What Turns Investors Off - Part 3 - This Is A Business, Not A Hobby

 I often see this.  Founders of a company will often misunderstand what is going on and how things are going to work.  Startups, for all the talk about “making the world a better place,” are an economic work in progress.  

Let’s talk about this from the stand point of reality.  A startup is a business trying to build a product that somehow will be monetized.  The problem is that some founders think it is “their company” and we’re just living in it.  People don’t work for smiles and equity that might be worth something in 7 to 10 years.  People work in startups for money today and the hope of more tomorrow thru equity.  Somehow, somewhere, someway, founders somewhere have gotten this idea that they can command work be done for no money, and this is mistake I’ve made long ago in the past.  Reality is much, much different.

The reality of life is that life cost money.  The grocery store costs money.  Filling up with gas costs money.  A night out costs money.  Life costs money.  Somehow, this idea that you can’t get paid money while at a startup is awash in the startup world.  No, life doesn’t work that way.  Not only do people have to get paid, they aren’t going to work for free for 7 to 10 years with only the hope of equity at the end.  

My point in bringing all of this up is not that I think startup founders think they are in a hobby.  No, the problem is actually much worse.  Founders too often want to push their risk onto the worker bees and other cofounders.  Let’s here about two startups and their founders that I interacted with

• A startup had floundered thru about $500k with some offshoring (cheap) company that promised the moon and delivered rocks.  Nothing worked right at all.  Simply creating an account was a problem. They were in the fashion space, so creating an account for their target audience was a hurdle to get over.  This had to be really simple, and it wasn’t simple and it was bug ridden.  A friend of mine asked me to help them out, so I did.  I did it more to help the friend than for this floundering startup.  I rebuilt their system to the point where it worked.  Creating an account worked.  The lady leading it was married to a guy with a personal wealth of somewhere in the tens of millions of dollars, my guess was about fifty million.  She wouldn’t take any of his money even though he had committed to me that he would put it in.  Why?  Because she wouldn’t take any feel embarrassed if it wasn’t successful.  She is married to a guy with $50m in net worth, expected me to work for several years for equity only, and felt it in her rights to berate me for demanding to be paid something.  Everything finally came to a head one Sunday when once again, this lady wouldn’t do the work necessary.  She once again berated me about her failures, as if I was the guy that they had wasted $500k on and gotten nothing.  She threatened me and said that if I didn’t work for them for equity only for the next few years, they would fail and she threatened to sue me.  Iirc, I said she was walking around blind without a cane and that if she thought she could make that stick in court to bring it on.  And this doesn’t even count her idea that I should send my existing customers to the cheap offshoring shop to pay off her debts to them.  No, the boys from Brazil and I work on entirely different levels with entirely different clientele.
• I went to a startup weekend and did the development for a team that finished third.  We’d have finished second, but the girl leading it wouldn’t take feedback and presented an awful business plan that I had told her was bad.  Anyway, she claimed she got $100k in investment from my code.  She was going to keep the $100k and was going to work for free and pay for all of the technology infrastructure and my travel to clients.  Out of the goodness of her heart, she was going to give me 5-10% equity to build the solution.  This didn’t go anywhere.  A few months later, I read a magazine article this girl was featured in.  She didn’t talk positively about the people she met at the startup weekend, as if her keeping $100k made sense in any universe.

I’ve met and interacted with bad software founders.  I can pretty much tell who can make things go and who can’t.  The problem is that too many don’t take things serious enough or understand that this is a real business.  You have to treat everyone like this is a business.  That’s where people tend to fall down at.  I don’t think that all software founders are bad.  However, you can tell a lot based on what people say, so listen carefully.