 Thank you Very honored to be the first speaker and kick this off. This is a topic that's near and dear to my heart And we could talk all day. I could talk all day having been building businesses for the better part of 25 years For today, there's just six topics that I've chosen I think these are the most essential topics for us as we're thinking about Starting our first business. This is really directed at people who have never started a business before If you have started one in the room, congratulations, you know how hard it is And the primary audience is folks who've never been through it before A little bit about me So this is my my fifth business First one started on the backs of my mortgage Sold it to a public company called Gartner The next several have been venture backed The Second one is now worth one and a half billion dollars went through a bunch of ups and downs I exited at a down and I didn't protect my stock and so I didn't participate in that one and a half billion dollars, sadly The third business where I met the CEO of Fermion who I'm helping Was a company we built at 35 people and sold to a public company called Google Fourth company a robotics company and now today. I'm the chief operating officer at Fermion as as was said We're bringing the third wave of cloud computing leveraging web assembly We've got a serverless offering with stunning performance and that's the extent of my advertisement So as we get into these six topics This first topic is product market fit and If you take one thing and one only one thing away from this conversation It is that product market fit is pretty much the only thing you need to care about for the first phase of your startup You're gonna want to spend 66 to 80 percent of your time Just focused on product market fit and the phrase that I love that captures sort of the essence of what product market fit is Is that your offering flies off the shelf? What do you need for an offering to fly off the shelf? You need three things one you have to have a problem in your customer's mind that is a Significant enough problem for you for them to want to solve to your solution has to be the best fit solution and Three the price has to be accessible for the problem that you're solving if those three things are true Then you've got product market fit and your product will fly off the shelf So That's sort of the dominant thing you want to think about Product market fit and what's interesting with an open-source business is that you have to do this twice as If building a startup isn't hard enough When you do it normally and you know your first product people are paying you money for there's an exchange of value Okay, great But with an open-source offering you have to do this twice Your your open-source has to fly off the shelf and then you have to figure out how to get money in your second iteration for it to fly off the shelf Second topic is capital I Believe that the best startups are Driven by customer capital and this is how you want to think you you want your mindset to be almost Exclusively on how do I get customer capital? If you think about this This is how business is supposed to work. It's it's worked this way for centuries People who have an offering go to a customer and they say my offering has value You're gonna pay me money and I'm gonna make a little bit of money on this and I'm and each time I'm gonna put that money into the next thing I make and into the next customer And if you think about Steve Jobs and and that story You know, they were in a garage. There's a reason they were in a garage. He didn't have any money and There's a reason why the first product they built was only a hundred units the apple one was a hundred units It sold out really quickly So they made some money and they took that money and they put it into several more hundred units And then they built the apple to and sold those so there was no there was no outside capital so that's you know, that's sort of lesson number two and And you want to keep in mind in that phase You are not gonna be spending a lot of money. You're not gonna be making a lot of money And if it takes a while for you to build your product, okay, it's gonna take a while So you're not taking a salary. You're dipping into your mortgage if you've got one you're dipping in your savings You're eating rice and beans. You're living on on a shoestring and most people don't want to do that And that's why most people aren't entrepreneurs Okay, so let's say you do want to take other people's money The thing to realize about taking out other people's money is it is brutally difficult It is really if you're not willing to part with your own money If you're not willing to part with your savings if you're not willing to part with your mortgage It's really hard to get somebody else to convince convinced to part ways with with their money and really You know as the slide says I Think venture capital is a necessary evil. It's not a great influence When you think about building a business it's hard enough and there's a cadence to it But venture capital changes that cadence but venture capital basically says you have to perform faster because I need to get my money out And and it's really a more modern Construct it's 50 years old ish I don't necessarily think venture capital is is a great influence on startups because it Sort of changes the discipline you need to stay focused on Delivering a solution that is so valuable to your customers that the product's gonna fly off the shelf If you do think that you want to or need to Convince somebody else to give you some money Just recognize that credibility is a really difficult thing to have to have and to get And you will be competing with hundreds of thousands of no-name people that have no credibility So you're always selling you're always always always selling You are selling when you're convincing employees to join you vendors to support you customers to buy your product and Venture capital even when you're not quote-unquote raising money if you're talking to a venture capitalist you're selling and All of the other activity you're doing with customers vendors, etc They're gonna be checking the venture capitalists are gonna be checking And the best and easiest way for you to get credibility Is to have customers so we sort of get back to customer capital Because venture money is gonna look for that that credibility coming from customers in the last next thing to understand about venture is They are driven almost exclusively by emotion and those two emotions are fear and greed. Yeah, there's logic There's always logic. They have to tick a bunch of boxes about your startup And they do that but ultimately it's gonna come down to fear and greed and they are paid to be fearful They are paid to screen out every single problem with every single business They screen hundreds and hundreds of businesses each year and they choose one And they only choose one because they got greedy right because there was something in that conversation Something in your credibility. There's something about the market That says, oh my goodness This could be a home run for me So just remember fear and greed Uh a note on dilution. I have this conversation with lots and lots of people Dilution is the silliest thing to pay any attention to It only matters in the mediocre outcome state In the failure state, nobody makes any money. Dilution is irrelevant In the success case Your business is worth gazillions of dollars and you're gonna walk away with so many millions of dollars that you've never had before And do you really care whether you put 25 million or 22 million dollars in the bank? No, you don't So don't worry about dilution. Don't try to optimize for how much of your business you're giving away Just remember that cash is the most important thing for your business and get the cash And then lastly your job as founders if you're going to get venture money Is to create this greed and it's to create competition amongst capital partners when banks compete you win You win because you get to set the terms you get to negotiate And most importantly you get to decide who's the wise advisor that sits at the board table with me and counsels me on the business That's what you want to look for when you're choosing a venture partner if you're fortunate enough to be able to choose Is choose somebody who's going to be a really wise counsel counselor for you The next topic is co-founding Most people can't start a business by themselves because it's brutally hard It's the same reason that a lot of people can't get their workout routine going. They need a gym buddy A gym friend It's a lot easier to go to the gym and experience all that pain when you've got a friend Who's experiencing that pain with you and helps you get out of bed and go experience that pain It's the same thing with with startups Much much easier to experience a bunch of pain with Somebody that you're working with And when you choose a partner It is a partnership you're going to be spending most of your life with this individual for years And what you want to remember is this is a important partnership And the singular thing you want to look for in that partnership is shared values I I have so many stories of partnerships and companies that just absolutely blew up because the founders did not share values One founder wanted to spend money because you had to go big or go home and the other was like No, no, no, we need to be cautious and conservative with the way we spend money Destroyed they just ate each other apart over time Those sorts of core values have to be agreed on And and my recommendation I've written a blog post about this is that you actually sit down And you go through your core values in rank order and their core values in rank order And you see that you'll have overlap and if your top three or four values They aren't anywhere in their top five Get out of there. It's not going to be a marriage that lasts So just remember right divorces destroy Our fifth topic build a great team Your only potential competitive advantage Is the speed at which you can operate with a pittance of resources You need to you need to take those resources which are minuscule and you need to outperform Everybody else who has way more resource than you do and the only way you can do that Is with a core group of people who are rowing in synchronicity in the same direction with effort and energy That's a high performing team. You have to you have to do this And so my singular ask on this slide is go read the five dysfunctions of a team Patrick Lencioni magnificent book it outlines exactly all the characteristics you need Google did empirical research on their high performing teams called project Aristotle go read that That is great material And guarantee you that if you've got 10 or 20 people who are rowing in synchronicity With speed with alacrity you're going to run circles around teams of 100 or 200 And so your 2 million in capital is going to compete with 20 million That product manager at a large company going in and asking for 20 million most of the time doesn't happen So that's your competitive advantage And then finally people ask me what are the two most essential traits If I want to start a business And my answer is you have to have two One is you have to have a maniacal belief that you have value to deliver to the world And your belief is so maniacal at borders on on insane It's it's that crazy. It's that level of belief And two you have to have intimate comfort with the concept of fear and failure You are going to fail over and over and over again And those are going to be course corrections that make you stronger and you're going to adapt and you're going to succeed And you're going to face risk and fear all the time Whether it's putting your mortgage and your savings on the line Whether it's putting Employees on the line whatever you're going to experience that And so if you're not again familiar and comfortable with that It's not going to work And again, that's why you know 99 and a half percent of the great ideas out there never happen Is because the people don't have the the internal makeup They don't have that that level of passion and they don't have that level of comfort with fear So I want to leave you in that context with just a quote from From steve jobs. I had the good fortune to work at apple for almost 10 years at the beginning of my career So I revere steve a lot And he was asked what's the characteristic that a good entrepreneur needs and he said People say you have to have a lot of passion for what you're doing and it's totally true The reason is because it's so hard that if you don't any rational person Any rational person would give up And there it is here. He's talking about that belief that borders on on insane irrational So those are my six topics. I purposefully did that In a relatively short amount of time so that we have plenty of time for questions Which I'll take at this time So, uh, yep on the aisle up here Yes, you look. Oh, yeah, okay I have a question You were talking about the core values lining up with your partner. Yeah, however, I've seen situations where It's good to have diversity on them Where having one compliments the other instead of both being crazy and coming down the pipe together being an issue Yeah, that's fantastic point values are different from diversity Values are different than beliefs. And so yes, you want to have a variety of beliefs You want to have a variety of lived experiences? Absolutely. You want that diversity? But your core values are core Beliefs get changed with evidence and they get changed with situations and And it lived experience is is just what you have with you And and just I mean you're just gonna have to trust me from having seen so many partnerships destroyed by By a lack of shared values values are more fundamental And and when they conflict they conflict inside you in such an emotional way that it's really hard to get to get Over that because it's about your identity and your partner's identity So but great question Yeah, um, I have another question. Um, is it better to Like have a team of three co-founders than two co-founders. So, uh, like taking decisions Like, uh, he's led to uh, he's led by a vote we can say Uh I think it's I don't think there's a a good or bad. I don't think there's a a significant differential I think when you've got three co-founders who are so committed and have that sort of Irrational level of belief about what you're doing. That's just a more effort and more more energy towards the mission Uh, and again when you share the mission and when you share values Usually decisions You know happen in a relatively straightforward way I mean, I personally do believe that that groups of people don't make decisions unless it's you know Some sort of governance like uh in the u.s. Supreme court In a business individuals make decisions and so even if you have three co-founders Which decisions are you making which ones are the second one making which one's the third one making? and it's it's You know, there's only a few decisions that are so foundational that the three of you need to Uh get together and and sort of debate it and come to To consensus. Okay. So, uh, so a sense of tolerance Should be like is necessary between partners Because absolutely. Okay. Okay. Thank you. Absolutely. And and it's not to say that solo founders don't succeed. They do right? Uh, solo founders are often, uh, you know, quite certain about themselves and and their mission and you know, and they sort of operate more as as a You know as a monarchy You've seen success. It's just those are those are the few and far between Versus versus teams of people who share values and and an admission Yeah, go ahead. Uh, what do you think of startup accelerators like a white combinator then? Yeah, I think these are are pretty essential in the ecosystem For founders that don't have credibility because that's what that's essentially what those accelerators are doing Is they're giving you the first The first hint of credibility right by getting accepted You're getting through a screen a credibility screen and capital is going to look at that and say, oh great You know of the of all the options I have here's the 10 percent Here's the 15 percent that got through that screen and therefore they've got more credibility firstly and secondly The programs themselves, you know, I've been a mentor in tech stars since the very beginning and a mentor You know Dozen a dozen companies The programs themselves Do a great job of teaching right? I mean, that's a 25 minute session right? Those are those are 90 day immersive Programs immersive sessions, which by the way the first third of it is all about product market fit So I think they're quite good And and usually it's worth again back to the dilution comment at the beginning Usually it's worth the six percent that they take from from you And and it's worth the you know, however much capital It used to be with 100,000 with tech stars. Maybe it's still that way that you get And and you get a cohort of co-founders right so of peers right and That's another thing right having peers Having people who are going through the same experience as you are at the same time You know, you don't need them as a gym buddy But in the gym, you know, seeing a lot of people who are experiencing a lot of pain That's just you know, that's just helps get you out of bed and gives you a little bit more motivation It gives you a little bit more of a support structure I'll ask the next question here When should people avoid venture capital right? When is it, you know, you have a great idea And you go to pitch it and they tell you like hey, this isn't something that scales or is always different for venture Oh, so my first answer is always it's always good to avoid venture capital You want to start from first principles, which is I need to get customer capital And even if that's even if that's going to customers who are going to find so much value and saying hey I'm going to choose you as one of my first three customers You're going to give me enough money to build this product because you're going to help direct it There are other other moments and I think you referred to this where Where it is so hard to to get money, it's a hardware company. It's a deep science company And I think the success pattern I've seen there is by getting government money You know essentially grants that get you that get you started or again some significant customer that gets you started Oftentimes that is the government right the government may see something that's deep science deep tech enough And and and that's your contribution is the sort of the depth of that science that you that you understand Where you're going to where you're going to be able to get that kind of capital Hello, very interesting talk and thank you for sharing You were talking about non-delutive financing and saying that it's not that important to think about the percentage of delusion that you left during the negotiation I have a question about that. How do you manage the lose of control that can occurs with this delusion because I saw many situations where co-founders Were just fired out because of that. Yeah, that's right Venture isn't necessary evil. Don't take it if you don't have to Because that's the deal you're making a deal with the devil You're making a deal that I have to turn your money into more money quickly and you're and they are now your owners They're not necessarily your majority owners in terms of the amount of the company They own but they're definitely your owners in terms of what they can control Right, they can control whether you are the ceo or not And and by the way they should right I mean these are folks who if you get the right partner They've got vast amounts of experience with what the success patterns are And if your behavior as the ceo is dysfunctional Right, if your behavior as a ceo is is you know pushing things in a direction that the mission isn't going to be achieved And their money isn't going to turn into more than you should go Right, that's just called accountability So but yes, right, this is this is why you want to think really really carefully Before you take other people's money because you're you're Because that's the deal is that you're putting them into positions of holding you accountable and having those Those positions on your cap table my comment about dilution is don't worry about 20 percent dilution versus 18 versus 17 versus 23 It's just silly right because when you do the math over two or three rounds It ends up being like Again like a net total of 10 percent of the at the end and and then Again, when you do the math in the success case, you're walking away with many millions of dollars and boohoo You didn't have a half a million dollars or whatever regarding found raising you you say that we have We have to seek for customer capital or Avenger capital what are your thoughts on Love money, which is taking money from your family and relatives dangerous Most I mean most people start there right because because those who love you find you credible It's true and uh And so You know here you are you have an irrational belief that your thing is is so valuable to society that society needs it You know, it's it's hard for a loved one to sort of not get drawn into that passion Uh And it and it comes with dangers, right? Um, I think my counsel there is is to be really really clear with your loved ones You could lose this money. No, no really for real. You could lose this money And if you can't afford to lose this money, do not give it to me right just If if you would go to las vegas and put this money down on black knowing that there's a 50 chance It's 50 chance. You'd lose it Great, I'll take your money If you would never do that Don't give it to me because there's less than a 50 50 chance that I'm going to turn your money into money So just right just to have a really clear good conversation with them Hello Uh, it's here. Oh, thanks for the talk. Uh, you were talking about passion While doing the while growing the business Do you think that there is a thing? Such as too much passion and if there is How how would you detect it in your opinion, of course? That's a great question. Uh, I I suppose in theory, there's such a thing as too much passion Uh I think it's hard to figure out When that might be Yeah, I mean There's a there's a concept of attachment, right If if you if you embed too much of who you are as an individual in your passion, that's dangerous Right, because then the failures are going to eat at you 10 times as much and you're going to say oh my gosh I'm such a terrible person because it's my identity. Um, so yeah, I think you want to Uh, I think you want to be really clear that your passion is directed at this Passion that this concept in this moment of time. It's not It's not me. It's not my identity Uh, that's at stake here Tim we're going to take probably two more questions. Maybe three. I see three hands right as a topic We could talk about all day So I'm going to ask a question given that we're in open source conference one mistake. I kind of see a lot where A founder is really excited about the technology and not so excited about the business part getting customers Pricing things going through that whole motion. What is your advice when A team of founders has a you know of love for the technology not so much the business start a nonprofit Seriously just just put the put the technology into a nonprofit and be really clear with whoever is going to you know Give you donations to Feed your process It's a nonprofit if if you if you don't have passion for building a for-profit thing Don't do it What a good example be like let's encrypt I think they had a really great product open source project and they went the nonprofit route Lots of people use let's encrypt if you I don't know but they are a nonprofit. They are not a venture backed Uh company selling it for for for profit business. Would that be a good example of going that route? Perfect. Yeah, perfect Yep, uh, thank you for the talk. Uh, I have a question. Is there any sense in exploring venture to benefit from those Success patterns they may be familiar with Yeah, there's some benefit to it And if you Again, if you believe that you've got the credibility and and again, usually Usually you're building credibility because you've you've built the beginnings of a thing and customers are coming towards you and and And sort of validating the beginnings of product market fit. And so yeah, venture capital can certainly accelerate that And and I think that's a great place to look at and think about taking venture capital is Is if you're sort of bursting at the seams with oh my gosh, I have product market fit There are customers and I can't serve customers fast enough That's a beautiful moment And and yeah, they do bring a lot of wisdom and a lot of pattern matching Um And and I think there's a lot of ways to get that wisdom and pattern matching without them necessarily being a Part of your cap table and owning a piece of your business Again, unless right, there's the situation where you've got Sort of pretty clear pathways and runway to growth I think maybe one more So my question here will be When you start this business with your partners and you know, you know You're expecting to be successful And and that's the expectation for everyone But then when you're just users are starting to be successful And you didn't agree from from the first stand like how we're gonna divide this What's what's like the right moment to agree on what if we you know, if we hit the pocket like Hit the jackpot like how we're gonna divide this stuff at the beginning Yeah, I'm those all of those sorts of questions are at the beginning conversation In this scenario in that scenario And and walk yourself back and say are we all comfortable with the way we're gonna behave in in this scenario Yeah, please. Okay. And but commonly in maybe in the beginning, you know, certainly on Like who's gonna invest Most of their time or be more valuable to the company and then you might make mistake on those decisions Yeah, this is this is true, you know, so how you split your cap table at the beginning It is it's a negotiation amongst the partners. So The thing I usually counsel is make sure that you have a five-year stock vesting period and a two-year vest so No businesses most businesses aren't going to have any hint of getting off the ground for at least two years And so it gives you two years as a partnership to figure out Who's adding value are they adding enough value or they adding the kind of value that they that they have on the cap table and right and And after two years great two years of your stock has vested And then you still got three more to go, right? And and that that gives your partnership time and it also, you know, even three years into this if one of you isn't Pulling the weight then the other two partners are like well, at least we got back two years of their of their capital Right, they didn't they didn't just walk off because it was granted at the very beginning. So thanks That's that's a piece that I usually counsel pretty strongly um Is it risky if um, like, um, two co-founders doesn't share the same, uh, I don't know risk awareness or level or Like a rationality level or is it good to have some kind of balance? Why taking like Yeah, it's good. It's good to have some risk balance. It's good to have a dreamer and a skeptic and meet in the middle Okay, uh, you know, again, those usually aren't Sort of core values. Um, it's just sort of how do I operate in the world? Yeah, but like the the difference in this kind of like kind of core value. Is it good? Okay, I think so All right, I'm gonna give you your last question here There are a lot more startup employees than there are founders And so there are a lot of people here that are probably maybe not being necessarily interested in becoming a founder But they might want to go work for a startup. You know one question that I've learned there's many Um, how much runway do you have and looking for that honest answer? And why what would be your advice for someone that's looking to join a startup? How should they evaluate that startup? How should they think about compensation including equity? What would your advice be to them given that 25 years of experience? That's a it's a complicated question. Um, take all the time you need run runway um You know runway for me Six to 12 months You're not you don't really have any better answer from any big company. You're gonna join You know might there be layoffs six months after you join of course and might you be impacted of course, right? There's no there's no, you know, there's a there's an impression that they're more solid And they're they are, you know, marginally But you know, but I would look for six to 12 months Especially in in today's world where most people can go get, you know, another job relatively quickly in in the tech industry You know and then in terms of evaluation You know, it's actually no different evaluation than an investor is doing Is is the market sizable enough and growing fast enough is your product uniquely differentiated and likely to compete, right? Or likely to get product market fit. Is the team highly passionate about it? Are you passionate about this mission? And and do they have the sort of wherewithal to execute, right? Do they have the experience in this particular problem solution set space? So, I mean, those are the basics of what Of what venture capital looks for when they invest because you're you're doing the same thing You're investing You're investing your sort of marginal earning power today in return for tomorrow and then in terms of equity The the industry is is for the most part pretty bounded by how much equity they can give out Uh, you know An executive is is probably going to get no more than one percent of the equity Uh, a senior engineer is probably going to get no more than sort of half a percent and most people are going to get 0.1 to 2.2 percent As a as a basis a quick follow up there On the other side of this equation Hiring how fast How are you looking for talent most founders? I know are hiring directly from their network I used to work with this person at company a I want to bring them on with this thing But then eventually you start hiring people you don't necessarily know What's your advice on the other side of that equation? Once you get to that point, um, I go back to values. I mean at the last three businesses We've got our values agreement. It's it's three or four pages Of the core values for the for the business And once we've determined that the person we've never met they're not part of our network has the competencies We're looking for we're determining whether they have the values that we're looking for And we actually have them sign an agreement. I understand these values. I'm going to model these I'm going to uphold them. I'm going to hold other people accountable to them And and I'm going to sign those value statements So thank you Great session, uh, appreciate all the awesome questions I'm glad that we spent a lot of time with questions because That's really the fun part of of a talk like this. All right. Thank you, Tim