In 2010, I started my third startup, as a technical founder with the TechStars Boulder company InvitedHome (at the time, we were VacationRentalPartner.com). I took the role of full-stack developer, lead DevOps guy, and CTO and wrote the foundation of the software. I had a small salary and a solid equity position as a member of the three-person founding team along with a CEO and a lead product designer.
A year later, as the company found its business model, I left the company. This was largely due to frustration across the founding team with the manner in which a Lean startup project develops and matures into an MVP, and how that applies to the development team. The roots of the problem were in my inability to adjust to pivots, and to effectively participate in both 10,000-foot project planning, and the micro-view required for coding.
This is a problem that I have seen repeatedly over two decades of working with startups. While I may have been too green, or not the technological genius I believed myself to be in 2010, I have watched other startups repeat this pattern in the intervening years. It’s a problem that has its roots in the way startups are often formed: an idea-centric CEO seeks and finds a developer to execute that vision.
The argument has long been that the ideal startup team is comprised of a “hacker and a hustler,” that is, a CEO who understands the customer evangelical process necessary to find market fit, and a technologist capable of building the core product. This belief has spawned hundred of mixers throughout startup communities, usually under the moniker “Founder Dating.” Folks with ideas for companies meet technologists with the skills to implement their visions.
While it is obvious that such a hustler/hacker pair can be wildly successful, most of these pairings don’t turn out like the movies.
The vast majority of today’s software startups are applying existing technology, refactored and combined, to an “unsolved” business problem, rather than developing unique technology to solve a technology problem. This is most apparent in the manner by which entrepreneurs describe their companies. “We are AirBnB for pets,” they might say, relating their mission in terms both positive and familiar. These companies are not technology companies, they are companies applying technology to create a niche in the market.
If you are building this kind of company, the technology you use is a commodity. Your value comes from solving the problem in a scalable, profitable manner. The technology you use may become more valuable later in the process when you have thoroughly explored your available market and need to find efficiency as a means for keeping yourself ahead of the competition.
As “AirBnB for pets,” a brilliant technical co-founder won’t get you investment money. Your seed and A-rounds will come once you demonstrate that a real market exists, and that you have identified a scalable process by which you can capture that market.
As the “hustler,” finding a “hacker” who is willing to work with you for equity can be a great advantage. But that only holds true if that hacker is capable of maintaining both the micro and the macro view of the product: helping to hone in on the business opportunity, and to build a stable, scalable product. The hackers who are able to do this are very good partners. But often, a hacker willing to work for equity lacks skills on one focal plane, and that hacker will become less strategically valuable as your company evolves. The hacker who has experience working on both focal planes, on the other hand, knows how much she is worth and will not join a project cheaply.
In the “founder dating” model, you either find someone who can’t get the job done, and needs to be replaced once you have the resources to do so, or you find someone who can get the job done, but will demand far more than the true market value of the technology.
So, what do you do?
The best advice that I’ve ever gotten as an entrepreneur is to focus on your core competence, and to outsource everything else. Your company’s accounting is crucially important to your success, but it isn’t something that a hacker or hustler should handle. You should hire an accountant.
The same thing is true of your technology stack. If you’re building a market opportunity by using commodity technology, you should treat that technology as a commodity. Don’t start by valuing the tech as half – or even a third – of your business, and finding an equity partner who can build it. Figure out the market opportunity first. Then convince some funders to help. Then hire developers, or a firm (ahem, Radial Development Group) with a track record of delivery to execute your plan. Pay cash, not equity.
And if you’re a hacker who has would-be CEOs pitching you with their genius idea, asking you to work for them, in exchange for a piece of the long-term pie, don’t forget: If the idea is great, the CEO ought to be able to raise the money to pay you at market rate, instead of some long-term theoretical payout that resembles a lottery ticket.
Bottom line: If you don’t have the money to build your technology, you need to refine your idea.