Ask HN: review my idea for a consultancy/incubator [slides](app.sliderocket.com)
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Ask HN: review my idea for a consultancy/incubator [slides]
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I have been considering several ideas for how to get my next startup off the ground without going back to zero income. There are several options available of course, but I wanted to focus on something that keeps paying the bills from the get go and leaves me without investors controlling the company. The idea is inspired by 37signals success turning a consultancy into a product. This takes it to the next level, a cooperative incubator funded by part time consultant work.
8 comments
I originally started my angel fund as an incubator (The Hit Forge). I quickly moved away because of Adverse Selection - the best entrepreneurs are insanely committed to themselves and their ideas, and rationally or irrationally, don't want to diversify. Since then, I've invested in a lot of companies, including Twitter and Disqus and Heyzap, and am glad that I did so. The Incubator model works as a "search" model (MRL Ventures, Obvious Labs, Ooga) where the Incubator "finds" a company that the principals join, but not as an "investment" model where the incubator survives and keeps spinning out companies. This is true because you can't create or replace entrepreneurs - you can only discover them or be them, but you can't create them.
The other problem with this proposal is that the Internet is extremely competitive. You can't do anything great part-time over the long term. A funded team working full-time has a huge advantage on you.
Of course, giving up control sucks. "Valuation is temporary, control is forever." And a business controlled by VCs too early can't innovate easily. So, either raise money from angels, or learn how to negotiate with Venture capitalists. Check out Nivi and my writings (sorry, shameless plug) at http://www.venturehacks.com.
If you do have a good product with traction and are out raising VC money, ping me and I'd be happy to help you keep control (free!)
The other problem with this proposal is that the Internet is extremely competitive. You can't do anything great part-time over the long term. A funded team working full-time has a huge advantage on you.
Of course, giving up control sucks. "Valuation is temporary, control is forever." And a business controlled by VCs too early can't innovate easily. So, either raise money from angels, or learn how to negotiate with Venture capitalists. Check out Nivi and my writings (sorry, shameless plug) at http://www.venturehacks.com.
If you do have a good product with traction and are out raising VC money, ping me and I'd be happy to help you keep control (free!)
So how do ramen profitable companies and "Italian restaurants on the web" (ie. Small self-funded companies that fit a hugely profitable niche) fit your world view?
They (37s, fogcreek, etc.) did start as consulting businesses and raised little or no outside capital to build immensely profitable products...
They (37s, fogcreek, etc.) did start as consulting businesses and raised little or no outside capital to build immensely profitable products...
They can work but generally they tend to be service companies for a long time before they become product companies. However, they're almost never done by part-timers. Even 37S and FogCreek are full-time labors of love. Also, there are always exceptions - I'm talking about mass statistics / average web startups - stuff similar to most YC companies.
This sounds like you've read the 4 hour work week and then went to an MLM recruitment meeting.=D
This not meant to be derogatory in any way, I do feel that you've put much thought into this. That is just my impression of the concept.
I think in theory, this is great. However it seems to me like rather than one person starting one business, you have "a team" starting multiple businesses on top of managing their partnerships. I'm all for collaboration, but it seems to me like more work is being added, then taken out.
This not meant to be derogatory in any way, I do feel that you've put much thought into this. That is just my impression of the concept.
I think in theory, this is great. However it seems to me like rather than one person starting one business, you have "a team" starting multiple businesses on top of managing their partnerships. I'm all for collaboration, but it seems to me like more work is being added, then taken out.
I don't really follow your first two sentences. I am interested in starting a company that I remain in control of, or at least share ownership with the other people doing the work, rather than having random people with money telling me what to do. I am not familiar with MLM, but the 4 hour workweek struck me as finding a way to do as little as possible so you could become a globetrotting rich kid.
As to your final point, it is a valid one. Splitting ones attention between a customer focused consultancy and a startup could well be too much. Ideally each person involved is simply bringing their current employer in to the fold, rather than going out and finding new customers they have no relationship with. I felt this was something I could have done with most of my previous corporate jobs, but it probably isn't universally applicable.
As to your final point, it is a valid one. Splitting ones attention between a customer focused consultancy and a startup could well be too much. Ideally each person involved is simply bringing their current employer in to the fold, rather than going out and finding new customers they have no relationship with. I felt this was something I could have done with most of my previous corporate jobs, but it probably isn't universally applicable.
The 4hww reference is in regards to your plan outsourcing yourself from your day job. As well as the 50/50 split of working on your own time, and developing a business.
The MLM is in reference to: founders convince other consultants to contribute their bench time.
Obviously I know you are not trying to run a mult-level-marketing outfit, but I feel the implementation is similar.
I think your plan trivializes a lot of things. Mainly:
- Outsource yourself from your day job
- Start a startup
- Teaming up with like-minded people as motivated as you.
- Sharing profits "simply".
These are not trivial.
Also your main point is that you don't want you business to be dictated by outside investors. But why is the assumption that anyone investing money would be a detriment while anyone investing domain-knowledge and side-profits is an asset? (as per your consultancy network).
I don't see how giving equity to people more like you is any better or worse than giving equity to outside investors. Equity is equity and if your main concern is not giving up control of your business, you should not be dealing in any equity whatsoever.
To me, you are trying to solve a purely business problem, but you are trying to do it in a way that involves the product development/tech side. Though, I have no idea if that is good or bad.
I am on board with exactly what you are saying. I want my own business to be my business. But this is why I'm a DHH disciple. Sure its not 1,2,3 easy, but the 37 signals way is COMMON SENSE, when it comes to business. So it sounds like your goals are more business then they are tech; in that case, start with the business side of things, and see how that fits into your tech ideas, not the other way around.
(just subjective advice - honestly meant as constructive criticism: best of luck)
The MLM is in reference to: founders convince other consultants to contribute their bench time.
Obviously I know you are not trying to run a mult-level-marketing outfit, but I feel the implementation is similar.
I think your plan trivializes a lot of things. Mainly:
- Outsource yourself from your day job
- Start a startup
- Teaming up with like-minded people as motivated as you.
- Sharing profits "simply".
These are not trivial.
Also your main point is that you don't want you business to be dictated by outside investors. But why is the assumption that anyone investing money would be a detriment while anyone investing domain-knowledge and side-profits is an asset? (as per your consultancy network).
I don't see how giving equity to people more like you is any better or worse than giving equity to outside investors. Equity is equity and if your main concern is not giving up control of your business, you should not be dealing in any equity whatsoever.
To me, you are trying to solve a purely business problem, but you are trying to do it in a way that involves the product development/tech side. Though, I have no idea if that is good or bad.
I am on board with exactly what you are saying. I want my own business to be my business. But this is why I'm a DHH disciple. Sure its not 1,2,3 easy, but the 37 signals way is COMMON SENSE, when it comes to business. So it sounds like your goals are more business then they are tech; in that case, start with the business side of things, and see how that fits into your tech ideas, not the other way around.
(just subjective advice - honestly meant as constructive criticism: best of luck)
The goal of the post was not to trivialize the difficulty of accomplishing any of these steps, simply to outline what I saw as necessary ingredients. If you think any of them are insurmountable I would love to hear why.
To be clear, I don't really have a problem with the VC approach. I just see most of the success stories in that realm as people who become fantastically rich but lose control of their companies along the way. I am hoping to build something that is long term, sustainable and leaves me in control of the thing I created. I was not trying to imply that I prefer one type of person to have equity over another, rather I hoped to share equity among the people who contributed. The argument against VC money was wholly separate from the argument for paying contributors with equity. The latter is because cash will be tight and because I believe it is better to give people a stake in their future rather than just a paycheck and a task list.
Finally, the idea that I am solving a business problem over a technical one here is right on. I haven't really mentioned a startup idea. Previously, I spent a year trying to get a company off the ground by myself (and failed miserably). I learned that, for me, it would be better to work with others towards this goal while leveraging their experience, talent and outside perspectives. VCs can provide this as well, but at what price? This is simply meant to be another path towards the goal of a startup, with different sacrifices along the way.
To be clear, I don't really have a problem with the VC approach. I just see most of the success stories in that realm as people who become fantastically rich but lose control of their companies along the way. I am hoping to build something that is long term, sustainable and leaves me in control of the thing I created. I was not trying to imply that I prefer one type of person to have equity over another, rather I hoped to share equity among the people who contributed. The argument against VC money was wholly separate from the argument for paying contributors with equity. The latter is because cash will be tight and because I believe it is better to give people a stake in their future rather than just a paycheck and a task list.
Finally, the idea that I am solving a business problem over a technical one here is right on. I haven't really mentioned a startup idea. Previously, I spent a year trying to get a company off the ground by myself (and failed miserably). I learned that, for me, it would be better to work with others towards this goal while leveraging their experience, talent and outside perspectives. VCs can provide this as well, but at what price? This is simply meant to be another path towards the goal of a startup, with different sacrifices along the way.
This would work if you can find the people to make it work, consulting isn't really a "new" route to starting a startup and neither is using consulting income to support it instead of outside money.
The real question is how do you find these "entrepreneurial" people and convince them to join together with you for lower cash and higher risk than they would have if they were working by themselves
The real question is how do you find these "entrepreneurial" people and convince them to join together with you for lower cash and higher risk than they would have if they were working by themselves
The novel part (I think) is banding together and using it as a formal startup incubator.
I agree that the harder part is finding like minded people, which is why I put the idea up here. If it resonates with this crowd I think it is worth exploring further.
As for the risk, I believe grouping together lowers the risk. If each partner brings in a client there are more projects to share, and economies of scale make it easier to share resources and services. Speaking from experience, I can say going at a start up alone is not an easy endeavor.
I agree that the harder part is finding like minded people, which is why I put the idea up here. If it resonates with this crowd I think it is worth exploring further.
As for the risk, I believe grouping together lowers the risk. If each partner brings in a client there are more projects to share, and economies of scale make it easier to share resources and services. Speaking from experience, I can say going at a start up alone is not an easy endeavor.
But not only do you have to like the other people, you have to like their side projects, since everyone shares until ramen profitability. But most "side project" ideas are terrible. It seems to me that you'd end up with a bunch of megalomaniacs who are mediocre people.
I'm not trying to be a wet blanket, but this strikes me as an incubator (ugh) where the inmates run the asylum. To me, the safest thing is still saving up some money, having a really good idea, and finding some technical friends to go "all in" with you for a year.
I'm not trying to be a wet blanket, but this strikes me as an incubator (ugh) where the inmates run the asylum. To me, the safest thing is still saving up some money, having a really good idea, and finding some technical friends to go "all in" with you for a year.
The idea is that everyone is working on their own side project half of the time. If other members of the team collaborate it is in exchange for equity. No one is being asked to work on a startup they are not interested in.
Hopefully a group of entrepreneurs that are working together to create startups are also helping vet each others ideas. Going back to other people's comments, the team dynamics would be pretty important. If you think of your partners as inmates in an asylum the whole thing is probably doomed to failure no matter who is providing direction.
I actually have started a company with savings, which was enough money to support one person (me) for a year. I doubt I could have found other people who happened to be temporarily financially independent at the exact same time and interested in my idea. This way seems more practical to me.
Hopefully a group of entrepreneurs that are working together to create startups are also helping vet each others ideas. Going back to other people's comments, the team dynamics would be pretty important. If you think of your partners as inmates in an asylum the whole thing is probably doomed to failure no matter who is providing direction.
I actually have started a company with savings, which was enough money to support one person (me) for a year. I doubt I could have found other people who happened to be temporarily financially independent at the exact same time and interested in my idea. This way seems more practical to me.
I like your creative approach. My biggest concern is that any business you'd start would probably be service business. I suspect what you really want is a product business. You'd have to find a way to convert your service business into a product business to scale. Good luck. That part won't be easy.
Sounds sorta like obvious corp, except they didn't need to consult due to being comfortable already. Get smart people together, build some cashflows, and work on cool side ideas. See what sticks and what doesn't.
Also reminds me of Virgance.
Also reminds me of Virgance.
midVentures are a bunch of University of Chicago and Northwestern alums who have joined together to do almost exactly what you describe: http://midventures.com/
Interesting, I was not familiar with them. I read the web site and it doesn't really highlight if/how they bring in other entrepreneurs. I will have to get in touch with them, or perhaps check out their next event. Thanks for the link!
Funnily enough I was unware you were from Chicago when I wrote that. Through Jelly Chicago, I've come across several of these "lose band of entrepreneurs" type operations here in the city
I'm currently working independently as a consultant, but I think it could be neat to band together with other freelancers. Getting projects and establishing a "brand" would be easier with more people and more project volume, and we could match up projects to team-members according to their availability and skillset.
I also don't think it needs to be tied to bootstrapping a startup.
I also don't think it needs to be tied to bootstrapping a startup.
it seems that it ends up being a lot about finding the right combination of consultants. i already do the 50/50 split between my consulting and work on my vision project. and have been actively looking out for the right kinds of collaborations. be nice if there was a web service that spoke directly to this kind of linking "the 50/50 club" .. or maybe there is?