Wednesday, July 18, 2007

Quitting the Day Job

This is really a work-up-the-courage-to-give-my-boss-notice post, but I also want to jot down some of my thinking, just to clarify things in my own head and make sure that I'm not making a huge mistake.

I had initially wanted to start a startup straight out of college. My idea at the time was for collaborative editing, a la SubEthaEdit but over the web. As it turns out, Google Docs has implemented the same feature now, so it wasn't a horrible idea, but it wouldn't've worked out anyway because I would've just ended up competing against Google. The reasons I didn't start it and ended up taking a day job instead:
  1. Upon looking at SubEthaEdit's market again, they weren't really getting widespread adoption. There was some niche interest, but few people using it for actual work, and those who were tended not to care about the collaborative editing features. What failed for SubEthaEdit was unlikely to work for us.
  2. I didn't have money. Coming out of college, I had roughly $10K saved from my year at Traxit, sitting in a tax-free municipal bond fund. I had about $3-5K in my bank account from summer work. I figured that legal fees would easily eat $5K, hosting would eat a couple hundred a month, health insurance would eat a couple hundred a month, and I really didn't want to be mooching off my parents, though I did end up living at home anyway. That didn't leave much runway.
  3. I felt that I frankly lacked the experience to start a startup. Yeah, I had taken's new system from conception to completion (or actually, I only completed it in November after finishing college). But I had no idea what people would actually pay for, how legal and financing stuff works, common mistakes that startups make, how to manage programmers if we ever were to grow beyond just me, or anything like that.
  4. I'd only taken two projects successfully to completion (Scrutiny and FictionAlley), and FictionAlley felt like it was a big stretch. I worried that I lacked the discipline to carry something as big as a startup all the way through.
So I decided to take a job at someone else's startup and learn how it's done while saving up money. Best of all worlds, except I had to leave my startup dreams behind for a couple years. With luck, I'd do some side projects and something would take off, then I could quit once it looked like it'd be successful.

Fast forward a year and a half to now. The status of each of the 4 points above is:
  1. I mentioned our competitors in my last post. Sploder has a forum with a bunch of people that are pissed off because its founder is no longer maintaining the site. GameBrix has gotten some tech press coverage. MyGame has a bunch of games actually created by casual browsers. It looks like our competitors are about to get traction - if we delay any longer, they'll leave us in the dust.
  2. I have close to $40K in the bank, another $20K in the brokerage account, and $35K of Akamai stock I could sell. If I were to move out and live like a grad student, the cash in the bank would cover close to 2 years, and then the stock accounts nearly 3 years more (assuming no market crash, and we'd be fucked anyway in that case). That's after paying lawyers for incorporation and buying out the silent partners.
  3. From what I've seen at my job and what I've read from other successful founders, startups are simpler than I thought. It basically comes down to three rules: 1.) Make something people want, 2.) Charge more for it than it costs you, and 3.) Fix problems now rather than later. We do 3 and hopefully 1 already; 2 will have to wait because of the market, but that just means we have to keep costs very low to start out. Of course, there's a lot of complexity behind each of the individual points, but that complexity depends heavily on the particular market opportunity. It's not something you can take with you from job to job. We'll just have to develop that expertise as we go along, which means we need time and focus to work on it.
  4. Since college, I've added Write Yourself a Scheme in 48 Hours, a Netbeans Plugin for work, Bootstrapacitor, the Execution Monitor for work, and now the Diffle flash games site to that. Each of those had places where I wanted to forget about it and read Reddit at the time. In each case, I came back and finished it.
I've also tried to eliminate as much risk as I could from the decision to go full-time on Diffle. The way I see it, the various forms of risk inherent in a new business are:
  1. Enthusiasm risk. You may get started and then find that you don't like your business idea as much as you thought you did, once you have to start doing actual hard work.
  2. Team risk. Your cofounders may have divergent goals, and the team may fall apart.
  3. Technological risk. You may not be able to build what you're hoping to build.
  4. Market risk. It's possible that nobody will want what you build
  5. Economic risk. You may not be able to build what people want at a price they're willing to pay for it.
  6. Competitive risk. Someone else may build what people want better than you.
  7. Scaling risk. If you build everything way better than everyone else builds it, you may not be able to scale your infrastructure to the demand this creates.
Enthusiasm risk was a big worry when I started, and the reason I didn't quit the day job immediately. But I think it's fairly likely that that's behind us: I'm finding I'm more excited by the actual process of working on this startup the farther we get.

Team risk actually happened to us, but we've basically dealt with it. Our 3 former cofounders seem willing to be bought out. It was an expensive mistake, but much less expensive that allocating 50% of the equity to 3 people who aren't really interested in being day-to-day involved with the business.

We've tried to reduce technological risk as much as possible. We are live with the actual website now - it's unlikely that any surprises will crop up there. We have prototyped command-line compilation from XML to Flash, so we know we can do that, and it's nothing more than string manipulation in Python. We've prototyped building a game in JavaScript, and succeeded with adequate performance. I'm working on customizing that game in real-time through JavaScript, but it seems like that should work without major hitches.

We still have to live with market risk. Ideally, I'd stick with the day job until Diffle took off and it was clear that people wanted our system, so we'd only have to worry about scaling risk. However, in the presence of competitors, they are more likely to take off and get users if the market actually exists. By trying to ameliorate market risk, we open ourselves up to competitive risk.

Economic risk is typically not a problem for software startups, because your variable costs are so low. If people like what you build, there will be some way to monetize that profitably. Often it involves selling out completely to a big company, but software that gets used almost always is a net economic positive.

Finally, we're still very exposed to scaling risk. But that'll only get worse if I still have my day job. And if we get to the point where this is a problem, I'll be jumping for joy.

I figure that worst case, I try this for a year, see how far we get, and if it was a complete mistake, I go get another job.


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jay paul said...

Nice post! Can’t wait for the next one. Keep stuff like this coming.

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