Bubba Murarka

Over the past few weeks I’ve had a chance to meet lots of smart people and talk about different approaches for starting a new venture.   I’ve also read / re-read numerous articles and books on the topic.  Below is my attempt to describe the two approaches that seemed to consistently come up with example implementations that I’ve found / heard about. 

It goes without saying that there is no “right” way to go do it and that there are many more approaches than discussed below.  These just happen to be the two that resonate with me the most.  Also, the goal / outcome for the approaches / implementations listed below is to build a successful software product company that creates meaningful economic return for the founders, employees and investors.  So, for example, these approaches are probably not pertinent to folks interested in starting a consulting type business. 

Approach 1:  Take a significant investment & go for a big win (aka swing for the fences)

Example implementations:

• Identify a big opportunity, convince investors, find founding team and go build it- This may be the most well known approach.  Research and build a business case that supports a significant investment (likely from VCs) with a large potential return.  After identifying the business case the focus shifts to building a team with the skills to deliver the solution.  So if it is an enterprise product this includes a experienced sales folks along with great engineering folks.  A good example of this is the new wave of Real Estate Software Startups addressing the ~3 trillion dollar real estate market. 
• Passionately chase a BIG strategic insight- This is one of the more romantic approaches.  Within an indvidual’s area of expertise they identify a significant opportunity to “disrupt” the existing market.  Under that conviction they either leave their job because of passion to follow the insight or frustration in not being able to get their existing employer to act on the insight.  A good example of this is Marc Benioff with salesforce.com.
• Leverage previous track record and personal reputation  - This is a people centric approach that bets that the entrepreneur will do something meaningful.  Basically if someone has delivered value to the entrepreneurial food chain in the past they can obtain resources for new ventures on the thesis that they will deliver again.   There is an interesting wrinkle here in that this implementation could be self fufilling because there are a lot of factors outside of just money that help create success - but I believe there are innate skills that exist w.r.t. entrepreneurism.  A good example of this can be read in the New New Thing about Jim Clark.    

Strategies & tools to leverage for this approach:

• Entrepreneur in Residence programs,
• PhD programs,
• Develop industry expertise in a mature industry at a big company, 
• Join nascent startup[s] to build a track record

Key risks & potential pitfalls:

• If you build it they will come trap (e.g. distribution challenges),
• Market place changes & competition,
• Need for significant ROI for investors (which limits exit options),
• Mid-course shift in personal responsibilities / obligations (e.g. personal debt). 

Approach 2: Experimentation + fast fail (aka swing to get on base)

Example implementations:

• Sweat labor night job - An individual or small group works on a new product while maintaining a primary source of income to pay their bills (job, grad school, etc).  At some point the “night job” surpasses the “day job” as a viable source of income (actual or expected) because of product traction.  What happens next is obvious, but can introduce IP issues depending on day job’s employee agreement.  A good example of this is Joshua Schachter with Del.icio.us.
• Opportunistic observation & execution- An individual or small group sees the need for a solution to a specific problem.  I heard this described as picking 1 the 10 most important things a large customer / company needs to get done in a year but has a low probability of achieving in house (likely 6 or below on their list).  If you, the entrepreneur, can execute on a solution and build a relationship with the target company via platform choices, personal interactions, or as a solutions partner you can create viable business or a liquidity event.  Examples of this appear to be Kieden and MessageCast.
• Idea Darwinism / see what sticks - This implementation assumes your product can be built cheaply.  If it can, then one of two paths are possible: a) rapid iteration in a market that is changing swiftly (e.g. social networking platforms), or b) assume that the product is more like a Music act and the key is to rapidly test a variety of small effort realizations with the intent to channel resources to one(s) with the most traction / potential.  These two paths are not different because they both make the same bet that a specific niche needs to be filled and that best bet for finding a solution (and arguably the niche itself) is by measuring market reaction to a product.  Examples of this can be found on the list of Y Combinator investments. 

Strategies and tools to leverage for this approach: 

• Get a job at a company that doesn’t build software products (high paying, low hours ideal),
• Find / take contract jobs (high paying, low hours ideal),
• Work at a mature software platform company,
• Apply to structured incubation programs (Hit Forge, Techstars),
• Get seed capital (App Factory, fbFund)

Key risks & pitfalls:

• Exhaustion,  
• IP lawsuits,
• Limited exit options,
• No meaningful ROI for entrepreneur 

Closing Thought

The important thing is to pick your personal outcome success metrics and then choose an approach / implementation that gives you the best chance of reaching it (perhaps better stated: most options to reach it).  Because once you start going it seems both will be hard to significantly modify.  In the future I will make time to write about motivation for starting a company…