Paul Graham: 3 Golden rules of a successful business

This essay is based on lectures for Harvard Kompyuternogo Society (Harvard Computer Society). Of course, I hope to illuminate the whole problem in one short essay; indeed, I have deliberately excluded what was said in the book "Hackers and painters" (Chapter "How to become rich").

To start a business you need to absorb to work with the right people to come up with such a software product that will be really needed by your customers and finally, spend as little money as possible. Most new companies fail precisely because aware of some of these points. The company that complies with these rules, the chances of success.

Sounds tempting, isn't it? Moreover, all this is quite feasible, though difficult. And if the success of the new company brings to its founders a lot of money, it turns out, wealth is also an achievable goal. Difficult, but achievable.

And if I wanted to very briefly tell you what the most important thing when creating your own company, my story would have come to an end: in order to start a business and successfully solve arising problems, do not need any extraordinary abilities.

The idea

In fact, in order to start a business, you can do without the "super ideas". Enough to offer you technological solutions were better than the existing ones. Then your company will be profitable. And given the abominable quality of the programs that we are forced to use, to improve them will not be easy.


For example, in the initial plans for Google was to create a search site which would not be so hideous as the rest. The success of Google has brought only three basic ideas: index more of the resources; to use references for the evaluation of search results; show results on simple web pages with unobtrusive ads that include key words of the search query. In addition, they were determined to make your website easy to use. Of course, Google has a lot of technological tricks, but the original plan was quite uncomplicated. Now, ambitions have increased, but even these three basic principles to this day bring about a billion dollars a year.

Of course, good ideas play an important role in the establishment of a new company. However, the problem is that they are non-transportable. It is impossible to come up with an idea and pass it on to someone who will realize. The main value of new ideas consists in the fact that they are a kind of reference points: these are questions that must think out and solve them the authors.

So the main thing – not ideas, and the people who create them. The right people will know how to fix a bad idea, but if people wrong, no good ideas will not help them.

PeopleWhom I mean when I talk about the "right" people? One of the most useful lessons I learned from my experience is the ability to decide whom to hire.

The specificity depends on the work: it may be a seller who just doesn't understand when he says "no": a hacker is a programmer that will sit until four in the morning, but will not go home, knowing that its code contains an error; it is the PR person who will cold-calling reporters "new York times" to mobile phones; an artist who feels physical pain if his figure something shifted a few pixels.

Choosing programmers, we were guided by three tests. Whether the person is really talented? If Yes, then whether he is able to bring the case to the end? Finally, as many talented programmers have very intolerable character, can we tolerate his presence in their team?

I must say that the last factor is less likely to affect the final decision. It turns out that we can tolerate all sorts of eccentricities, if a person is really talented. What we don't tolerate, so it's inflated opinion of his person.

However, this does not always work, because over time, people begin to behave normally in their environment.

Like most small companies, our has developed in a narrow circle of friends, and the new people we recruited mainly on the familiar. This is the main difference of small companies from large – if you were friends with a man at least a couple of days, you probably knew him much better than large companies after several hours of interviews.

If you're starting a business, it is likely that the partners will be those with whom you studied. It turns out that while studying is beneficial to be friends with all talented students, isn't it? And here and there. Never attempt to ingratiate himself. With hackers it will not work.

It is best to the founders of the company were not less than two and not more than four. One would be too hard to bear the moral burden of the founder. Even bill gates, who is clearly capable of carrying a fair amount of moral burden, and he created his company in half with a partner. It is bad when a company has many founders, what begins to resemble a group photo. First, at first, you don't need so many people, and secondly, the more people, the harder it is to resolve conflicts. When in the company of two or three founders, you know that disputes must be dealt with immediately, otherwise your company has no future. If a company has seven or eight founders, the debate may continue for some time, and among you can develop groups that support a particular solution. But your company does not need a Parliament and voting. You need unanimity.

Among the founders of the company, which is engaged in information technology, must be programmers. During the dot-com boom of these companies were often opened by businessmen. They came up with the idea, and then tried to hire good programmers would have implemented it. This technique does not work. Businessmen are very vaguely imagine the issues related to technology. First, they do not know the possible options for the implementation of the idea, I don't know what problems will be difficult and which easy. When businessmen hire programmers, they can't take away the best of them. Such a choice is not easy to do even programmers who hire other programmers. For business people it's roulette, and more.

Whether among the founders and even business? It depends on the circumstances. In our industry the whole "business" is to find people who will pay for what you are doing.

As soon as I realized that I would have to forget about the incompetence, and got down to business, we quickly discovered – the business is not so complicated, and not at all boring as I feared. Of course, it has its own esoteric – taxation, for example, or some secondary pricing, but at the start, you won't need it. To open a business, you only need common sense and skills that people acquire before you will go on courses or in the universities.

Take the Forbes 400 list and put crosses against the names of people who have a MBA, and you'll get something about the value of this kind of education. The first x will appear only at number 22, Phil knight, the chief administrator of the company "Nike". In the first 50 names of such crosses are only four. But immediately struck by how many people with technical degrees: bill gates, Steve jobs, Larry Ellison, Michael Dell, Jeff Bezo, Gordon Moore. Kings of information technology come from the environment of programmers, not businessmen. And if you're wondering how to spend two years with benefits for business, the reality speaks for itself: learn programming and not waste time on MBA.

However, there is one reason you may need a businessman even at the initial stage of development of the company. You must have at least one person able and willing to focus on the desires of the users. Some people think that it is only capable business people. They say that programmers can write code, but not to invent and design the product itself. That's complete nonsense. The ability to program does not affect the ability to understand what the users want, in the same way as ignorance of programming does not guarantee a desire to understand users.

If you do not know what the users need, try to find a partner who will understand this. This is the most important rule for new companies, and the same iceberg that sinks most of them.

What the users want On the desires of the users must take care not only start-up companies. I think in most cases, failure befalls those who are not able to give customers what they want. Take at least restaurants. A quarter of all new restaurants close without having worked and year. Now tell me whether to close the restaurant where the cook?

In our area there is the same picture. Can be called a thousand reasons, which is apart of a new company, but does anyone heard of a collapsed company that manufactures a extremely popular product?

Almost every time the real reason for failure is the reluctance of clients to use the software product. The official reason, however, prefer to consider "lack of funding", but this is a consequence, not a cause.

At first, the list of what you need each new company, I've included a fourth point: as soon as possible to release the first version of the product. Then I refused it, because it follows from the principle of "creating what customers want". The fact that the only way to do what they need to do is produce a working prototype and improve it based on feedback from users.

There is another approach. I call it "Hello, Mary." You carefully plan, what kind of product you create, then hire a team of software engineers (the people who do so, certainly called hackers "engineers"), and then, after about a year, discover that he spent two million dollars on something that nobody needs. This happened a lot in the Boom period, especially in companies led by businessmen. Businesses always seems like the programming is so challenging and terrible that requires careful planning and control.

Like most beginners, we had to change plans on the fly. At first it seemed to us that our clients will be web consultants. However, they don't like it very much: our program was easy to use, and place it on our website. It turned out that theoretically with our program, customers web consultants could do without their services. We were hoping that our offer will appeal to companies that are selling their products through catalogs. However, it was 1996, and for many trading companies, the word "Internet" meant not so much the new opportunities, how many extra problems.

And still we managed to get some risk-on trading companies. Among them was “Frederick's of Hollywood”, through which we learned what a big load on the server. However, most of our clients become large trading firms, and small companies and even individuals. For them, the web was almost the only opportunity to open your business. Some held retail stores, others existed only in the Network. And we changed our plans. Instead of continue to develop a system for web consultants and major trading companies, we decided to make our product even easier to use.

We have learned from this story a very valuable lesson: throw all the forces to make the program easy to use, it will pay for itself. We, hackers, are so used to computers that don't even imagine how scary they may seem to ordinary people. Editor Stephen Hocine (Stephen Hawking) once told him that every equation he included in his book, exponentially reduces sales. When you make your product simple, the curve bends the other way. If the program becomes 10% easier to use, it will be sold already not 10% better but 200% on everything.

How do you know what the users want? Just watch out for them. This is best done at trade shows. The exhibition will hardly bring you new customers, but will provide excellent material for research. At the exhibition we not only made presentations. We showed people how to create their own online stores. Thus we have seen how they work with our program, and discussed its functionality.

No matter what company you organized. If you release software that at first it will be very difficult to understand what users need. There's only one exception – you can write a program that a typical user is you. That is exactly how the built projects with an open initial code (Open Source Projects). This includes operating systems, programming languages, various editors, etc. So, most likely, if you want to make money, you will write a program for hackers. Moreover, it can serve as a good exercise during brainstorming on the choice of product ideas: what do you need from high technology to people who don't like us?

When people talk about the companies, on their own started the business, I mean Apple or Google. They all know now that those famous brands. But each such well-known company has about twenty of which exist in "niche markets". So even if your business is profitable and successful, likely to world-wide fame you can not see.

In other words, you have little chance to create your company known on the consumer market brand. It is easier to achieve success on "niche markets". Newly established small companies make money the fact that offer people program better than those that they already have. So, it is best to offer an alternative to something absolutely disgusting. There is hardly something more disgusting, in the case of any corporate IT Department. You wouldn't believe the amount of spread the company annually for the software, and what nonsense to them for that slip. Such an obvious imbalance means for you the possibility of success.

Want an idea for a new product? Spend two weeks in the company, not involved in high technology, and see how people work with computers. A good programmer in a nightmare not imagine of what constitutes a daily routine in such companies. So rich Americans will never be able to imagine the lives of the poor in Brazilian slums.

Write your program for small companies – it is easier to sell. To sell your app to big companies, you need a great to invest. About the same as those guys who do not spare time and money selling to the big companies shit, for which they pay a tidy sum. Yes, your programmers may be for a few brains more than those who wrote the Oracle, but the person selling the Oracle, you will not beat never. So if you want to earn money by selling good programs, focus better on a small company.

Even from a strategic point of view, is the most important part of the market. In the field of high technologies who owns the lower level of the market down to who owns the top. It is much easier to produce a cheap product and then make it effective than to produce powerful and functional product and make it cheaper than the others. Therefore, those programs, which in the beginning provided a few simple and easy options have grown into a powerful full-fledged products. As water gradually filled the room, pressed to the ceiling floating on the surface of objects, and of program, the popular "in the lower" displace their competitors, "floating top".

Very dangerous to let competitors "for themselves." If you offer the easiest and cheapest product, the "lower level" of your. If not, then you are in the crosshairs of the target who owns this level.

Where to get the moneyTo make dreams become a reality, you need money. Some Finance the establishment of a new company out of his own pocket – for example, Microsoft. However, the majority goes the other way. I think it makes more sense to take money from investors. To not take money from anyone, you have to start with the consultant's work, and then switch to creating their own products, and it can be quite difficult.

Speaking of the financial side of things, any new company has the same chance of success as on failure. To get rich, it is more important to maximize the chances of success, and not to cling to my stocks. If the stock part you can get that will significantly increase the probability of success, it is highly prudent to do that.

For most hackers, the word "investment" sounds scary and mysterious. In fact, nothing mysterious here. It's just rather boring and tedious process. Now I will briefly describe what it consists of.

First, you will need tens of thousands of dollars to develop the first prototype. This is the initial capital. Since we are talking about a very small amount, found it to be easy. At least you immediately, without unnecessary delay, hear either "Yes" or "no".

Usually initial capital you can get from rich people – angels. As a rule, they themselves earn their fortune in the field of high technologies. In the beginning, the investors do not expect a detailed business plan. Most of them know that the decision must be taken quickly. Often you can get a check for the required amount within a week of signing the agreement on half a page.

Some "angels", especially for those who in a previous life was a programmer, just a small demonstration of your idea, or even a verbal description of what you intend to develop. However, you may be asked to provide a business plan – at least in order to remember later what was discussed.

To "angel" forked, you must officially represent the company. Company registration is a simple matter. Problems can begin, when in the registration process, you will need to decide who is among the founders, and what percentage of shares he's supposed. If only two of you, and you participate in on an equal footing, no disputes are anticipated. But what if you more, and measure of participation in the project at all different? To solve this problem is quite difficult. So as soon as you decided, consider it written in stone. Under any circumstances don't change it.

Nothing more I can advise. To find the right solution in such situation is very difficult. However, there is one very useful rule: if all parties to the transaction feel that they are slightly too cheap, that for the work you would get and more, so you split the shares right.

It happened at a time when our company found a buyer. Suddenly it was discovered that one of our founders at the time he bound himself by the agreement, according to which all his ideas belonged to one huge firm, who paid for his higher education. Theoretically, this meant that a large portion of our business belongs to third parties. The deal, of course, stalled and we frantically tried to find a way out. The situation was exacerbated by the fact that we knew about the upcoming purchase, allowed himself to not care about the money supply. Cash almost was not. To continue, we had to find additional funds. And seek money from investors, when you over dark clouds, it's quite difficult.

Before registering a new company, find out which obligations to other organizations they took before each of you.

So you can become a real company. And you just can't go around knocking on doors of rich people to give tens of thousands of dollars that most accurately described by the words "several young people with ideas." And now look at it from the point of view of the rich, and the picture will look very different. Almost all rich people are eager to invest money. And if you are sure that you have the chances of success, then you are doing them a favor by suggesting how to benefit from their savings. So be sure looking for you investors experience mixed feelings: on the one hand, they do not want to part with their money, and suddenly these guys will make another Google?

From a financial point of view, "angels" is usually equal to the company's founders. In other words, they possess a certain amount of shares in the future will receive the appropriate share of the profits. How many shares can they give? It depends on your ambition. If you give X percent of the shares of his company for Y thousand dollars, so can you imagine how much your company entirely. If you give the investors a 5% stake in exchange for $ 100,000, then you believe that your company is worth two million.

But how do you know what it's worth whole? Yes way. In the beginning, it all conjecture. I do not understand any of this when I was doing a search for seed capital. Our lawyer, Julian believed that we are several million dollars. I thought they would appreciate a couple of thousand lines of code in the same amount somewhat presumptuous. In the end we settled on one million, because Julian said no one give money for a company that costs less.


The next round of finding money and may lead you to venture businesses. Don't forget to communicate with them we need to start before you run out of available capital. Venture capital firms are always heavy to lift. The decision on the issuance of money can be delayed by a few months. You don't want to sit on bread and water all the time while they think.

To get money from venture capital is more difficult than finding the initial capital. There is already the account goes on tens of thousands, and millions of dollars. So the transaction is made much slower and you have to give most of its shares, and for more severe conditions.

Sometimes venture requires you to put the administrative Director of their person. Usually, the main reason is that, in their opinion, your company should be at least one adult with expertise in the field of business. Don't know, maybe sometimes it's really necessary. But bill gates was neither the adults nor the experienced, nor a businessman, and look – you did good. And Steve jobs departed from the company due to the Mature and experienced businessman who soon managed to ruin everything. Actually, I think that the value of "adult and experienced in the field of business" is somewhat exaggerated. We used to call these "anchors", first, because they always have neat hair and a deep, confident voice, and secondly, because they knew no more than you see on TV running line.


You have much more weight in the eyes of venture capitalists than you think. The main reason is the existence of other venture firms. Now I know quite a lot of venture companies and understand what it's all about the market conditions. Even now they have the money too much, and ideas, wherever they could invest too little.

Another question – what can you say during the conversation with the venture capitalists and what not. This is an important question, because one day they can start to Fund your competitors. I think it is best not secretive, but not to tell the details. In the end, like venture capitalists, they are important people, not ideas. And the main goal of conversation is to get to know you, not technological innovation that you intend to use. Thus, better tell them just enough so they consider you a man who knows what he's doing. But no more. [7]

Try to communicate with venture capital companies as often as possible, even if you don't want their money. This is for two good reasons: first, they may recommend your company to a potential buyer, and secondly, if you present your company in a favorable light, they don't want to invest in the business to your competitors. The easiest way to meet with venture capital firms at conferences, which they periodically organize for starters (especially if you only need to Express yourself, not to borrow money).

 How not to spend money too quickly

When (and if) you get money from investors, the question arises: what to do with them? To save money, that's what. New companies fail for the same reason – not enough money. Of course, this masks some other reasons, lack of money is only the consequence, but nevertheless, even this should make you immediately think about economy.

During the dotcom boom many companies, as soon appeared on the market, was anxious to become large. Ideally, it would have to mean "get as many big clients," but it all ended much easier: "to hire as many staff as soon as possible".

With the amendment to our scope of activities it is possible to reinterpret as: "Try to get all users, then advertisers will be forced to advertise with you." And in General, developing a product first, try to make it fit and comfortable for users, and then think how to earn money with it. Otherwise, you connect with your customers is always a place for competition.

To like users, they should be very well understood. A large company is harder than small. So I say to you: "do not hurry to grow." The slower you are to burn the initial investment, the more time you will have for samples and experiments.

To economize and because in doing so you instill a culture of thrift.

Having received several million dollars from investors, it is easy to feel like a rich man. This is wrong. Rich can be considered the company with higher incomes. And the money in the Bank is not income. It's just a certain amount they gave you good people in hopes that you will make their money work and bring profits. So even if you have a few million in the Bank, you are still poor.

The majority of new companies to better focus on student environment, not the style law firms. Nice and cheap, but not expensive or flashy.

By the way, the apartment is much better programmed. Endless corporate cubicles-cubicle just awful. You know, if you ever tried to work in such conditions. Have you noticed how well to write code at home, coming home from work? Yes? So why not make the office feel like home?

Looking for a place for a new office, don't worry about how professional it looks. The word "professional" should be applicable to your product, not noiseless elevators and glass walls.

Besides being cheaper to rent an apartment, apartments and is located in more convenient locations. For the new company is very important.

If you want to save money, try not to hire new employees. I may seem extremist, but in the beginning this is the worst that can make a young company. First, new employees means the monthly recurring expense, and it's awful. Besides, sooner or later, will have to find a new place to work because new employees are not placed in the old, such a wonderful office.

But if new employees are expensive and even slow down why most companies constantly engaged in it? I think because the bosses love the idea that they work a lot of people. This weakness is common to many, it often comes down to the level of the Directors of the company.

Of course, this is silly. If two companies have the same income, to impress needs, the one with fewer employees. When I was asked how many people work at my new company, I answered twenty, and directly saw, as they thought, "hmm, well, twenty – unless it's the same company...". And then I added: "But our competitor, which we regularly kicking ass, working one hundred and forty people. And who do you think should be proud of the number of employees?"

As with office premises, you need to choose what is more important is to seem cool or to be cool. Those of you who are in school and at University was not divorced from classes, know what I mean. Continue in the same spirit, when they start their own business.

 It is necessary to you?

And do you really need to create their own company? Will it succeed? And if so, is it worth it to spend so much time and effort?

To cope with this many, it is a pity that not all are aware of this. That's why I'm writing this article. Now the world could be ten times more manufacturers of software, and I think it would only benefit from this.

So, who needs to start their own business? A good programmer, between 23 and 38 years, who prefers to solve her financial problems once and for a long time and not get a little each month throughout your working life.

At the time I didn't realize that this experience has helped me better understand the business of creating and selling software. My experience was entirely negative: it is impossible often to convene meetings; we can not allow separate pieces of code owned by different people; it is impossible that a company operated by those engaged in sales; you can't just rush to write complex multi-functional product, it is impossible to code too has grown; we can't leave finding bugs in the code, the quality assurance Department; it is not possible to travel from Cambridge on 128 highway, and so on. However, the negative experience is not less valuable than positive. He may be even more useful. It is very difficult to replicate excellent behavior, it's much easier to avoid the mistakes of others.

It is not necessary to start a business before 23, because you simply will not be taken seriously. Investors will treat you with suspicion, customers will fear that one day you'll disappear and leave them without any support.

Some with a strong desire can start a business even at 18. Bill gates at age 19, created together with Paul Allen Microsoft. (However, Allen was already 22 years old, and perhaps it played a role). And if now, reading these lines, you think: "what do I care about his reasoning, I don't care – I'm opening my own company right now!", are you sure you can handle it before the age of 23.

The second limitation is 38 years or less rigid. The main reason, from my point of view, the physical ability. Few have sufficient endurance, surpassing this age threshold.

Finally, the last test, perhaps the toughest. If you really want to start a business? From an economic point of view, this means to compress the working life in minimum time. Instead of working eight hours a day for a salary for 40 years, you work only four years – but as a curse. Maybe it will bring you nothing – although, to understand this, four years is not required.

You have hardly time for anything but work.

Probably total nonsense with which we have to face, starting a business, does not exceed that which you face in everyday life. Maybe its even less – he just squeezed into the narrow time frame. As you can see, the main problem is time.

So, if you want to start your business – start. There is nothing mysterious or daunting as it may seem from the outside. Don't need to know anything about "how business is done". Just write a program that will love users, and try to spend less than you earn. Is it really so difficult? published


P. S. And remember, only by changing their consumption — together we change the world! © Join us at Facebook , Vkontakte, Odnoklassniki



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