Startup businesses

May 27, 2020

How to Start a Startup: What to Consider Before You Take the Plunge

By Eric Saraniecki
. May 27, 2020

How to Start a Startup: What to Consider Before You Take the Plunge

 

Welcome to “How to Start a Startup,” a short series aimed at giving aspiring entrepreneurs a range of views about starting a new team, product, or initiative.

This week, our panel of founders will discuss their planning — and their inspiration — leading up to the launch of their startups. I really enjoyed hearing the responses to these questions because they presented such a broad spectrum of approaches. For each entrepreneur, deciding to start something new was also contextual to the idea. Sometimes the idea required more vetting, other times it required raw conviction and determination. I think the point that resonated the most with me was Marwan’s recognition of the skill of vetting an idea — a skill our entrepreneurs give great insight into below.  

planning and inspiration in how to launch a startups.This week in “How to Start a Startup,” @DigitalAsset’s Eric Saraniecki talks with entrepreneurs about what they considered before starting their companies.


Michael Shaulov, CEO and Co-founder of Fireblocks:

Once I have the passion, I need to go and start doing customer validation — and in many cases, exploration just kills the idea. 

When did you get your idea for your current company? 

I think my philosophy is a bit unique. I know a lot of people who are trying to approach it in a very structural way; they basically start with the view that this is the point in their life that allows them to go down the path of being entrepreneurs. 

They don’t exactly have the idea, but they have a theme or they have people they want to engage with in building something, and then they start an exploration around finding the idea.

I never did that. I guess I’m a bit of a crazy, super-impulsive entrepreneur. I just get an idea I have a bug for, and I just go down that path without really stopping to think (which is bad to be quite honest).

For me it’s always this passion and traction around thinking about something new. Usually it happens to me either when I’m in the shower or running or something like that: “Wow, this is a really great idea. I want to build it. It will be super-exciting to build it.” 

I think that what set me through those multiple failures when I was younger: impulsive disorder around just chasing after something that I had in my mind.

What did you have to do to validate your idea? For Fireblocks, did you actually validate it, or did you run on some greater calling? 

Once I have the passion, I need to go and start doing customer validation — and in many cases, exploration just kills the idea.

I had a very interesting experience where we actually started a startup in IT storage and raised $600 thousand in seed funding from Israel’s Office of the Chief Scientist. After three months, we discovered there was no go-to-market for our products. We returned $500 thousand to the government and shut down the company.

Probably the most important lesson that I learned is based on the most important book I ever read in my entrepreneurial life: Four Steps To Epiphany describes how you need to run customer validation and how you basically achieve product market fit. And after reading that book and seeing what I experienced with that startup, I understood the funding situation. 

When I started Fireblocks, I had two ideas in mind that I was very passionate about. One was basically Fireblocks (which at the time was actually Priority Number Two for me). Priority Number One was creating a unified infrastructure between all the cybersecurity vendors, where they can basically share intelligence across vendors. If MacAfee or Kaspersky find a new malware they can somehow immediately notify Microsoft and basically work in circles. I was very passionate about that. 

But then I went through this exploration process where I met with guys from Google and Microsoft and other vendors — and I understood it was going to be a very, very complicated execution. They were in agreement that it was a good idea, but it was so political in some of those organizations that I understood it was not going to be a good market.

How did you convince yourself to get excited about your second option?

I fell in love with the industry. I started to read about crypto, and I just got the bug.

I still remember the moment when I read the Satoshi white paper [explaining the concept of Bitcoin] and if i tell you… This mythical moment, right? Right, where you’re in, and I think that for me this was the path that we went there.


Ben Milne, Founder and Chairman of Dwolla Inc.

“The initial insight or the initial desire was to not pay credit card fees anymore. It was to bypass those so I selfishly made more money”

When did you get your idea for your current company? 

I started looking at cost centers in my first business, and one of them I just couldn’t get my eyes off of was interchange. We were paying $55 grand a year to Merchant e-Solutions. It was OS commerce back then — just an open-source shopping cart — but $55 grand was probably more than I was paying myself at that time. 

Once I started doing some research, that insight that I came to is not really that insightful at all: All the money actually settles on ACH anyway, and there’s no way to get access to ACH without going through all these other things. Why don’t we just build on the ACH thing and make that usable? That’s exactly what the first Dwolla was, and that was the only thing we focused on. It turned into much more later on, but the initial insight or the initial desire was to not pay credit card fees anymore. It was to bypass those so I selfishly made more money.

How did your early users change your opinion on your idea? 

As companies get bigger and start to serve more people, the amount of feedback you’re capable of receiving goes up exponentially, and the number of people who want to give you feedback goes up, not down. 

That’s really great because you find yourself in rooms of people that you really respect, and you want their feedback. But early on, I think I delayed making decisions because I was looking for a confirmation that it was the right move as opposed to just doing it. Those types of things just got delayed, and they didn’t need to. I wish I would have gone faster.

When did you know Dwolla was going to be a full-fledged company? 

I actually went and talked to my vendors, and I would start paying my vendors with the early version of Dwolla. And then I talked to my friends and would get them to put it on their website as an accepted-payment form. 

At the time, that was something I could speak to really passionately: “Every time someone uses this, you’re never going to have to pay a credit-card fee again.” 

And they’d say, “Oh that’s awesome! Let me try it.”


Arti Arora Raman, founder and CEO of Titaniam:

“For me, it’s about when other people start putting their faith in you. At that point you look at yourself and say, ‘OK, am I ready? Is it real enough? Am I willing to commit?'” 

When did you get your idea for your current company? 

I have a few issues — basically character defects, if you will. First off, I get bored easily. Doing the same thing and building up another person’s project is difficult for me. However, I had to do it because to build expertise in another field, I felt like I actually needed to go in and bide my time.

To start something new in an established field, you want to have a network and an understanding of the problems. Within security, I was in product management in UX — the user experience side — but also I ran competitive intelligence. So I got to see a lot of issues.

Along the way I built relationships with several companies, and one of them continuously highlighted a specific problem. So essentially I was waiting for a chance to solve it because it overlaps a business process with an algorithm type of need. And that’s my sweet spot. I look for where we can have IP and bring to market something that has a heart.

Once the problem was brought to my attention, I started looking around and that kind of data breach, that particular type of data breach was happening four or five times a month at very large companies. I’m looking at that saying, “Wow, this is a really big opportunity and I’ve got something. I’ve got a skill that I can bring to there and solve it.”

What did you have to do to validate your idea? Did you actually validate it, or did you run on some greater calling? 

I had two parallel streams: making sure that I could write the math that was needed and whether a problem was large enough. 

I did start with the math because I just enjoy it. I figured, “I’ll spend some time doing that. If I can prove to myself that I can solve it then I’m going to go talk to people so it’s not just me feeling excited about my idea.” I did a lot of that. It took a lot of talking to get to that — a hundred people, a lot of people.

Initially, I leaned on my network; I need interaction with people who will take my call and listen to my idea, however stupid it might be. 

But very, very quickly thereafter. I try to cold call because if I can’t get a stranger to be interested in my idea and take a second call with me then I might be fooling myself and my friends. 

When did you decide Titaniam had legs? 

For me, it’s about when other people start putting their faith in you. At that point you look at yourself and say, “OK, am I ready? Is it real enough? Am I willing to commit?”

For me it was about building my team out. In my case, I brought people that have been doing it with me for 20 years from various paths of life. Those guys are here because obviously they like the idea but they also believe in me.

At that point, I kind of took a look in the mirror and I thought, “At least I have to write it to some logical conclusion. I’m not worried about failing, but I’m certainly feeling committed.” 

And to me that was six months into my journey.


Daniel Chait, CEO and Co-founder of Greenhouse:

“It wasn’t until we basically got through our whole list and ruled them all out that finally, we sort of looked at each other and we said, ‘What do you know a lot about?'”

When did you get your idea for your current company? 

We probably had 20 criteria and 50 ideas, and we worked through each idea one after the other, and we kept rolling them out. One idea after the other that sounded amazing. I’d get real excited for a couple of days or a week. And then we’d discover the fatal flaw, and it wasn’t until we basically got through our whole list and ruled them all out that finally, we sort of looked at each other and we said, “What do you know a lot about?” 

We were thinking like these big macro ideas about the changes in the global environment around the world and what’s happening internationally and what’s happening in technology. And we found a lot of stuff, but we didn’t really know anything about it. And so we started talking about what we knew instead. He and I both, in very different ways, had a lot of experience around hiring and how what an unsolved problem that was. And after months and months of gnashing our teeth on “What are we going to do?” all of a sudden, the whole business came into focus.

What did you have to do to validate your idea? Did you actually validate it, or did you run on some greater calling? 

We started talking about hiring and we started to see the problems in the market and the solutions that we could envision and the way the business would get built. And basically within the first day, we really had the broad outlines of what we wanted to do and a ton of clarity of what it would mean to do it. And then he went home and talked to his partner who’s very level-headed. (Unlike me! I’m super excitable. I love every idea. She hates every idea.) 

And so we came back in the morning and he said, “All right, Alison doesn’t hate it.”

And that was when we knew we had gold.

When did you decide Greenhouse was going to work? 

The first thing we did was make a set of index cards, and we went to a friend of mine who worked at the New York Times. And we said, “We want to spend a little bit of time with you on a hire. So think of a hire that you’re trying to make right now.”  

She was trying to hire an iOS engineer. I said, “OK, I’m going to ask you some questions. What are the criteria on which you’re going to base that hire? What’s your scorecard? What are the things you’re going to test for?” And she would say what they are, programming language and certain personality, hardworking, whatever.

And we wrote each on an index card one by one and laid them out on the desk. And we said, “Great. Now for each of those things, how are you going to test for it?” And she said, “Well, for this one, we’re going to give them a coding test. For this one, a panel interview.” 

And we wrote them on index cards and put them on the desk in front of her. “OK. And then where are you going to find these people? And what are you going to say in your advertisement to get that kind of person attracted to this job?” “Oh, we’re going to describe the job this way. And we’re going to say that we’re going to buy ads on Craigslist.”

And then we stepped back. We had a stopwatch running and we looked at it, and we said, “What do you think?” And it had been under 10 minutes. It was like eight or nine minutes for the whole exercise. 

And she looked at these literally handwritten index cards on her desk and said, “This is by far the most comprehensive and strategic hiring plan I’ve ever seen. I’m going to do this and make my next hire.” 

And we just sat back and we looked at our stopwatch and it has been like eight-and-a-half minutes and zero investment. And we were like, “Goddamn, that was perfect.” 

So that really showed us that the the journey that someone has to go to from, “I don’t know what I’m doing” to, “I’ve a really good plan,” was quite short, and it didn’t require us to patent any new algorithm or any kind of asymmetric cryptography.


Marwan Forzley, Co-founder and CEO of Veem

“You become a lot better at validating ideas. That’s fundamentally the difference between doing it the first time versus the second time versus the third time”

When did you get your idea for your current company? 

In terms of how these ideas start and how you get started on them: in all the situations I’ve been in, it’s always been the same theme that you take a pain point that exists in the market and you work backwards to see, “Can I create a product that simplifies that pain point in a way that ends up being material? And is there enough pain and big enough pain to essentially create a scalable product out of it?” 

I think it also changes, depending on how many times you’ve done this. 

The first time, there was a need that I came across and jumped into it and figured it out on the fly, with more rapid iterations. The second time was more that I knew what the problem was, but we needed to do more work just to verify that this is actually what the problem is and people are willing to take a different solution and pay for it. And the third time around was more like looking at the market more broadly and at all the players in the market and making sure that the area of the market that I’m going after can be occupied by a startup. That land, so to speak, has not been occupied, and there’s no solution at the moment that that is adequate to the needs. 

You just get better at it over time. You develop sort of a feel for what works and what doesn’t.

How do you go about validating your ideas? Has this changed over time for you?

You become a lot better at validating ideas. That’s fundamentally the difference between doing it the first time versus the second time versus the third time. I’ve done this many, many times more. You become very good at how to get something validated quickly. And you become better at understanding the risk of things if they don’t work out. You just develop a rhythm.

The first time you’re doing it, you spend time on all kinds of things that are irrelevant in the big scheme of things. 

First-timers spend so much time creating PowerPoints and business plans and spreadsheets. That doesn’t really work, and so you end up spending more time actually getting a customer, talking to a customer, validating somebody’s going to pay for this or whatever you’re creating. 

If you’re selling to a consumer, your best first set of customers are friends and family. If you’re selling to enterprise, that’s more difficult. You have to figure out who is the right buyer within the enterprise, and you need to be disciplined and talk to the right potential decision-maker who can give you feedback that ends up being meaningful. 

And you want to make sure that there’s enough of that feedback to represent the broader market. Because one person tells you, “Hey, this doesn’t work for me,” doesn’t mean that it may not work for others in the market. 

So customer validation – for infrastructure ideas, hardware ideas, enterprise ideas — that’s more challenging than consumer, SMB or any other type of idea that you can get quick feedback on.

Some things you need to understand: How much are customers willing to pay for it? Who is involved in decision-making around approving the purchase? Would you pay this much or that much? And why would you pay? So you get more feedback that’s more colorful or precise, more qualified to the setting that you’re in, and become better at understanding the environment that you’re going after.

How has your experience changed the way you thought about Veem?

Veem is more of an idea that’s heavier on market positioning than my earlier companies. Veem is very big, with a high pain point. The other ones were more targeted and had very specific objectives to them, that narrower. So when an idea is more destructive and broader, you need to spend more time on the market positioning. Make sure where you’re at in the market compared to ideas that are more incremental in a more defined market.


Nimrod Lehavi, Co-founder and CEO of Simplex:

“You’ll never get funding, you’ll never get a bank account, you’ll never get a license. You’ll never be able to overcome the fraud”

When did you get your idea for your current company? 

I’d founded a software boutique, and at a certain point, I just didn’t want to do projects one day more. So I just shut it down and started working again. I just let the employees go to wherever projects they were working on, and with a friend, I started another startup that lasted six months but didn’t really work. We decided, “We’re shutting it down,” and the next day I registered the Simplex domain. 

I knew exactly what would be the next thing.

What did you have to do to validate your idea? Did you actually validate it, or did you run on some greater calling? 

I didn’t really vet the idea. It was like my own conviction. Simultaneously, I was also developing a short-lived platform myself – it was called Proxy Coins – and it was up for two months maybe, and then I shut it down because I started Simplex. 

To be able to instantly buy crypto with a credit card not only looked impossible but it was also considered the Holy Grail in the crypto purchasing experience. Everyone I spoke to discouraged me. Someone whom I hold in the highest regard in the credit-card industry told me it’s impossible for four different reasons. Like, “You’ll never get funding, you’ll never get a bank account, you’ll never get a license. You’ll never be able to overcome the fraud.” 

And we did all that.

Where did you get your conviction for Simplex? Where did your certainty come from?

I think I’m pretty good at getting feedback — but I just didn’t care. It was crystal clear to me that it’s needed. If you can buy anything in the world with a credit card, why the f*** wouldn’t you be able to do it with Bitcoin? Wait, what’s the difference? And the fact that it didn’t exist just looked insane. 

What’s ahead

In the weeks ahead, we’ll continue by exploring these high-level topics: 

  • How to build a founding team
  • Early funding strategery
  • Hiring first few employees
  • Life beyond the first few months

Each post will comprise a short set of questions about a specific topic. Our participants will offer their own views and we encourage you to add your voice to the discussion. 

Do you have your own questions for Digital Asset’s panel of entrepreneurs? Please write to us at community@daml.com.

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