Thursday, May 27, 2010

Startup Founder Developer Gap

I was just interviewed by Frank Peters - Tony Karrer and the Founder-Developer Gap.  It was a lot of fun for me.  I’ve listened to Frank’s show for several years.  And I always recommend it to people involved in early stage startups.

I received a follow-up question from an early-stage startup about the Founder Developer Gap that I’ve described before and that was part of the interview with Frank.  You can follow the link above for more details, but the basic idea is that most startup founders have a pretty good understanding of the basics of what they want to do and a vision for the product.  And there are all sorts of different kinds of technical people who might help with getting that product to happen.  However, many founders are challenged to engage with developers to make it effectively happen.

Right Questions and Answers

They may or may not be asking and getting the answers to the right questions.  There are a bunch of questions in Startup Software Development – Do Your Homework Before You Develop Anything and in Startup CTO or Developer.  And figuring out answers may take a lot of work.  But often, it’s really important work to make sure you get your product right and technical strategy right.

Determine Technical and Team Strategy

Okay, now you know what you want to build.  Now there are some hard challenges around what technologies to use to balance short-term and long-term.  This is somewhat the heart of what a CTO does. 

From the technology strategy, you then look at your plan for who will do what.  You have to determine in-house vs. outside development and what parts of the problem each person will do.  This needs to fit with risk, cost, schedule, flexibility, etc.  And this somewhat determines the specific skills you will need.

Source, Interview, Engage and Manage the Team(s)

Now you know the kinds of people you need, the next steps are finding the people or companies, interviewing them, engaging them, and managing them.

This is another potential gap.  Many founders are not equipped to evaluate the capabilities of a developer.  How do you know if they will produce good code for you?  Are they producing at a reasonable rate?  Are the million little choices they are making the right choices?

I’ve talked to many unfortunate founders who have had a Founder Developer Gap and it results in a Weak Development Team.  Sometimes this is fatal for early stage companies.  You’ve spent your money and now you need to rebuild and spend that money again.  Investors are most often not willing to help you.  It’s a painful situation.

What Should You Do?

Let’s say you aren’t sure if you have a Founder Developer Gap – what should you do?

I would highly recommend considering getting a really good technical advisor early in your process.  And this is not your buddy who does programming at some company.  I’m talking about a legit CTO type person with experience building the kind of thing you are building.  There are a few different ways you might engage with this person - see Technology Roles in Startups

Obviously, if you already know someone and they can help you informally, that’s probably the best starting point.  If you don’t, then contact someone like me or find someone through LinkedIn and network until you get help.

This person can evaluate if you’ve asked the right questions.  They can figure out how you can go get through technical and team strategy and can probably help you source, interview, engage and manage.  Obviously, the more this person does the more you should expect to compensate them with equity and/or cash.

We are not talking about a full-time role.  Do not hire a CTO at this point.   I can almost guarantee a full-time CTO hire is wrong for you.  They will either not be senior enough or they won’t be producing code enough.  Have this advisor person help you as a part-time endeavor to figure out what you need.

This answers the question I received, but does it answer your question?

Wednesday, May 19, 2010

Angel Investment Criteria

I’m planning on going to a Tech Coast Angels mixer tomorrow and the topic for me is whether there is angel funding out there for startups that don’t meet classic VC models.  If there are, then who are they, what are the criteria, what does it typically look like?

By way of background for the question, there’s a great post by Bob Aholt, a Pasadena Angel: An Angel Investor’s Thoughts on Valuation.  The example he uses is:

Investment    $500,000
Pre Money    $600,000
Post Money    $1,100,000

Founders    55%
Investors    45%

Sale Price    $5,000,000
Time    5 years

ROI    355%
Multiple    4.55x
IRR    35%
NPV @ 10%    $828,000

Admittedly that valuation and the resulting ownership causes me to wonder, but the most interesting aspect is that Bob is talking about investing in a much smaller exit, with no future investment planned.  Bob is heavily focused on ROI (and team/product).  But it seems like Bob would be a candidate.

But, this is not my experience with Angel groups.  For example, TCA’s evaluation criteria first bullet is:

A market opportunity sufficiently large to create a business that can grow to at least $50 million in annual revenues.

What if you believe you have a company that will be a profitable $10M company with obvious exits?  Can you raise $750K - $1M with no future investments planned?

My guess is that there’s potential with Bob individually, but not for TCA or Pasadena Angels collectively.  And I’m really wondering about that.  Do you need to get past the organizations to the individuals?

I’m a regular reader/listener of the Frank Peters Show that talks about Angel Investing.  In his recent post, Top 10 Ways to Win a Business Plan Competition, he says:

#4 I wanted to push this further down the list, but I just bristle at this: the revenue forecast. These are so detached from reality. My 4 plans get increasingly more incredible, ranging from $50M, $60M, $70M to $161M in year 5! This does not happen in the real world. Remember my day job, I'm past Chairman of the Tech Coast Angels and I see a lot of pitches with revenue forecasts. So get real. Your investors will be thrilled if you can get to $10M in some reasonable time frame. More likely, you'll be back for more money in less than 2 years, saying what everyone says: "it's taking longer than we thought". Investors won't believe your numbers anyway, so your over-sized hockey stick betrays your naiveté.

What’s funny about this is that the reason people put in these optimistic projections is to fit the investment criteria.  See investment criteria #1 from TCA.

And this also seems to contradict what Frank himself talks about on his show.  For example, Frank had Basil Peters, author of Early Exits, on his show back in March.  Basil tells us:

Exits are also happening much earlier than before. The largest number of exit transactions today are in the under $30-million valuation range. These exits are often completed when companies are only two or three years from startup.

I guess I’m wondering why early stage investment isn’t aiming at these kinds of investments?  Or maybe they are and I’m missing it because I’m going to TCA events?

Finding Developers is Tough Again

I’m seeing and hearing that it’s becoming tough finding good developers again, at least here in Los Angeles. On Friday, at the LA CTO Forum, I heard from a couple of CTOs having trouble finding good developers. My company, TechEmpower, recently added a few top notch developers, but it wasn’t easy to find just the right people. This is going to make the issues raised in Los Angeles Web Developers worse.

And it’s not just me, Ben Kuo just posted - Good news for developers (and jobs)

We’ve been talking with a lot (and I mean a LOT) of people who are looking for developers in Southern California (Los Angeles and beyond). One recruiter tells me it’s “like 1999″ in terms of the activity, with not only jobs aplenty, but offers and counter-offers hitting good talent.

I wouldn’t say it’s 1999 or even 2007, but it certainly has turned around.

Update from original - just saw a follow-up post by Ben Kuo - Southern California Technology Jobs Surge.

And funny enough, I wrote this post this morning and had it scheduled to come out the next morning. In between, I got an email from CJ Cenizal asking about this exact issue:

I'm growing a social gaming startup, Elevated Games ( as Founder and CEO. I'm currently looking for developers to join the founding team and when I read your post, I felt like I have been going through the exact same thing as your friend. I've Googled, gone through my network, posted to Craigslist, and approached universities, and much like your friend I am having a heck of a time finding developers in LA. It makes you want to move north!

I was wondering, what methods have you found to be successful in finding developers? I took a look at TechEmpower, and it looks like you guys are doing great! That's really exciting to see. I'm primarily looking for front end developers who are experts in AS3, and back end developers who are proficient at PHP and MySQL. Do you have anyone you could recommend to me, or any resources?

Perfect timing. I went back and revise the post. Couple of quick thoughts:

  • I’m not so sure that moving north will get you better talent. I get inquiries from there a lot even with the strong bias against LA.
  • I don’t have specific suggestions for people you can hire.
  • My methods are pretty vanilla. I do have a little bit of an advantage having been around LA for 20 years doing development, being a former professor, having really interesting and varied projects to work on. Of course, a lot of people say the same thing.
  • Seems like you might be able to source people from universities, especially for the front-end work. Depends on complexity.

Sorry, I wish I could be more help.

What Other People Say About Sourcing Developers?

In Los Angeles Web Developer, I talked about the issues with finding developers in Los Angeles based the experience that one startup founder had. The founder had tried or considered:

  • Web Search – not all that useful – more design firms that development firms
  • LinkedIn – searched for people, but gave up pretty quickly as it felt like a needle in a haystack.
  • Freelance Sites – considered, not used, concerned about quality
  • Craigslist - considered, not used, concerned about quality
  • Local networking – decent luck. See Networking Events in Los Angeles and Southern California.

My fellow CTOs often discuss where/how we find good developers. Their list is fairly similar to Here’s what we hear in roughly the order of preference:

  • Direct referral
  • LinkedIn (both Job Postings and Searching for Talent)
  • Recruiters
  • Developer Groups
  • Craigslist

Of course, there are lots of firms that you can offshore your work. I’ll leave that for another discussion as the inquiry that I keep getting is more about local talent than offshore talent.

If you have other places you use to source developers, please let me know. I’m sure we’d all like to hear about it.

Better yet, maybe help CJ specifically. Where should he go find developers?

Tuesday, May 18, 2010

Seven Great Startup CTO Posts so far in May

Continuing my series of posts that I’ve been collecting that live at the intersection of Startups, Startup Development and being a Startup CTO.  Here are a couple of the other collections: 16 Great Startup Posts from March, Startup CTO Top 30 Posts for April.

Some good ones already from May:

  1. "Authentic" is dead- A Smart Bear: Startups and Marketing for Geeks, May 3, 2010

    Phrases that should be retired include - “Putting customers first”

  2. You Actually Did This?- Steve Blank, May 6, 2010

    Great presentations from Xobni and Dropbox on how they have gone about building their business.  Thanks Steve!

  3. VCs in seed clothing: Chris Dixon, Mark Suster, and Naval Ravikant interviewed- Venture Hacks, May 5, 2010

    Great discussion around VC signaling in seed rounds — and how these signals help or hurt your ability to raise money in the next round. 

  4. Software Patent Absurdity- Feld Thoughts, May 6, 2010

    Feld on the problems with software patents. “they are (a) invalid constructs, (b) totally unnecessary, and (c) a massive tax on and retardant of innovation. More and more of my VC brethren are beginning to come out publicly against them as are many extremely well respected long time software innovators.”

  5. How To Communicate with your Investors between Board Meetings- Both Sides of the Table, May 1, 2010

    Good advice around board communication.

  6. Not Betting on Flash, SoCal CTO, May 7, 2010

    Why startups should not be betting on Flash as a delivery technology.

  7. SaaS Conversion: Which metrics matter?- StartupCFO, May 6, 2010

    Great look at important metrics for SaaS and the importance of churn rate.

Friday, May 7, 2010

Not Betting on Flash

On my eLearning blog, I recently predicted the Beginning of Long Slow Death of Flash. This got quite a lot of passionate response.

I view the point of this blog to provide my thoughts and perspectives as an Acting CTO mostly concerned with Startup Development to entrepreneurs and other CTOs.

The conversation around Flash is an important one for startups and CTOs. Let me explain based on a comment in the other post. Someone said:
"I am not sure I am ready to bet on the long slow death of Flash just yet."
What does it mean to "place bets" on death of Flash?
  • Short Adobe stock?
  • Make pronouncements in your blog?
  • Argue about it?
I don't actually care that much about these things.

I do care about having to make technical choices that need to live 5+ years. I'm working on defining the technical approach for several startups right now.

We need to deliver on mobile devices in the future. Reality is that we need that now, but at least we don't need to specifically design for it for now.

Do we include Flex or Flash as a delivery technology?


That's my bet. I'm not betting that Flash is dead in five years. I'm hedging by NOT betting on Flash. Instead I'm betting on HTML/JavaScript.

That's been a relatively safe bet for many years.

Tuesday, May 4, 2010

Startup CTO Top 30 Posts for April

Some great posts from April 2010 that talk to me in terms of being a CTO at a Startup.

  1. No Plan Survives First Contact With Customers – Business Plans versus Business Models- Steve Blank, April 8, 2010
  2. The Twitter Platform's Inflection Point- A VC : Venture Capital and Technology, April 7, 2010
  3. The tradeoff between open and closed- Chris Dixon, April 25, 2010
  4. Not disruptive, and proud of it- A Smart Bear: Startups and Marketing for Geeks, April 12, 2010
  5. What Makes Something Interesting?- Ben Casnocha: The Blog, April 15, 2010
  6. Everyone I spoke with loved the idea...- Redeye VC, April 13, 2010
  7. Startup Development- SoCal CTO, April 23, 2010
  8. Want to Know the Difference Between a CTO and a VP Engineering?- Both Sides of the Table, April 20, 2010
  9. Turning on your Reality Distortion Field- Steve Blank, April 22, 2010
  10. Social Networking vs Email- A VC : Venture Capital and Technology, April 13, 2010
  11. Twitter and third-party Twitter developers- Chris Dixon, April 10, 2010
  12. Interview: How to close an angel round- Venture Hacks, April 6, 2010
  13. Accounting for Startups: Cash-basis or Accrual-basis?- A Smart Bear: Startups and Marketing for Geeks, April 19, 2010
  14. 5 Tips On VC Alignment: Discuss The Exit Before You Enter- OnStartups, April 29, 2010
  15. Founder Agreements – Vesting, Vesting and more Vesting- High Contrast, April 25, 2010
  16. Web Sites and Books for Novice Programmers- Feld Thoughts, April 25, 2010
  17. Adding a Co-Founder In 140 Characters Or Less- FairSoftware's Blog, April 22, 2010
  18. Never Hire Job Hoppers. Never. They Make Terrible Employees- Both Sides of the Table, April 22, 2010
  19. Why Startups are Agile and Opportunistic – Pivoting the Business Model- Steve Blank, April 12, 2010
  20. Size markets using narratives, not numbers- Chris Dixon, April 3, 2010
  21. The One Sentence Challenge- StartupCFO, April 20, 2010
  22. Beware: Competitive Intelligence by VC's- Babbling VC, April 19, 2010
  23. Why the Foursquare Acquisition Story Makes No Sense- This is going to be BIG., April 7, 2010
  24. Seven Tips for Proving Your Business Model- Startup Professionals Musings, April 5, 2010
  25. Pitch Deck Study Hall Cheat Sheet- Adventurista, April 18, 2010
  26. Debate: Create your own social network or leverage existing…- Jeff Hilimire, April 30, 2010
  27. 8 Things to Look for When Hiring Startup Talent- Instigator Blog, April 14, 2010
  28. The When to Incorporate Decision-Matrix- The Startup Lawyer, April 12, 2010
  29. Business Plan Matters, But Other Steps Come First- The Entrepreneurial Mind, April 12, 2010
  30. Check out cool infographics- How to Change the World, April 26, 2010

See also:

Did I miss something really good in this list?  Let me know.