Ask HN: How would you start a Fortune 5Mil company with friends? | Hacker News Reader

Ask HN: How would you start a Fortune 5Mil company with friends?

5 pointsrschmitty8 comments

Fortune 5 Million, from 37signals @ Startup School, meaning not trying to be the next Silicon Valley company with a big exit goal, just something big enough to maybe someday quit the day jobs or "worst case" just have some extra income.

Over the past year, I've had some weekend projects that are coming to a boil. I've reached out to a couple friends to see if they wanted to help push these along and get them finalized.

Here are my concerns:

1) All 3 of us are slightly older than (at least what seems to be) the younger HN crowd. We have families and kids. Quitting our jobs, living off our girlfriend's couch and ramen noodles isn't an option. So we are limited to time when we get home from work/travels and weekends.

2) Additionally these projects aren't at the point of generating money. However I believe, and so do they, that they have the potential to make money.

3) I've done these projects in Rails, they are respectively very experienced in .net and the other in php, neither with any rails experience. I guess this isn't a real concern because I enjoy teaching Rails to others and they are the kinda coders who like to learn. They know they wouldnt be entering at the level of pushing code live and would have me review it.

I've got a pretty good start, but need their help to increase my code bandwidth and finish up (or its going to take me many more weekends than I'd like). So I was thinking of just doing % based profit sharing. I want this to grow from: "cool it is paying for servers" to, "hey an extra $500 a month!", to "this has enough traction to quit and focus 100% on this project"

Are there pitfalls with this way? How do you decide what % everyone gets?

If everyone is doing equal work, go 50/50. If you are spending 30hr/week while others are only putting in 10, you may want to take more for yourself. The best solution is to talk to everyone about what they feel is fair. If you're already friends, this can be an easy or an awkward conversation. It's best to get it out of the way immediately.

As far as pitfalls go, you will endure most of the same stresses that startup founders go through. This is a difficult but rewarding process, so best of luck to you and your team!

However I believe, and so do they, that they have the potential to make money.

Every entrepreneur "believes" that his/her project has the potential to make money. They're probably even right that it has "potential". But you can't pay the bills with "potential".

My question(s) would be: Have you done any market research? Have you talked to the prospective customers for this thing? Do you have any low-cost way of validating your gut-feeling about the demand for what you're building?

I don't want to sound like Debbie Downer, but it would be tragic to burn a pile of time and energy building something and then find out that there's actually no market for it. Or, that there is a market, but that it's not large enough to sustain a business in the long-term. Or that there is a market, but that you can't serve it profitably.

I'd try to make sure I had this stuff nailed before even getting into the equity splits and profit sharing discussions with your friends.

> Have you done any market research? Have you talked to the prospective customers for this thing? Do you have any low-cost way of validating your gut-feeling about the demand for what you're building?

I've done all 3, part of the reason I started to build them in the first place. Reading HN has enlightened me in many ways since I joined. (tho I'm sure there is something I missed about don't work with friends)

I understand your concerns on my behalf and thank you, but let's assume I did it all correctly, my question remains on how to decide equity with this friends with benefits scenario :)

I've done all 3, part of the reason I started to build them in the first place. Reading HN has enlightened me in many ways since I joined

Excellent, glad to hear that!

I understand your concerns on my behalf and thank you, but let's assume I did it all correctly, my question remains on how to decide equity with this friends with benefits scenario :)

There is a thread of thought among some people, who argue that all the co-founders of a venture should have equal equity (with maybe one person with a tiny smidgeon more to break ties if there are even numbers). I think that's reasonable in a lot of cases, but maybe not all. Part of the thinking is, if one co-founder has significantly less equity, they might not be as motivated to work hard. I tend to think that if everybody is starting at the same time, that's probably fairly reasonable.

OTOH, if one person (say, you) has been working on the project, creating value for a long period of time, and then the others come in later, I don't see a problem with you getting a larger share. But determining exactly how to value your existing "sweat equity" is kinda subjective.

You want to strike a balance between everyone's interests, and keep in mind that "a small part of a large pie is better than a large part of no pie". If the venture is never going to fly at all without the help of your friends, go ahead and be generous in terms of their equity stake. Maybe work backwards from dividing evenly by the number of people involved, then skew it your way a bit to reflect the work you've already done?

Anyway, best of luck to you!

Thanks for sharing your thoughts, appreciate it

Or alternatively instead of testing the market with the mindset of absolute consumer naivety.... and the fact that in this industry it's much easier to make a bet that your comfortable with and then just putting it out there and see. No amount of market research will tell you that an iPad was a good idea for a product. Likewise I don't need any market research to know that a teleporting machine would be a good idea.

Learn how to understand what has value. Build things for yourself that you find valuable and sell those things.

I've never done market research and I sure as hell don't ask my customers for feedback. I just build things I want and it turns out I'm almost never alone, the question then becomes a matter of just how much other people want it. But again this is all predicated on the idea that you actually know what is a good idea for a product (which I believe many people do know).

Thanks, but ya I've already spoken with people and they are asking to start paying for this.

I was more focused on how you might go about equity splits

Sure, there are some things that obviously have value... the oft-cited example being "a cure for cancer". And maybe some people just have a well developed intuition for what will or won't be in demand.

And, of course, the old saw about "If Henry Ford had asked his customers what they want, they'd have said 'a faster horse'" has some merit to it. There's a place for being a visionary, and if you're really building something visionary, sometimes you have to build it first and then show it to people for them to "get" it.

That said, I argue that for most entrepreneurs, you're not Steve Jobs or Henry Ford (or whoever), you don't have any special intuition about what will or won't be in demand, and market validation is a useful tool in the incipient stages of your project.

Also, the point of making attempts to validate a market isn't just about determining "does anybody want this"? It's about determining if enough people want it, if they will pay enough to make it profitable, factoring in the overhead of selling to them, and ascertaining how to best market and sell to that market.

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