there were certainly times I wished we had a bank account full of someone else's money. There are some businesses that need so much capital to get started that you have no other choice than to try to get venture capital or angel money. I think an advantage to bootstrapping though is that you have to prove your idea can generate revenue to survive. You find out sooner what works and what doesn't before you've lost a lot of money and maybe even ownership of your company. If you are bootstrapping and you decide you need to change your strategy you can do it easier than if someone has invested in your original strategy. They may not be so quick to support the new strategy after seeing the old strategy fail.

Bootstrapping forces you to think about revenue and you learn how to budget your capital fast. Taking VC or angel money probably lets you spend more time thinking about growing the business and less about how you're going to meet payroll next month, at least for a while. A friend of mine who started out bootstrapping and then took venture money looks back and wishes they had taken VC money sooner though because he believes he ultimately would have been farther ahead and had a stronger company.

(Update - I answered the question above before Gold Systems took VC money.  Brad Feld of Mobius Venture Capital invested in Gold Systems in 2001.  Brad's been a great supporter and my experience has been wonderful.  It does change things though, and I'll write about that in a future post.)

How much money do I need to start?

The simple answer to the question "How much money do I need to start" is "Enough to keep going until your business can generate enough cash to sustain itself." That seems like a silly answer, so here's another one. "More than you think." Seriously - Rule Number One is Never Run Out of Cash.   

You can lose money for years as long as you don't run out of cash. You can be profitable but run out of cash and go down the tubes. Take your best guess at when you'll start generating revenue and when you'll become profitable. Estimate your expenses. Estimate how fast people will pay you. From these estimates you can figure out how much cash you will burn through before you are self-sustaining. That is how much money you need to start, assuming everything goes as planned. Since it almost never does in the beginning add in a safety factor. One thing in your favor is that the closer you get to running out of cash, the easier it gets to pick up the phone and try to sell something.

The following table is a very simple view of how cash flows through a company. Periods may be days, weeks, months or even years. The numbers are totally made up. I assume that you get paid for a period's worth of work in the next period. Don't underestimate how long it can take to get paid after you do the work or build the product! Remember this accounting rule No parentheses good, parentheses bad.

	Period 1	Period 2	Period 3	Period 4	Period 5	Period 6	Period 7
Revenue	0	0	500	800	1400	2000	2500
Expenses	1000	1000	1200	1300	1400	1500	1600
Profit (Loss)	(1000)	(1000)	(700)	(500)	0	500	900
Cash Received	0	0	0	500	800	1400	2000
Extra Cash Required in Period	1000	1000	1200	800	600	100	None!	You have an extra $400
Total Cash Required	1000	2000	3200	4000	4600	4700

Note that in period 5, you broke even, but because in the delay between doing the work and getting paid, you still had to come up with an extra $600 from somewhere. You turn the corner in period 7, having used a total of $4,700. If you started out the company with $5,000 in the bank you did fine. If you started out with $4,000 in the bank you run out of money in period 5, just when you are getting profitable. Wouldn't that suck - you run out of money just as things are starting to work and you go out of business. Repeat again Rule Number One: Never Run Out of Cash.

Can I start a company in my spare time?

I think you can plan a company in your spare time and maybe get it started but until you commit to the venture I don't think you're going to be able to create the momentum you need to create a successful company. I've had the following quote by Goethe up on my wall off and on for the past nine years. I first found it the week I quit my job. He says it better than I can.

Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness, concerning all acts of initiative (and creation). There is an elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance which no man could have dreamed would have come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power, and magic in it. Begin it now. -Goethe

Update:  Great quote, right?  Alan Baron, a friend and local entrepreneur sent me a link that indicates that Goethe didn't really say it at all.  Oh well, it is still a great quote.

I have seen this at work. When you are focused and committed to making something happen it is as if you become a magnet to the things you need to achieve your goal. This isn't just Boulder New Age Magic Baloney either - something changes when you commit.

Are all entrepreneurs crazy?

Yes. Every one I've met is obsessive and compulsive. They have bouts of unwarranted optimism. They are all trying to prove something to themselves, their friends or neighbors or the 4th grade teacher who said "you'll never amount to anything if you don't learn to spell." If you think you are normal, reconsider becoming an entrepreneur unless you also think that everyone else in the world isn't normal. I mean this all in a nice way.

Have you found it hard to go from being a techie to an administrator?

I still love technology and I read about it and play with it several hours a day. I can hack out a small Java application Microsoft Visual Studio application if I have to and I could probably still knock out some C code but I'm not a programmer anymore.  The hardest part is realizing that a skill that I worked very hard to develop is now almost gone from lack of use.  Maybe 40 year-old gymnasts feel this way too when they look back and realize they will never be able to perform the routines they once could do so easily as a young athlete.

A CEO needs to be much more than an administrator.  You have to be a sales person, an accountant, a guidance counselor, communicator,  performer, mediator, motivator, negotiator, planner, publicist and leader.  You have to be the person to ultimately take responsibility for anything your company does wrong while spreading credit for good things around your team.  You have to be a teacher and a student.  Learning how to take on these different roles is what keeps the job interesting to me.

Most of my friends are technical people who took an idea and turned it in to a business, so techies can learn how to be business people, but you first have to understand that you will have to change and grow to be successful.  Update: A book has finally been written about the changes that an entrepreneur will go through as their company grows.  Check out Leading at the Speed of Growth by Jana Mathews and Katherine Catlin