Hey there, I'm Shanif! I'm working in the tech field and have a background in technology, analytics, startups, and even options trading. I've been developing software since 1997, working in startups since '08, and started trading options in '09.
I have a BS in Computer Science and Information Systems Engineering, and an MBA (specializing in Quantitative Finance and Entrepreneurship & Innovation). These days, I'm working on product analytics at Twitter after they acquired a mobile ad company I helped build after b-school. Come say hello!
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Startup Learnings – Recap
Yesterday’s post was my last in the “Startup Learnings” series. Hopefully I’ve been able to help shed some light on some of the finer workings of what happens in a startup, and hopefully some of you will be able to use what I’ve learned in your own startups. If there are any points I haven’t covered that you’d like me to go over, please don’t hesitate to get in touch. I’d love to hear what you think.
For now, here’s a quick recap of all the posts in the series, along with a quick takeaway for each one:
- The Team – Make sure you’re partnering with hard working people whose skills complement your own. This is the most important thing you can do to ensure success.
- Follow the Market – When you’re developing your product or service, listen to what your customers are telling you they really want, and build that for them.
- Analysis Is Good, Doing & Learning Is Better – Don’t be afraid to put something out into the market and see how it performs, then iterate on what works.
- Make Sure You Have Some Money – Founding a startup is a financial burden, be ready for the stress and have some money saved up.
- Start Selling Early – Try to get customers early on, it helps generate cash flow, build confidence, and refine your product.
- Recruiting – Recruiting is the hardest secret thing you’ll have to do in startup life. Start early and work hard at it.
- Learn While You’re Small – Take advantage of the early stages of your startup to learn how to handle employees and clients.
- Just In Time – Be prepared to make decisions on the fly, you won’t always be able to plan everything you need.
- It’s Always About The People – Your business relies on people first and foremost, treat them well.
- Keep Yourself Sane – Take some time to do what you need to in order to make sure you’re keeping your objectivity at work.
- The Benefits of Working Out – Exercise can do wonders for your life when you’re working on a startup.
- Hire For Culture – Hire people who you can work with before you hire for technical skills.
- Consistency – Stick with the daily grind, it’s the only way to reach success.
- B2B Startups – B2B startups have a longer sales cycle but can provide better cash flow.
- Know When To Go All In – The only way to reach success is to pursue your business full time.
- Location, Location, Location – Live in a city where you have the resources you need.
- Get An Office (When You Can Afford One) – A real office can provide immeasurable productivity boosts to your startup.
- Maintain A Large Network – You’re going to need to know a lot of people in order to be successful, make sure you’re not neglecting your network.
- Know Your Industry – Understand what you need to do in order to be successful in your industry.
- Learning New Technologies Quickly – Make sure your tech team is able to learn new technologies.
- Start Small And Treat Your First Customers Like Royalty – Don’t try to rush your early stage of growth, you’ll learn a lot from it.
- Financing Your Business – Understand what it takes to raise VC money.
- Technical Founders – If you’re working on a tech startup, make sure you have a technical person on your early team.
- Co-location – Your founding team needs to be in the same city.
- Cultivate Your Culture – Be in control of how your company culture develops.
- Done Is Better Than Perfect – Don’t let perfection be the enemy of progress. Get things done.
- The “I Don’t Have Any Ideas Fallacy” – Just start work on something, you’ll iterate from there.
- Is “Automate Everything” Truly Necessary – Be smart about where you’re putting your technical efforts.
- The Better Teacher: Failure vs. Success – You learn different things from failure and success. Both lessons are valuable.
- Sales Tactics: Everyone Loves Food – Bring desserts to your big meetings.
- If Nothing Else, Focus On Growth – Your business will be evaluated on growth.
- Focus On A Niche – Focus on a specific group of customers.
- Equity Comp – If you’re not careful, your tax liability can come back to bite you.
- Understand Your True Goal – Know why you’re working on a startup.
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Startup Learnings – Equity Comp
People work on startups for a variety of reasons, but I’ll bet that the biggest one is money. The new American dream is starting a tech company, growing it, exiting, and cashing in. The only way to do that is to grow the value of your stake in the company to a point where you can sell it for a large chunk of change.
Before you get there, though, there are a few things to keep in mind with respect to startup equity. Actually, there are a lot of things, but I want to go over a few key points in this post, since there are lots of other great articles out there about things like how much equity should various people get, how to raise money from VCs, and how to interpret term sheets. The things I want to discuss are more nuanced and quirky – they’re things that you may not think about until much later.
- Options vs. stockWhen you first form a new corporation, you’ll need to specify the number of shares that the corporation will issue. A standard amount is anywhere from 1 to 10 million shares, each of which will have a certain nominal value ($0.001 is a common amount). At the time you create those shares, the total dollar value of all your shares times the share price will be the value of your company.If you’re joining a new startup and you’re granted shares, those shares may count as income for tax purposes. If you’re not careful, you may find yourself owing lots of money on illiquid shares of a private firm. That’s one reason why employees are granted options, instead of stock. The grant of an option, specifically an incentivized stock option, doesn’t count as income for tax purposes. The options you’re granted will come at some nominal strike price, which you’ll have to pay at some point later down the line in order to exercise them.
- Exercising and selling optionsAt some point, if you get to a stage where you’ve been acquired or you go IPO, you’ll be able to exercise your options, which means you can convert them into shares of stock in exchange for paying the exercise price. Be careful though, because the difference between the exercise price and the fair market value of the underlying shares will count as income for AMT purposes. This means that, if you’re not careful, you could owe lots of taxes on shares that you haven’t sold yet.Now, you may be asking, why not just sell all the shares when you exercise the options? Well, unfortunately, that will cause you to pay your normal income rate tax on the amount that’s equal to the difference between the fair market value and the exercise price. Usually, that’ll put you in the max tax bracket, which is equal to just under 40%. If you choose to hold on to your underlying shares for more than a year, however, you’ll only pay long-term capital gains taxes, which is about half that.
A lot of people choose to balance out the desire to maximize long-term gains taxes with the need to exercise as soon as possible (in order to hold the underlying stock for more than a year) by doing what’s called a cashless exercise. This means that you choose to exercise all your options but only sell a portion of the underlying shares, just enough to pay the AMT taxes.
The AMT tax hit pretty much sucks, but there is one silver lining. If you do end up paying AMT taxes, then you’ll be able to receive the amount you paid as a credit towards your long-term gains taxes in future years, assuming that in those years you’re not in the AMT bracket. It’s complicated. None of this should be construed as tax advice. Go see a real CPA.
- Restricted stock units (RSUs)If you’re involved in an acquisition, you may find that the stock you held in your old company got converted to restricted stock units of your new company. Usually you won’t be able to sell these RSUs for a specific amount of time. Many employees will also be granted RSUs as well. The tax implications here aren’t as complicated as they are with options, but just be aware of what you’re getting yourself into.
In general, you can see that there are lots and lots of tax considerations when you join a startup, especially a startup that experiences an exit at some point. The biggest thing to be aware of is how your equity compensation will affect your tax liability. If you can get in early enough and get stock in your startup right off the bat, and you can afford to pay taxes on whatever income that grant creates as a liability, it may be worth doing so, if you really think your company is going to take off. If you’re granted options, just be very careful. Talk with a CPA. Don’t get yourself into a hole with the IRS.
In any case, if you find yourself in a situation where you have to worry about these things, you should be extremely grateful and count your blessings. The vast majority of the world would love to be in your shoes. Never forget where you started.
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Startup Learnings – Focus On A Niche
When you’re first starting your business, you’ll very likely have hundreds of features and ideas that you’ll want to implement into your product. But before you try to launch with thousands of features that you love but haven’t market tested, try to remember the old adage “you can’t be everything to everyone.” In fact, when it comes to startups, I’ve learned that the best thing you can do is focus on a really niche, really specific group of people or problem and try to do everything you can to solve it.
When you’re in a startup, you just don’t have the resources or the time, and frequently, you don’t have the runway to focus on everything you want to. With that said, though, the real reason you should shy away from serving more than one key audience, or doing one key thing, is that when you split your focus, you won’t be able to solve the problem you need to solve in an exceptional way. It’s very difficult to solve a tough problem that people have, it’s even harder to do it in a way that will make them want to pay for your solution. When you try to solve multiple problems simultaneously, you’re more than doubling the amount of effort you’d need to solve each of them exceptionally well. I hate to keep using cliches, but it’s exactly like trying to catch two rabbits – when you do, you catch none.
By focusing on a single group of people, or a single problem, you’re able to focus on that problem night and day, and in doing so, you’ll increase the odds that you can develop a great solution for it. Here are two anecdotes from my own experience to help illustrate what I’m saying.
1) Switching from a player-centric to a teacher-centric product at oGolf
Back when I was working at oGolf, prior to TapCommerce, we were originally trying to develop an app that would be a better “virtual caddie” for golfers. We had grand visions of making a tool that had enhanced aerial imagery, accurate geo-positioning, easy scoring, and a variety of other tools that we thought golfers would love.
Unfortunately, when we went out to sign up some initial customers, we hit a brick wall. For one thing, golfers generally aren’t huge fans of technology on the golf course. We also learned that many upscale courses don’t allow phones on the course. Finally, we realized our enhanced imagery and super accurate geo-positioning weren’t really the killer features we thought they would be. We were hitting a dead end.
We did learn, however, that there may be another market for what we were building – golf teachers. Teachers are always working with students to improve their swings, analyze their club choice and performance, and improve their driving distance. Teachers would have loved a tool for keeping track of various stats on their students’ play. They could use information about a golfer’s average distance and accuracy for each club, charts overlaid on aerial imagery to view shot distribution, and performance over time to help their students improve.
So with this, we changed our product to better serve teachers and we started going out to golf clubs to pitch them on the idea of a subscription-based service that uses an app as its main interface. It was a better fit for a more niche clientele than what we had before it.
Though oGolf never took off, this helped me learn to focus on a specific set of customers at the onset. That same theme came back when I was at TapCommerce.
2) Deactivating our flagship app so we could focus on advertising at TapCommerce
I’ve mentioned this a few times before, but one of the boldest moves that our CEO and VP of Product made at TapCommerce was the decision to switch focus away from developing our m-commerce app and move towards advertising. As we transitioned ourselves into an advertising company, we kept our old app running at first. But slowly, as we started to see increased success in advertising, and we had to decide what to do with our old app (which used to have over a million users), we decided that it was going to be a big distraction for us if we kept it running.
So, we deactivated it. Just like that. It was actually kind of a sad time, but it had to be done. By choosing to deactivate our app (and even before then, by choosing to pivot away from it), we were able to focus on something that would make more of an impact to a more specific group of customers.
My takeaway from this is that the people you try to sell your product to should be very real and very tangible. You should be able to describe your target customers in a single sentence. You should be able to put a name and a face and a biographical profile to them. Everything you do should be about them. If you find yourself including more and more groups of people into this list, you’re probably overextending your reach. If you can avoid doing this, you’ll be able to gain a strong foothold into whatever market you’re trying to serve.
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Startup Learnings – If Nothing Else, Focus On Growth
Those of you that are familiar with the stock market know that investors buy stocks based on expected future growth. It usually doesn’t matter how a company has done in the past – what matters is how they’re going to do in the future. In essence, people pay for where they think you’re going to go.
Once your startup has gotten off the ground and you have some traction, it’s probably time for you to start thinking about the same thing. When you know your business isn’t going to falter and you have some headway, the most important thing you can do is grow, fast. Private investors like VCs and angels want to see the same thing that public investors do. Usually, they’re looking for hockey stick growth in your revenues, but if aren’t making money, that could also mean user growth.
When you go to raise funds, especially after your seed or Series A rounds, potential investors will be looking to see how quickly you’ve been able to grow your revenue. If you’ve never had a down month, and if your growth looks like it’s about to break out exponentially, you’ll have a much easier time attracting investors, or even potentially getting acquired. If you’re thinking longer-term, you can set yourself up well for an IPO with this type of growth.
But even when you’re in your early days, you’ll want to do whatever you can to grow the adoption rate of your platform. The guys that founded Reddit and Quora did this by creating their own articles and questions/answers, which created buzz and quality content, which then attracted new users to their platform. They were then able to expand their services by adding new categories and “gamification” features that kept users interested and coming back, while simultaneously attracting new users.
At TapCommerce, our sales team worked incredibly hard to hit more and more aggressive sales targets each month. Our external projections were high, our internal projections were even higher, but through their hard work, our sales team was able to bring in new business and our account management team was able to keep our existing customers happy. They were able to spur growth by doing an awesome job, and the fact that we were in a quickly growing market also helped. The growth that we were seeing helped us raise revenue, and ultimately, led to us getting acquired.
So, all else being equal, when you’re creating a roadmap for your next quarter or your next year, focus on what will help grow your business the fastest.
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Startup Learnings – Sales Tactics: Everyone Loves Food
Just a quick, and hopefully fun, post today. I definitely haven’t spent enough time talking about just how good our sales team is. I wish I could have actually spent more time in their strategy sessions and meetings, but even from the little I’ve seen, I’ve already learned a lot from them. Our former CEO and VP of Sales know a ton about sales, and the things they’ve learned and passed on to the rest of the team are brilliant.
One of my favorite sales tactics that I’ll forever use in the future is to always bring some sort of dessert to a meeting. You get bonus points if that dessert has your company’s logo on it (be careful about using your client’s logo, since some companies get nervous with things like that, but if you’re sure your client doesn’t mind, then go with their logo and your logo combined). For example, a batch of custom baked cupcakes with a logo in frosting, opened up right at the start of a big meeting, can really open people up and get them to be receptive to what you’re saying.
When you bring food, it shows that you’re thoughtful, detail-oriented, and are part of a fun crew. It’s said that people buy on emotion and justify on logic. If that’s true, you might as well get them feeling good while you’re in a meeting with them. People love food, and Americans especially love desserts!
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Startup Learnings – The Better Teacher: Failure vs Success
I like to claim that successful entrepreneurs often “fail their way to success.” It’s very rare that a first time entrepreneur hits it big, and even when he does, he’ll usually have gotten past his share of mini-failures along the way. I’ve been through a series of failed attempts at entrepreneurship. I’ve also been through one success (and hopefully more in the future). Along the way, I’ve been incredibly fortunate to have learned more in a few years than I ever could have in a career at a corporation or in 100 business plan competitions. Perhaps the most valuable thing that I can take away from my time in startups is the incredible education it has given me.
That education has materialized from both success and failure. When you fail, you learn a lot about what not to do. This is important, though it’s arguably less important than learning the patterns and trends that continuously lead to success, which is what you learn from a profitable, viable startup.
Knowing what not to do allows you to avoid big mistakes. But there could be any number of other mistakes out there waiting for you. Contrast this to understanding a general framework for what to do to be successful. You know what worked last time, and hopefully you’ve been able to generalize the patterns enough to understand what will work in the future. Knowing what to do provides you with a framework to follow. Knowing what not to do provides you with a list of things to avoid. I hope you can see the difference and how each one contributes to your larger education.
I’m incredibly thankful for having been able to learn firsthand about startup life. I would love to be able to take what I know now and apply it to future endeavors. I’d also love to help other people working on their startups. That’s a big part of why I’ve written this series of blog posts on startup learnings. My hope is that others out there will be able to learn from many of the things that I’ve experienced and come to understand over many, many years of trying to create something profitable and productive from scratch.
Ultimately, learning what to do has been an incredibly valuable experience, but I’d argue that I wouldn’t have been in this position had I not gone through a series of false starts and flopped projects that taught me the value of working with great people, focusing on growth, and generating revenue.
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Startup Learnings – Is “Automate Everything” Truly Necessary?
Typically, when you hear startup founders talk about their successes, you’ll hear the phrase “automate everything” come up fairly often. The idea that automating as much as possible so people can focus on other, more critical tasks, makes sense. If you can have a computer take care of everything, then why not do so?
The problem, as you’ll frequently find in startup life, is that everything comes at a cost. You may find that automating some things are just not worth the engineering time and effort that would go into them. Sometimes, it’s tough to justify taking away time from building core products to automate a minuscule task that could be done by a human in a few minutes. It all comes down to prioritization.
When you have a limited number of people, specifically, engineers, and an unlimited amount of work to get through, it’s crucially important to allocate your resources where they’ll make the most effort. I’ve discussed this before in a few of the posts I’ve written about prioritizing tasks. Sometimes, you have to take the hacky way out of a problem. Putting a band aid on something that would otherwise take weeks to address properly can certainly be the right decision. Like I said, it all depends.
When possible, you should certainly look to automate major tasks or problematic areas of your business. Spending some time up front to address a long running problem is not a bad option. What I’m suggesting is addressing whether or not it’s worth it to automate every little problem that you come across in your business. Only you and your team will be able to answer whether or not that’s the right move to take, but my suggestion to you, and my lesson learned from TapCommerce, is to be strategic about what you work on – and that includes automating things that may not need automating.
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Startup Learnings – The “I Don’t Have Any Ideas” Fallacy
The most common argument I’ve heard against doing a startup is not having an idea. I’ve heard this more than any other reason, more than not having enough money and more than not wanting to do the work. Without too much inspection, this sounds reasonable. If you don’t really have something you want to work on, you can’t start a business doing it. But you need to be able to differentiate between not having any ideas and now having an idea good enough to start work on.
It seems that people who have never worked in a startup have this assumption that the right idea will make or break your business. In reality, most startups out there aren’t coming up with brand new ideas from scratch and building those into thriving businesses. In fact, what usually happens is that they take an idea, they work on it, they learn from it and maybe pivot a few times, and then they find their niche and iterate fast and often.
If you look at all of the big companies out there, you’ll see that a lot of them did this: they either took something that already existed and made it better, or they started work on a much smaller idea and then grew that idea into something bigger.
Most startups aren’t really doing something groundbreaking. They didn’t really have a “killer idea.” They just had something they wanted to try, so they started it, and then iterated on it.
Startups are more about the daily grind than they are about creating something totally new. Ideas, as they say, are a dime a dozen. They don’t mean much.
I have a Google Doc right now that has more than 30 different ideas that I’d love to try out. I guarantee that each one of them has been thought up before.
Startups are about execution, they’re about doing, they’re rarely about coming up with new ideas.
At TapCommerce, we tried at least 10 different ideas before we eventually settled on mobile retargeting. Each idea we tried taught us something new, and we were able to use our experience in prior ideas to launch our projects in newer ideas.
For a long time, our “killer idea” was a coupons app. That turned into an e-commerce app for discount shoppers, which then spawned an idea for being an e-commerce platform, that turned into an idea for generating new users for existing apps, and finally, we had the idea to create a retargeting platform for mobile apps.
Retargeting has been around forever. So has advertising, and e-commerce. But what mattered was that we were able to do what we did more effectively than what was already out there. What mattered was that we were able to get customers. Ultimately, that’s what building a business is about – sales, revenue, and customers. This is true for all industries. If an idea is worth doing, someone is probably trying to do it.
My suggestion to anyone out there that’s really interested in starting a business is to just go out there and build something. It doesn’t have to be something super useful or novel, it can be a slight improvement over something that already exists, but just build something. In doing so, you’ll see what works and what doesn’t, and from there, you can build off the features that work, creating a new business and letting “the idea” come to you.
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Startup Learnings – Done Is Better Than Perfect
In your first year at a startup, you need to be pushing product as often as possible. Working on an iterative schedule allows you to gather invaluable feedback from your customers, it keeps your momentum going, and it lets you figure out how to course-correct when you need to. Because of the importance of releasing your product as quickly as you can, you’re going to need to constantly prioritize what to work on and release. Not only does that mean that you’ll need to limit what you work on, but it also means you’ll have to balance bug fixes, general engineering needs, and new product updates, all using limited resources.
Having someone experienced take charge of those decisions can be really helpful here. A great product manager, CEO, or even an experienced senior developer can help lay out the roadmap for what needs to be done now vs. what can be done later. Having the final call lie with someone who has a bigger vision of the product and the company can help everyone focus on getting the right things out the door, without worrying about the fluff. At TapCommerce, our VP of Product frequently made these kinds of decisions, and we were much better for it.
It’s not always easy to know what to prioritize, and sometimes you need to deprioritize things that other people in the company consider important, so whoever has this role needs to also have great people skills. But making sure one person has the final say can truly help you iterate faster than you would have if you didn’t have a formal process for releasing, or an opinion on how to release/push product.
In startup land, it’s almost always better to learn something new about your product than to develop that “perfect feature” without getting any user feedback at all. Said differently, “done is better than perfect.”
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Startup Learnings – Cultivate Your Culture
When you build a startup, your day to day work rarely includes anything beyond the most pressing short-term deadlines. That’s to be expected, you’re fighting for survival and struggling to achieve growth. You’re need to keep everything running. Things like “core values” and “culture” aren’t really even in your vocabulary.
But as you start to grow, and as you bring on your first few employees, you should start to pay attention to the type of company and culture that you want to build. A company’s culture is defined by a lot of things – the personalities of the people that make up its workforce, whether or not you hang out with everyone after work, if you promote happy hours over hikes, how transparent you are, how much time you encourage people to take off, whether there’s a ping pong table or a Nintendo Wii, etc.
As a founder, you should actively think about what you want to do to build your team and encourage camaraderie. It’s not enough for you to focus only on the work that needs to get done. You’re building a team of people that will be seeing each other more than anyone else in their lives for the foreseeable future. It’s on you to build a work environment that everyone loves and that you can be proud of.
It’s not uncommon for your company’s culture to take on the same values and the same feel as your own personality. If you like happy hours, you should make it a point to go out with your team once or twice a month for some drinks. If you’re into adrenaline rushes, organize a skydiving outing, a team paintball event, or a white water rafting trip. You can also focus on the little things, like making sure your office is always clean and your pantry always has snacks.
Your company’s culture will grow along with your revenues and your product. As the founder, you need to be aware of this, and more importantly, guide it in a direction that will make everyone on your team love where they work. Building a startup can be a lot like building a community, and one of the hats you should be wearing is community manager.
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