Free Things Worth Paying For

As I’m revising the ShelfMade business plan I find a post by Kevin Kelly and reposted by Seth Godin. Normally when I get distracted and find myself off-task online I try to get back to work. This was different. Better Than Free is a worthwhile read, and helped clarify some value that I am building into my website.

In a world filled with free digital copies on the Internet, why do people actually purchase anything? Kevin lists 8 qualities that customers are actually paying for when you think they are buying free goods. Immediacy, Personalization, Interpretation, Authenticity, Accessibility, Embodiment, Patronage, Findability.

Kevin supports his argument with more than just abstract logic. He includes airtight examples of each point. Regarding interpretation being valuable, he brings up Apache which gives away software and charges for interpretation and guidance of the free software.

How does this relate to my business plan?

ShelfMade is an embodiment company (we call it form). We give online articles a body, in a magazine. We aren’t selling paper, we are creating a reading experience that is better than the laptop screen – with the same content diversity as the blogosphere.

From another angle ShelfMade is a personalization company. Traditional magazines have a wide niche. National Geographic explores the world, but ShelfMade explores that certain corner of the world that you care about. You build the magazine that you would like to read.

Back to work. Be sure to read the full articles.

Distribution Model

Sorry about the long absence from blogging . To bring me back, this is a response to Jonas Sandberg from Wagazi, a great blog about the convergence of old and new media. Jonas asks about the distribution model for ShelfMade. (You can read the business concept for ShelfMade)

ShelfMade is a service that allows users to publish their favourite online articles into a personalized magazine. It hasn´t launched yet, but I think it´s a really interesting way of combining new media and old media, and putting the power in the hands of independent publishers… However, one big issue for magazines are distribution. It is time consuming, and expensive. But if the magazine I create through ShelfMade isn´t distributed, no one will read it. And how fun is that?

So my question is if they have given the distribution problem any thoughts, or if they believe people will sort it out for themselves?

ShelfMade isn’t focused on traditional distribution for our magazines. In fact, eliminating the waste of a traditional distribution is a key part of business model, and it offsets the increased cost of customized, on-demand printing.

We are still going to make it fun.

The distribution will be direct, like a physical RSS. So just as your personalized magazine can be built from blogs, your website readers and online network can subscribe to your magazine and make you a publisher, not just a consumer. Imagine a widget on Wagazi where your readers can purchase or even subscribe to your magazine.

With a networked and direct distribution the newsstand isn’t necessary. The goal is to have employees subscribing to the CEO’s magazine, Ron Paul’s supporters can subscribe to the magazine his campaign builds and everyone contributes to Michael Arrington’s magazine.

If the business is successful and growing at a decent pace it would be nearly impossible to manage the process of getting magazines on shelves. Jonas, your correct, traditional distribution is costly and time consuming that is why we’re avoiding it.

Of course I am open to hearing all ideas.

29 Years Old, Start a Business or Have a Baby?

So as another friend from high school has another baby I can’t help but think of the contrast between my overwhelming, daily thoughts and what I would guess to be his. Background – I’m living in a 1200 sqft apartment in New York City with 5 roommates, and starting a web based business, ShelfMade (Please click through, read about it and sign up for the beta launch). My closest friends, for the most part, live great lives in the suburbs and have steady jobs.

Here is a quick comparison between having a child and starting a business (is there anyone that could possibly do both?)

1. Commitment: Building a successful business takes commitment, but raising a child really takes commitment. If a startup isn’t working and isn’t going to work you can walk away tomorrow and lose some time and money. With a child you are stuck. I mean you have to take care of the kid for at least 7 or 8 years until he can fend for himself.
Edge: Startup

2. Investment/Return: In some ways kids and startups are a lot alike. If you live on a farm in Nebraska, children have a tremendous ROI. Feed them and make them watch Big 12 football for about 14 years and all of a sudden you get free labor. If you pace the pregnancies correctly you can literally have a never ending supply of maturing labor. That is a seriously long term investment though. Ask any startup entrepreneur what he will be doing in 14 years and he’ll have no idea, but it sure won’t be watching the sunset in Nebraska.

3. Investment/Return Part 2: In America I believe that it’s technically illegal to invest in a child, but let’s run the numbers. For Instance you invest time and money for 15 years to cultivate the best golfer ever who can earn around$25 million a year at the age of 21. But this definitely isn’t certain or even probable. I would say for the average person you have a 1 in 10,000 chance of raising and training the best golfer in the world.

So that means you have invested 20 years worth of food and coaching into an asset that will average a return of $25,000 a year (and those are 2028 dollars).

How is this different for a startup. You invest time and money and you build expertise, you make connections and you learn. Working on a business increases your network and improves the chance that you will succeed on subsequent attempts. Additionally the cycle is much shorter and the payouts are larger.
Edge: Business

4. Sex: Hmm I guess either way you are gaming on a girl that is slightly overweight and letting someone else suck on her nipples.
Edge: Draw

5. Quality of Life: If quality of life means small talk, watching Big Brother every Tuesday night and keeping quiet so the baby can sleep then the nod goes to having a baby. I think a better definition for quality of life means experiencing a range of emotions. Is there anything more thrilling, frustrating, exciting and depressing than a startup.
Edge: Startup

6. Parental Pride:
Edge: Baby

7. Pain: If you’re a guy it is definitely more painful to start a business. If you’re a girl it is probably more painful to start a business.
Edge: Startup

8. Legacy: This is a tough one. It’s obviously possible to have a really great kid (like me), but it is also possible to build a business that could outlast any family name or affiliation. I think this goes back to commitment, you can always drop a business, but your deadbeat kid is still going to ask for money when he’s 30 29. Hi Mom and Dad. Also take into account that if your first business is a success, your second business has a greater chance of succeeding and surpassing. This has to skew the numbers a bit.
Edge: Startup

9. Timing: What has a greater likelihood? Starting a company at 30, selling it at 36 and then starting a family. OR Having a child at 30 raising it for 6-15 years and then deciding to start a business.
Edge: Startup

So I am obviously biased here. I think the point to takeaway is that there is no right answer, you have to follow your path, whatever that means. Most of my friends would disagree with nearly everything that I said.

I think one thing we can all agree on is that the cigar tradition needs to return. Of all my friends with children I was never sent or smoked one cigar for the baby. At the upcoming ShelfMade launch there will be cigars to go around.

Free beer! Really

If I had to list the top two reasons that ShelfMade is not yet launched they would be-

1. During the day, Reddit.com
2. At night, Beer

Finally, tonight I get my both vices in the same room at the Reddit/Drankkit Meetup in Alphabet City. The invitation says open bar from 7 until the bar closes. Like everything else on Reddit, I believe it whole-heartedly.

So grab your Ron Paul T-Shirts and head to the Hanger Bar (map) to raise a glass for lost productivity and free beer.

Cheers,

Mike

Cost (Why there is no search on YC)

More and more I find myself writing posts specifically towards the YC Community. YCers really bring a lot of good thought and conversation so there is no harm there.

One of the most common questions on YC (and reddit) regards search, or the lack of it. I think that we don’t have search on YC for one of 2 reasons.

1 . Cost. I’m not talking about the cost to develop a search feature. I am talking about the cost of upvoting a post on YCNews.

Every time you upvote a story on YC the story is saved for you. This is a great little feature, but each time you add something to the saved list it becomes a little harder or takes a little longer to find an article you previously saved.

I see this as a cost of voting up an article. On reddit or digg there is no cost or association with voting an article up or down. When something is reliant upon that vote you give things a little more though, at least I do. I look at upvoting as saving an article that I will want to find later.

Why am I thinking about this? When there is a cost associated with voting you get more quality and less sensationalism. With the ShelfMade project there is a much higher cost to upvote. In fact we don’t even call it upvoting.

When you read an article online that you want to include in your magazine, you click a button on the site, we save the article and that article is printed in your next magazine. Our homepage features the most popular articles not based on votes, but upon shelves – how many people are including this in their magazine. There is a real cost here.

First of all there is a limit to the number of pages that you can have in each magazine. From the hundreds of great articles online everyday, our users can choose only a handful for each magazine.   Additionally, the user will pay for each magazine, so there is a real monetary value associated with each article shelved.

The most popular list is a tool to find articles, not the focus of the site. We hope that this cost for upvoting/shelving articles brings more worthwhile content forward. If the user has to pay, no matter how little, then our front page should feature some really great posts. I think the voting and saving correlation on YC has improved the quality of the front page. There is no reason that I would want to save a funny picture or video (except that I Like Turtles kid) in my YC account.

Could this be the reason that we don’t have search, to make the saved list more valuable and decrease cheap upvotes?

2. Or maybe they just don’t want to build the search.

Read this while you are on the plane heading to meet investors

The idea for ShelfMade came while I was getting on a plane. as they are calling people to board the plane, I am furiously opening browser tabs filled with interesting looking articles from reddit and ycombinator. The funny thing is that I had just purchased a Wired magazine ten minutes earlier.

It struck me that I read a lot, I want to choose what I read and being forced to read on a computer screen sucks.

But the point of this article is to give you reading material for your plane ride to meet with Paul Graham or any VC for that matter.

It’s absolutely essential that you read the Venture Hacks website before you meet your next VC. Nivi and Naval really know their stuff about venture capital, they are looking out for you the entrepreneur and their writing style is understandable. Their goal is to help hackers understand the process of venture capital – pretty important if you’re meeting with a VC, huh?

Term Sheet Hacks is a collection of articles absolutely perfect for ShelfMade. Since we won’t be up and running by the time you interview with YC you have to save the articles and print them out yourself. Here is a selection of the advice.

Create a New Board Seat for a New CEO:

Whether you negotiate a proportional or investor-leaning board, your term sheet will probably state that the CEO of the company must fill one of the common board seats. This may seem reasonable. One of the founders is probably the CEO and you were going to elect him to the board anyway.

Don’t accept this term. The investors are looking several moves ahead of you.

If you accept this term and hire a new CEO, he will take one of the common seats. The common shareholders will not have the right to elect that seat. If the new CEO turns out to be aligned with the investors, the new coalition of CEO + investors will control the board of directors.

Option Pool Shuffle: Option pools can be very complicated, but basically the option pool dilutes the shares of the company for future employee stock options. The way the investors set terms for the option pool can really hurt the founders effective valuation.

Summary: Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.

As a programmer and entrepreneur you probably already know everything about convertible debt. Just to brush up you may want to skim this article before your next seed round.

Seed stage debt rounds are much simpler than equity rounds, especially if your investors are angels. There isn’t a lot to hack in these agreements. You need to be more careful if you raise debt from venture capitalists, but a debt financing with a VC is still much simpler than an equity financing with a VC.

Why is debt a great alternative to equity in a seed round? Convenience, suitability, control, cost, and speed.

Finance is a major step for startups. It is important to do your homework and at least understand the landscape.

Don’t Keep Your Idea A Secret

There are a million reasons why it is important to talk to people about your new business and there are maybe three or four reasons to keep your new project a secret. The biggest reason to keep your mouth shut would have to be paranoia, by a wide margin.

Think of it this way.

Raise your hand if you know of anyone that has had their idea stolen from them directly. So basically, they were networking, told someone their idea and the person they told took the idea, started the company and became successful. Not only that, the success of the thief’s company is  the reason that the original company failed.

Do you know anyone that could tell this story?

On the other hand have you ever met the guy that had an idea but only told a few people? The idea was so brilliant that it would obviously be stolen and all would be lost. Somewhere along the line things went wrong. He never told anyone, never generated any buzz or momentum and the business never launched.

Of course we aren’t talking trade secrets we’re talking business ideas, and ones that aren’t glaringly obvious. If you look at things logically, not talking about your idea is probably the same as not launching.

Building Assets in a Startup

I’ve been thinking a lot this week about building assets, especially how it relates to my startup, ShelfMade.net. Any time you are in the initial stages of a starting a business, things seem simple. “Here is how we are going to make money.” As you progress further towards that first dollar in revenue your perception begins to change a bit – it’s probably called experience.

When starting out you see the transaction, and at the beginning an interesting transaction is all that is needed. For ShelfMade the transaction means people Shelving articles online and purchasing a magazine that includes those articles. This transaction solves a problem for the customer. At ShelfMade we help people read interesting articles in a better form (print vs. computer screen) and for me personally it improved the way I surf the Internet – now I just find article online, which is easy, and I read them offline, which is also easy.

Although the transaction is the exciting part, I came to find out that we need to build many assets to make the transaction happen.

The first asset, especially in web startups, is the technology or website. For ShelfMade the website allows users to tag an article, save that article and have it appear in the next issue of their on demand magazine. In any case, this asset creates value, but it cannot work alone. Many companies stop at this step (no offense to the geniuses building great technology). If the idea is right, at this point you can sell to Google and they can use this technology to leverage their other assets. I think this is the plan that most startups have. Build an awesome tool (Writely for example) Google purchases and Google’s users now have an added feature. Brilliant!

Once the technology is built startups need to sell their way into a market or find that market, which is their second asset, a user base. To be fair, even if you plan on a quick sale you need to build some type of user base. The point that I am making is the bigger user base you can build, the greater the asset you own and the more valuable your company is. YouTube sold for much more than Writely did because of their community.

ShelfMade needs to build our market through individuals or communities like Meetup. For most tech companies having users and a product that users/advertisers will pay for is the name of the game.

What I really love about the ShelfMade concept is that we can (need to) build a third asset, supply. In this case our supply is a network of content that our users want to read, save and share. We need bloggers and content owners to opt-in and make their writings Shelvable so that users can include them in a personalized magazine. When all is said and done, I think this content network will be our biggest asset.

Of course what I really love about ShelfMade is that this content network has many benefits for content owners, not just our company. We are paying royalties every time an article is included in a magazine, we promote the content owners on our site, and most importantly their ideas will reach a wider audience through magazines. What we are building is a permission asset, not to market to people, but to help them spread their ideas.

So the takeaway here is to concentrate on building all of your assets not just one. It is easy to get hyper-focused building your website and then thinking that is the end game. Most companies need more than just a cool technology to be successful and you should be thinking about that from day one.

Finding Non-Tech Founders

A few days ago I wrote a post to help entrepreneurs find technical co-founders. Surprisingly many of the questions I received were from programmers trying to find non-programming founders.

The funny thing is that every schmo walking down the street has a business idea they think is great, and they would love a programmer as a co-founder. I’m guessing that when you tell a stranger that you build websites they always talk about their boring ideas. The real trick is separating the wheat from the chaff and finding serious people with the ability to build a business.

Here are my thoughts on finding a co-founder to focus on business.

1. Start Freelancing.
No matter where you live, you have Craigslist, answer ads. The people that are looking for help are serious about their projects, or at least willing to spend money. Plus you will build a resume of interesting projects.

Also, if the right project comes along you may have your foot in the door and already know the team. If you’re a good programmer, have experience on the project and ask to become part of the team, there is no way that you get turned down. The real value in freelancing is that you meet people doing interesting things.

2. Build Something.
You may not have a billion dollar idea or the business acumen to build an organization, but you can easily create a website that some people will find useful. Take your time, make it simple and make it smart. There is no pressure to ever make money with the site so just make something that you would use.

Doing this not only gives you relevant experience, but it also puts you in front of people. Even the smallest promotion of your site will attract startup-type people.

3. Network.
Stereotypically programmers like to sit in the dark, order in food and leave the house once a week. Of course this isn’t true, but you really have to make an effort to meet entrepreneurs. Wherever you reside I can absolutely guarantee there is someone in need of a programmer-as-founder withing 5 miles.

And even better news, when you do met entrepreneurs they’re going to love you. Which brings the most important part of this post.

4. Evaluate Entrepreneurs and their Ideas.
Remember you are looking to be a co-founder, so don’t expect the other founder to have a million in the bank and tons of experience – in that instance, he would just hire you. It’s important to be able to evaluate startups so that you don’t waste your time. Here is how I would look at things.

Do you understand the idea? The idea may be great even if you don’t get it, but how effective will you be if you are not on the same page.

Can you have a beer with the founder? If you’re thinking about leaving a cushy with benefits to start a venture you should like the people you are working with. If you can’t stand your partner it won’t work.

Is the founder determined? As much as we’d all like to believe that you have to be smart to be successful it is just as important to be determined. You should look for some qualities in your co-founder that you have seen in good managers or owners of companies that you have worked for. I would say determination is a great ingredient for a successful startup.

Get Opinions of others. You don’t have to rush into this project. Talk to other people to find out how good the concept is.

Programmers, please leave comments as to other ways you evaluate startups.

Finding Founders

One of the most common questions that I hear at networking events and on social news sites deals with finding a co-founder with hacking skills, specifically when the person asking the question isn’t technical. Having been in this situation I wanted to give a few tips that should be useful.

Although I truly believe it comes down to being in the right place at the right time or just dumb luck. This is one instance where you have to make your luck happen. Here’s how I would start.

1. Develop a Remarkable Idea. Of course you think your idea is great, but do other people? Are people that you meet (point 2) passing you the names of programmers?

Regarding our project, ShelfMade, I find that people either love it or hate it. They think it’s genius or the dumbest idea ever. (For the record the vast majority like it, but a few just walk away) Now that may be good or bad, but at least a programmer hasn’t heard a similar idea a million times. At least the idea isn’t bland. If your idea sounds anything like “A social network for ______” you probably need something else.

2. Talk the Idea Up. There is honestly nothing worse than when someone is starting a new web business, but they cannot tell you the concept. It’s like a joke with no punchline. Simply put, I didn’t want to talk about my great idea, but for some reason I did and that allowed me to find people that wanted to help. If I would have kept my mouth shut I would probably still be looking for a co-founder.

3. Be Realistic. Make sure that your idea doesn’t need 2 years of full time development. It’s probably best to grow a simple idea than to build out a complex scheme. You want your new co-founder to see the business (and hopefully the potential) as you are explaining it.

If you’re a non-tech guy you probably should be looking to build a tech enabled business instead of developing a new technology.

4. Start Without Your Co-Founder. This has got to be the most important tip. Get as far as you can without a co-founder even if it means making decisions that will probably change. Why? First, it shows that you have initiative and drive.

Look at these 2 ways of approaching a potential cofounder.

1. “I have this idea”
OR
2. “Here is my business card. The company blog explains things better, but the basic concept is ____”

The different cost is about $10 for business cards at overnight prints, but the impact is enormous.

Getting started on the business also helps you define exactly what you are looking for. Even if you find a great programmer he isn’t going to bring an out of the box solution with all of the answers. You need a plan and a sitemap. That is something to get started on immediately.

5. Bring Something With You. The potential co-founder can start any number of businesses without you, locked in his room, not having to deal with your stupid vision. What can you do for the company that your potential co-founder cannot? At the very least you should have an understanding of the market and the ability to write a business plan.

6. Get Lucky. This is worth saying again. If the idea truly has potential and you have a chance to make a go of the concept then you need to stick around long enough to get lucky. Finding a co-founder is definitely a huge step, but it is only the first step in starting a company. If you can’t get over this hurdle and get 1 skilled person excited, how are you going to get 1000 or a million people to give you their email address.

Finally, tech companies are awesome, but if you are not willing to be a tech guy you may want to think about starting a business that doesn’t rely on technology. If you really plan on taking care of the business and marketing aspects of a successful company then it is good to have relevant experience. Starting any type of company will give you an idea of what it takes and also build your credibility with possible co-founders.

Good luck and all feedback is welcome.