How I Start Companies

My fastest-growing and most profitable business ever was the store the the back of Ellen Nottingham's classroom at T.T. Minor Elementary School. I bought a box of pencils at a store near our bus stop, and Cy Keener and I sold them the next day at school for 15 cents each.

The next week, we diversified into erasers, pens, and paper. A month later, after expanding into higher margin about 3 weeks of reinvestment, and annoying pink things that Cy claimed that girls would buy (he was right). We were netting about $20 per week, which was back when $20 meant something.

The partership worked pretty well: Cy had a good idea of what peple would buy, and I was stingy with the money.

Initial investment: ten dollars.

1. Don't get a MBA

All we had was a fifth-grade education. You can probably do better than that. All you have to do is recognize a need, and fill it. If the fundamentals are there, you'll make money. If they aren't, no amount of optimism or fancy jargon will save it.

2. Don't write a business plan

Venture capitalists expect that 9 out of 10 of their investments will fail. All of those companies had business plans, and there was no way to know by reading them which would do well. So why spend the time and effort to make a well-reasoned businss plan, when you could direct your energies towards selling your product?

3. Don't invent anything

It's much better to have a customer than it is to have a product. So start by having a customer, and let your customer determine what it is you'll sell.

I was working at Raosoft one summer when I answered a call from Coopers & Lybrand. They knew that Raosoft had some experience with conducting surveys, and wanted to know if we could help them conduct surveys over the internet. Over the course of an hour-long conversation, this guy convinced me that there was a need for a web survey software program.

I thought about it for a few days, and then used my notes from the conversation as the specification for EZSurvey. I wrote the code over the next few months, sending him weekly snapshots to critique. By the time I resumed college in the fall at the UW, EZSurvey was for sale, complete with an instruction manual, disk labels, and a fancy box. The box was a mistake: why did we ever think that we would sell 10,000 of them?

EZSurvey was the first web survey software program (Perseus, now Vovici, had been working in parallel and made their announcement a few weeks later), and it was designed almost entirely by customers. The program evolved over the next 5 years, entirely in response to market feedback. I (the developer) spent a lot of time talking to customers on the phone. In many cases, customers would pay Raosoft to add features they needed.

4. Don't raise capital

If you have your own money, use it first. That'll encourage you to keep your costs down.

If you don't have your own money, then find some customers, and then find something that they want. Try to be profitable from the start.

5. Don't hire employees

Learn how to do everything. If the floor needs sweeping, sweep it yourself. If you need to write an advertisement, write it yourself, and get a literary friend to cross out the adverbs and hyperbole. Sincerity will show in your work, and people will recognize that.

You can get how-to books at your neglected public library. Read the books by Herschell Gordon Lewis and subscribe to Michael Fortin's free newsletter.

If you can't do everything yourself, you need a partner. See #9

Eventually, you will need to hire people. Start hiring as independent contractors for as long as you can get away with it (the IRS has specific rules on this), then switch to a temp agency, then hire a company to handle your payroll.

If you need general accounting advice, you can often get it for free if you ask nicely and your entrepreneurial enthusiasm is infective.

6. Don't advertise

Or at least, don't spend more than, say, $25 on advertising. Great, profitable, customer-driven businesses grow by word of mouth. Early on, you need advertising to drive sales, and it's difficult to do that until you learn how to qualify your leads.

On the other hand, I regret not having spent the $250 to put our logo on the back of the Washington Software Association's 1992 T-shirt, because after Adobe bought Aldus, Raosoft would have been the only company on the shirt still in business! But it was the right business decision, because we already knew everyone who would get a shirt, and none of them were in our target market.

7. Don't neglect the fundamentals

My mom, the CEO of Raosoft, likes to say, "A business is about providing a product or service that people want, at a price that they can afford to buy it, and at a price that you can afford to sell it".

My dad, the Board Chair of Raosoft, likes to say, "Take care of your customer, or someone else will."

When I was the Treasurer, I liked to say, "Did you really need to spend that much? I bet you could have got it for less."

My brother, who is now the Treasurer, believes that accounting doesn't have to be complicated. You write down how much you earn and how much you spend. For more information, you put the numbers in separate columns for different categories.

8. Don't get discouraged

Everyone should work retail at some point in their life, because you learn to spend most of your time smiling politely while being rejected. Ninety out of one hundred people won't want whatever you're selling, and nine out of the remaining ten won't be ready to buy it. So you get used to it and buttress your positive attitude.

9. Don't do it alone

Most businesses ideas are bad ideas. So after you've learned to have an inpenetrable optimism, you need partners and friends to support you at the beginning, enjoy doing the jobs that you dislike, and be tell you when it isn't working out and it's time to quit.

10. Do learn how to sell

Selling is a skill, and you probably aren't as good at is as you think you are. Here are some pointers from Robert Hollander of Brand-Sense.