Founding a company (Tue Nov 27, lecture 22)
How does a company get founded?

Homework due for today

Legend: : Participation | : Early | : PDF | : Team | : Zipped

Continuing Work
  • Continue work on Stage 3: Should be completed on December 6. Look at the Term Project Outline. Now we are into the business issues. You will have talked and discussed this along the way. Who is your competition? How will you be different? How are you going to price and what is your financial analysis look like? And how will you plan to drive growth?
Interesting, but not required reading

A Made Up Story

Jan 2015: Chris is a senior in college, and has a great idea for a product, and spends senior year (spring term) working many hours refining the idea into a mockup. Senioritis, you know? Many discussions with other students improves and refines the idea.

October 2015: Chris’ friend Dana is interested in helping on the product. It turns out that Dana has experience from courses and also hacking on the side, and knows just how to build a working prototype.

It becomes a practically full time obsession for the two of them, and together Chris and Dana continue to refine the project and get feedback. During the summer and fall, Dana writes a lot of software, which is a central part of the project.

August 2016: Dana and Chris realize that they have a knowledge gap. Chris is the product visionary with strong technical chops. Dana is the hands-on coder and has developed a majority of the code.

However to be able to pay the bills they decide that they need to raise money and to have more business expertise. They have no clue how to do this, but a friend of a friend introduces them to Alex. They really hit it off with Alex, who is very experienced, has been involved in a startup before and knows several angels very well.

Questions to discuss with students near you. There are no correct answers. Imagine yourself in the actual situation and ask yourself what your position would be and how you would defend it:

  1. When do you think is the right time to start thinking about incorporating, realistically, and why?
  2. When do you think the three individuals should assign a ‘title’ to themselves
  3. what titles would you suggest, and why?
  4. Who do you think may legitimately call themselves a “founder”, a “co-founder”, or just an “early member of the team” and why?
  5. What is a fair way to allot ‘ownership’ to the three individuals and why?

The eRoom Story

  • Story of eRoom’s entry into the market
    • Pito and Jeffrey in 1995: Home delivery of groceries
    • The importance of domain expertise
  • The case we made to the VC about our competitive advantage: Internet + Desktop software + groupware

  • eRoom, the product
    • Shared web workspace
    • Click-to-install server. Later SaaS.
    • Super-easy to administer and manage
    • Originally “for teams”, later “for enterprise”

  • How to position it? Groupware, Collaboration, Teamware: all were dirty words
    • Customers (early adopters) really liked our value proposition
    • “We are constantly reinventing the wheel”
    • “there’s too much email”
    • “we should be sharing better”
    • “we are inefficient”
  • How to sell: Download vs. Corporate sales team
    • Direct sales: selling an alpha and beta test
    • At first it went well but then it didn’t
  • We needed to get more specific
    • Go beyond “nice to have” to “must have”
    • Vitamin vs. Aspirin
  • What happened next
    • Horizontal/Vertical/Horizontical
    • The importance of real domain expertise
    • Why vertical (IMHO) is easier place to start

Company Founding

  • Incorporation
    • When is it a good idea
    • What are the key reasons forcing the decision?
    • Types of corporations
  • Founding team
    • What is a founder and why does it matter?
    • “Can I be a founder too?”
  • Equity
    • How to divide up the pie
    • Stock options and the option pool
    • Why it exists and how it works
  • Vesting
    • Percentages

Building a company

  • Hiring
    • Who should be on the founding team?
  • interviewing
    • How fast do you hire?
    • What do you look for?
    • How do you decide?
  • Company Culture
    • Titles
    • Salaries - how much?
    • Giving feedback
    • Fairness
  • Benefits
    • Offices, office space, remote work, dogs
    • Secrecy/Confidentiality
  • When things go wrong
    • Firing
    • Layoffs
    • Legal issues
    • Lawsuits

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