Marc Andreessen shares his knowledge and experience on how to build high-tech startups. We made a brief review of his articles.

Why not to do a startup?

Creating a startup is not only about fun, free meals and foosball tables. It usually includes:

  1. The opportunity to be in control of your destiny. You succeed or fail on your own.
  2. The opportunity to create something new. You imagine something and bring it to existence.
  3. The opportunity to have an impact on the world. You can give people something new.
  4. The ability to create your ideal culture and work with a dream team. You choose and build your own culture and a team to suit.
  5. Money. Startups can be highly lucrative.

But there are also some reasons why not to do a startup:

  1. Creating a startup is an emotional rollercoaster.
  2. Nothing happens unless you make it happen.
  3. You’ll get told no. A lot.
  4. Hiring is difficult.
  5. Once, you’re going to have to hire executives.
  6. Work/life balance.
  7. The culture of a startup can easily go sideways.
  8. A great many of X factors.

 

When the VCs say “no”

What should you do if the VCs say “no” to funding your startup?

  • Lay the groundwork to go back in later.
  • Consider the environment.
  • Retool your plan.

What are the layers of risk for a high-tech startup?

It largely depends on a startup, but here are some common ones:

Founder risk – does the startup have the right founding team? Is the technologist really all that? Is the business person capable of running the company?

Market risk – is there a market for the product? Will anyone want it? Will they pay for it? How much will they pay? How do we know?

Competition risk – are there too many other startups already doing this? Is this startup sufficiently differentiated from the other startups, and also differentiated from any large incumbents?

Timing risk – is it too early? Is it too late?

Financing risk – after we invest in this round, how many additional rounds of financing will be required for the company to become profitable, and what will the dollar total be? How certain are we about these estimates? How do we know?

Marketing risk – will this startup be able to cut through the noise? How much will marketing cost?

Distribution risk – does this startup need certain distribution partners to succeed? Will it be able to get them? How?

Technology risk – can the product be built? Does it involve rocket science — or an equivalent, like artificial intelligence or natural language processing? Are there fundamental breakthroughs that need to happen?

Product risk – even assuming the product can in theory be built, can this team build it?

Hiring risk – what positions does the startup need to hire for in order to execute its plan?

Location risk – where is the startup located? Can it hire the right talent in that location?

 

“But I don’t know any VCs!”

There can be a situation when you have a startup for which you’d like to raise a venture funding, but you don’t know any VCs.

The first thing to do is to realize that VCs work through referrals. Get yourself in a position when you’re one of the 15-20 a venture capitalist is meeting with based on referrals from a network. But you should have your stuff together: a developed plan, presentation, supporting materials and so on.

If we talk about developing contacts with VCs, the best way to do it is to work at a venture-backed startup, get promoted and network the whole way.

 

The only thing that matters

At some point you’ll wonder, what correlates the most to success – team, product or market? Let’s define the terms.

The caliber of a startup team is the suitability of the CEO, senior staff, engineers, and other key staff relative to the opportunity in front of them.

The quality of a startup’s product is how impressive the product is to one customer or user who actually uses it.

The size of a startup’s market is the the number, and growth rate, of those customers or users for that product.

To cut a long story short, a product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.

The #1 company-killer is lack of market. And the only thing that matters is getting to product/market fit.

 

The Moby Dick theory of big companies

You may be looking for a partnership or distribution deal. Or want an investment. Or want a marketing or sales alliance. From time to time you need a big company’s permission to do something. But the behavior of a big company is largely inexplicable when viewed from the outside.

So what should you do?

  1. Don’t create startups that require deals with big companies to make them successful.
  2. Never assume that a deal with a big company is closed until the ink hits the paper and/or the cash hits the company bank account.
  3. Be extremely patient.
  4. Beware bad deals.
  5. Never, ever assume a big company will do the obvious thing.
  6. Be aware that big companies care a lot more about what other big companies are doing than what any startup is doing.
  7. If doing deals with big companies is going to be a key part of your strategy, be sure to hire a real pro who has done it before.
  8. Don’t get obsessed.

 

How much funding is too little? Too much?

What is the correct, or appropriate, amount of funding for a startup?

Before Product/Market Fit, a startup should ideally raise at least enough money to get to Product/Market Fit.

After Product/Market Fit, a startup should ideally raise at least enough money to fully exploit the opportunity in front of it, and then to get to profitability while still fully exploiting that opportunity.

 

Why a startup’s initial business plan doesn’t matter that much?

The answer is pretty simple: it is very hard to determine up front exactly what combination of product and market will result in success.

 

Hiring, managing, promoting, and firing executives

Developing a top-notch executive team is a critical thing for a startup founder.

Hiring:

  • If you’re not sure whether you need an executive for a function, don’t hire one.
  • Hire the best person for the next nine months, not the next three years.
  • Whenever possible, promote from within.
  • Look for someone who is hungry and driven.
  • beware people who have “done it before”.
  • Use an executive recruiter, but for sourcing, not evaluation.
  • Be ready to pay market compensation.

 

Managing:

  • Manage your executives.
  • Give your executives the latitude to run their organizations.
  • Ruthlessly violate the chain of command in order to gather data.

 

Promoting:

Promote talented people as fast as you can — promoting up and comers into executive roles, and promoting executives into bigger and broader responsibilities. You will tell the high potential people apart from everyone else.

 

Firing:

  • Recognize the paradox of deciding to fire an executive.
  • The minute you have a bad feeling in your gut, start gathering data.
  • Fire crisply.
  • Don’t feel guilty.

 

How to hire a professional CEO

Don’t. If you don’t have anyone on your founding team who is capable of being CEO, then sell your company – now.