Why read this

Because this is a down-to-earth guide on the first steps on how to create a startup.

Why listen to the author

He was Apple’s chief technology evangelist for 4 years;
He gives over 50 speeches per year to companies such as Apple, Nike, Audi, Google and Microsoft;
His the author of 13 books, many of which are textbooks in great academic institutions and have been bestsellers.

The Art of the Start – Book Notes

Reading time: ~17 min.

Chapter 1: The Art of Starting

The top 5 things an entrepreneur should do:

Make meaning

Have a purpose besides making money, fame or power. We ought to create something that makes the world a better place to live, be it by preventing good things to end, by righting a wrong or by improving quality of life. Instead of market research, build a prototype and poll customers’ reactions. If your organization never existed, the world would be worse off because [your answer here].

Have a mantra

People don’t really remember a long statement. For example coca-Cola’s mission statement is “The Coca-Cola Company exists to benefit and refresh everyone it touches.” But if we formulate a hypothetical mantra for the same company, we could come up with something like “Refresh the world,” which is much catchier and easier to keep in mind. Red Cross “Stop suffering” Southwest Airlines “better than driving”

Get Going

Start creating your product or service and commence delivering to your customers. Forget about writing long business plans, creating complicated financial projections and endlessly strategizing about what you’ll do in the future. Instead build your prototype and launch your website, and do your market research with them, iterating quickly. Do things that will polarize people (love or hate). Get together with at least one other great passionate person like you. Good enough is good enough. Design something that you use, that you would like to have. Share and discuss your ideas with other people and do it early.

Concerning using prototypes as market research. In the early days of an organization, there is high uncertainty about exactly what you should create and exactly what customers want. In these times, traditional market research is useless—there is no survey or focus group that can predict customer acceptance for a product or service that you may barely be able to describe. Would you buy a new computer with no software, no hard disk, and no color that simulates the real world— including a trash can? 10 The wisest course of action is to take your best shot with a prototype, immediately get it to market, and iterate quickly. If you wait for ideal circumstances in which you have all the information you need (which is impossible), the market will pass you by. But donʼt revise your product to get prospective customers to love it. Instead, revise it because customers already love it.

Define the business model

(how you’ll make money) define who are your customers and their needs. You can’t change the world if you’re broke. You can e.g. initially focus on a niche, keeping it simple and copying what others are already doing to make money.

Who has your money in their pockets? How are you going to get it into your pocket?

Be specific. The more precisely you can describe your customer, the better. Many entrepreneurs are afraid of being “niched” to death and then not achieving ubiquity. However, most successful companies started off targeting specific markets and grew (often unexpectedly) to great size by addressing other segments. Few started off with grandiose goals and achieved them.COPY SOMEBODY. Commerce has been around a long time, and by now clever people have pretty much invented every business model thatʼs possible. You can innovate in technology, markets, and customers, but inventing a new business model is a bad bet. Try to relate your business model to one thatʼs already successful and understood. You have plenty of other battles to fight.

Milestones, Assumptions and Tasks

Write a list of milestones for you to meet, so that you have a clear path and so that you can see how you’re progressing. Jot down the assumptions that are built into your business, and the tasks to accomplish in order to create your business. Constantly evaluating your assumptions is a good way to self-evaluate the position of your business.

Milestones

There are seven milestones that every startup must focus on. If you miss any of them, your organization might die.

Prove your concept;
Complete design specifications;
Finish a prototype;
Raise capital;
Ship a testable version to customers;
Ship the final version to customers;
Achieve break-even.

Assumptions

Like in the Lean Startup, when we create a business we need to test the assumptions we are making. Continuously track these assumptions, and when they prove false, react to them quickly. Ideally, you can link these assumptions to one of the seven milestones discussed previously. Thus, as you reach a milestone, you can test an assumption.

Tasks

List the tasks you have to accomplish help to see the enormity of whats to come, and to ensure nothing important is ignored. For example:

Renting office space;
Finding key vendors;
Setting up accounting and payroll systems;
Filing legal documents;
Purchasing insurance policies.

A bit of advice for startups inside of companies follows.

Chapter 2: The Art of Positioning

Didn’t quite understand this topic. The topics in there seem general advice and disconnected. At the end there’s a bit of “meh” advice in choosing a brand name.

A good positioning entails:

Being customer-centric;
Empowering to employees;
Different from competitors;
Made to last;
Being able to explain in simple terms what your business do;
Having a good brand name;
Making things personal (it’s not only about saving 9 million pets, it’s about your Rocky (investor’s pet’s name);
Starting as a niche.

There’s an exercise that i found interesting which is to write a one-paragraph description of customer’s experience (as you imagine it is) when using your product/service, having customers do the same, then compare both (this is a way of testing your assumptions)

Chapter 3: The Art of Pitching

When pitching…

… explain yourself in the first minute — the first thing your audience wants to know is “what does your organization do?” Do it in simple language. “We sell hardware”;
… answer the little man — imagine there’s a little man in your shoulder when you pitch, that each time you make a statement he asks you “So what?”;
… know your audience — learn what’s the background of your audience so you can make the pitch more understandable to them;
… 10/20/30 rule — 10 slides, 20 minutes (or 20% of time of the meeting), 30-point font text (this is a rule of thumb). The ~10 slides are a very low number so that we concentrade on the absolute essentials. In a 1h meeting, 20 minutes to present, 40mins to answer questions. He suggests some options for the slides, depending who the presentation is directed at (prospective investors/sales/partner)

1 Title:
- 1.1 Company name;
- 1.2 Your name and title;
- 1.3 Address;
- 1.4 Email;
- 1.5 Cell phone;
2 Problem;
3 Solution — (not the technical part) just an overview in simple jargon;
4 Business Model — how you make money and channels of distribution;
5 Underlying magic — technology that powers the solution;
6 Marketing and sales — how you’re reaching customers;
7 Competition;
8 Management team — your team;
9 Financial projections and key metrics;
10 Currents status, accomplishments, timeline and use of funds.

For sales or partnership it could include a demo instead of e.g. financial projections

… set the stage, that is, don’t leave things in the hands of others, make sure you have a backup;
… catalyzing fantasy — when estimating your potential business size you can either come up with projections based on your location or you can use a kind of logic that let other people do the “math” in their heads, e.g. “everyone eats, people care more and more about being healthy, therefore lots of companies will want to buy this”;
… let the CEO do 80% of the talking;
… achieve familiarity by doing your pitch repeatedly — practice makes perfect;
… take notes to the questions people raise in your pitch that you hadn’t thought about, or other stuff you need not to forget. Also the author mentions that it could impress investors because they see you’re serious about improving and that you’re seriously interested and analyzing what they’re saying.

He also gives a few tips on what he thinks are good designs for powerpoint presentations, but it seems they’re mostly subjective.

Chapter 4: The Art of Writing a Business Plan

“If you don’t plan to succeed, you plan to fail”.

Startups have a lot of unknowns so the use of a business plan is questionable, and yet, it’s something that investors always ask for.

The author recommends pitching first then writing the business plan because it’s more likely to get feedback (people will only read your business plan if they even find the pitch interesting, whereas you get feedback about the pitch as soon as you stop talking). So by pitching you get a certain, immediate feedback, whereas neither from a business plan. Use the previous 10 slides used for the pitch as the framework for your business plan. Also:

Focus on the executive summary (~similar to an abstract in a scientific article);
Keep it less than 20 pages;
Only one person should write it (so that it sounds consistent);
Speak in simple terms;
Financial projects just 2 pages, and of this focus on cash flow (focus on first 2 years, though some investors like to see up to 5 years to see what assumptions the founders are making to get there). Include a list of key metrics such as (no. customers, location, re-sellers);
Include the assumptions.

An executive summary differs from an abstract in that an abstract will usually be shorter and is intended to provide a neutral overview or orientation rather than being a condensed version of the full document. Abstracts are extensively used in academic research where the concept of the executive summary would be meaningless. “An abstract is a brief summarizing statement… read by parties who are trying to decide whether or not to read the main document”, while “an executive summary, unlike an abstract, is a document in miniature that may be read in place of the longer document”.

Chapter 5: The Art of Bootstrapping

A bootstrappable business model has many of the following characteristics:

Low up-front capital requirements (a high up-front cost is for example if you had to buy a building for your business to operate);
Short (under a month) sales cycles (a sale cycle is the amount of time since the customer acknowledges the product and buys it/get is. For example real estate and cars have higher sales cycles (months/weeks) compared to retail stores (where people go in and buy));
Short (under a month) payment terms;
Recurring revenue (for example subscriptions);
Word-of-mouth advertising.

To succeed at bootstrapping, you need to focus primarily on generating cashflow, or getting money into your bank account. After all, you need it to pay your bills, rent, salaries, and so forth. This means, e.g., that you may need to pass profitable sales that take too long to cash in.

Don’t think, “Fix it, fix it, fix it, ship it,” but instead, “ship it, fix it, ship it, fix it, ship it. ”You’ll get immediate cash flow from sales and receive feedback on your product from real customers. The downside is that the quality of your product will inevitably be sub-optimal, and this could damage your company’s image in the market. To negate this effect, try to first sell your product in a small, isolated geographical area or market but that it still largely satisfies customer requirements (but never sacrifice safety). This way at least the damage to your reputation will be contained.

Service-based business can ship and cash in earlier than product-based;
Give more importance to functionality, than looks;
Sell directly to customer (higher profit margins and you can get better feedback from clients);
Position against the market leader (“like BMW but cheaper”) — though the author says this can back-fire if the leader responds with an equal or better thing that you offer — or go against conventional ways of doing things;
Under-staff and outsource (this is because if you over-staff several bigger problems arise, namely concerned with the need to laying off people);
Invest time in important things like improving and selling your provice, don’t waste much time on unimportant stuff like furniture and office supplies;

Execute — this is the last bullet point, that i found to be one of the most important, so i decided to separate it from the others. It means actually doing stuff, for which it’s necessary to:

Set and communicate goals (provides a guide, a day-to-day accomplishment to get to);
Measure progress (“what gets measured gets done”);
Establish accountability (“A person who knows he is being measured and held ac-
countable is highly motivated to succeed”);
Reward the achievers, the ones that deliver results, e.g., with options, raise, praise, days off, free lunches, … .

Chapter 6: The Art of Recruiting

Basically a quick 101 on recruiting. This chapter includes tips such as reference checking, having a review period for new recruits, the importance of listening to your intuition and interpreting common lies told in interviews. Other tips are:

Do recruit people better than you (A players hire A players, B players hire C players and C players hire D players, in no time at all you’ll find your company filled with Z players.);
Obviously don’t disqualify anyone based on prejudice;
Hire people who believe in what you’re doing — one way is to see how much they question about salary, and working benefits;
Identify people in your team who aren’t performing and get rid of them;
Hire candidates who have major strengths even if they also have major weaknesses.

Chapter 7: The Art of Raising Capital

The best way to get investors is to build a business immediately, and for start by bootstrapping. Then if you can do that, investors will jump if you even show traction, that is, that people are willing to open their wallets for your company.

When talking to investors, other entrepreneurs and professors, ask them to recommend people of the same kind (other investors, entrepreneurs and professors).

Investors don’t want to hear that your company has no adversaries because it either means there is no market (if there was someone else would be trying to get into it) or that the founders didn’t research properly.

The author also distinguishes investors from business angels. The latter, he says, are more concerned about paying back to society, reliving their youth and watching someone doing a startup that they enjoy, or even because they liked the startup founder in a fatherly way, rather than, like investors, being only interested in making money even if that means investing in a jerk because money is money.

Finally there’s a mini-chapter about how to manage a board and a very interesting FAQ about the mindset of investors (as one himself, this FAQ is one of the most comprehensive in the book).

Don’t disqualify investors because they’re 2nd class. After trying to raise money for 9 months you’ll value every penny invested in your business.

NDA (Non Disclosure Agreement) — it’s a legal contract signed between to people where one shares info with the other by knowing that they will not share it with anyone else.

Chapter 8: The Art of Partnering

Do it, if nothing else, to accelerate things: to entry in a new area, to development the provice faster/better, to reduce costs or to open up new distribution channels.

Define objectives (what will each organization deliver and when?) and put a clause in the deal that assures that both parties can get out of the partnership and are not trapped in it, this actually promotes the longevity of the partnership. Accentuate strengths instead of weaknesses.

Start-ups can’t remain start-ups forever – they either grow or fail. And one of the tactics that can help your start-up grow is making partnerships with other businesses. First, be selective. Only accept partnerships that will positively affect your financial forecast. This means your partner has to enable you to, for example, reduce costs, accelerate product development or enter a new market. In other words, the benefit has to be tangible. If the partnership is symbiotic, perfect. Each should have a leader of the partnership and that together are responsible for making the partnership work.

The chapter ends with an interesting mini-chapter on networking. An interesting definition given was that networking is discovering what you can do for someone else. To network:

Get out by going to trade shows, seminars, conferences, etc.;
Ask good questions to people in those places, e.g., “What do you do?”;
Exchange contacts (namely email);
After meeting someone follow up in no more than 24h;
Be an interesting person (get hobbies, read books, do activities that result in interesting stories — learn storytelling skills too);
Do, return and ask for favors.

Chapter 9: The Art of Branding

Produce contagious things (those that spread viraly). Contagious things are

Cool (compare Apple iPod with MP3 player);
Effective (it works);
Distinctive (different from the rest);
Disruptive (upset the status-quo);
Deep (e.g. lots of options for power-users);
Supported (they have good customer support);
Emotional/indulgent (evokes emotions, makes the purchaser feel like it’s better than necessary)

Lower the barriers to adoption (simple to use); recruit evangelists (people that believe in the company’s mission). Many don’t want to be payed because they do it for the purpose of improving the world; Create and foster a community; Be humane and don’t be afraid of making a fool of yourself, feature your customers and help the underprivileged; Finally the author gives out a mini-chapter on out to speak at presentations and another on how to design a t-shirt to promote your company.

Chapter 10: The Art of Rainmaking

A rainmaker is a native-american person that dances to make it rain. It’s an analogy the author uses for someone who generates lots of business.

“Sow many seeds. See what takes root and then blossoms. Nurture those markets.” For example, when your product is used by customers you didn’t expect or in a way you didn’t think of, don’t panic, but instead take advantage of this new chance to grow. Another key asset is a willingness to shift focus if your “obvious” target customers are hard to reach (pivoting in Lean Startup).

	Intended Customer	Unintended Customer
Intended Use
Unintended Use

Remember that provices (products/services) of startups are rarely bought, they are sold, hence lead generation methods.

Lead generation — [It seems most people can’t define clearly what a lead (in marketing means). From what i gathered a lead is basically a possible customer, someone who has shown a minimum level of interest on the provice. So lead generation is basically a fancy expression that means to make people interested in the provice -.-]. According to a study the most effective lead generation methods are:

Small-scale seminars;
Speeches;
Getting published;
Networking;
Participating in industry organizations;
Getting references from media other important companies.

When talking to potential customers, some of which might be companies, lower the introduction barriers, for example by trying your provice:

In only one location, e.g. a regional office or even just a department
For a brief trial period;
As a simple act of support.

But also make it easy for them to leave it (which in a way affects them wanting not to try it), e.g. if it’s a subscription, making it easy to end it. The author also provides typical denial answers to attempts to sell a provice and what they mean.

Chapter 11: The Art of Being a Mensch

A Mensch is an ethical and admirable person. In some cultures it is the highest for of praise. To be one you must help people — even without any hope of retribution — do what’s right and contribute to the world. What are 3 things you want people to remember you for when you die?

Are you an entrepreneur or an investor? Do your experiences match the ones of Kawasaki?

Doing, Entrepreneurship

The Art of the Start