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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.


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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.


Filed under, startups

Building Assets in a Startup

I’ve been thinking a lot this week about building assets, especially how it relates to my startup, 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.


Filed under, startups