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First Time Startup CEO
       Boot camp
Ex-Microsoftee Founded Startups
 Microsoft Founders of Startups (Acquired, IPOed, or Significant revenue):
         Jonathan Sposato @ Picnik: ACQUIRED
         Dan Shapiro @ SparkBuy.com (Shell) ACQUIRED                                          Rev, Acquisition or Market Cap

         Mike Matthew @ All Stars Directory ACQUIRED                                          Amount:

         TA McCann @ Gist.com (Exchange) ACQUIRED
                                                                                               $1+ billion:            3
         Joe Giordano @ PayScale                                                                                   Companies
         Rich Barton @ Zillow & Expedia IPOed
         Mike Slade @ Starwave ACQUIRED                                                       $100+ million:           6
                                                                                                                   Companies
         Kevin Merritt @ Socrata
         Jordan Schwartz @ Pathable (MSN)                                                      $30+ million:          Many
         Bill Bryant @ Qpass, Visio, Mixxer, etc.
         Hadi Partovi @ Tellme Networks & iLike ACQUIRED
                                                                                              IPOed

                                                                                                            5
         Alex Castro @ Delve Networks (Shell) ACQUIRED
         Rob Glaser @ Real Networks IPOed
         Gabe Newell @ Valve
         Alex St. John @ WildTangent                                                                    Companies
         Bryan Starbuck @ TalentSpring (Shell) ACQUIRED
Numbers are often confidential. Some information came from people in the companies listed   BLOG: bryanstarbuck.typepad.com
Covered in this Talk
1                      2
    Business Model
                              Create the
    Validation First          Company


3                      4
     Startup CEO
                           Engineering Stack
     Leadership



                             BLOG: bryanstarbuck.typepad.com
Business Model

Validation First
Validate by Pitch-Deck
  Force Planning in all Critical Areas
  Brief enough for feedback from
  Customers, Employees, Advisors, Investors, etc.




                                    BLOG: bryanstarbuck.typepad.com
Pitch-Deck PAIN finds your Blind Spots
 He says, “This specific Pitch-Deck SLIDE is PAINFUL”
                  Response, “You found a Blind Spot in your ANALYSIS skills…
                                                        … or in your business”




Complete ALL of your Pitch-Deck
                                                  BLOG: bryanstarbuck.typepad.com
10x Healthy Business Model
    “10-x” refers to the customer have a LARGE problem in their life, not
                      just another small issue in their life.

1                                       2
            10x                                    10x
          PROBLEM                                SOLUTION

3                                       4
        Great Single                            Transactions
        Transaction                         multiply to a Large
        Economics                                Market Size
                                                 BLOG: bryanstarbuck.typepad.com
Validate by Talking to CUSTOMERS
1                                         2       Do they want a SOLUTION
    Do they have this PROBLEM

          9                       2                    8                     3
        People                People                 People               People


3   Will they PAY   THE PRICE             4         Will they BUY with these
                                                        FEATURES
         10                        1                    2                     9
        People                 Person                 People               People


                 A real Problem
                                              5       Are they any hidden
                    found in validation                 PROBLEMS
                                                        9                     2
                                                      People               People

                                                     BLOG: bryanstarbuck.typepad.com
How to Validate
  Do NOT use your friends
      And do not use the startup community
  Be willing to pay $25 to $50 for 60-minutes for B2C.
  $50-$100 for B2B professionals.
  PayPal, Amazon, iTunes
                     lets you record the dial-in conference
  call and share the screen. Cheaply

        People from                      The US and your customers
        Your Social Group are BAD        are more like:
       Early Adopters                 NOT Early Adopters
                                      NOT A-Players or Type-A
       White-Collar employees
                                      NOT Advocating change & disruption
       College educated               Have a budget already fully spent
       A-Players or Type-A            Blue-Collar employees
       Advocate change & disruption   High School only, Community College…



                                             BLOG: bryanstarbuck.typepad.com
Burn Rate
“Burn Rate” is the speed of spending money
BurnRate = (Expenses – Income)

“Runway” is months until running out of money
Runway = (Cash / BurnRate) = months until closing down


Searching for a great
                              Burn Rate when Employed
business modal while
employed is                           Salary: $120k
                              Living Expenses: $80k
great, because of the                Burn Rate $40k (Negative)
NEGATIVE burn rate
                                    BLOG: bryanstarbuck.typepad.com
Create the Company
Burn Rate – When Running
Now you are running the company. Manage around
BURN-RATE and RUN-WAY

One Metric for Pre-VC Funding:
  Founder: Up to 2 years no salary
  Engineer: $80k/year max salary (but not in the valley)
                                 Monthly Burn Rate                   Monthly Burn Rate
                                    (Low End)                           (High End)
RECOMMENDATION:                         CEO / Dev 1: $0k                            CEO: $7.3k
Microsftee gets a NON-                           Dev 2: $0k                       Dev 1: $7.3k
MSFTee co-founder.
                                                                                  Dev 2: $7.3k
Don’t magnify blind-spots
                                 Law / Accting / G Design:    $4k    Law / Accting / G Design:   $4k
                                                  Other: $3k                          Other: $5k
Target 4 to 8 months to launch
                                             Burn Rate $7k                     Burn Rate $31k

                                                             BLOG: bryanstarbuck.typepad.com
Typical Funding
First Funding:
   Comes at 5 months to 24-months (or never)
                                               Stages of Funding
   First funding is often $50k to $200k from   1) Friends & Families
   friends and family                              Whenever possible


Full Round:                                    2) Individual Angels
                                                   2 or more employees. Demo
   Highly conditional on an incredible idea,
   team and credible Founder/CEO.
   Often at 8 months to 18 months              3) Angel Groups
                                                   Launched. Tracking is a Plus



                                               4) VCs
                                                   For most first time founders, post-
                                                   launch, post-traction




                                               BLOG: bryanstarbuck.typepad.com
Two Typical Models
1   2 Developers until Traction. (Part-time CEO type)
              The goal is LAUNCHED + TRACTION
              Keep burn rate close to $0
              Focus on Funding when Traction is starting
              PROS: Easier to build team. Less need for funding.
              CONS: Some risk of going in the wrong direction. Funding will be
              harder to achieve pre-traction


2   1 CEO + 2 Developers.     Funding sooner, more focus on Marketing / Biz Dev

              The goal is LAUNCHED + TRACTION + Bigger Marketing/BizDev
              goals
              Funding is needed sooner
              CEO needs to ramp to be “Fundable” sooner
              PROS: Better business strategy. Better marketing & BizDev.
              Funding easier
              CONS: Higher burn rate, requiring funding sooner
                                                  BLOG: bryanstarbuck.typepad.com
Time Spent by Founder/CEO
Founder / CEO         Long-Term
                      Strategy, Marketing, Board, Advisors, Fund Raising



                      Medium-Term
                      Launch: Marketing, Sales, Biz Dev, Legal, Finance
         UX Designs



Dev #1                     Coding




Dev #2                     Coding


                                      BLOG: bryanstarbuck.typepad.com
Dev Outsourcing
Successes:
   Only pay FIXED Projects. oDesk.com
   $1.5k to $3k for ~1 month to 2 month projects
   Full specs, heavily manage with meetings, reviews & testing
   Own Source Control. Code review everything
   Tend to only work for technical founders
   Always high risk

Failures:
    Normally fails with no technical founders
    <Hear horror stories>




                                                BLOG: bryanstarbuck.typepad.com
Startup CEO
Leadership
Test your Startup CEO Knowledge
Demonstrate understanding of these topics. These are a common metric by
investors to test for a “Fundable CEO”
 Finance                                                 Marketing
   Deferred Recognized Revenue                             How to improve traffic conversion rates. Rates impact
                                                           on business model
   GAAP compliance. Typical Pool sizes
                                                           Dave McClure model of marketing
   Patterns of COGS to Revenue ratios of different
   business models                                         Drip email marketing
   Impact of Churn                                         How to create a POSITIONING strategy from a
                                                           strategic point of view
   Post-Money Valuation. Cram downs
                                                           Explain behavior of 8+ channels of marketing
   Negotiating focal points to secure next two rounds
   of capital                                              List 3 companies and their typical Cost-to-Acquire costs



 Other
   Explain what CHANNELS are for B2C startups. List
   them
   Explain how to manage to a Sales Pipeline. Describe
   each stage
   Explain how Business Development deals are secured




                                                                 BLOG: bryanstarbuck.typepad.com
Engineering Stack

(For .NET programmers to Understand the
       OPEN SOURCE STACK)
Ramp-up on Knowledge
                                               GEMs
        This STACK is NEW                     Mobile Frameworks
                                               Ajax Frameworks
THIS IS VERY IMPORTANT                         CSS Frameworks
                                               Cross-Site Integration (Scraping)
 The great expansion of the stack is new:      Rails
 ~2008 to 2011                                 DB Schema Auto-Upgrade
 GOAL: Work can be accomplished with           Content Management System
 HALF the number of devs                       Cloud WebApp Services
      And with little or no TEST or IT         Cloud Hosting
      head count                               Enterprise BUS / Queuing
 Microsoft people think, “It is just another   BI & Reporting
 language”                                     Database Debugger
      The stack is beyond the language         Source Control Innovations
      and new
                                               Linux Servers
                                               Automatic IT
                                                Testing (Blackbox & Whitebox)
          Utility Helpers                       Utility Helpers
          Language                              Language
                                                   BLOG: bryanstarbuck.typepad.com
Stack is Critical for Burn Rate
Old Model: 10 Employees         New Model: 4 Employees
    CEO or Leader                     CEO or Leader

    Dev #1                            Dev #1


    Dev #2                            Dev #2


    Dev #3                            Dev #3


    Dev #4          Tester #1

    Dev #5          Tester #2

                                Example:
    Dev #6          IT / OPs
                                            $1m per WEEK
                                            In customer transactions
                                            With 12 Employees
                                       BLOG: bryanstarbuck.typepad.com
Next Steps for Learning (1 of 3)
People often ask how to learn more. Here is the best way:
 ABSOLUTE Must Read                            Strategic Thinking or Execution
   Venture Deals On Amazon                        Innovator’s Dilemma On Amazon
   By: Brad Feld                                  By: Clayton Christensen

                                                  Crossing the Chasm On Amazon
   Art of the Start On Amazon                     By: Geoffrey Moore
   By: Guy Kawasaki
                                                  Blue Ocean Strategy On Amazon
                                                  By: W. Kim

   The Lean Startup On Amazon
   By: Eric Ries                                  Good to Great On Amazon
                                                  By: Jim Collins

                                                  Maverick On Amazon
 Other                                            By: Ricardo Semier


    The Ten-Day MBA On Amazon                     The Four Steps to the Epiphany On Amazon
    By: Steven Silbiger                           By: Steven Blank

    Founders at Work On Amazon                    Inspiring Excellence On Amazon
    By: Jessica Livingston                        By: Michael Schutzler


                                ABSOLUTE Must Read
                                                       BLOG: bryanstarbuck.typepad.com
Next Steps for Learning (2 of 3)
People often ask how to learn more. Here is the best way:
 Marketing                                           Other
   The 22 Immutable Laws of Branding On Amazon         Founders at Work On Amazon
   By: Al Ries                                         By: Jessica Livingston


   Full Frontal PR On Amazon
                                                       Startup Weekend On Amazon
   By: Richard Laermer
                                                       By: Marc Nager

   Positioning: The Battle for your Mind On Amazon     Don’t Make Me Think On Amazon
   By: Jack Trout                                      By: Steve Krug

   The Strategy and Tactics of Pricing On Amazon
   By: John Hogan


   Purple Cow On Amazon
   By: Seth Godin




                 ABSOLUTE Must Read
                                                             BLOG: bryanstarbuck.typepad.com
More Learning (3 of 3)
   (My) Bryan Starbuck’s Blog on Company Building:
         http://bit.ly/StarbuckBlog
   Dave McClure – Marketing Model for Startups:
         http://500hats.typepad.com/500blogs/2007/06/internet-market.html
         http://vimeo.com/26277733
         http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version
         http://www.slideshare.net/dmc500hats/startup-metrics-101-367863
   More from Dave McClure:
         http://www.slideshare.net/dmc500hats/why-not-to-do-a-startup
         http://www.slideshare.net/dmc500hats/do-marketing-its-not-evil
   Presenting to Investors:
         http://www.slideshare.net/dmc500hats/how-to-pitch-a-vc-aka-startup-viagra-how-to-give-a-vc-a-hardon
   Strategic economics of SaaS https://salesforce.adobeconnect.com/_a13852757/buildingasuccessfulsaasco/
   Startup Marketing: http://howtolaunchastartup.com/2011/06/20/21-must-read-resources-for-start-up-marketing/
   57 Things I’ve Learned Founding 3 Tech Startups: http://betashop.com/post/1417413108/57-things-ive-learned-
   founding-3-tech-companies




                 ABSOLUTE Must Read
                                                                     BLOG: bryanstarbuck.typepad.com
The END

Next Steps:
  Create your company and have a BLAST
  Join the “MicrosoftStartup Learning” mailing list
     Join here: http://groups.google.com/group/Knowledge-Startup-to-Microsoft
  Bryan Starbuck’s Blog: bryanstarbuck.typepad.com

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Creating your First Startup: For BigCo employees

  • 1. First Time Startup CEO Boot camp
  • 2. Ex-Microsoftee Founded Startups Microsoft Founders of Startups (Acquired, IPOed, or Significant revenue): Jonathan Sposato @ Picnik: ACQUIRED Dan Shapiro @ SparkBuy.com (Shell) ACQUIRED Rev, Acquisition or Market Cap Mike Matthew @ All Stars Directory ACQUIRED Amount: TA McCann @ Gist.com (Exchange) ACQUIRED $1+ billion: 3 Joe Giordano @ PayScale Companies Rich Barton @ Zillow & Expedia IPOed Mike Slade @ Starwave ACQUIRED $100+ million: 6 Companies Kevin Merritt @ Socrata Jordan Schwartz @ Pathable (MSN) $30+ million: Many Bill Bryant @ Qpass, Visio, Mixxer, etc. Hadi Partovi @ Tellme Networks & iLike ACQUIRED IPOed 5 Alex Castro @ Delve Networks (Shell) ACQUIRED Rob Glaser @ Real Networks IPOed Gabe Newell @ Valve Alex St. John @ WildTangent Companies Bryan Starbuck @ TalentSpring (Shell) ACQUIRED Numbers are often confidential. Some information came from people in the companies listed BLOG: bryanstarbuck.typepad.com
  • 3. Covered in this Talk 1 2 Business Model Create the Validation First Company 3 4 Startup CEO Engineering Stack Leadership BLOG: bryanstarbuck.typepad.com
  • 5. Validate by Pitch-Deck Force Planning in all Critical Areas Brief enough for feedback from Customers, Employees, Advisors, Investors, etc. BLOG: bryanstarbuck.typepad.com
  • 6. Pitch-Deck PAIN finds your Blind Spots He says, “This specific Pitch-Deck SLIDE is PAINFUL” Response, “You found a Blind Spot in your ANALYSIS skills… … or in your business” Complete ALL of your Pitch-Deck BLOG: bryanstarbuck.typepad.com
  • 7. 10x Healthy Business Model “10-x” refers to the customer have a LARGE problem in their life, not just another small issue in their life. 1 2 10x 10x PROBLEM SOLUTION 3 4 Great Single Transactions Transaction multiply to a Large Economics Market Size BLOG: bryanstarbuck.typepad.com
  • 8. Validate by Talking to CUSTOMERS 1 2 Do they want a SOLUTION Do they have this PROBLEM 9 2 8 3 People People People People 3 Will they PAY THE PRICE 4 Will they BUY with these FEATURES 10 1 2 9 People Person People People A real Problem 5 Are they any hidden found in validation PROBLEMS 9 2 People People BLOG: bryanstarbuck.typepad.com
  • 9. How to Validate Do NOT use your friends And do not use the startup community Be willing to pay $25 to $50 for 60-minutes for B2C. $50-$100 for B2B professionals. PayPal, Amazon, iTunes lets you record the dial-in conference call and share the screen. Cheaply People from The US and your customers Your Social Group are BAD are more like: Early Adopters NOT Early Adopters NOT A-Players or Type-A White-Collar employees NOT Advocating change & disruption College educated Have a budget already fully spent A-Players or Type-A Blue-Collar employees Advocate change & disruption High School only, Community College… BLOG: bryanstarbuck.typepad.com
  • 10. Burn Rate “Burn Rate” is the speed of spending money BurnRate = (Expenses – Income) “Runway” is months until running out of money Runway = (Cash / BurnRate) = months until closing down Searching for a great Burn Rate when Employed business modal while employed is Salary: $120k Living Expenses: $80k great, because of the Burn Rate $40k (Negative) NEGATIVE burn rate BLOG: bryanstarbuck.typepad.com
  • 12. Burn Rate – When Running Now you are running the company. Manage around BURN-RATE and RUN-WAY One Metric for Pre-VC Funding: Founder: Up to 2 years no salary Engineer: $80k/year max salary (but not in the valley) Monthly Burn Rate Monthly Burn Rate (Low End) (High End) RECOMMENDATION: CEO / Dev 1: $0k CEO: $7.3k Microsftee gets a NON- Dev 2: $0k Dev 1: $7.3k MSFTee co-founder. Dev 2: $7.3k Don’t magnify blind-spots Law / Accting / G Design: $4k Law / Accting / G Design: $4k Other: $3k Other: $5k Target 4 to 8 months to launch Burn Rate $7k Burn Rate $31k BLOG: bryanstarbuck.typepad.com
  • 13. Typical Funding First Funding: Comes at 5 months to 24-months (or never) Stages of Funding First funding is often $50k to $200k from 1) Friends & Families friends and family Whenever possible Full Round: 2) Individual Angels 2 or more employees. Demo Highly conditional on an incredible idea, team and credible Founder/CEO. Often at 8 months to 18 months 3) Angel Groups Launched. Tracking is a Plus 4) VCs For most first time founders, post- launch, post-traction BLOG: bryanstarbuck.typepad.com
  • 14. Two Typical Models 1 2 Developers until Traction. (Part-time CEO type) The goal is LAUNCHED + TRACTION Keep burn rate close to $0 Focus on Funding when Traction is starting PROS: Easier to build team. Less need for funding. CONS: Some risk of going in the wrong direction. Funding will be harder to achieve pre-traction 2 1 CEO + 2 Developers. Funding sooner, more focus on Marketing / Biz Dev The goal is LAUNCHED + TRACTION + Bigger Marketing/BizDev goals Funding is needed sooner CEO needs to ramp to be “Fundable” sooner PROS: Better business strategy. Better marketing & BizDev. Funding easier CONS: Higher burn rate, requiring funding sooner BLOG: bryanstarbuck.typepad.com
  • 15. Time Spent by Founder/CEO Founder / CEO Long-Term Strategy, Marketing, Board, Advisors, Fund Raising Medium-Term Launch: Marketing, Sales, Biz Dev, Legal, Finance UX Designs Dev #1 Coding Dev #2 Coding BLOG: bryanstarbuck.typepad.com
  • 16. Dev Outsourcing Successes: Only pay FIXED Projects. oDesk.com $1.5k to $3k for ~1 month to 2 month projects Full specs, heavily manage with meetings, reviews & testing Own Source Control. Code review everything Tend to only work for technical founders Always high risk Failures: Normally fails with no technical founders <Hear horror stories> BLOG: bryanstarbuck.typepad.com
  • 18. Test your Startup CEO Knowledge Demonstrate understanding of these topics. These are a common metric by investors to test for a “Fundable CEO” Finance Marketing Deferred Recognized Revenue How to improve traffic conversion rates. Rates impact on business model GAAP compliance. Typical Pool sizes Dave McClure model of marketing Patterns of COGS to Revenue ratios of different business models Drip email marketing Impact of Churn How to create a POSITIONING strategy from a strategic point of view Post-Money Valuation. Cram downs Explain behavior of 8+ channels of marketing Negotiating focal points to secure next two rounds of capital List 3 companies and their typical Cost-to-Acquire costs Other Explain what CHANNELS are for B2C startups. List them Explain how to manage to a Sales Pipeline. Describe each stage Explain how Business Development deals are secured BLOG: bryanstarbuck.typepad.com
  • 19. Engineering Stack (For .NET programmers to Understand the OPEN SOURCE STACK)
  • 20. Ramp-up on Knowledge GEMs This STACK is NEW  Mobile Frameworks Ajax Frameworks THIS IS VERY IMPORTANT CSS Frameworks Cross-Site Integration (Scraping) The great expansion of the stack is new: Rails ~2008 to 2011 DB Schema Auto-Upgrade GOAL: Work can be accomplished with Content Management System HALF the number of devs Cloud WebApp Services And with little or no TEST or IT Cloud Hosting head count Enterprise BUS / Queuing Microsoft people think, “It is just another BI & Reporting language” Database Debugger The stack is beyond the language Source Control Innovations and new Linux Servers Automatic IT Testing (Blackbox & Whitebox) Utility Helpers Utility Helpers Language Language BLOG: bryanstarbuck.typepad.com
  • 21. Stack is Critical for Burn Rate Old Model: 10 Employees New Model: 4 Employees CEO or Leader CEO or Leader Dev #1 Dev #1 Dev #2 Dev #2 Dev #3 Dev #3 Dev #4 Tester #1 Dev #5 Tester #2 Example: Dev #6 IT / OPs $1m per WEEK In customer transactions With 12 Employees BLOG: bryanstarbuck.typepad.com
  • 22. Next Steps for Learning (1 of 3) People often ask how to learn more. Here is the best way: ABSOLUTE Must Read Strategic Thinking or Execution Venture Deals On Amazon Innovator’s Dilemma On Amazon By: Brad Feld By: Clayton Christensen Crossing the Chasm On Amazon Art of the Start On Amazon By: Geoffrey Moore By: Guy Kawasaki Blue Ocean Strategy On Amazon By: W. Kim The Lean Startup On Amazon By: Eric Ries Good to Great On Amazon By: Jim Collins Maverick On Amazon Other By: Ricardo Semier The Ten-Day MBA On Amazon The Four Steps to the Epiphany On Amazon By: Steven Silbiger By: Steven Blank Founders at Work On Amazon Inspiring Excellence On Amazon By: Jessica Livingston By: Michael Schutzler ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com
  • 23. Next Steps for Learning (2 of 3) People often ask how to learn more. Here is the best way: Marketing Other The 22 Immutable Laws of Branding On Amazon Founders at Work On Amazon By: Al Ries By: Jessica Livingston Full Frontal PR On Amazon Startup Weekend On Amazon By: Richard Laermer By: Marc Nager Positioning: The Battle for your Mind On Amazon Don’t Make Me Think On Amazon By: Jack Trout By: Steve Krug The Strategy and Tactics of Pricing On Amazon By: John Hogan Purple Cow On Amazon By: Seth Godin ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com
  • 24. More Learning (3 of 3) (My) Bryan Starbuck’s Blog on Company Building: http://bit.ly/StarbuckBlog Dave McClure – Marketing Model for Startups: http://500hats.typepad.com/500blogs/2007/06/internet-market.html http://vimeo.com/26277733 http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version http://www.slideshare.net/dmc500hats/startup-metrics-101-367863 More from Dave McClure: http://www.slideshare.net/dmc500hats/why-not-to-do-a-startup http://www.slideshare.net/dmc500hats/do-marketing-its-not-evil Presenting to Investors: http://www.slideshare.net/dmc500hats/how-to-pitch-a-vc-aka-startup-viagra-how-to-give-a-vc-a-hardon Strategic economics of SaaS https://salesforce.adobeconnect.com/_a13852757/buildingasuccessfulsaasco/ Startup Marketing: http://howtolaunchastartup.com/2011/06/20/21-must-read-resources-for-start-up-marketing/ 57 Things I’ve Learned Founding 3 Tech Startups: http://betashop.com/post/1417413108/57-things-ive-learned- founding-3-tech-companies ABSOLUTE Must Read BLOG: bryanstarbuck.typepad.com
  • 25. The END Next Steps: Create your company and have a BLAST Join the “MicrosoftStartup Learning” mailing list Join here: http://groups.google.com/group/Knowledge-Startup-to-Microsoft Bryan Starbuck’s Blog: bryanstarbuck.typepad.com