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Founder's Manual

This is an abbreviated "founders manual" for running the company. As part of our value of being transparent, its open to the world.

Cheatsheet

  • Launch now (even just one working feature, not broken)
  • Build something people want
  • Do things that don't scale
  • Find the 90 / 10 solution
  • Find 10-100 customers who love your product, not 100,000 people who 'kinda' like it
  • Remember, all startups are badly broken at some point
  • Most of all company time should be spent writing code and talking to users
  • "It’s not your money", be frugal
  • Growth is the result of a great product not the precursor
  • Don’t scale your team/product until you have built something people want
  • Valuation is not equal to success or even probability of success
  • Avoid long negotiated deals with big customers if you can
  • Avoid big company corporate development queries - they will only waste time
  • Avoid conferences unless they are the best way to get customers
  • Pre-product market fit - do things that don’t scale: remain small/nimble
  • Startups can only solve one problem well at any given time
  • Founder relationships matter more than you think
  • Sometimes you need to fire your customers (they might be killing you)
  • Ignore your competitors, you will more likely die of suicide than murder
  • Most companies don't die because they run out of money
  • Be nice! Or at least don’t be a jerk
  • Get sleep and exercise - take care of yourself

Ethics

Founders are expected to uphold integrity, respect and accountability at all times. We believe these are critical traits for founders to have in order to maintain the trustworthiness and reputation of our community.

Specifically:

  • Design of ethically humane digital products through patterns focused on user well-being
  • Treating co-founder, employees and community members with fairness and respect
  • Not using misleading, illegal or dishonest sales tactics
  • Not using misleading, illegal, spammy or exploitive marketing tactics
  • Being honest with investors and partners
  • Not harassing or threatening any co-founder, community member, employee, or anyone else
  • Keeping off-the-record or confidential information (whether about Interlock itself, a client company, or PII) private and secret
  • Ensuring your company resolves privacy and security issues promptly and appropriately
  • Treating emails and other communications shared within Interlock as confidential and not forwarding it to third-parties
  • Not behaving in a way that damages the reputation of oneself or the company
  • Being honest in interviews with prospective hires
  • Keeping your word, including handshake deals made on behalf of the company, or with clients
  • Treating money invested in the company with the utmost respect, to be used exclusively to further goals of the company
  • Abiding by company Name & Logo usage guidelines
  • Generally behaving in a professional and upstanding way
  • Avoid being a Scenster

To maintain our community, if a founder behaves unethically, we will revoke their founder status. This includes access to all company spaces, software, lists and events. All founders in a company may be held responsible for the unethical actions of a single co-founder or a company employee, depending on the circumstances.

Founder-Led Growth

Adapted from YC's Essential Startup Advice

The guidance below is a proven path for early stage success observed across 1000s of startups.

The first thing founders should focus on is to launch their product right away; for the simple reason that this is the only way to fully understand customers’ problems and whether the product meets their needs. Surprisingly, launching a mediocre product as soon as possible, and then talking to customers and iterating, is much better than waiting to build the “perfect” product. This is true as long as the product contains a “quantum of utility” for customers whose value overwhelms problems any warts might present.

Once launched, founders should Do things that don't scale. Many startup advisors persuade startups to scale way too early. This will require the building of technology and processes to support that scaling, which, if premature, will be a waste of time and effort. This strategy often leads to failure and even startup death. Rather, founders should get their first customer by any means necessary, even by manual work that couldn’t be managed for more than ten, much less 100 or 1000 customers. At this stage, founders are still trying to figure out what needs to be built and the best way to do that is talk directly to customers. For example, the Airbnb founders originally offered to “professionally” photograph the homes and apartments of their earliest customers in order to make their listings more attractive to renters. Then, they went and took the photographs themselves. The listings on their site improved, conversions improved, and they had amazing conversations with their customers. This was entirely unscalable, yet proved essential in learning how to build a vibrant marketplace.

Talking to users usually yields a long, complicated list of features to build. Always look for the “90/10 solution”. That is, look for a way in which you can accomplish 90% of what you want with only 10% of the work/effort/time. If you search hard for it, there is almost always a 90/10 solution available. Most importantly, a 90% solution to a real customer problem which is available right away, is much better than a 100% solution that takes ages to build.

As companies begin to grow there are often tons of potential distractions. Conferences, dinners, meeting with venture capitalists or large company corporate development types (see Don’t Talk to Corp Dev by Paul Graham), chasing after press coverage and so on (see a comprehensive list of the wrong things on which to focus on). Never lose sight that the most important tasks for an early stage company are to write code and talk to users. For any company, software or otherwise, this means that in order to make something people want: you must launch something, talk to your users to see if it serves their needs, and then take their feedback and iterate. These tasks should occupy almost all of your time/focus. For great companies this cycle never ends. Similarly, as the company evolves there will be many times where founders are forced to choose between multiple directions for their company. Sam Altman always points out that it is nearly always better to take the more ambitious path. It is actually extraordinary how often founders manage to avoid tackling these sorts of problems and focus on other things. Sam calls this “fake work”, because it tends to be more fun than real work.

When it comes to customers most founders don’t realize that they get to choose customers as much as customers get to choose them. A small group of customers who love you is better than a large group who kind of like you. In other words, recruiting 10 customers who have a burning problem is much better than 1000 customers who have a passing annoyance. It is easy to make mistakes when choosing customers so sometimes it’s also critical for startups to fire their customers. Some customers can cost way more than they provide in either revenue or learning. For example, Justin.tv/Twitch only became a breakout success when they focused their efforts toward video game broadcasters and away from people trying to stream copy written content.

Growth is always a focus for startups, since a startup without growth is usually a failure. However, how and when to grow is often misunderstood. Growth is not the focus, it is the byproduct of talking to users, building what they want, and iterating quickly. Yet, growth is not always the right choice. If you have not yet made something your customers want - in other words, have found product market fit, it makes little sense to grow (see The Real Product Market Fit by Michael Seibel). Poor retention is always the result. Also, if you have an unprofitable product, growth merely drains cash from the company. It never makes sense to take 80 cents from a customer and then hand them a dollar back. The fact that unit economics really matter shouldn’t come as a surprise, but too many startups seem to forget this basic fact (see Unit Economics by Sam Altman).

Startup founders’ intuition will always be to do more whereas usually the best strategy is almost always to do less, really well. For example, founders are frequently tempted to chase big deals with large companies which represent amazing, company validating relationships. However, deals between large companies and tiny startups seldom end well for the startup. They take too long, cost too much, and often fail completely. One of the hardest things about doing a startup is choosing what to do, since you will always have an infinite list of things that could be done (see Startup Priorities by Geoff Ralston). It is vital that very early a startup choose the one or two key metrics it will use to measure success (see KPIs below), then founders should choose what to do based nearly exclusively on how the task will impact those metrics. When your early stage product isn’t working it's often tempting to immediately build new features in order to solve every problem the customer seems to have instead of talking to the customer and focusing only on the most acute problem they have.

Founders often find it surprising to hear that they shouldn’t worry if their company seems badly broken. It turns out that nearly every startup has deep, fundamental issues, even those that will end up being billion dollar companies. Success is not determined by whether you are broken at the beginning, but rather what the founders do about the inevitable problems. Your job as a founder will often seem to be continuously righting a capsized ship. This is normal.

It is very difficult as a startup founder not to obsess about competition, actual and potential. It turns out that spending any time worrying about your competitors is nearly always a very bad idea. We like to say that startup companies always die of suicide not murder. There will come a time when competitive dynamics are intensely important to the success or failure of your company, but it is highly unlikely to be true in the first year or two.

A few words on fundraising...The first, best bit of advice is to raise money as quickly as possible and then get back to work. It is often easy to actually see when a company is fundraising by looking at their growth curve and when it flattens out they are raising money. Equally important is to understand that valuation is not equal to success or even probability of success. Some of the very best companies raised on tiny initial valuations (Airbnb, Dropbox, Twitch, are all good examples). By the way, it is vital to remember that the money you raise IS NOT your money. You have a fiduciary and ethical/moral duty to spend the money only to improve the prospects of your company.

It is also important to stay sane during the inevitable craziness of startup life. Founders should make sure they take breaks, spend time with friends and family, get enough sleep and exercise in between bouts of extraordinarily intense, focused work. Lastly, a brief word on failure. It turns out most companies fail fast because founders fall out. The relationships with your cofounders matter more than you think and open, honest communications between founders makes future debacles much less likely. In fact, it turns out that one of the best things you can do to make your startup successful, in fact, to be successful in life, is to simply be nice.

Goal Setting

When choosing your primary key performance indicator (KPI), the first question you have to answer is what metric will the market (investors) use to understand whether you are successful. In most cases this metric is revenue.

After picking your primary KPI, we recommend you establish a pyramid of secondary metrics for your company. Choose the 3-4 metrics that will most directly impact your primary KPI. When deciding what to build, these metrics at the bottom of your pyramid will be the ones that you will work to improve.

You should still judge the success of your business by how you increase your primary metric. The type of business model defines the KPI, not the market.

Predictors of Success and Failure

Almost all startups, successful and unsuccessful, hit points when it seems like the company is doomed. The difference between success and failure is how the founders react. The following are the most well-established indicators of success:

  • How much was accomplished week-to-week. Weekly meetings should indicate a diverse set of accomplished tasks, not just what was set forth, but a bunch of other things thought of in the process. If weekly meetings feel like the previous week's conversation never happened, or if tasks are often the same as the previous week, that is a clear trajectory toward failure. Speed is more valuable than money.

  • How breakage is handled by founders. Successful founders see breakage and are not depressed by it. Failure from founders occur when they remain in denial about it, or do not feel a sense of urgency.

  • Taking a long time to launch is a big predictor of failure. Taking a long time to launch crosses over very easily into never launching, or launching a product out-of-touch with users.

  • Going out and talking to users is a good predictor of success. Especially when those conversations result in them giving you money. Whereas not knowing precisely who your users are, or not wanting to spend your time dealing with them, is a predictor of failure. Good founders talk directly to their users, do NOT delegate!

  • Thinking of yourselves as being at the mercy of circumstances is a predictor of failure. Startups almost never take off by themselves. Initially they seem to be failing. Then you make them succeed. A startup that's going to succeed always has a backup plan for what to do if investors don't come through. And since that breeds a genuine confidence investors recognize and love, having a backup plan is the best insurance against needing one.

  • Averaging advice is a predictor of failure. Asking the same question to a number of different advisors and then smushing it together to make a plan will result in failure. Either follow your gut (informed by talking to users) or pick one advisor with the best perspective on the strategic question at hand and follow their advice completely.

Avoid "killer" mistakes

  • Take arguments with cofounders seriously, founder breakups are the #1 killer of start-ups.
  • Speak regularly with your cofounder. If founders do not speak regularly, a founder breakup may be inevitable.

Product Market Fit

It's important to know WHAT product market fit feels like to avoid denial about what isn't working. You can always feel product/market fit when it’s happening. People are using the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. It's the difference between pushing a boulder (no fit) and chasing a boulder (fit).

Founder Mental Health

You need to scale yourself in order to scale your company. A lot of what happens in the life of a startup founder is illogical, seemingly crazy, high-stakes, and very stressful. It's a sign of good decision-making to realize that you might need more tools in order to excel and you should not wait for a breaking point before seeking guidance.

Please see the User Manual for Founder Psychology

Important Definitions

  • Breakeven - This is the point where your revenue is equal to your expenses and you bank account stays flat or increases month over month. Many early stage companies attempt to reach breakeven or "ramen profitable" in order to not be dependent on outside investors.
  • Runway - Assuming you hold your revenue and expenses constant, how many months can your company operate before you die.
  • Vertebrae - The 3-5 points every investor/customer must understand in order to be interested enough to consider an investment/product usage
  • Burn Rate - The difference between your revenue and your expenses. In other words, by how much did your bank account decrease last month.
  • KPI - Key Performance Indicator. The top level stat you track to gauge whether your business is improving week over week / month over month. For most businesses this is monthly revenue, but sometimes its is DAUs, WAUs, LOIs, signed contracts, annual revenue, or technical/scientific milestone.
  • MRR - Monthly Recurring Revenue. Revenue recognized for recurring services rendered in a given month (does not include one-time, or non-recurring revenue such as fees)
  • ARR - Annual Recurring Revenue. Measure of the revenue components that are recurring in nature on an annual basis (ARR = MRR * 12)
  • GROSS MRR CHURN - Monthly recurring revenue lost in a given month / monthly recurring revenue at the beginning of the month.
  • PAID CAC - Cost per customer acquired through paid marketing channels (total sales and marketing spend in a given month / total customers acquired via paid channels, including via sales, in a given month)