Reading OnStartups (pp. 11-30)

Chapter 2: On The Entrepreneurial Leap

p11: 56% of Americans dream of starting their own businesses…:disengaged” from jobs and seeking the entrepreneurial experience (Judson, Go It Alone)

p11: What makes software developers different from others. Tend to have software development background, having worked as programmers in larger, more established organizations and then decided to take the leap and start companies of their own.

p12: Most common motivation for starting companies included leaving existing positions at companies that did not value the software development process. “Software was viewed as a necessary evil (i.e. overhead).”

p13: Having more power and the opportunity to control destiny.

p14: Evidence from Ed Roberts (“Entrepreneurs in High Technology”) indicates that founders start businesses to escape from instability or frustrations of their current job.

p15: Great discussion on understanding startup risks. Referencing Wu and Knott, Shah writes that entrepreneurs’ risk profiles seem to be indistinguishable from regular wage earners; entrepreneurs encounter two types of risk: market demand uncertainty and entrepreneurial ability uncertainty; entrepreneurs display risk aversion when it comes to market demand uncertainty but exhibit “risk-seeking” tendencies with regards to ability uncertainty and are willing to bear economic risk when overconfidence compensates for their risk-aversion regarding the market.

p15: Per Shah, Wu and Knott’s paper can help explain why entrepreneurs take the leap of faith when in fact it may not be in their best interest to do so. The primary driver may simply be that their confidence in their abilities may more than compensate for their lack of clarity on market demands and opportunity.

p16: “No clearer articulation of how an entrepreneur will solve a customer problem than by building a partially working product.”

Chapter 3: On Financing and Capitalization

Questions under consideration: After the dot-com bust, are VCs still interested in software startups? What are the pros and cons of major types of external financing? How do software entrepreneurs (SE) go about bootstrapping their companies to success with so little cash?

p18: Benefits of VC investment per NVCA: financing, future funding, business partner, mentoring, broad network, exit assistance.

p20: Risks of VC investment: tempting distraction, flavor of the month, brain sucking, misalignment, loss of control, time allocation, race to liquidity, firing the founder.

p23: “Bootstrapping: discussion: Using creative ways of acquiring financing without having to raise it from traditional sources; using strategies to minimize the need for financing by acquiring resources at little or no cost; benefits of bootstrapping include immediate contact with customers, scarcity of cash increases sales, minimal waste, optimized use of time, maximize earnings, independence and freedom, and forced creativity. Shah references Harrison’s “Financial Bootstrapping and Venture Development.”

p26: Thoughtful discussion on :bootstrapping techniques.

p27: “Software is very capital efficient,” said Ann Winblad, of Hummer Winblad Venture Partners.

p28: “Excite took $3 million to get from idea to launch. JotSpot took $100,000,” said Joe Kraus, Founder of Excite, who then founded JotSpot.

Summary: Chapters 2 and 3 discussed the reasons founders take the “entrepreneurial leap” and the access founders have to obtaining external financing. Still, there are advantages to delaying financing and mitigating some risk for investors and thereby retaining a larger portion of the company’s equity, per Shah.

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