Tag: Entrepreneurship

My Decade in Review

Category : Personal Thoughts
Posted on December 14, 2009 by Nathan Lustig

I started the decade as the class of 2000, about to finish up 8th grade. I was 14 years old and remember going to y2k party at a friends house, wondering if the lights were going to shut off because of y2k. I thought 24 was really old and couldn’t imagine being that old. It seemed so far away. I can remember the city of Milwaukee’s city hall bells ringing the new year in a few minutes early, thinking it was funny, but also being a bit disappointed that y2k was a bust. After watching far too many episodes of Jerry Springer, Maury and countless 24 hour news channel interviews of crackpots who were preparing for society to break down, it was a little underwhelming to my 14 year old self that the lights didn’t so much as flicker.

The defining event of the 2000s was 9/11. I still remember being in geometry class my sophomore year when someone told me “planes had hit the Twin Towers in New York.” We were scheduled to take a test that day and our teacher was one of the only in the school who didn’t want to get off track. Instead of allowing us to watch the news, she told us “it was only a small private plane, like a Cessna, don’t worry, it’s not a big deal, let’s take the test.” We took the test and by the end of class, we rushed out to the library as the first tower crumbled. I remember watching as the 2nd tower fell and not really believing it was happening. It looked like something out of a movie. After school, it became real as I went to get a splint for my recently and unrelated broken wrist. I remember the real fear the next time I heard a plane fly overhead a few days later.

So much changed after 9/11. America went to war, we had to take our shoes off to fly on airplanes, cable news stations adopted scrolling bars along the bottom of the screen permanently and the media began its full descent into the all out 24 hour news cycle. Americans had to think about terrorism and our role in the world.

The Internet matured and became a part of everyone’s daily lives. After the tech bubble of the late 90s, Americas really started using the internet for everyday tasks. Now, 95% of Americans use email at least once per week. Throughout the decade, Google, Facebook, Wikipedia, Last.fm and tons of other online services changed the way we live, learn, work and play.

More personally, I got to travel all over the United States and the world. Between 8th grade and my freshman year of high school, I took at trip with my Aunt and camped on the beach along the pacific in Olympic National Park. The next summer, I went to Rocky Mountain National Park and camped for a few days. I got my first taste of Europe just before I turned 16, when my Aunt and I walked across Northern Spain and went to Paris. I got to see the running of the bulls in Pamplona and walked from Pamplona to Santiago de Compostela. I loved it and I knew I had been bitten by the travel bug. I knew I would go back to Europe and see the world.

Back in the states, I learned how to drive and got my license. I played a ton of soccer and still have friends and great memories from my soccer teams from the 2000s. I also continued reffing soccer, a job that I had started when I was 12 in 1997 and continue to this day. I even got to play high school football for a year. I made some great friends in high school and had a ton of fun, learning along the way how to get things done. I think my biggest lesson learned in high school is that authority figures do not know everything. I think that this realization helped me get to where I am today.

I also continued to travel. Our next door neighbors moved to Belgium to teach in an international school and we visited them twice. By 2004, I was able to travel to Netherlands, Spain, France, Belgium, Switzerland, Germany. I biked around the Netherlands with my Dad, went to the 2003 Confederations Cup in Lyon, France (where the French booed our national anthem) and went to the top of an alpine mountain in Switzerland (and the site of a Bond movie). I traveled around Spain with my class senior year and stayed with a great family in Segovia, Spain for a week. I knew that I wanted to travel around the world.

In 2004 I applied to colleges, knowing that I really wanted to go to the University of Wisconsin. At first, I was waitlisted. After a few weeks, I finally persuaded admissions that I should be let in and was accepted to Wisconsin. I remember being utterly shocked when I was waitlisted and even more angry when I lost the lottery for football tickets. Little did I know that losing the football lottery would be one of the best things that has ever happened to me.

I got to college in 2004 and loved every minute. I made some amazing friends, learned a ton and attended hundreds (yes hundreds) of Badger football, hockey and basketball games. I went to the Wisconsin vs. Purdue game where Scott Starks returned a fumble for a touchdown. I remember the crushing defeat at Mighigan State and then traveling to Iowa to visit a friend and go to the Wisconsin football game. If the Badgers won, they would go to the Rose Bowl. Unfortunately, they lost and it was a long drive back to Madison. I was in Milwaukee with one of my best friends, sitting on the glass, when Wisconsin won its 6th hockey national title. I rushed the court when Wisconsin won the Big Ten title and was there when Wisconsin had a #1 ranking in basketball. I loved all of our road trips that my friends and I took as well as the fun times we had doing all sorts of things throughout college. I entered college being able to cook a few things, but not that well. I left loving to cook and being able to make a whole bunch of things.

I ended up buying football tickets on ExchangeHut my freshman year. I was the 1117th registered user. After freshman year, I ended up buying the site with one of my best friends from high school. I learned a ton and met some amazing people and realized that I was an entrepreneur and didn’t ever want to have a boss again. Besides my friends, this realization was the most important part of my college experience.

I was lucky enough that I got to testify before a Congressional Committee, compete in a business plan competition, travel to Facebook for their platform launch and pitch ideas to angel investors. By the end of my first senior year, ExchangeHut had been acquired. I took a second senior year and graduated with a degree in Political Science. By 2009, I started my blog, a consulting company and another startup. I started Capital Entrepreneuers and have started to become part of the Madison community.

I also was able to check a few things off the bucket list. In 2006, I went to the World Cup in Germany and saw the US in action. After the US was eliminated, my friend and I traveled all over Europe, trying to be in countries when the teams were playing. I’ll never forget being in Paris when France beat Spain in the Round of 16, being in an Italian bar in Barcelona during the semi-finals and being in Dublin for the final. It was a great trip and I decided that I would do everything in my power to never miss another World Cup in my lifetime. I was lucky enough to get to live in downtown Chicago for a few months, attend the Superbowl and go to the Final Four. This past summer, I was able to visit my friend Beata in London and travel with one of my best friends in Ireland, England and the Netherlands and went to my first two weddings of friends from college. I also got to do the punt pass and kick competition at halftime of the Wisconsin vs. Michigan game and succeeded.

The 2000s were amazing. I can honestly say that each year has gotten better than the one before it. I can only hope that my next 10 years are as much fun as these past 10. At the end of the next decade, I will 34. That seems old, but not as old as 24 seemed when I was 14. I hope to travel to South Africa this summer to see the World Cup and be able to visit Australia, China and the rest of Asia sometime in the next decade. I would love to go to Brazil for the 2014 World Cup and tour South America. I know I want to live in a foreign country for at least a year at some point and become fluent in Spanish again. I want to continue working for myself and continue to create successful startups. I hope to be reading at least two books per month and continuing to write my blog. Maybe even write a book. Who really knows. I hope that I am healthy, happy and continue to have the good fortune to live like I have in the past ten years.

What are your best memories of the 2000s? What do you think was the defining event for the world and for you personally? What are your goals for 2010s?

Is Your City Startup Friendly?

Category : Entrepreneurship
Posted on November 23, 2009 by Nathan Lustig

I was talking with a few people at the last High Tech Happy Hour and the last Capital Entrepreneurs meeting about what makes a city startup friendly. We came up with a short list, but I’ve been thinking about it ever since. What makes a city startup friendly and how can cities that are not startup friendly make changes to become more startup friendly?

Startup friendly cities need to have a high density of smart people. Potential founders of startups need other smart people who could be potential partners, contractors or employees. Most cities that have a high density of smart people happen to be cities with large universities that attract a huge supply of smart people each year. It helps that these cities have universities because it’s even better to have young smart people, rather than simply smart people. Young people can afford to take bigger risks and are more willing to work longer hours for little or no pay than older people who may already have families, mortgages or other obligations.

Another helpful characteristic is low cost of living. If founders can live cheaply and find cheap office space, it makes it much easier for a startup to get off the ground. Additionally, having a low cost of living allows startups to stretch their investment dollars much further. Employees, rent and just about everything else is cheaper. I talked to one Madison-based founder who has successfully sold one company and is on his second startup who believes that Madison’s low cost of living is one of the most important reasons why his company succeeded and his competitors did not.

Access to affordable office space in a business incubator is another key characteristic of startup friendly cities. Business incubators are an important asset for startups, especially if they are affordable. Unfortunately, many incubators I’ve seen end up charging close to market rates. Incubators are an important step for startups because they are usually the first move from working out of the founder’s bedroom. They also provide camaraderie, connections and bring startups out of isolation because the rest of the people in your office are also running startups. It’s much better for a startup to move into an affordable business incubator with other startups, rather than move into an affordable office space next to a lawyer, construction contracting company and a non-profit.

It is extremely important for startups to interact in a community of other startups. Having other entrepreneurs around, especially entrepreneurs who have been successful in the past, is important because founders can ask for advice when they have problems. A mentor program like MERLIN Mentors is very important because it matches up experienced people who have been successful before with inexperienced startup founders. These mentor programs not only build a community of startups, but they provide specific feedback to startups and help them overcome challenges that they might not if they were left on their own.

Another important aspect of an entrepreneur community is free networking events like the High Tech Happy Hour and Capital Entrepreneurs. Events like the High Tech Happy Hour bring smart people together who are not necessarily focused on entrepreneurship and startups, but are fertile ground for finding employees. Local, free entrepreneurship groups like Capital Entrepreneurs offer founders of startups a place to meet others who are doing what they are doing. It also creates a community and gives founders of startups some semblance of co-workers. Starting a startup can be lonely if you do not get out and interact with others who are facing the same challenges and dilemmas that you are.

These free networking events provide a way for experienced entrepreneurs to mingle with people who are just getting started. Experienced entrepreneurs set an example and show everyone in the city that starting a company is viable. They can also provide advice, but simply having experienced, successful entrepreneurs in your city makes your city startup friendly. Cities like Boston, San Francisco and Seattle have these networks. Others like Madison and Boulder are just getting started, but are on the right track.

These experienced entrepreneurs can introduce inexperienced founders to professional service providers like lawyers and accountants who are willing to help entrepreneurs. It also helps if your city cultivates a network of experienced, flexible professional service providers. These service providers should be willing to take equity, give discounts or defer payments into the future for startups that they think are going to be successful. It is extremely helpful if startups can still get top notch professional services, without breaking the bank during the company’s research stage.

These professional service providers can help startups gain access to capital that they need to fund their business. Ideally, a startup friendly city will have VCs, angels and other rich people who are interested in investing in startups, but not all cities must have all three. A strong network of professional service providers who work with entrepreneurs can make introductions to rich people who are willing to invest. Some startup friendly cities can be heavy on angel and rich individuals, but light on VCs. Another way cities can help entrepreneurs is by advocating for small business loans and other alternative ways of funding.

Startup friendly cities generally have support programs in place for entrepreneurs. They tend to have low taxes. It is much easier to start a startup in a city that does not have 10% sales tax, like the city of Chicago. The state of Wisconsin provides a 25% tax credit to angel investors who invest in certified Wisconsin startups. Wisconsin also offers low interest loans that are forgiven if the startup fails. Both of these programs help entrepreneurs succeed. Other states have implemented programs that fund early stage startups.

Finally, many people who start statups generally like living in cities. They like walking to work and living in tolerant environments. They like to be able to meet in coffee shops, go to interesting restaurants and enjoy life with their peers. It’s best to have good weather. Low crime and good schools are also helpful. Overall, creating a city with high quality of life keeps the three most important ingredients, experienced entrepreneurs, rich people and smart, young people, in one place.

Cities can begin to implement policies that help foster entrepreneurship. Cities can start by creating a business incubator for startups that offers offices (with windows) at 50% discounts. They can start to create mentor programs like MERLIN and create entrepreneur networking groups like Capital Entrepreneurs. Service providers can start offering discounts or equity for service deals. Once one service provider has success offering this deal, it quickly becomes the industry standard. I’m not advocating that government do all of this. People who want to see their cities become more friendly to startups have to do some of the work themselves.

Government does have a place. It can offer incentives for startups to move to their cities. It can lower taxes or offer government programs that provide easier access to capital. It could create a new business incubator and it could help create a community of entrepreneurs by publicizing entrepreneur success stories or the local startup community. Government could help make cities more startup friendly simply by being more friendly to startups themselves.

Characteristics of Startup Friendly Cities

Figure out if your city is startup friendly. Rate your city on a scale of 0-2 for each characteristic and score total the score at the end. 0 means that your city does not do it at all, 2 means your city does is very well.

Access to capital
High concentration of smart people
Low cost of living
High concentration of rich people
Network of experienced entrepreneurs
Mentor programs
Low cost startup incubator
Low taxes
Governemnt support
Flexible professional service providors
Free networking events
High quality of life
Tolerant, vibrant, walkable cities
Large universities
Culture of entrepreneurship
Educated workforce
Good weather
High concentration of science and technology workers
Direct national flights
Entrepreneurship advocacy groups

I would say Madison, WI gets a score of 23/40. Milwaukee gets a 13/40. San Francisco gets 36/40.

How startup friendly is your city? Do you agree with my list? Do you have any characteristics to add?

To Office or Not to Office?

Category : Entrepreneurship
Posted on November 10, 2009 by Nathan Lustig

I’ve always been a proponent of working from anywhere. I ran my first company completely remotely while in college. When I was 19, I worked out of my room, usually sitting on my bed, surrounded by paper, music playing from my ipod, laptop on my lap. My friends jokingly started to call my bed my office. That got a little awkward when I had to start meeting potential investors and clients. Going to coffee shops all the time instead of going back to my “office” was a bit of a challenge.

My partners and I continued to work out of our respective bedrooms for the next three years. We hired two programmers, one who was local in Madison and one from Poland. It was great. We were able to save money by not spending on an office, work from home, and stay warm in those long Wisconsin winters. We were productive and grew our business from about 15,000 users to over 125,000. We were able to raise six figures from investors, all without getting an office.

In our third year, we were asked to meet up for an interview about starting a business in college. We all went over to one of my partners’ houses for the interview. My two partners and I were joined by our US based programmer. We quickly realized that it was the first time that we were all in the same room, even though we had been working together for almost three years. There had been just about every other combination, but never all four of us in one place at a time. It was pretty amazing to see that we could run a successful company without ever meeting in person.

After we were acquired, we all talked about whether we should have gotten an office earlier or not. I was always happy to work from home and save the money. One of my partners was a big proponent of getting an office and believed that we would have been more productive if we had been in an office earlier. After the acquisition, Corey Capasso, my partner who had wanted an office, moved to New York City to pursue his new company, Add The Flavor, a company that infuses flavor inside plastic. He quickly got an office in Manhattan and got to work. He kept calling me and emailing saying how much more productive he was now that he was in an office.

I stayed in Madison and founded my current company. My co-founder, Jesse Davis, and I resisted getting an office. We worked from our house, the business school and the Union Terrace. I began to call the terrace “my office” and we worked outside with the beautiful view of Lake Mendota all summer. One of my friends called me one day to tell me that “someone was sitting in my office.” We were productive and worked well without an office, but we decided that we were not being as efficient as we could. With Corey’s constant emails about how much better it was to work out of an office in the back of my mind and the business progressing nicely, we started to look for some space.

We ended up getting a great deal on some space in downtown Madison that was too good to pass up. We had looked at multiple business incubators, but finally settled on sharing some office space with another young Madison company because we wanted to have connections with other startups, they had the best location and they had the best price.

We moved in and our productivity increased noticeably. We filled the walls with tile board or what I call poor man’s whiteboards and our brainstorm sessions were much better. We spent less time sending documents back and forth and increased our productivity in just about all aspects of our business. Getting an office has been one of our best decisions so far.

So when should you get an office and how do you still make sure that you’re not just getting an office for the sake of an office?

I think it’s time to get an office when you are about to raise money. This does not have anything to do with actually taking money, but it serves as a good proxy for when you you are about ready. Every startup is different, but if you can do all of our business planning and initial programming before getting an office, you will come out ahead. If you are raising money, it usually means that you have written a good business plan, done a good amount of initial research and pitched your idea to variety of people.

It’s also important to note that just because you have an office, you don’t have to turn into an 9-5. My partner and I still work from home when we are too tired to come in, have other things we want to do during the day or simply want to work by ourselves for the day. Getting an office does not trap you if you don’t let it. It’s not like getting an office makes you automatically have a boss, stuck in a cubicle. Try to find an office within walking distance of your house. It will allow you to go back and forth and give yourself flexibility that you need in a startup. Don’t spend a ton of money on your space. All you need is a place to hang some white boards, get wireless Internet and work without the distractions that can happen at home or in a coffee shop.

What have your experiences been with working from home or at an office? When do you think is the right time to get an office? What sorts of characteristics do you look for in office space?

Raising Money from Family and Friends

Category : Entrepreneurship
Posted on November 2, 2009 by Nathan Lustig

It’s really easy to find information about raising money from angel investors or VCs, but many people neglect another important way to fund your startup: raising money from family and friends.

There are pros and cons to raising money from family and friends, but for your first round (especially in your first company), I think that the pros outweigh the cons (if your family can afford it), especially if you follow some common sense rules so that you can still go to your family reunions. It seems to me that many in the startup world look down on companies that are funded by family and friends. I think that’s a mistake. I’m writing this post because I wanted to share my experience raising money from family and friends so that others can see it is a viable option.

When it came time to raise money with my first company, I had the choice of whether to try to raise money via angel investors or from family and friends. After doing some research, I decided that family and friends was the route I wanted to take. We were able to raise six figures fairly quickly from a good group of investors, which helped us stay focused on running our business instead of raising money. Whereas many angels and angel groups would have wanted to get to know us for 3-6+ months, we were able to close our round in about 6 weeks.

How were we able to raise money quickly? How do you actually go about approaching family and friends for money? What if your family doesn’t have much money? Why should you do it and why are they better than angels/vcs?

We were able to raise money quickly because we wrote a detailed business plan, did our research and found people who were willing to believe in us. At first, we wrote a 2 page executive summary of our business that included how much money we were trying to raise, our valuation, how much 1% of the company would cost, why we needed the money and what we planned to do with it. This exercise helped us really figure out how to tell our family and friends what we were doing. It is especially important to avoid the curse of knowledge when writing your business plan, but its even more important when the investors are your family and friends. Next, we developed our full business plan, making sure to be as clear as possible. We made it clear that we were asking for investment in exchange for ownership in the company, rather than loans.

Next, we talked to our lawyer about how to raise money. He helped us write up an offering summary, amended our operating agreement to allow us to take on investors and filled out all of the necessary forms for the government. He also helped us add to our business plan to make it more understandable to non-tech people. Our professionals that were working with us (lawyers, accountant, professors) were able to point us in the right direction of people with money. This is even more important if your family does not have the resources to invest in your startup.

All of our investors were accredited investors, which means that they have net worth of at least $1m or a yearly salary of over $300k. Accredited investors helped us in two ways. First, since they were high net worth individuals, they could afford to take the risk of losing their money. While we were confident we were going to be successful, we still knew we could fail and lose our investors’ money. Second, having all accredited investors meant less paperwork for us and our legal team. Having accredited investors helped us avoid the mistake that some people make: raising money from people who cannot afford to lose it. This is a huge mistake, even if you think you are going to be successful. It is the quickest and surest way to give yourself way more stress than you need and get yourself taken off their holiday card list.

We were up front with our potential investors. While we were confident we were going to be successful, we told the investors that the worst case scenario involved them losing 100% of their investment. We told them that they might not be seeing a return on their investment for 3+ years and tried to think up scenarios that would cause these bad outcomes to happen. It was clear that our investors were more comfortable with us once we showed them that we had done our homework and were not simply selling them snake oil. Don’t make promises you can’t keep just to get someone to open their checkbook. They will not be happy with you when you are not fulfilling your promises a few months down the road.

Make sure you don’t set your valuation too high. While you are trying to get a good deal for your business, you want to make sure that your investors are getting a good deal as well. After all, they are your family and friends. Another key is to not take too much money from one single investor. In my first company, our biggest chunk from one single investor was $70,000. While we ultimately made him money and he could have afforded to lose his investment, it would have been more comfortable for everyone involved to have gotten a little less from one single source. It’s also not the end of the world if one of your potential investors turns you down. Don’t press for money from someone who is uncertain because they will be the first to complain when things are not going as well as you had hoped.

Many angel investors will tell you that their investment comes with connections that you will not get from your family and friends. While there is some truth to this statement, I think that it is overrated. Your family and friends will get you money more quickly and be more willing to take you at your word. A family and friends round will also set you up nicely for a second round from an angel or VC if it is necessary down the road. If you can show that your family and friends believe in you, it gives you credibility. If I see a startup without some amount of family and friends money, I wonder “wow, this guy couldn’t even get his Mom to believe in him, so why should I?” It brings up questions in my mind, but is not a deal breaker.

I have had good experiences raising money from my family and friends and I think more people could benefit from thinking about going this route, rather than just thinking about angels/vcs. Check out my list of Dos and Don’ts and Pros and Cons of raising money from family and friends below:

Write a simple executive summary and longer business plan
Be upfront and honest about potential losses
Be honest about the time horizon for payoff
Make sure your investors can afford to lose 100% of their investment without any hard feelings
Seek out accredited investors from your professionals

Don’t

Oversell yourself, your company or the opportunity
Underestimate risk
Take too much money from a single source
Set your valuation too high
Get mad if they turn you down

Pros

Raise money more quickly
Better valuation and less stress than angels/vcs
Potentially make your family/friends money
Easier to get money than from angel groups for first time founder

Cons

Can be awkward if you fail
Doing business with family/friends can be nerve wracking
No network

What do you think? Have you had experience raising money from family and friends? What did I miss?