Something to think about this weekend

This is an excerpt from The 4-Hour Workweek by Tim Ferriss (I don't think he'll mind, considering I'm helping promote the book, which was fantastic):

An American businessman took a vacation to a small coastal Mexican village on doctor's orders. Unable to sleep after an urgent phone call from the office the first morning, he walked out to the pier to clear his head. A small boat with just one fisherman had docked, and inside the boat were several large yellowfin tuna. The American complimented the Mexican on the quality of the fish.

"How long did it take you to catch them?" the American asked.

"Only a little while," the Mexican replied in surprisingly good English.

"Why don't you stay out longer and catch more fish?" the American then asked.

"I have enough to support my family and give a few to friends," the Mexican said as he unloaded them into a basked.

"But....what do you do with the rest of your time?"

The Mexican looked up and smiled. "I sleep late, fish a little, play with my children, take a siesta with my wife, Julia, and stroll into the village each evening, where I sip wine and play guitar with my amigos. I have a full and busy life, senor."

The American laughed and stood tall. "Sir, I'm a Harvard M.B.A. and can help you. You should spend more time fishing, and with the proceeds, buy a bigger boat. In no time, you could buy several boats with the increased haul. Eventually, you would have a fleet of fishing boats."

He continued, "Instead of selling your catch to a middleman, you would sell them directly to the consumers, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village, of course, and move to Mexico City, then to Los Angeles, and eventually New York City, where you could run your expanding enterprise with proper management."

The Mexican fisherman asked, "But, senor, how long will all this take?"

To which the American replied, "15-20 years, 25 tops."

"But then what, senor?"

The American laughed and said, "That's the best part. When the time is right, you would announce an IPO and sell your company stock to the public and become very rich. You would make millions."

"Millions, senor? Then what?"

"Then you would retire and move to a small coastal fishing village, where you would sleep late, fish a little, play with your kids, take a siesta with your wife, and stroll through the village in the evenings where you could sip wine and play your guitar with your amigos..."

Why customers are assholes sometimes

Remember a few weeks back when I discussed how SportsLizard's Price Guide was a love/hate product and how I am dealing with it? Well the past few weeks the love has intensified (more press mentions has led to ~1k new users/week) and with that so has the hate.

Towards the end of last week I got a wave of complaints and it set me off. People generally complain for a few different reasons, all of which are addressed in a handful of places throughout the site. Granted, the majority of people do not contact us, but when they do they seem to be PISSED. They clearly have not taken the time to read the site or check FAQ's, and they always feel screwed over. Sometimes it's because they think we billed them without their permission (forgetting of course that they signed up less than a week ago), other times they demand a refund for no reason whatsoever (some even going as far as opening disputes with PayPal).

Again, in many business situations these things would raise red flags. But in our case, with the volume we're doing, and with the love/hate nature of the product, I'm not worried. Revenue is still increasing fast and there are a lot of happy paying users. Nonetheless I'm only human and it pisses me off when customers send emails accusing us of wrongdoing when we are nothing but stand up, honest, and fair (I almost always give refunds to people who request them).

And being human, I started asking myself why people contacted us with such malice. Were they just assholes and should I leave it at that? I'd like to think that people in general are good by nature, so I don't think that's it. I think customers are so accustomed to companies not caring that they jump on the defensive right away. When I go back and look at the second emails I received from people - after I contacted them and diffused the situation - and most people look like angels compared to their first email. Most are very thankful for my help and the speedy response. They were really just afraid that no one was going to get back to them and help, so they took their email to an extreme.

Unfortunately consumers have been largely treated like crap (particularly on the web) and they'll take it out on companies that don't deserve it. I suppose that many things in life are like that - people take out their frustrations on other people who don't deserve it. There's not really much you can do about it, but if you plan on having a love/hate product like I do you better be ready to deal with it :)

Why so many young entrepreneurs?

I was reading Entrepreneur Magazine last night when I came to a somewhat obvious conclusion - the low barrier to entry on the web is the reason for more YE's. This is fundamentally different than saying that there are more young entrepreneurs in our generation and that they choose the web because it's the easiest place to get started.

The article I was reading was talking about the relatively low cost to enter into the toy business -relatively low being at least $50k. And 10 years ago that would have been relatively low. Even in the beginning of the web, it took quite a bit of funding and a lot of programmers to do something amazing.

Now, with refined free open source platforms like PHP and MySQL, it's essentially free to compete. Toss in a phone, business cards, legal fees, domain registration, and a few other necessities and you're still spending under $1k, something almost any college student can afford.

This was just coming into play during my college years (2000 - 2004). When I first wanted to start a company, it was of the product design variety. I even remember distinctly telling a girl on a first date that my passion in life is product design...oops (although web development really isn't as far off as it seems). My partner at the time and I had no choice but to enter several business plan competitions in an attempt to raise hundreds of thousands of dollars to get our products off the ground. It sucked and we failed because we didn't have the persistence to chase funding for years, develop for a few more years, and wait another 5 until the product hit the market and had success.

When I took a class in information technology and learned about web development I realized just how cheap it could be done, and I did it. Therein lies the "proof" of my point - I'm sure there were many college students before me that wanted to start businesses, saw the daunting task at hand just to get something to go to market, and then moved on to take a job and never become an entrepreneur. If I got my degree in 1994 instead of 2004 I would have been in that boat as well.

To me, that's the reason for the wave of YE's. Not the fact that we're the video game generation, not the fact that schools are teaching entrepreneurship (I believe that's a reaction to my pt, not a cause of), and not any other cultural trait you can assign to the current 18-30 demographic. Put me (or any number of YE's) twenty years back and I doubt that many of us would have still started businesses. It was just too tough back then unless you had a lot of help. Now it's a viable option for anyone who has a computer and an internet connection.

Having a great team around you

The growth of SportsLizard and its Price Guide the past few months has been an amazing experience, particularly when you consider that I had pretty much given up on SportsLizard. The reason I started iPrioritize in the first place was that I didn't "trust" the long term potential of SL. In this post last summer I asked "If push come to shove, would I sell , SportsLizard.com to fund iPrioritize?"

So what changed? I got partners. When we incorporated Pure Adapt at the end of '06 we reviewed all of our sites with our partners, and my partners really honed in on SL and saw its potential to succeed in its niche that I quite frankly did not. The more I researched it, the more I bought in (particularly when I saw the opportunity for the Price Guide) and the more that initial fire from 2004 resurfaced. My passion of innovating the collectibles industry is now just as strong (or maybe even stronger) than it was on that night in early '04 when I decided I was going to start a collectibles website.

When I was a solo-entrepreneur I often sought out the advice of people that I trusted, but it just wasn't the same as having partners that have a vested interest in what you are doing. A year ago I thought I needed "control" and could never work with an equal partner. Now I see all the needs that my partners fill better than me and there's no way in hell I'd enter into a business venture alone. By becoming part of a team I've really learned my weaknesses (accounting, sales, and over-reacting to situations, just to name a few) and down the road when I'm moved on to my next company I'll know what to look for to balance me out.

Anyway, it's just funny sometimes how another set of eyes will see your work as better than you do, and how in turn it can provide the necessary push to turn something good into something great.

It's all paying off

If you go back and read this entire blog from its beginning in November 2005 you'll see just how much my plan has changed over time. I started as an engineer working on my business part time, then I quit to run SportsLizard. That was struggling so I started iPrioritize. Both were doing OK but I wasn't making enough money to get by, so I started doing SEO work, which led me to my Pure Adapt partners and ultimately led us to forming Pure Adapt, Inc and the subsequent revival of SportsLizard with the help of my partners.

One of the things I think this blog has done well is show the true roller coaster ride that is entrepreneurship: coping with making little or no money, believing when no one else believes, struggling with decisions on whether or not to give up on a project, learning to balance your social life with your business life, and above all else remembering to enjoy life and have fun.

It's been a seemingly long journey since that first post, but after a meeting with my partners last week I can say that it's all beginning to pay off. A few months back the light at the end of the tunnel seemed so far off that even the most optimistic among us knew that there was still a long ways to go until we started reaping the rewards of our hard work. While we've always had enough positive re-enforcement to keep us pushing forward, it's nothing compared to what the next six months will bring.

At our meeting we committed to an aggressive expansion plan that will keep the growth fast and furious, without ever dipping the company into the red. Among the cool things we have planned:

• A re-launch of DetailedImage.com with our own custom built shopping cart to integrate and automate all inventory, shipping, accounting, etc. I'm about 30% done with the programming side of things, and I can honestly say this will be the most impressive site I've ever worked on - we're using all four of us (plus a graphics designer) to utilize everyone's best talents.
• Moving the company into a warehouse space. We've all but signed the lease in one of the nicest corporate parks in the area...plus we know the owner so we're getting a good discount. By 10/1 we should be all moved in, which will allow us to immediately expand DI by about 35% (right now we have no space in our basements for more products).
• Steady pay raises. George came up with an amazing plan to raise everyone's salary quarterly by about 30%/quarter for the next year, and also pay out a large birthday bonus on everyone's birthday. We've all worked for so little for so long, that we're all thrilled to finally be able to plan our personal lives out a bit knowing when we'll be making what.
• SportsLizard's Price Guide will break even (remember we've spent quite a bit on PPC) AND hit 10,000 registered users by the end of next month - not bad for a four month old service. We're really going to expand and push the site even further once I finish my commitment to programming DI.
• Hiring a few employees. Starting with a full-time packer for the warehouse, we plan on also adding a few full time programmers by the end of '08. The beauty of living in Albany is that it's a collegiate hotbed, yet has very few high tech jobs in private industry, so it's easy to find skilled programmers who don't want to go to Southern CT or Boston or NYC for work.
  
• Start working on our next big project. I'm sworn to secrecy by my partners, but as DI matures and SportsLizard is hitting it's growth phase, we plan on beginning work on our next long-term project, which we want to launch by the end of '08.

All in all, things couldn't be better. All four of us are much less stressed than we were before because we can see now that we are economically stable as a company, and that to an extent we've validated our ambitious career choice.

Personally, I'm seeing my social life begin to match my work life, and I'm excited to get back to playing just as hard as I work :) I'm glad I've got a great set of business partners, and I'm thrilled to see our business growing well. I'm also glad that this blog started before I really had any success - it's EASY to sit on your high horse after having some success and tell others what to do, but it's hard to allow them into your life to watch you struggle through the ups and downs. That's one of the things I'm most proud of....maybe someday I'll publish the whole thing as a book :)

What's the worst that can happen?

Seriously. I encounter so many friends/family/ex-co-workers that WANT to take the plunge like I did and start a business but I know the majority never will. One of the things that helped me overcome my fear of leaving my career was asking myself what's the worst that can happen? In my case, people were telling me how promising my engineering career was and how crazy I was to give up the "guaranteed" (I would dispute that) career advancement and financial success I had coming at the company I worked for. People told me I'd be crazy to forfeit the great pension plan my company had, as if retirement 40 years from now is a reason to be miserable for the next few decades.

Despite what they said I quit my job to run SportsLizard, which at the time was making very little money. I think most of my co-workers thought I was nuts when I told them I'd make little or no money my first year. But seriously, take a step back and take a look at the worst case scenario: I move in with my parents and go absolutely broke trying to make the business work. Six months later I'm looking for a job. In that case, I could jump right back into my engineering career at the ripe old age of 24. I have a great degree and solid work experience so I've never had a problem getting plenty of offers.

Thankfully things worked out and my "risk" paid off and I should be able to do something I love for the rest of my life...but if what I presented above was the worst case, was that really that much of a risk? Going after something I love and giving up...well to me, I really didn't give up much more than a steady paycheck and a pension plan. Seems silly in hindsight.

Whether or not other people decide to take a similar plunge is up to them, but I think people need to check themselves and realize that going after something you want, be it a new career or a new girl, isn't as big of a risk as you think it is. I'd imagine the majority of us are lucky enough to never have to take risks that will be putting our basic needs of food/shelter/water in jeopardy. And if that's the case, it becomes more of a situation where you need to overcome fears and leave your comfort zone to pursue your passion, and less of a situation where you're taking a real risk.

How much should you pay yourself?

One of the hot topics amongst entrepreneurs is how much you should pay yourself. Pay yourself too much and you'll stunt the growth of your business. Pay yourself too little and you'll stress yourself out worrying about the daily expenses of life. There is no "correct answer" to this question.

I was watching the No Plan, No Capital, No Model, No Problem video on Guy Kawasaki's blog a few weeks back and someone in the audience asked that very question to the panel of entrepreneurs. Some of the entrepreneurs were not much farther along than I am, and some had been running successful companies for years. No one on the panel agreed upon an answer per se, but they all agreed that most founders make little to no money during the startup phase and into the first few years. The majority of the panel worked for 6 months to 2 years without taking pay.

I feel like there's a misconception about entrepreneurs and how much they pay themselves. Just because you own a million dollar company that doesn't mean you pay yourself $100k, $50k, or even $30k. True entrepreneurs do what's necessary for the business to succeed and many times that means paying yourself less than the three college programmers you just hired.

How much to pay yourself and when to pay it is a decision each entrepreneur has to make for themselves, but I've been in three distinctly different situations since I left my career and one has worked much better for me.

Situation 1: I just quit my job and my sites (SportsLizard and iPrioritize) were essentially breaking even. I took NO pay for about six months and lived off savings. This was stressful...avoid doing this if you can :). I am now a firm believer that every business should immediately generate revenue, and if it doesn't it should tweak it's model so that it generates revenue temporarily until the original plan is making income. This leads me to situation 2...

Situation 2: I started SEO consulting and I was pocketing everything. Once I figured out I needed revenue, I started spending about half of my time doing SEO consulting and the rest trying to grow my sites. I made a lot of money in this phase, but the problem was I was biased towards anything that would bring money ASAP since I pocketed it right away and that changed the way I worked.

Situation 3: I form Pure Adapt with 3 other developers and we go on salary. We toyed with different payment plans, but ultimately decided on salary. Our "performance incentive" is our stock in the company, and it's nice to know exactly how much I'll be pulling in from month to month. We pay ourselves VERY little for how much revenue we generate, but at least I can budget for my bills and not worry about doing a quick "cash grab" project that's bad for the business to pay my credit card off. Extra money gets re-invested into the business, and we're just getting to the point after about 7 months that we're considering giving ourselves raises to the point where we make what an average 23 year old makes coming out of college...still much less than I think people think we make, but it's what's necessary for us to grow the right way.

The faster you can get yourself into Situation 3, the better in my opinion. Salary becomes an expense just like hosting or rent, and the company finds a way to pay it every week. For me, this has enabled me to stop worrying about my personal financial situation and focus solely on growing the company for the future.

Of course, in a few years we'll hopefully be able to pay ourselves a high salary and still have plenty left over for the business. But as we grow in the meantime this will work just fine.