Monday, April 4, 2011

How Saying “No” Can Be Good for an Early Startup

By: The Grasshopper Group

In the grand scheme of the business world, a new startup is pretty insignificant. Without track records, profitability or guaranteed success, it’s easy for founders to adopt a submissive “who are we to know” approach. Yet in more situations than you may realize, saying “no” can be a profoundly good thing for early startups to do. Here are several ways for young companies to take a more assertive posture in day-to-day operations:

Rejecting Investors

If your startup is going to say “no” to anyone, it should probably be to an investor. While not all venture capitalists are automatically bad, investment capital has been the downfall of more than a few startups. Peter Ireland, author of The Smart Startup Guide, writes about how accepting investment erodes control – basically turning founders into slave-wage employees of the company they started. (This isn’t an exaggeration; one of the first things big-time venture capitalists do after investing is replace the CEO with someone they trust.)
The problem is that your objectives are not necessarily the same as the VC’s. Their goal, from the moment their money hits your bank account, is liquidation. Whether it’s a buyout or an IPO it makes little difference to them, so long as a sufficient ROI is achieved. Your goals of changing the world or building something incredible immediately take a backseat to the financial interests of most investors.

Changing Your Original Plan

What can be immensely harder than saying no to an investor is saying no to yourself. Entrepreneurs tend to be passionate, principled people with strong visions for what they’re trying to create. These are admirable traits, but taken too far, they are the enemy of startup success. Sticking to a plan at all costs is great for losing weight or getting into a top grad school, but deadly in the business world.
As venture capitalist Paul Graham explains, launching a successful startup is a lot like science, where you have to follow the path wherever it leads. The Googles and Facebooks of the world didn’t become world-changing businesses by religiously adhering to the first plan they came up with. Instead, they listened to what their users wanted and adjusted course when appropriate.

Ignoring Feedback from Non-Ideal Customers

In the early days of a startup, it’s tempting to take customer feedback (however inane or contradictory) as gospel. If a user wants it, surely you should comply and give it to them, right? Actually, that’s not always true. Before automatically granting the wishes of your users, it helps to consider the source.
Is the change in question something that many users are asking for? Something that intuitively makes sense and sparks an “ah-hah” moment as soon as you hear it? Or is it instead the half-baked theory of one or two users who don’t fit your ideal customer profile? Maybe the request is coming from someone who has soaked up all your free content for the last year and wasted your time on back-and-forth emails without ever buying. This probably isn’t the user segment that should be guiding your decisions.

Turning Down a Buyout

One of the toughest challenges any startup can face is rejecting a lucrative (but ultimately unsatisfactory) buyout offer. “It’s not about the money”, you might say – and you might even mean it. But saying that during the inspired, high-energy first few months is easier than keeping that stance when hundreds of thousands of dollars are offered later on.
Of course, there’s no one “right” answer here. Plenty of founders have accepted buyout offers and lived to tell about it (or even start new businesses with their loot.) But if the ultimate goal is taking your startup to the top, you’ll need an iron will to say no to an early-stage buyout.

Firing Lazy or Negligent Partners

Remember all those one-man startups that made it big in the last ten years? Neither do we. Successful startups don’t just happen to be run by teams – it’s actually an occupational requirement! The challenges, emotional ups and downs and the sheer volume of work to be done all necessitate more than one person running the show.
But a chain is only as strong as its weakest link. If one of your team members is lazy, negative or unproductive, trying to heroically overcome their damage is not the best policy. More likely, this person’s toxicity is dragging down the morale and performance of your entire team. A stern warning – or even an outright dismissal – could be the best decision going forward.

Saying “No” To Endless Contract Work

It’s common knowledge that startups can generate working capital by taking on contract work in the early months. A startup of programmers, for example, can take on programming jobs in addition to whatever they’re building as a company. It’s a great way to keep the bills paid and reduce dependence on outside investment.
Yet in business as in life, too much of a good thing is dangerous. Overindulged, the steady cash from freelance jobs can distract your team from the bigger objective. When this happens, conscious changes must be made to keep everyone focused – even if that means cutting the cord of contract work.