startup thoughts

Founders,

Let me start by saying, with local elections, a tiny number of votes can swing an election. So, your vote truly matters. A few companies just showing up can swing an election and dramatically impact policy for years to come.

We’re in the middle of a housing crisis. People are paying an exorbitant amount for rent. Teachers and other workers can’t afford to live here. Homelessness is increasing. A lot of people are leaving.

I went to an event this week with other CEOs and a few elected officials. The CEOs represented thousands of employees. We were all at this event to talk about how we could solve this problem - ultimately by increasing housing supply. When I talked to a local official about what’s going on, the person replied, “tech people don’t vote”. It just hit me. That’s why our issues, like solving the housing supply, don’t get as much attention as we’d like. Our officials pay attention to people who vote. We don’t vote, we don’t matter. We vote, we matter. It’s that simple.

There are a lot of reasons we may not vote. As the organizer said, as founders, we have blinders on. We have to do some version of, grow, raise capital to hit the next stage, grow, raise capital and grow more. It’s all consuming. Maybe you also just moved to the city and haven’t figured out how to register.

This election is incredibly important, if you want San Francisco to be an affordable city. You can probably tell that the topic I'm most passionate about is solving the housing crisis, but that may be different for you or your team.  No matter what issue is most important to you all, the common theme is figuring out how to mobilize our teams to go out to vote.

Here’s a quick list that you can go through with your company, while staying apolitical.

2. Invite your local elected official to come speak. Ask questions like, why is rent so high? What are they doing to alleviate the housing crisis? If you’re too small for them to speak, combine with other offices. Here are a few you could invite:

• CA State Assembly member David Chiu
  
• CA State Senator Nancy Skinner
  
• CA State Senator Scott Wiener
  

3. Invite a housing expert to speak. Here are a few people that were recommended to me:

• Kim-Mai Cutler. She’s now at Initialized, used to be at TechCrunch and wrote an incredible piece on the housing crisis. If you’re too small for her to speak, combine with other offices. Kim also recommended a few other people to invite - added them in the notes.
  

4. Email your company the day before the election.

• Let your team know they can take time off on election day to go vote.
  
• Send a batch of voting guides to help, whether from the SF Chronicle, Democratic party, Republican party, Libertarian party, or more.
  
• Let them know Uber / Lyft have free rides to polling stations that day.
  

6. Join the YIMBY movement! The YIMBY (Yes in My Backyard) movement is the opposite of NIMBYs (Not in My Back Yard). The YIMBYs believe that dramatically increasing all types of housing supply is key to solving the housing crisis. As Kim explains, for 40 years, California has downzoned neighborhoods and restricted housing supply, in addition to tilting the property tax system in favor of property owners. The YIMBY movement is pushing to tilt that system back; it recognizes that increasing housing supply at multiple income levels is critical toward managing affordability. Here are some groups you should join:

• SF YIMBY 
  
• CA YIMBY for state issues
  
• South Bay YIMBY   
  
• Marin YIMBY
  

8. Any other suggestions? Please add them to the comments.

This has gotten insane. It’s time to do sometime. It’s time we all mobilize and make a difference. Would love to hear ideas. 

-Joseph

• Corey Smith from SF Housing Action Coalition
• Jeff Kositsky, who runs SF's Homelessness and Supportive Housing Department
• Richard Rothstein, who wrote "The Color of Law."

Ten person startups (or smaller) often have a lot of generalists. Everyone does a little of everything, which is what can make startups exciting. We had “support / office admin,” “product / support” positions and other combinations. The reason startups do that is because they don’t have enough admin or product work to warrant a full-time role.

When you grow past 10 people to 15 or 20, that structure starts to break down. All of a sudden the generalists in slash positions will move from two part-time jobs to two full-time jobs and will stop being effective. The people who depend on generalists will stop being effective too.

A few years ago, we scaled from 10 to 20 people. In hindsight, there are some things we did well and other things I would have done differently. 

Here are my lessons:

1. Create an organization chart for the next year

Although this may feel corporate, put together an organizational chart that maps out your current team and your planned hiring over the next year. Every job description and every new hire needs to be made in the context of how your organization will grow and how the individuals will come together.

If you don’t do this, every hiring discussion will be a micro-optimization — you’ll end up making decisions that optimize for the short term, at the expense of the long term. For example, it makes no sense to hire a person without an understanding of how that team will evolve over the next year. If you do, you could end up with someone who wants to be a team lead but isn’t ready for the role, since you were only optimizing for the short term and not taking into account where the dp is headed. Then, that hire will likely be dissatisfied as the team grows. One step forward, one step back.

2. Turn generalists into specialists

Although being a generalist is exciting to many, having a lot of generalists on your team makes it very difficult to scale. If you’re serious about growing your business, generalists need to transition into more more specialized roles whether it’s Product, Support, HR, BD, Marketing or something else.

The consequences of having generalists running key functions are significant. To use myself as an example, I was the CEO / PM and at a certain point, I was context switching so often, I didn’t feel I could be effective at both jobs. I had so much on my plate, I was concerned I’d send mockups to the designers and engineers that haven’t been fully vetted and thought through, which would make them less effective too. So, I replaced myself as a PM. I’ve also found that as a company grows, generalists start to context switch so often between their different roles, they feel like they’re not able to do as good of a job - and appreciate being able to focus.

3. If you’re going to make the generalist to specialist transition, do it quickly and be clear about new roles

I thought we did this transition quickly, but in hindsight it didn't happen fast enough. The problem is that if you change a role and there is even a little uncertainty about their responsibilities or who they report to, it’ll slow down the entire company. As one example, someone on the team thought she reported to two people. That’s a major failure in communication that resulted in a less-than-ideal transition.

Before making a new position available to people internally, put together a job description for that role. Then, if someone internally applies to the role, you have an objective way to evaluate whether that internal candidate is qualified. If you don’t put together the job description first, the decision will be too ad hoc and you may end up with people that aren’t qualified holding key positions. Conversely, you may overlook someone on the team who would be great for a new role.   

5. Hire or promote team leads; then have them build out their own teams

Instead of adding the members of each department in an ad hoc way, we focused on bringing in team leads, then letting them fill out their team. Those people know way more than us about their function than we do.

6. Create a transition checklist

As mentioned above, we went through a transition and realized that some people were still confused about their role. Maybe we covered most of our bases, but not all of our bases. Missing even one important item can lead to confusion. Our head of HR put together the checklist below. I found it to be hugely helpful in clearing up any potential confusion.

• Discuss reason behind the change
• Review new job description
• Discuss current responsibilities that will continue
• Discuss new/additional responsibilities
• Discuss responsibilities that will no longer be part of the new role
• Discuss changes to decision making and ownership
• Strategize handoff of responsibilities with incumbent
• Discuss new manager (if applicable)
• Discuss other changes to new reporting structure
• Confirm when this new role will be announced to direct team
• Confirm when to announce to company
• Confirm official start-date of role
• Schedule kick-off meeting to review goals, expectations, priorities for new role

7. Go through the transition checklist with every transitioning role

No exceptions. It’s the only way to make sure there is no confusion.

8. Minimize your direct reports

Startup founders often find themselves with a lot of direct reports in the early stages and are reluctant to hire management. I think this is a common mistake that can be hugely detrimental to the company.

Let’s say you have 8 direct reports — that’s 8 hours each week (an entire day of work) just for one-on-ones. And that time commitment doesn’t even include preparation for those meetings and anything you need to do to help them out during the week. If there’s an annual review or an issue that comes up, that can take even more time.

Having a lot of direct reports is a problem because it eats into the time you need to focus on the future of your company and critical big picture goals like scaling the business, managing finances, setting up culture, interviewing candidates and other important issues. Instead of focusing on those things, you’ll get tied up with the day-to-day. That can be a slippery slope that slows growth and leads to missed opportunities. If the status quo is that you have no time, any unanticipated disruption can destroy your week and you’ll never have time to take advantage of opportunities. Founders need some flexibility in their schedule to handle important ad hoc tasks so hiring management to take on a chunk of the day-to-day tasks is crucial. Your org chart should be able to anticipate this problem in advance (see #1).

9. Hire HR

I recently read an article about how HR is no longer valuable. I think this is hugely wrong. Your biggest investment in a company is the team. Often, the vast majority of a startups' cost is the team salaries — a confused team is a huge waste of resources.

Is it worth having 1 person out of 20 completely focused on making sure the team operates effectively? Absolutely. I think it’s worth hiring HR early and the companies that don’t are making a big mistake.

10. Communicate. Communicate. Communicate.

It’s important to communicate to the team how startups evolve over time. Talk about how roles transition from generalists to specialists and other typical changes that occur as a startup grows. This is part of the startup experience and isn’t unique to you.

11. Be respectful, listen and apologize

People spend a huge portion of their time at work. They’re invested in the company. If it’s a startup, they may even be working long hours to make sure everything is covered. The absolute worst thing to do is be calloused about upcoming changes.

When you talk to the team, it’s important that you’re respectful and listen. As much as possible, incorporate their feedback into the process. One person suggested an entirely new role for herself, one that I hadn't considered. She put together a job description for the role, we created it and it’s been hugely helpful.

It’s also likely you’ll make some mistakes during your scale process. If you do, apologize, sincerely. Sure, it doesn’t feel great to hear all of your mistakes. But, they’re your mistakes and the only way to fix them is to 1) Accept them 2) Sincerely apologize and 3) Put together a plan to fix them.

12. Anticipate potential team scaling problems in advance

I can think of a few companies that hit major team scaling issues that led to many people leaving the company. Scaling out a team isn't a secret. A lot of founders have gone through these transitions and are willing to give advice. Some even have written blog posts! To the extent possible, you can prepare in advance and change the company accordingly before, not after, you run into issues.

13. Be deliberate about values and culture

With 10 people, the founders are likely present for all key decisions. At 20 people, tons of decisions get made without the founders. A company’s values determine how decisions are made. Does the team value empathy or is it something you never articulated? People will make decisions based on your values, so hopefully they are good ones. Based on a recommendation of a few people on the team, we did an offsite with the team and codified our values.

We were ad hoc about culture in the beginning. A few people on the team made the case that we needed to be more deliberate. They had a great idea: every few weeks, everyone meets for lunch to discuss our company culture. Because of that suggestion, we now have extremely candid conversations about things that happen at the company and whether we should start, stop, or continue them. Instead of ignoring important items, they're surfaced and we talk them over.

Unless you’re deliberate about how your team grows, you’ll hit a lot of unnecessary growing pains. Your vision won’t matter if people are confused about their roles or even worse, leave the company in confusion. Conversely, if you’re all aligned, engaged and moving in the same direction, you can have a massive impact together.

I hope these transition lessons are helpful. Good luck!  

I’ve received a lot of feedback about startup ideas over the years. I had this ‘aha!’ moment, when I realized I was in a Catch 22 and if I kept listening to people, I would never start a company. 

It seems like there are two reasons people don't think a startup will succeed:

1. It has been ‘done before’

2. It hasn’t been ‘done before’ and if it were worth doing, someone would have done it.

It's a Catch 22. There are a lot of reasons to build or not build a company and if you do #1, you should certainly seek to differentiate. But, be careful of listening too much to other people, otherwise you may never take that first step.

Originally posted on the HelloSign blog. 

The image above sums up how I think of everything at HelloSign. If you want a snapshot of what’s going on in my head, it’s an image of a circle with three different pieces: customers, revenue, and team. This is how we will build a significant company.

We rolled this idea out about a year ago. I realized as we grew from 10-20 and 20-30, not everyone was on the same page. I started getting questions like:

• Are our customers still a priority?
• Why are we talking about customers so much? We really should be driving revenue.
• Are we just focused on revenue?

When I’d hear about revenue not being a priority, I’d talk about the importance of revenue at a weekly meeting or mention it more in meetings. When I’d hear about our customers not being a priority, I’d do a presentation on that. It was like communication whack a mole!

I finally realized what I was missing. I needed to tie these separate elements together into one message. I started calling it –

The Circle of Life!

What’s the circle of life? It’s how we enter into a constant, positive flywheel of growth.

• A really smart and engaged team can build and support a phenomenal product for our customers.
• We drive value for our customers. They pay us for that value, creating revenue.
• We use that revenue to invest in our team.

The reality is that all three are the lifeblood of any company. Focusing on just one is like letting the hyenas into the Kingdom. If you only focus on the team but don’t get any customers, you’ll run out of revenue. If you only focus on revenue, but not on the team or making customers happy, you’ll have turnover and churn. If you only focus on customers, you won’t get revenue or be able to continue supporting the team. Explaining the relationship between these three things was hugely helpful for the team. As soon as I explained the circle of life, the questions went away. People seemed to get it.

In the last few months, we’ve started to see which companies aren’t balancing all three, as fundraising has dried up. Maybe they have a phenomenal product but can’t get the revenue to continue supporting the team. Funding can replace revenue for awhile or even kickstart the circle, but it’s not a permanent solution.

You need all three and they all have to work together. When you focus on constantly improving all three, that’s when the magic starts to happen. It’s pretty simple, but this is how you build an enduring company.

My friend had a major site issue and she was up all night fixing it. Fortunately, by the morning, everything was fixed and none of her users noticed. Good times. 

She asked if I have any tips on managing the ups and downs of a startup?

Ah, the things I’ve seen!

I’ve had a lot of time to think about stress. Founders can be comically optimistic when you ask them how things are going. No matter how confident anyone looks on the outside, everyone deals with hair-on-fire problems. Wait until someone is a few beers in and then ask how are things really going?

Fundamentally by building something new, you’re trying to change the status quo, which takes a lot of effort and rarely goes according to plan.

Here are lessons I’ve learned from a lot of burnt hair, wasted time and needless stress.

1. Nothing should be surprising. Expect that crazy stuff will happen over the entire lifespan of the company. Potential issues: diminishing runway, over/under hiring, site goes down, losing a key customer, competitive pressure, legal issues, team burnout/your burnout, HR issues -- you name it.
2. Anticipate and plan for as many problems in advance as possible (see #1). There’s an aversion to planning in startups, which just creates more stress. Planning reduces the number of potential issues that will come up. (Your company should never be frantic)
3. "It's your job to deal with hard problems.” Zach Coelius told me this during a tough moment about 4 years ago and for some reason I found it relaxing. I thought, ah, this is my job. Then, I focused on solving it.
4. Know that you wouldn't want to be working on anything else.
5. Eat, sleep and work out. Need to be in marathon mode, not sprint mode, otherwise you won't have energy for the occasional crisis. Same for the entire team.
6. Be careful of team stress or burnout. Most problems are solvable, but I can tell you the outcome of people working 6 days a week for 12 hours a day. Maybe Elon Musk can pull it off, but I don’t think the majority of companies can. I think that better people, rested, with long term knowledge at a company, working together for years, is better than optimizing for 7 days per week, 12+ hours per day, for 1 year, before they burn out and leave.
7. Optimize for output, not hours.
8. Take at least one day off a week. 7 days a week isn’t effective long term.
9. Visualize an alternative, crappy version of your life often. No job or crappy job, sleeping outside, annoying co-workers, unreasonable boss, no one listens to your ideas, and you can't improve things. Perspective is helpful.
10. Get at least 1 great, consistent adviser. 2 average advisers ≠ 1 great advisor. They can help problem solve and put things in perspective; plus, contextual advice is 10x standard advice. (Investors and advisors: the crowd, the ringside, and your corner)
11. Have enough runway and always know how much you’ve got. Make sure you always have > 6 months left. (Don’t be the startup that accidentally runs out of money)
12. Run financial projections. Flying blind can be stressful - for good reason.
13. Have a plan and execute on it. Control for the things you can control.
14. Know that you're getting better. I like to think I do less stupid stuff over time. That’s relaxing.
15. Hire great people who deal well under stress. Don't get stressed in seemingly stressful situations. Have a history of dealing with hard situations. You realize how amazing these people are during the moment of a crisis when they’re calm, own the issue and quickly problem solve. I have interview questions to filter for these attributes. This is key.
16. Hire for people that will stick around. (Mark Suster: Never hire job hoppers)
17. Don’t confuse hoodies for culture fit. Hire for experience, alignment on values and desire to be there.
18. You're constantly reaching your level of incompetence, which is why startups can be stressful. It's also why you learn a lot. (see #14)
19. Whenever something crazy happens, say, "good times" and smile.
20. Talk to other founders.
21. Read A Guide to the Good Life.
22. Do what you’re doing for the right reasons. If you’re building a company to flip it asap, it’ll be hard to go through tough periods.
23. In inflection moments, have a good BATNA.
24. Avoid personal debt, if possible.
25. Don’t consider anything closed until it’s signed (and use Hellosign!)  
26. Don’t consider a round closed until the money is in the bank.
27. All founders go through this. It’s not just you.
28. There are net positive investors, net neutral investors and net negative investors - avoid the net negative ones.
29. Avoid non-standard, uncommon investment terms.
30. Think twice before building a startup in Minnesota (see The Benefits of Building a Company in the Bay Area). Sorry Minnesota. (I’m from Minnesota, btw!)
31. Hire HR early. If the team is truly the most important thing, act like it and hire someone dedicated to taking care of the team. We had a full time HR person at 15 people. (NYTimes: Yes, Silicon Valley, Sometimes You Need More Bureaucracy)
32. Hire people that want to work at your company, rather than people just looking for a job.
33. Focus on revenue. All other metrics are a proxy for revenue. This one is more controversial, but revenue solves a lot of problems and reduces stress.  (43 lessons growing from $0 to $1+ million in revenue, twice)
34. Become profitable at least once. Another controversial one. But, I think first time founders don’t always know the tradeoff between free user growth and revenue, so they end up with free users that aren’t valuable. If you become profitable once, you can intentionally move into negative burn, if you want to accelerate growth.
35. Talk to customers. Building something people don’t want can be stressful.
36. Create an org chart before hiring. Otherwise the team doesn’t fit together well.
37. Write investor updates monthly. It keeps you disciplined, deliberate, top of mind for your investors / advisors, allows them to give contextual advice and makes sure the company doesn’t quietly die, which would be stressful. (David Lee: Updating your investors)
38. Have a livable salary, if possible.
39. Don’t raise before you’re ready (Setting your angel round up to fail)
40. Go through a transition checklist every time someone changes roles (covering duties continuing, discontinuing, new manager, title change, etc). Otherwise, people may end up reporting to 2 different people and be confused.
41. Get a board, but maintain control. More controversial, but I found the board very helpful. Having active observers works too. (Too much funding, not enough action)
42. Plan for the next stage. Ask investors / advisors / founders what it takes to get there. Better to optimize for what you know you’ll need then get there, not be prepared and too late to fix it. (PandoDaily: The series A Crunch is Happening Now)
43. Build a culture of feedback. That can help prevent issues from building up, unresolved over long periods of time.
44. Get a ping pong table :)

As years go by, I think you just stop being surprised. In a world of unexpected things, even the unexpected isn’t unexpected anymore. Hope these are helpful. Here’s to tranquility (if possible) while building startups!

Feel free to add any tips in the comments.

-

Recommended reading:
Sam Altman on Founder Depression.  

I met up with a friend a while back who was running a super lean startup team. It was a team of around 10-15 people, working long days, six days a week. He shared some insight into a few problems he was facing at the time due to the team being overwhelmed. I can see the appeal of running at capacity, since staying efficient is key. In the early days at HelloSign we ran really lean, but we were never this lean. As soon as the first employee joined we stopped running so lean because we realized there are very serious costs to being understaffed.

Here are the major downsides you risk by running short staffed and overwhelmed:

1. Anything can disrupt the team

When you have no slack in the organization even the slightest hold up can have major consequences. Let’s say someone gets sick and can’t work for three days. This is a pretty common occurrence, but since everyone else is already working at capacity, there is no one to pick up the extra work. This has a domino effect on the entire organization. It’s very important that there’s some leeway in the organization to account for life’s unforeseen circumstances.  

2. No flex for someone leaving

To expand on my first point, imagine everyone working six days a week at capacity. You’re barely keeping up. Then, imagine if someone leaves the company. There’s not enough bandwidth to absorb the responsibilities of the role. So, with just one less person, everything would fall apart.

3. Bad for morale

You’ll end up losing people to burnout or they’ll end up leaving the company for another role that’s less intense somewhere else. The people that do burnout and stick around will likely be less effective. Burnout is like overdrawing on your credit card — once you’re in the red, it takes a long time just to get back to break even.

4. Long term planning suffers

When all of these burnt-out employees are working at capacity, it can result in not being able to think clearly. Even worse, there’s so much immediacy felt throughout the organization that no one has the breathing room to plan for the long term. Instead, people micro-optimize and only think short term. Without long term planning, the company lacks vision and direction.

5. Missed opportunities

If a great opportunity arises but you don’t have the bandwidth to pursue it, you’re forced to miss out — whether it’s a chance to become a launch partner with a large company, a revenue opportunity or something else. If we ran too lean, we wouldn't have had the bandwidth to develop our API, which has been a huge source of growth. That would have been a missed opportunity.

6. Mental Exhaustion

Ever talk to someone on a Friday night after six consecutive 14 hour workdays? They give you a blank stare and talk like a toddler. It’s just not an effective way to work, nor is it healthy for the employee. This can also lead to employee turnover (see #3).

7. Diminished endurance

Always running at max capacity means people won’t have energy for when you need to push harder. This means a lot of missed opportunities.

8. Slow growth

If everyone is maxed out and you have a chance to grow, you’ll first need to grow the team to meet current needs before meeting growing needs. That can slow you down as a company.

In 2008 a startup called Modista created a great new way to display goods on eCommerce sites. Investors were excited. In 2009, the founders decided to raise and had $600k in commitments from investors.

Before the founders collected the money, Like.com sued them for alleged patent infringement. Patent litigation can cost $1-$2 million. Their investors decided against transferring the money and the company was shut down. Their founders had a vision, but never had a chance to execute it.

If you have a vision for why your company should exist and how it can change the world, it's worth thinking about how to protect it. The business world isn't run by fun, innovative, well-meaning entrepreneurs. It's run by people who protect their bottom line. Innovating isn't always sufficient. Raising money or making money is one way to increase your hit points to make sure you have enough time to execute on your vision.

I think lean companies don't always realize the risks of being small. There are protections that companies gain by being big, which aren't afforded to the small. Big companies like Apple and Google can spend years in patent litigation without impacting their bottom line. Small companies can't play that game.

Here are some things to think about when you decide to stay small:

Fighting a monopoly is difficult. Some have their interests tied to government legislation. Taxi drivers in San Francisco filed a class action lawsuit against Uber. Uber has also faced legal challenges in New York, Chicago and elsewhere. Instead of shutting down the company, the company was able to afford the lawyers to fight back and even change legislation. Uber is projecting $26 billion in revenue in 2016.

When you have money, you can operate negative margins in order to prioritize growth. PayPal spent $20 for each new signup. At one point, they were losing millions of dollars per month. If you were a new, less capitalized company in the payments space it would be extremely difficult to compete with them. PayPal was ultimately acquired for $1.5 billion.

Patents were intended to protect independent investors, but they often have the opposite effect. Many patents have been granted to non-unique technology. It can cost $1-$2m and two years to reach some kind of outcome. Modista was small and folded. Hipmunk was 'big,' having raised $15m, and sued their patent troll.

Big companies sometimes think they can get away with treating small companies badly because they don't think small companies can afford to fight back. Best Buy violated an NDA and stole a partner's technology. The startup wasn't able to use that revenue to scale their business, so they had to sell. The founders had a vision. I'm sure they would have preferred to execute on it.

When I think of these examples, I realize the importance of raising more than you need, growing revenue and moving faster than you would have otherwise. Whether intentional or not, I think the founders that survive are those who know how to protect their vision; they make sure they have enough capital on hand to deal with the inevitable problems.

Related reading:

Ben Horowitz has a great post on the fat startup.

Warren Buffet talks a lot about investing in  "economic castles protected by unbreachable 'moats.'"

Jessica Livingston wrote a great piece on things that can prevent your startup from succeeding. She talks about a tunnel of monsters along the way that try to prevent you from succeeding.

Before we launched HelloSign, I remember showing HelloFax to a family member. This person was normally supportive, but he took a glance and walked away. He wasn't the only one. A lot of people wouldn't even look.

I was the only believer.

Belief is the most important component for a startup. Most companies are born and die with one believer. Maybe they had zero believers, since even the founders didn't truly believe.

Great companies have many believers. Dropbox has over 100 million believers. Google has 1 billion believers.

When you start a company, you only have one believer: you.  

Your job as a founder is to create believers.

You have to believe.

When a friend pitches me a startup idea, I recently started asking, “do you really want to work on this?” I learned that it doesn't make sense to dissect the idea first. It's belief that will keep the company alive and create other believers.

The Airbnb founders maxed out their credit cards, then sold cereal to stay afloat. For 999 days they didn't see traction. But, they believed.

You need customers that believe.

Customers invest time and money — their most precious resource — into your product. They need to believe that you'll add value to their lives.

Evernote ran out of money. They had a customer that believed so much, he invested and saved the company from bankruptcy. He believed.

The press has to believe.

What separates the companies that get press and the ones that don't? The press believe in the former more than the latter. It's that simple.

The press loved Twitter. They believed in it before I did, before most people did. The press believed and made me believe.

Investors have to believe.

To compensate for losses, the potential return on each investment has to be high. You need to have the potential to become a billion dollar company.

YC often talks about how Dropbox wasn’t the top pick for a lot of investors, but they found a few that believed.

The team has to believe.

The people you want to work with can work anywhere they want. Great developers, marketers, salespeople and other talent look for something worth building.

Pandora ran out of money in 2001. Their 50+ person team deferred $1.5 million in salaries. For two years. They believed.

Your partners have to believe.

Business development can grow your company to a massive scale. You need to show that you can add value to their users, that you'll be around for a year. They need need assurances before sending thousands or millions of customers your way.

Bill Gates licensed software to IBM before he owned it. This became a company making partnership. IBM believed that Microsoft would add value to their users.

This all goes back to the beginning, when you are the only believer. You don't have any customers, the press won't write about you, investors won't talk to you, employees don't apply and partners don't know you exist.

Your job as a founder is to create believers.

There’s always talk that we’re in a tech bubble. I heard about it when we raised our first round. Then, heard it again when we raised our second round.

It’s never easy to know if we’re in a bubble — if we were, all of those people writing about it should be shorting tech stocks. The bubble writers would be the richest people in the industry. I’d love to read an article like this: 1) We’re in a bubble and 2) I’m shorting tech stock.

Since not everyone wants to short stock there’s a less dramatic way to hedge against a bubble.

Grow revenue.

Many companies raise enough money for 18-24 months of runway. If capital becomes unavailable for two years, all of those companies will likely get wiped out. If you have enough revenue, you won’t be one of those companies.

Revenue means that you can weather a storm. Capital markets dry up during market corrections. In 2008, even amazing companies couldn't get capital. But, if you had capital from revenue, there was amazing talent available to hire, ad campaigns you could cheaply buy, plenty of inexpensive office space and cheap Aeron chairs on craigslist.

Revenue means that your customers are your investors. You don’t need the capital markets — your customers are the capital markets. You add value to your customer's lives, so they give you money.

Revenue means that your company is going to look really good to investors in a capital downturn because you’re one of the few companies that looks like you’ll weather the storm. Ironically, the companies that need the money the most will be the least attractive to investors.

It’s certainly possible that we’re in a bubble now — I wouldn’t know. If I did, I’d be shorting tech stocks and writing articles about how to tell the future. But, if you’re just slightly concerned funding won’t be around like this in the near future, grow revenue. At least you can get a head start. If you’re looking for tips on how to start growing revenue immediately, here’s a post I put together: 43 lessons growing from $0 to $1+ million in revenue, twice.

Good luck!

Guest post. Originally posted on The Next Web. 

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When we went out and raised the first time (four years ago), we hit our fundraising goal. We had additional investor interest and almost closed the round. Instead, our advisor pushed us to keep going and we raised two times that amount. The second time we raised, we took on three times our target.

It took our advisor serious effort to convince us the first time around (Investors and advisors: the crowd, the ringside, and your corner). We were worried about dilution and thought we had more than enough money to grow. Plus, like many founders, I wanted to get back to work since fundraising is a full time job.

Not only do I not regret raising that extra money, I’m insanely happy we did. The extra capital funded the development of HelloSign (after HelloFax) and got us to cash flow positive. If we hadn’t raised, I would have had to go pitch investors during one of our most important inflection moments, when we were building and launching HelloSign.

I continue to see founders stop raising when they still have investor interest and momentum. I’m not talking about tens of millions of dollars, but the difference between $500K and $1M or $2M. It’s the kind of difference that gives you another try when your first hypothesis doesn’t work out or allows you to scale your company during a financial crisis.

Here are some reasons to raise more than you think you need:

1. Your startup is generally a binary outcome – success or failure

Within reason, dilution doesn’t matter as much as just succeeding. Having enough time to solve the problem you need to solve is the most important. Everything else is secondary.

2. Think of the money in terms of how much it can increase the value of your company

If $1M dilutes you by 10 percent, can you add another 10 percent or more value? If yes, then raising is a no brainer. (Paul Graham: The Equity Equation)

3. Chalk up $500K to a pivot, the discovery process, being a first time founder or making dumb decisions

Fully loaded (monthly salary, insurance, office space, office cleaning, gear, snacks, and more), some of our investors say you should estimate each employee costing $10K-$20K per month. I thought that was BS, until we looked at the cost of office space and the tons of other expenses.

Regardless, at the lowest end of the spectrum consider this: 10 people, on zero revenue, spending five months working on the wrong thing, will cost you at least $500K. So whatever you calculate as what you need, build in another $500K.

4. If your company does well, growth capital doesn’t hurt (and hugely helps)

If you’re killing it, you now have extra fuel to put in the fire. You can take advantage of a game time opportunity, rather than needing to immediately raise more capital, which takes time. Plus, you may be in a financial crisis and not be able to raise growth capital even when you’ve built out the metrics proving that additional money would have an immediate ROI.

5. If your company doesn’t do well, you have time to fix it

If you’re in the middle of a pivot or still searching for the right users, extra money means extra time to fix things.

6. Even $1M on zero revenue doesn’t last long

Eighteen months goes faster than you’d imagine. If you’re raising for the first time, $500K or $1M seems like a mind-blowing amount of money. Then you calculate salaries, insurance (health, office, E&O, D&O), office space, legal fees, nice Apple cinema displays and other expenses you’ve never considered — on zero revenue. You may wake up one day to realize you’re out of money and your company has failed (Don’t be the startup that accidentally runs out of money).

7. You can acquire users with longer payback periods

If you have a profitable campaign with a six month payback period but not enough money to invest and wait for that money to come back, you’d have to shut down profitable campaigns. That’d be frustrating, since you’d literally have a profitable campaign on hand, but wouldn’t be able to take advantage of it. This is similar to number four.

For example, Box has the opportunity to invest in a really long pay back period since they raised a huge round and can afford the impact it has on cash flow. (These Numbers Show That Box CEO Aaron Levie Is A Genius)

8. The economy is like your crazy uncle — you never know what it will do next

In 2008 funding dried up. That was it. The financial markets took a dive. It was a bad time for many companies trying to raise. It was a time when investors with sterling reputations decided not to wire the money, even after committing. It was a time of huge uncertainty and a really bad time to raise.

The difference in a few days separated those who could raise and those would couldn’t, despite any company merits. It would have been nice to to have cash on hand to weather that kind of storm. Being unable to raise at these moments can kill your company and it often does. Never experienced a financial crisis? Talk to the founders that raised in 2008.

9. Your next raise is going to be harder

Each time you attempt to raise another round things get more difficult because the expectations increase and the valuation of your company is also supposed to increase.

One of the most jarring cut offs is between angel rounds and A rounds (The Series A crunch is hitting now. Have we even noticed?). Angel rounds are about the vision. The following rounds are about your numbers. Vision is significantly easier than having the numbers.

The only thing that matters between the angel round and VC round is having enough runway (capital) to make sure you get your numbers. Raising without the numbers is extremely difficult.

10. Lots of small angel rounds are distracting and demoralizing

Fundraising is highly distracting and fundraising every few months is even more distracting. I’ve seen companies in the middle stages where they’re not quite at the A round stage, but continually raising smaller amounts like $200K or $500K only to have to raise that amount again.

There are better ways to spend your time like running your company and making sure you hit your numbers for the next round. Constant fundraising may prevent you from hitting your numbers in the first place.

Just as important, having to continually raise can actually make it more difficult to raise altogether. It’s like a self fulfilling prophecy. If it looks like your company is having a hard time raising because of the repeated effort, it sends the signal that your company isn’t worth the investment. The more it looks like you’re struggling to raise, the harder it will be to raise.

11. Consolidation of legal costs

It costs a lot of money to raise. You may spend up to $30K or more on legal costs. That’s pretty painful, but it’s less painful when consolidated into one bigger round versus multiple smaller rounds.

12. With one caveat

Don’t be these founders: Too much funding, not enough action

Just like our advisor made the case to raise more, I’ve made the same arguments to founders. I usually just get a polite nod. We did the same polite nod, but we have an unusually insistent advisor, which is exactly what we needed. So, this is me being unusually insistent as well. Raise more than you think you need.

Read Next: 43 lessons growing from $0 to $1+ million in revenue, twice

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