Editor’s note: This is a guest post by Marc Ruxin, Founder/CEO of TastemakerX, which was recently acquired by Rdio where he has become the COO. The post went through PandoDaily’s usual editorial process and Mr Ruxin was not paid for his work.
When you start a company that lives on the Internet, what you do must be informed by the naïve possibility -- or hope -- that what you create might someday be accessed by people all over the globe. Some people start companies for money, power or freedom. Others because they see a wide-open opportunity, they want to change the world, or they do it out of blind passion. Finally, there are those for whom it has been impossible to find a suitable job, or even some who simply cannot work for someone else. It would be easy to say that some of these motives are "better" than others, but in the end it takes equal amounts of courage, confidence, arrogance and irrationality to commit to creating a business with an online presence.
Volumes have already been written about the ‘voyage’ of the Internet entrepreneur and how courageous these experiences are, both the abject failures and the massive successes. A cynic might point out that these experiences all build character, but in the grand scheme of things they often aren’t really worth the melodrama. Sleepless nights, hopped up on $3 energy drinks and gourmet pizza, trying to ship products that apparently the world didn’t need, are truly first world problems.
That said, my most recent experience has just morphed into an exciting second phase, and there are a few things that don’t get as much press about this entrepreneurial voyage, but in fact made a real difference along the way. If you don't like rules, think of them as suggestions.
1) Make the money last: Cash management is one of the most important jobs a CEO has. This seems obvious, but most companies fail because they run out of money, plain and simple. From the beginning I was hyper-focused on not spending money where we could avoid it. For example, over the past three years I have probably been to New York City 20 times for a total of, say, 50 nights. I didn’t stay in a hotel even once. At a conservative $400 a night that is $20,000. This is the price we had to pay to recruit a key team member.
We also found super cheap office space. It was cozy, low-fi, but filled with snacks, Ikea desks and sunlight. I am guessing we saved $6,000 a month for two and a half years against comparable average rents. That is $180,000 or, in different terms, the cost of two key employees for a year. Sure, it would have been more fun to have had catered lunches, onsite yoga classes, and better food, but then we would have spent our investors' money on nothing that contributed to the business, and not have had the chance to build a team and product that was saleable. In the end all you have is time and money. They are directly related and both are finite. And recruiting is difficult -- If your vision doesn’t attract the right people, perks alone won't attract the ones you need to build a real business.
2) Don’t raise too much money, even though it might be cheap. The more money you raise the more binary the results become for the entrepreneur. You risk eliminating the fat middle ground where investors, founders, and employees can all make a positive contribution. Just because you can raise more money, doesn’t mean you should. If you are able to build a team, and create viable products on a limited budget there will be a positive outcome somewhere. A small acquisition after a few years can in some ways have the same upside for all involved as raising another round of capital and going it alone. Whether you are acquired by a public or private company, the value of your stock and time might accelerate more quickly than through financing rounds A, B and C.
3) Insist on great people. Whether it is your co-founder, investors, or the people you hire, settling for anything less than people who share your values, ambitions and passion will bury you over time. For first-time entrepreneurs, being a solo founder is fraught with even more risk. You’re going to make mistakes, and navigating your way through them blindly is not a realistic option. It is also going to suck more than you ever could have imagined, and you will need someone you can trust, who will hang with you through it all.
The right person for you and your business matters more than how you shape your firm. The folks you choose to work with will be the difference in hard times between failure and second chances. You need to know they are invested in you and will always have your back. The right employees are perhaps the hardest asset to acquire. You need to hire good people to grow, but no one can hire them fast enough. The people you work with create the environment you live with every day. One talented but toxic employee can destroy the company. He or she will make it harder to hire people as you grow, and will strip away the joy you can derive from both good times and bad. For the most part I was tremendously lucky to have great people across the spectrum of the work that needed to be done.
4) Genuine Passion. Lots of people tend to have a real passion for being an entrepreneur, for the promise of a windfall, or for the power that comes with being the boss. Oddly though, many entrepreneurs don’t necessarily have the same passion for the product they are building. Or perhaps they do initially, but as it evolves into something different, the passion it takes to persevere just isn’t there. When I left my cushy corporate job three years ago, I think I mostly felt this incredible itch that, as I grew older, had become impossible not to scratch. To have NOT scratched it would have been some sort of personal admission of failure that would have likely plagued me to my dying day. In the end, the most important thing I had going for me was a profound passion for solving a problem that no one else had managed to solve for me over the course of my life. I love music, and not only do I love music, strangely, I almost love finding new music even more than I do listening to it. I knew even if we didn’t become the next Uber, that passion and experience would eventually be valuable to someone else in the space.
When you start a company that involves music you are guaranteed that indeed the interest and potential audience is global, but also that the economics and likelihood for success are tiny. But you do it anyway. You do it because music is one of the music important human creations we will ever have. It brings joy, eases sadness, and amplifies happiness. There has been music in varying forms for thousands of years, and now more of that music, even some that predates recorded music, is now available to everybody with an Internet connection. More people listening to more music more of the time seemed like a reasonable risk to take for a worthwhile goal. Some entrepreneurs claim they only focus on “big” problems. Inherent in that statement is a pretty strong value judgement, but I can say that although music might not save lives it certainly makes life better for almost every human.
At some point every entrepreneur needs to acknowledge some very significant realities. Eventually, if you’re not making money you will run out. If you are not paying yourself much money, you will need to figure that out as well. Selling your company before it has had a chance to really flourish is always a risk you take, and one wrought with emotion. After all you built something from nothing, and now the baby has a new parent. But if you look at the merger as just another round of financing, with better chances of success, it makes rational sense. I also believe that every entrepreneur who raises money owes it to his investors to fight like hell not to lose that money. In retrospect, I’m not sure what is a less likely outcome, creating a massive company or not losing all the money you raised.
In the end every professional experience you have will inform the next one. Just because you work in technology, doesn’t mean you need to succumb to the pressure of starting a company. It’s definitely not a necessary right of passage to being successful and well-respected. I began this piece with some of the reasons people try to do that. Some of them applied to me, and although we managed and landed our plane safely, nothing about the trip was easy. I sleep less solidly than I used to, I exercise less, and I carry around a more persistent level of stress. But was it worth it? Yes. Extreme emotional highs and lows are the places in life where you feel the most alive. It is too easy to buzz along, numb to your ability as a human to really feel who you are and what you are capable of. The decisions you make along the way when there is only your own creation to fall back on will teach you much more about who you are than just doing a good job working for someone else. Ultimately though, it can’t just be about the money, or changing the world or becoming some sort of business celebrity. It has to be about being the best, most ambitious version of yourself. If you pull it off, it will no doubt change, in no small way, your personal life, and make you stronger and more tuned in going forward.
Sometimes, but very rarely, you are lucky enough to have two profound passions intersect. It is even more rare to be given the chance to turn these intersecting passions into a business. I am profoundly luck to have had and still have that chance.
[photo via Martin Dörsch]