Startup Strategy: Bribe the Chicken

Recently I was talking to an entrepreneur that was recounting the challenges he had with his mobile-first consumer startup. Like many ideas, there was a chicken and egg problem whereby there wasn’t much reason to use his app if there weren’t already a good number of people using it, and he didn’t have many users.

With that introduction he then told me that he was trying to figure out how to bribe the chicken. Not having heard that phrase before I probed more: what’s an example? Quickly, he told me the example of Half.com, co-founded by Josh Kopelman. In the story, Half.com was like eBay only for fixed-priced goods (e.g. a used book for half price). Clearly, it’s a chicken and egg problem where users aren’t going to browse the site if there aren’t any books and no one is going to list books if there aren’t any users.

Enter bribe the chicken. The way they bribed the chicken was by going to used book stores and offering $2,000 in cash up-front as pre-payment for the store owner to list the books online. Any books that sold would be deducted from the pre-payment. Used book store owners are reliable types who will list their inventory and ship a book out when it sells. By bribing the chicken, Half.com was able to get thousands of used books listed quickly and solve part of their problem. Once the used books were online, users found the site through search engines and the business was a huge success.

What else? What are some other examples of bribing the chicken?

Core Values for Atlanta Tech Village

Core values are an important part of any business. For me personally, I like to approach them slightly differently than other companies by having two simple ideas. For the overarching idea, I like “be the best place to work and the best place to be a customer.” For the people values, which are the most important, I like “positive, self-starting, and supportive.”

Now, with the Atlanta Tech Village being a double bottom line enterprise having goals of helping enhance the Atlanta technology community while also being a for-profit enterprise, I want to have more descriptive core values that cover a wider range of items, while not being so numerous that they are easily forgotten.

Here’s a laundry list of ideas for core values for Atlanta Tech Village that I’d like feedback and input on from the community:

  • Pay it forward
  • Be scrappy
  • Be lean
  • Be respectful
  • Be open and honest
  • Don’t be annoying
  • Never stop learning
  • Share openly
  • Value relationships
  • Deliver on promises
  • Treat people well
  • Work hard, play hard

Core values become especially important with large coworking areas where people from different companies are regularly interacting, and a common standard has to be met. We need strong core values to create the best technology and entrepreneurial center possible.

What else? What core values do you like and what values would you add?

Challenges of a Parallel Entrepreneur

The term serial entrepreneur is fairly common in describing an entrepreneur that successively starts one business after the other. There’s another less common term, parallel entrepreneur, that describes an entrepreneur creating multiple businesses at the same time. If making one company successful is difficult, what are the odds of simultaneously making two or more successful?

For many parellel entrepreneurs, the goal is to have a few different things going at the same time such that when one of the projects starts to take off, all energy is focused on that startup and the other startups are phased out or ignored.

Here are a few challenges being a parellel entrepreneur:

  • While the main challenge with starting a business is to make it successful, there’s also a secondary goal to figure out as quickly as possible if it isn’t going to be successful so that you can move on
  • Multiple projects at the same time results in many little tasks that it becomes even harder to work on the business (most entrepreneurs spend significantly more time working in the business as opposed to on the business)
  • When seeking help from others, networking, or raising money, a parallel entrepreneur can come across as less committed and less likely to succeed (a VC cited this to me personally when I tried to raise money in 2009)

One way to make parallel entrepreneurship work is to be less of a parallel entrepreneur and more of an investor/advisor in multiple ideas you come up with whereby someone else is focused 100% on the startup and you help out without any day-to-day responsibilities. Being a parallel entrepreneur is exceedingly difficult and shouldn’t be taken lightly.

What else? What are some other challenges of a parellel entrepreneur?

Per Person Per Month Office Space vs Traditional Office Space

Earlier today an entrepreneur emailed me asking about the Atlanta Tech Village for his software company. With approximately 10 employees now, and growing to an expected 20 employees in the next two years, he wanted to know how it compared to traditional office space. I explained that the per person per month with internet access and furniture included model was very different from traditional office space due to the ability to scale up and down as needed, rather than paying for everything throughout the life of the lease.

Let’s see how the model compares in a common scenario where a startup raises an angel round, has two co-founders now, and expects to scale to 10 employees at the end of 24 months.

Traditional office space:

  • Required space for 10 employees at a high density ratio of one employee per two hundred feet results in a need for 2,000 square feet
  • 2,000 square feet at $21/foot/year plus $3/foot/year for parking for a total of $24/foot/year = $48,000/year/rent
  • 100 meg cable modem and 12.5 meg DSL line for internet is $800/month = $9,600/year
  • Used furniture or new IKEA furniture is $300 per person (including desks, conference tables, etc) = $3,000 total
  • Herman Miller Aeron chairs are $800 per person (I’m a fan of getting really nice chairs and just average tables) = $8,000 total
  • Total for 24 months for 10 person startup is $96,000 rent + $19,200 + $3,000 + $8,000 = $126,200

Per person per month office space at Atlanta Tech Village or similar facility:

  • $300 per person per month for a dedicated desk, internet, shared conference room, etc plus $100 per person for parking and $300 per private room
  • Start with two co-founders and three initial hires followed by three additional hires every six months:
    Five people over the first six months is $1,500 month plus parking of $500 month plus private room of $300 month for a cost of $2,250/month resulting in a six month total of $13,800
    Eight people over the next six months is $2,400 month + $800 per month parking + $300 month private room = $3,500 per month for a total of $21,000 over six months
    10 people over the next 12 months is $3,000 month + $1,000 per month parking + $600 month for two private rooms = $4,600 per month for a total of $55,200 over 12 months
  • Total for 24 months for a 10 person startup is $13,800 first six months + $21,000 next six months + $55,200 last 12 months = $90,000

In this model the private room plus shared office model is almost 30% more cost effective ($90,000/$126,200) when compared to the traditional office space format.

Much in the same way a Zipcar created an entirely new category of rental car, the per person per month office space is creating an entirely new category of commercial office space. One of the keys of the model is a company that expects significant growth or volatility whereby locking in a traditional office space that’s the largest they’ll need over a period of time results in significantly higher costs and much less flexibility. For a generic company with a fixed number of employees over an extended period of time, traditional office space is more cost effective and fully customizable. Per person per month office space is a much better model for rapidly changing technology companies.

What else? What are your thoughts on the idea of per person per month flexible office space?

Small Businesses and Tech Startups are Very Different

Recently I was talking with a friend that had been a small business owner for eight years before shutting down his company to join a tech startup. It’s been over a year since he entered the tech startup world and he said he’s been knocked down making all the common mistakes like taking too much time building features no one needs, not generating enough traction for the product to be viable, and poor timing.

One of the things he said really stuck with me: being a small business owner for many years and joining a tech startup are very different. Here are three ways he said they differ:

  1. As a small business owner, you focus on profitability from day one. Many tech startups are bought for large sums of money without ever turning a profit.
  2. As a small business owner, it’s easy to keep track of how much a good or service costs and you make money by marking it up some amount and selling it. Tech startups often have no marginal cost for each additional user/customer, creating a very different dynamic.
  3. As a small business owner, marketing typically comes through word of mouth and they service a local geographic area. Tech startups need to build a repeatable customer acquisition process and deliver the technology on a national or international scale.

The biggest aha moment for him was that tech startups aren’t about making money in the short term and that it’s usually more about building a large customer base before economies of scale and profitability kick in. Small businesses and tech startups are alike in that it all comes down to people and very different in how the economics work.

What else? What are some other ways small businesses and tech startups are very different?

Ways to Grow a Startup Community

So, I’m on a mission to help grow the Atlanta startup community into one of the top 10 in the country. Much like Austin and Boulder are mentioned as two up-and-comers, my goal is for Atlanta to be mentioned in the breath. Atlanta has all the natural resources to be a major player, including an awesome engineering school (GA Tech), tons of young professionals, a low cost of living, the world’s busiest airport, low taxes, and a mild climate (if you don’t mind humidity). Some of the knocks on the Atlanta startup community include a risk-averse culture, lack of high-risk capital, geographic dispersion of startups, no anchor billion dollar tech company, and few venture backable entrepreneurs.

On the risk capital and venture backable entrepreneurs front, the debate is around what’s needed first. If we have more high quality entrepreneurs, we’ll attract more capital vs if we have more capital here, more quality entrepreneurs will emerge that will be successful. My personal belief is that capital is portable such that it will find the best opportunities, regardless of geographic location. Even with the theory of the Series A crunch, there’s plenty of money out there to fund the best ventures.

Here are a few ideas to grow a startup community:

  • Increase the density of startups in a geographic area (see Atlanta Tech Village and ATDC)
  • Recruit talent from outside the region to the region
  • Keep more of the talent that’s already in the region (e.g. get even more of the GA Tech engineers to stay in Atlanta)
  • Facilitate recycling of talent so that there’s rapport and awareness of talented team members to join other teams in the event their startup fails
  • Actively work to build community to learn, share, and create relationships
  • Highlight successful startups and great exits
  • Accelerate the rate at which startups achieve profitability so that they can then control their own destiny
  • Coordinate more introductions between entrepreneurs and capital providers including angels, venture capitalists, and family offices

At the end of the day, the sure fire way to grow a startup community is through cultivating more successful startups. More successful startups will then breed more successful startups in a virtuous cycle.

What else? What are some other ways to grow a startup community?