Startup School Recap Part 2: Joel Spolsky, StackExchange

Joel Spolsky reassured me.

As a student very interested in technical entrepreneurship, most of what I read about are the companies getting tons of press. These “hot” companies are the ones most people know. This isn’t unreasonable, as it makes sense that Facebook appears on TechCrunch more often than KissMetrics. However, as I want to work for a startup (and perhaps one day found my own) this is very intimidating. There can only be so many billion dollar ideas, and the smaller successes tend to get lost in the clutter of Silicon Valley reporting/analysis.

There is a sense that the only successes an entrepreneur can have is to build an enormous company (billions of dollars of value), or sell your smaller company to one of those larger firms. Joel Spolsky directly addressed this apprehension of mine.

In relating the details of his two major entrepreneurial endeavors (Fog Creek and Stack Exchange), Joel spoke about how there IS still opportunity for small bootstrapped businesses to find success. Specifically, he encourages entrepreneurs to figure out the market for your company EARLY.

1) The “Land Grab” Scenario: Get Big Fast

  • Network Effects- The more users you have, the more valuable the network is. Think Facebook, its value lies in the # of users. I want to be on Facebook because everyone I know is on Facebook.
  • Scale Quickly- Network Effects create Lock In. No one is going to leave Facebook for a social network that is 50% or even 100% better, as all of their friends are already on Facebook. That value cannot be as easily replicated as product features.
  • Make lots of Mistakes- Iterate quickly. Move fast and learn as you go. Mistakes can be covered up through VC money that you raise externally. Mistakes won’t cost customers like in bootstrapped business.
  • Take VC Money- Don’t fret about profitability from the start. Instead, focus on growth.
  • For Joel, Stack Exchange is an example of this type of scenario (well built question and answer sites). Network Effects are HUGE in this space.

2) The “Organic Growth” Model: Grow Slowly With Paying Customers

  • Bootstrap- Live very cheaply. Build a product that you can begin to sell immediately. Reinvest everything in company.
  • Market Fit- Unlike “Land Grab,” where there is probably an open market, the marketplace is going to be crowded with competitors in an Org Growth model.
  • Don’t Make Mistakes- You need to retain paying customers to survive! Mistakes can KILL your business.
  • Growth- Slow and steady. You are trying to steal customers, one by one, from your competitors. You must be in it for the long hall.
  • End Goal- It isn’t to sell the company or be acquired. It is to build a long term, sustainable business.
  • For Joel, Fog Creek Software took an Organic Growth model.

This was my take on his speech, and it really put me at ease. There is still hope for entrepreneurs who just want to build a viable business; companies don’t need 25 Million users to be successful.

You can watch Joel’s speech here.

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Interesting?