StartupNorth » Resources

Not all founders are created equal

David Crow — Fri, 18 May 2012 16:34:12 +0000

I was reading an excerpt from Noah Wasserman’s The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (Kauffman Foundation Series on Innovation and Entrepreneurship) about Founder Dilemmas: Equity Splits and it struck home. Equity splits and distribution are often the key issues related to power imbalances, perceived injustice and tension amongst cofounders.

In Noam’s dataset, 73% of founding teams split equity within a month of founding, a striking number given the big uncertainties early in the life of any startup. The majority of those teams set the equity in stone by failing to allow for future adjustments to equity stakes if there are major changes within the team or the startup…

Setting the early equity split in stone is one of the biggest mistakes founders can make. With their confidence in their startup and themselves, their passion for their work and their mission, and their desire not to harm the fragile dynamic within the nascent founding team, cofounders tend to plan for the best that can happen. They assume that their early, high levels of commitment will last long into the future, rather than waning as the challenges of founding begin to sap their passion for the idea and for each other. They assume that no adverse events will change the composition of the team.They also tend to take a very short-term view of the factors that should affect equity splits.

Sometimes it just doesn’t work out, and a founder will choose to leave the company or have the choice made for them. The question is how do you create a set of agreements that is fair to all of the cofounders. Often we think that standard employment and shareholder agreements cover much of the difficult situations that we can encounter with cofounders. But as cofounders it starts by really understand what you each are looking for, and then making sure your agreements cover the specifics of your situation.

10 Critical Cofounder Questions

How should we divide the shares?
How will decisions get made?
What happens if one of us leaves the company?
Can any of us be fired? By whom? For what reasons?
What are our personal goals for the startup?
Will this be the primary activity for each of us?
What part of our plan are we unwilling to change?
What contractual terms will each of us sign with the company?
Will any of us be investing cash in the company? If so, how will this be treated?
What will we pay ourselves? Who gets to change this in the future?

A couple of things. I think all founders stock should vest. I like it when founders purchase their initial shares with a one-time acceleration clause for a small percentage at purchase (3-5%). I like when founders’ stock reverse vests with a traditional one year cliff. The initial vesting acceleration is because things can change at 6 months and it seems fair to value the capital risk that each founder has taken at purchase. And the one year cliff because it is standard. What I’ve seen a lot is founders that don’t do the small initial accelerated vesting clause.

The other thing I like to see is an Employment Agreement with Termination clauses, in particular, an acceleration on vesting regarding “Termination by the Corporation without Cause”. I like to see a single trigger acceleration with 6-12 months of stock vesting on termination without cause (I’m not alone). The goal is to be fair and to protect each cofounder and the corporation if things don’t workout.

What tips do others have for equity splits? acceleration clauses? terms? That as cofounders we should put in our agreements.

Other Resources

The Startup Backoffice

David Crow — Wed, 16 May 2012 15:38:35 +0000

Some rights reserved by net_efekt

StartupNorth contributor Ray Luk (LinkedIn, @rayluk) announced the launch of Scalability Inc. (@scalabilityinc). It’s a great service that provides backoffice services including bookkeeping, accounting, government filings, payroll, record keeping, and human resources. It’s the combination of tools and the people with the expertise to help with timing that can make a huge difference. Ray seems to have nailed a need in the marketplace with Scalability Inc.

It’s great to see startups building these unsexy tools, and sharing their experiences. It’s particularly interesting to see how many Canadian startups are playing in the unsexy backoffice space. Scalability Inc., Wave Accounting (announced $12MM from Social+Capital), TribeHR ($1MM from David Skok at Matrix Partners), Shopify ($22MM from Bessemer), Dayforce (acquired by Ceridian), it seems like Canadians like critical business apps.

@StartupCFO backoffice talk on oct 4 2011 at Founderfuel

View more presentations from Mark MacLeod

What are the must have tools that you are using in your startup’s back office?

Sales & Inventory

Analytics & Business Intelligence

CRM

Human Resources

TribeHR

Accounting & Payroll & Expenses

Invoicing

FreshBooks

Payments

Legals

Rubsun Ho, Cognition LLP
Rob Hyndman, Hyndman Law
James Smith, Labarge Weinstein
Suzie Dingwall Williams, Venture Law Associates

Bookkeepers & Accountants

What are you using in the back office? Who are the consultants and providers that we’ve missed?

5 Steps to an Awesome Executive Summary

Ken Seto — Thu, 15 Mar 2012 21:44:31 +0000

Editor’s note: This is a cross post from Massive Damage Inc. written by Ken Seto, founder of @Massive_Damage & @EndloopMobile. He is building @PleaseStayCalm, a location based game.. Follow him on Twitter @kenseto where he tweets about Apple, music, games, food, wine & movies. This post was originally published in February 21, 2012 on MassDmg.com.

We’ve finally decided to post our Executive Summary to share with other founders as we’ve always had compliments and great feedback from it.

Some folks wonder how best to use executive summaries.. basically you’ll give it to people who will be doing intros for you. That way, they can forward something that piques the interest of the potential investor without giving away the whole pitch. You don’t want your deck to do your pitch for you, you want to do the pitch.

Here are the following guidelines I followed to create ours:

Keep it to one page if possible, it’s a summary, not a pitch.
If you have no eye for design, hire one or get a designer friend to help out.
If you have metrics, put the good stuff front and center. Feel free to use vanity metrics for big impact but make sure you also have engagement metrics.
Leave enough room for your Team section. Use pictures and previous startups/accomplishments.
Include awesome visuals. Sure you can’t use zombies for every startup but give it some personality. Use bold infographics or charts.

Here’s our Executive Summary:

Massive Damage Executive Summary

View more documents from Ken Seto

Should We Drink the Local Kool-Aid?

markevans — Thu, 15 Dec 2011 18:55:19 +0000

Editor’s note: This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting. Follow him on Twitter @markevans or MarkEvansTech.com. This post was originally published in December 15, 2011 on MarkEvansTech.com.

Some rights reserved by Eric Constantineau – www.ericconstantineau.com

In the post I wrote earlier this week about the demise of Thoora, there was a comment suggesting that “Toronto failed Thoora” due to a lack of community support to make it a “winning formula”.

It was a puzzling comment because it suggests a community has an obligation to support a startup so it can thrive. This strikes me as an absurd idea because startups should succeed or fail on their own merits, and the ability to attract an audience near and close.

Sure, it’s good to drink the local flavour of “Kool-Aid” but only if a startup is offering a product or service that meets a need or interest. There are lots of local startups, including some that pitch me directly, that don’t resonate because nothing something interests me or the product/service doesn’t resonate enough to warrant further exploration.

It doesn’t mean I’m not supporting the local community; it just means a startup has a service that didn’t pass the sniff test.

At the same time, I do think Toronto’s startup community is extremely supportive. There’s no lack of enthusiasm, energy and a willingness to share ideas, feedback, resources, real estate and time to provide startups with a boost.

This has been a fact of life for the past five years, even before we started to see a flurry of startups appear on the scene. There has always been a strong, support community that has pulled together in different ways. A great example is tonight’s HoHoTo party, which has become a major fund-raising machine due to tremendous support from the community.

The bottom line is if a startup needs to rely on the community to make it, it also suggests what it’s offering can’t survive without artificial support.

For startups, the market has to be bigger than its own backyard. It needs people to support it or not based on what’s being sold as opposed to a sense of duty or obligation.

Quota is not a dirty word

David Crow — Fri, 09 Sep 2011 13:14:06 +0000

Some rights reserved by Pedro Vezini

“We are ALL in sales” – Dale Carnegie

I used to think that quota was a dirty word. It struck me as restricting freedom and potentially forced the exploitation of trusted customers and prospects to drive the bottom line results. But I was wrong. In reality, a quota is a number that is useful to incent certain behaviours. The trick is to incent the appropriate behaviours. It is a contract between a sales person and an organization about how to compensate behaviours based on outcomes.

“Quota is a direct path to clarity and accountability.” – Shawn Yeager

So many entrepreneurs can benefit from contracts with defined outcomes. I was chatting with a startup last week about the numbers he agreed to with his VC to unlock the next tranche of funding. He mentioned that he wasn’t going to meet the numbers, but he still expected the VC to unlock the funding. My advice to him was very straight forward, it was to figure out how to achieve the agreed to numbers, or immediately open a conversation with the VC about missing the numbers due to changing market conditions and see if the tranche can be renegotiated. In the case of this entrepreneur, the numbers were in the funding contract, and I fully expected the VC to hold the entrepreneur to deliver on these numbers. The numbers and metrics exist to help assess the risk and the ability of an entrepreneur to deliver.

The secret with an early stage company is to set appropriate metrics, quotas and growth numbers that incent the correct behaviours out of entrepreneurs. The good news is that there are a lot of examples of SaaS, B2B and consumer metrics that can be used.

David Skok’s Designing Startup Metrics to Drive Successful Behaviour
Dave McClure’s AARRR: Startup Metrics for Pirates
Mark MacLeod’s SaaS Math – The Series
Fred Wilson’s 30/10/10

There are a lot of different sources of metrics and numbers. Each of the numbers needs to be considered in corporate revenue goals, past historical performance, current product development stage, market share, budget, etc. The targets and growth numbers need to be established.

I’ve taken to requiring all of the startups I mentor, to establish 3 metrics that we discuss in our mentorship meetings. Each of the metrics must be clear enough for me to understand, for example:

Number of paying customers
Number of registered users
Churn rate
Number of pageviews or unique visitors

And each metric should have the current measurement, the predicted growth rate and the actual target number. I try to start each conversation around the metrics. And any issues related to the market conditions, learnings, corrections, etc. Then together we set the targets as part of the planning for the next meeting. This may include a redefinition of the metrics. The trick for me as a mentor is to try to help identify what metrics I think are most useful for the startup and founder to focus on next.

What are the metrics other entrepreneurs track? How do you set your targets and quotas?

What are the metrics and growth rates that investors like ExtremeVP, Real Ventures, iNovia Capital, GrowthWorks, Rho and others want to see from prospective early-stage companies?

Lean Startup Tools

David Crow — Wed, 31 Aug 2011 12:45:07 +0000

Some rights reserved by splorp

Back in May, Nat Friedman wrote about the tools used in setting up Xamarin. They include a great set of basic tools for getting a startup off the ground with very little investment. We have seen a lot of startups using a similar set of tools and I thought that we’d compile a list of the tools that we’re actively using (and some of the others we evaluated). There are the tools and blogs listed by Steve Blank that include many

Landing Pages

We’re big fans of WordPress at StartupNorth. We’ve powered StartupNorth on WP since the beginning. The combination of WordPress, Premise, and the WordPress MU Domain Mapping plugin is a pretty powerful combination for creating mutliple sites and landing pages to test your landing pages. But we’ve also developed a sweet spot for Vancouver’s Unbounce, it took us less than 5 minutes to have 2 landing pages and a domain set up. We’re big believers that you can use Adwords and Facebook Ads to quickly create a landing page to test ideas before writing a single line of code.

Analytics

We primarily use Google Analytics and WordPress Stats for StartupNorth. We’ve been working with startups and using a KISSmetrics and Mixpanel to measure activity on their web properties and applications. Make sure you read Ash Maurya’s 3 Rules to Actionable Metrics to understand how the analytics can be used in combination with split testing and/or cohort analysis to better track your optimization before product/market fit (What do you measure before product/market fit? – check out Ash’s conversion funnel and metrics).

Mailing Lists

We haven’t been as proactive in building a mailing list for the StartupNorth community as we probably should have been. I’ve used have started using MailChimp because of the quick integration to GravityForms and WooFoo, but have had very positive experiences using both Campaign Monitor and Constant Contact.

Billing and Accounting

What is amazing is that both of these companies are local to Toronto. We use WaveAccounting integrated with our bank account and PayPal for tracking expenses, billing, and financial operations. And we use Freshbooks to bill for sponsorships. They are a must have in our back office. What we’re missing is a really easy to use and integrated payroll system (I hear that it might be coming).

Human Resources

For full disclosure, I’m an advisor to TribeHR. It doesn’t change the fact that they rock. It is the easiest way to get an HR system in place. And there is no better way to get feedback and help employees improve than Rypple.

Surveys and Feedback

We are actively using Survey.IO to gather feedback from users about the state of StartupNorth. It helps us figure out the state of our product market-fit, if there is such a thing for a blog about Canadian startups, fill it out and help us be better.

Project Tracking

We use Pivotal Tracker. We like them so much, we actively recruited them as a sponsor for StartupNorth. There are lots of other tools from project tools to issue tracking. Curious at what others are using.

Source Control

We use Github Bronze for our project hosting. Most of the code we work on is PHP against MySQL (see WordPress), though we have additional apps in development like the StartupNorth Index (which will be moving to startupnorth.ca/index shortly) but all are LAMP.

Hosting

Full disclosure: VMFarms is a sponsor of StartupNorth. However, their hosted VMs that are backed up and hot mirrored coupled with the outrageous “white glove” makes them a dead simple choice. We also use Rackspace Startups and EC2 for access to easy Linux and Windows VMs for development and testing environments.

Customer Relationship Management

We don’t have any strong recommendations. There are platforms like Salesforce that are fantastic and sales teams are used to. There is Highrise which is broadly supported with a lot of 3rd party tools. But so far, neither of these has been the clear winner for us. There is a great Quora question about “What is the best CRM for startups” that lists SFDC, SugarCRM and Highrise. There are a lot of choices for CRM including Nimble, Insightly, Woosabi, Capsule, Solve360,AppPlane, Batchbook, PipelineDeals, TactileCRM, ZohoCRM and many others.

Conferencing, Screen Sharing & Telecommunications

I’ve been using Calliflower for conference calling. It’s $5/call for up-to 5 callers, or for $30/month unlimited minutes and >70 participants, it’s a great solution. It is not a replacement for a office phone system.

Google Voice and Skype have been the least expensive way as a Canadian startup to get a US phone number. This is great for me as an individual. However, this does not scale to an enterprise or an organization. I’ve been looking at Grasshopper, RingCentral and Toktumi, but I have yet to settle on a solution.

SEO & SEM Tools

This part of the list is pretty much cribbed from Steve Blank’s list of tools for entrepreneurs. Go read it for a more comprehensive list of tools beyond the SEO/SEM listing included below.

Google Keywords Tool
SEOBook Tools – Free SEO tools
AdGrok – Google adwords optimization tool
SEO Digger – Find the top ten keywords ranking to your websites
SEMRush – SEO and campaign management tool
Clickable – Pay per click management
Spyfu – tells you how much adwords cost
Market Samurai – SEO Keyword Analysis Tool

What are we missing?

I’m going to cover in the next post: discounted travel, conferences, business cards, design services, and other tricks for being relentless resourceful as a founder.

There are a lot of online tools that startups are using to make or break their business. And there is a lot missing, monitoring like NewRelic, PagerDuty, Pingdom and Blame Stella for example. But I’m curious what are the indispensable tools being used at iStopOver.com, HighScoreHouse, CommunityLend, Idee/Tineye, Massive Damage, Empire Avenue, Indochino, Lymbix, Hootsuite, AdParlor, Locationary, Chango and others. What are you using? What gives you the edge in quickly and effectively gathering feedback to test your hypotheses?

The Mentor Manifesto by David Cohen

David Crow — Mon, 29 Aug 2011 15:19:27 +0000

Some rights reserved by pasukaru76

I am continually amazed at the horror stories I hear from entrepreneurs about finding mentors. About mentors taking large pieces of the company and not providing any value in return. It was great to see David Cohen’s The Mentor Manifesto this morning. It is great to see David take the time from his 11 cohorts at TechStars and try to explain “What does it mean to be a great mentor?”. This is an extension of his tips for entrepreneurs that includes how to Find and Engage Great Mentors as part of his top twelve startup tips.

The Mentor Manifesto

Be socratic.

Expect nothing in return (you’ll be delighted with what you do get back).

Be authentic / practice what you preach.

Be direct. Tell the truth, however hard.

Listen too.

The best mentor relationships eventually become two-way.

Be responsive.

Adopt at least one company every single year. Experience counts.

Clearly separate opinion from fact.

Hold information in confidence.

Clearly commit to mentor or do not. Either is fine.

Know what you don’t know. Say I don’t know when you don’t know. “I don’t know” is preferable to bravado.

Guide, don’t control. Teams must make their own decisions. Guide but never tell them what to do. Understand that it’s their company, not yours.

Accept and communicate with other mentors that get involved.

Be optimistic.

Provide specific actionable advice, don’t be vague.

Be challenging/robust but never destructive.

Have empathy. Remember that startups are hard.

I hope that I can live up to the manifesto for the companies I mentor at UW VeloCity, FounderFuel and those I’ve been working with in Toronto and Waterloo.

Single People Should NOT Do Startups

Dan Morel — Thu, 21 Jul 2011 14:56:44 +0000

Last night, my 1 and half year old didn’t fall asleep sleep until 11pm (normal bed time = 7:30pm) and then woke up at 2am and screamed till 5am. He is cutting his eye teeth. On top of that I have worked 16 hour days almost the entire week, I am on heavy coding deadline(s) and working constantly with guys in Indonesia & China all night long. It sucks, I’m super sleep deprived. But. I will make it all happen and still be there for my family.

You see, there is this weird meme in the startup world that says “families” + “startups” don’t work. Dave McClure doesn’t help with his family life mocking “Don’t do a startup, you will fail”.

Why Not to Do a Startup Dave McClure

View more presentations from Seattle 2.0

I, in fact, also got an up-close look at this “anti-family-ism” recently at a young startup office where the mid-20s founders insinuated that “you can’t have kids and a startup”. It drove me nuts (to the point that I felt obliged to write this article).

First off there is a whole range of great entrepreneurs locally here who have successfully done both. David Crow (@davidcrow), Tara Hunt (@missrogue), Shyam Sheth (@shyamsheth), Michael Garrity (@mgarrity), myself (@dpmorel) and many others manage this struggle. It is definitely difficult but it is do-able. I’m sure lots of them have good tips (like… work after your kids go to bed… also when single folks are out at the bar).

In fact, this week I am here in New York at the Peek office. We split our offices with another startup, who have several young single founders. My new theory is this – YOU SHOULD NOT BE SINGLE AND FOUNDING A COMPANY.

Why?

Startup founders are not sexy. They constantly look tired (and are constantly tired). Most entrepreneurs who have been in business for a few years have this disheveled, haggard look to them and wear the same clothes near every day (men and women alike). I have not had my hair cut in about 3 months and my sideburns may be a living creature. I am staring at a female founder in the office who has the classic entrepreneur red, weary eyes with giant bags under them.
Your mind will flick over to some business problem on a dime, which makes you a boring date, and you’ll have a hard time keeping relationships going.
You likely won’t have much time for other hobbies, so nobody will really be interested in you in the first place. “oh you work 18 hour days, yeah, very exciting”
Entrepreneurs are basically living Zombies. They have no emotions. You keep hitting them with stuff and they won’t stay down or react. They just get up mindlessly and keep going forward with arms out. They also maybe eat brainz.
When you have sex, you’ll probably get interrupted constantly by emergencies and “important people”
You can’t get drunk – you don’t sleep enough for your body to handle it properly, you don’t have time to drink that much, and you probably have an important meeting first thing in the morning. And we all know how hard it is to find a new mate without the social lubricant of drinking.

I could go on. But generally new relationships take so much time… you have to keep this veneer of your “perfect self” and do things for the other person all the time and spend time with them on weeknights. No, no, no… its an impossible work-life balance.

Startup relationships + startup jobs = NO.

It feels like its a lot easier to do a startup with a long standing relationship and understanding partner who will support you emotionally and mentally. Having kids adds to this – all your problems melt away and disappear as you chase your kids around or play some silly game, a wonderful reprieve from the constant stresses and to-dos of your under-resourced, over-leveraged business.

How about the rest of you? How do you find balancing your startup gig + your current life stage? Other family folks – I’d love to hear how you balance your busy family + busy job in the comments?

Teaching Software Engineering and Startups at UofT

Tony Savor — Tue, 12 Jul 2011 18:45:50 +0000

Some rights reserved by SteveGarfield

About 5 years ago I was asked to teach a 4th year undergrad software engineering course at the University of Toronto. The course had been previously cancelled due to low enrollment; in an era dubbed the “Software Gold Rush” a cancelled course indicated something was wrong…

Software engineering is difficult to teach
Students are expected to learn how to avoid mistakes they never made. A great divide results from the instructor talking about concepts suitable for a mature organization when students are all about working their ass off and getting things done the night before. We borrowed several lessons from startups, having been personally involved with two startups over a dozen years. The way startups work are much closer to students ways of doing things. Since launch, course enrolment has tripled and two Y Combinator applications have been submitted based on class projects. Here is what we have learned so far:

1. Use a startup software process
Students are all about getting things done the night before; similar to how startups work. Teaching a heavyweight process feels foreign because students haven’t made the mistakes to understand reasons for the overhead!

2. Change the project every year
There is nothing more of a turnoff than a make-work project with antiquated technology. Instructors that use the same project over and over are sleepwalking. A new project each year puts the instructor and students on equal footing, solving problems together. Make the class goal to have someone apply to Y Combinator. Discuss the non-technical issues of software such has how people are going to use the product, how are you going to sell it, what is the competition like, what is the business plan. One big class project brings issues into the classroom better resembling the real world. This also allows non-trivial projects to be developed and students to test-out roles (e.g. project management) that would not otherwise exist.

3. Allow controlled crashes
Let the students make mistakes. For example, let them avoid source control. A student who looses code because of clobbered checkins will be a lesson learned for the entire class. However, when crashes occur, it is the instructor’s responsibility to manage and fix it. After the mistakes have been made, teach them about process. Keep things light and give them references for their future travels. During lectures on process, tie them into the mistakes that were made. Make process real.

4. Demo early and often
Create a culture where the principal deliverable is working software rather than documentation. Use early demos to correct mistakes and give guidance rather than having them worry about their grades.

5. Instructors should code
The instructor-student relationship changes dramatically if the instructor contributes code. Everyone becomes a peer instantly. This improve communication and follows the startup philosophy that even managers should write code.

Next steps
The course has been well received by the students at UofT. I have much more regular contract with students from this class than the other courses I have taught at UofT and UofW. I am interested in hearing from anyone who is interested in providing continuity to the students; a partner that would provide input on the project at the beginning, stay involved with it during the course, and offer a path forward for interested students ready to commit to a startup.

National Survey of Canadian Angel Group Activity

BryanWatson — Tue, 05 Jul 2011 22:23:48 +0000

Snow Angel by Syymza

Today, the National Angel Capital Organization (NACO) released statistics regarding Canadian Angel group investment activity in the Investment Activity by Canadian Angel Groups: 2010 Report.

This study looked at the ‘visible’ portion of the Angel investor community – those that are members of Angel groups – as it is almost impossible to survey the entire Angel community. Different countries estimate the visible Angel community represents between 3% (US) and 12% (United Kingdom). Understanding this, the findings presented below represent only a fraction of the actual Angel investment across Canada. They do, however, provide us with the most accurate snapshot of the activity in the community that we have today.

Significant findings of this report include:

90% of companies funded by Angel groups in 2010 were new, not follow-on.
Angel groups collectively received around 1,850 business plans. 14% were considered in detail, 32% received investment.
Angels groups invested CAN$35.3 million in 88 deals; an underestimate as some groups did not report the amount invested.
Co-investors were involved in 58% of investments and invested at least a further CAN$29.4 million.
Angels invested in a wide range of industries but with a strong technology focus: ICT sector (43%), Life Sciences (18%), and Clean Tech (16%).
74% of funded businesses had revenue in 2010.

Download a copy of the full report here: http://www.angelinvestor.ca/2010_Investment_Activity_Report.asp