The company has had a lot of success in helping companies who startup in the cloud and start to achieve scale. It already has a host of hot startup companies including Posterous, Bump Technologies, and Urban Airship. Through listening to users, the company decided to offer local server support to merge its view of all server assets for these organizations.

Sponsor

What is CloudKick?

Cloudkick enables a company to manage internally hosted servers and run the Cloudkick’s agent and report into the same console as your cloud computing infrastructure from AWS, RackSpace, SliceHost and others. When installed, the CloudKick agent will respond to status checks from the Cloudkick monitoring solution, which itself is a distributed cloud application. Cloudkick supports a host of cloud provider solutions and shares a report of feature.

We met with the company at their offices in San Francisco. Upon entry to the warehouse, called “The Farm” near the Mission District, we realized that was a true technology startup, founded by system administrators trying to make their jobs easier. The team participated in Y-Combinator and has received an initial capital infusion by Avalon Ventures.

The Cloudkick system offers consolidated server reports and shows server events by polling registered clients in cloud (and now data centers) and piping them to Cloudkick’s multi-tentant event aggregator.

The tools are modeled after administrative tools like Cacti, Nagios, and Munin, but are delivered on on top of an agent-driven real time view of the underlying assets of server infrastructure.

When checking out the demonstration, we also noted that the browser is updated in real-time as events are polled. This keeps the information fresh without having to re-check and brings the best of browser based real-time communication to system administrations.

Cloudkick’s implementation is simple and elegant. The young company is demonstrating product leadership by living the mantra of simplicity and utility.

Here’s a sample of the graphs from CloudKick’s feature inventory.

Monitoring Every Server

The goal of this release is to bring servers from the datacenter to power of cloud monitoring. It allows a larger and larger region of infrastructure to rely on outside controls to monitor it’s health and well being.

One feature we we intrigued by with Cloudkick was the ability to tag and filter groups of hosts, and to then set rules across them. For example, tagging all servers “web apps” allows a rule to quickly set custom rules for checking up time.

The company offers an API for its services and uses 2-legged OAuth for API authentication. OAuth is “an open protocol to allow secure API authorization in a simple and standard method from desktop and web applications.”. The company also offers a proxy service that streamlines and secures the connections for hosts that will connect to the Cloudkick services.

Cloudkick is a cloud company monitoring clouds and shows us in many ways the architecture of the future. In one of the blog posts from company, they share “love affair with cassandra” and how multi-master database technology is an enabler for co-location of server assets in infrastructure clouds.

Where does Cloudkick go from here?

Discuss

Sponsor

“Entrepreneurs are always asking us if we know any angel investors.” He says, “It’s one of the most common questions in the startup world. So we decided to make a list of the ones we know and also open it to ones we didn’t know. We also needed a place to keep track of the angels we know for our own reference. Hence AngelList!”

Anyone who has made $25,000 dollars in investments in 2009 and plans to do the same in 2010 is eligible to apply for the list. Participating investors receive information on three vetted startups per week and a place on the Venture Hacks blog and AngelList Twitter account. While some Angels may shy from displaying their contact info to the public, the list is actually a much better way to manage the pitch process as entrepreneurs are made well aware of investor objectives and interests. Startups can browse the site for contact information, investment criteria, trusted referrers and an investor’s current portfolio.

Explains Nivi, “Entrepreneurs spend a lot of time trying to get intros to investors – even the entrepreneurs who end up raising money from Ron Conway, Fred Wilson or Sequoia. We want to make it easy for qualified entrepreneurs to get the intros.”

To check out the list, visit venturehacks.com/angellist or to make your angel financing needs known, add yourself to the VentureHacks Startup List at venturehacks.com/startuplist.

Discuss

Last night I posted the video of Mint CEO Aaron Patzer’s 45 minute presentation on building startups from the ground up. If you are an aspiring startup entrepreneur, you’ll want to watch that more than a few times. The candid disclosures and advice he gives is rarely seen in Silicon Valley.

Some readers requested to see the presentation deck as well, so here it is. Patzer shows how he raised and spent money, and generated revenue, throughout the lifecycle of Mint, from the very beginning to the $170 million acquisition. He also showed historical slides from early presentations to investors and compares those to the actual results.

I’m also re-embedding the full video below.

Crunch Network: CrunchBase the free database of technology companies, people, and investors

This article reviews some important and necessary checks that web-sites should be checked against before the official launch — little details are often forgotten or ignored, but – if done in time – may sum up to an overall greater user experience and avoid unnecessary costs after the official site release.

Favicon

A favicon brands the tab or window in which your website is open in the user’s browser. It is also saved with the bookmark so that users can easily identify pages from your website. Some browsers pick up the favicon if you save it in your root directory as favicon.ico, but to be sure it’s picked up all the time, include the following in your head.

<link rel="icon" type="image/x-icon" href="/favicon.ico" />

And if you have an iPhone favicon:

<link rel="apple-touch-icon" href="/favicon.png" />

Titles And Meta Data

Your page title is the most important element for SEO and is also important so that users know what’s on the page. Make sure it changes on every page and relates to that page’s content.

<title>10 Things To Consider When Choosing The Perfect CMS | How-To | Smashing Magazine</title>

Meta description and keyword tags aren’t as important for SEO (at least for the major search engines anyway), but it’s still a good idea to include them. Change the description on each page to make it relate to that page’s content, because this is often what Google displays in its search result description.

<meta name="description" content="By Paul Boag Choosing a content management system can be tricky. Without a clearly defined set of requirements, you will be seduced by fancy functionality that you will never use. What then should you look" />

Cross-Browser Checks

Just when you think your design looks great, pixel perfect, you check it in IE and see that everything is broken. It’s important that your website works across browsers. It doesn’t have to be pixel perfect, but everything should work, and the user shouldn’t see any problems. The most popular browsers to check are Internet Explorer 6, 7 and 8, Firefox 3, Safari 3, Chrome, Opera and the iPhone.

• Cross-Browser Checks: Services and Test Suites
• 7 fresh and simple ways to test cross-browser compatibility

Proofread

Read everything. Even if you’ve already read it, read it again. Get someone else to read it. There’s always something you’ll pick up on and have to change. See if you can reduce the amount of text by keeping it specific. Break up large text blocks into shorter paragraphs. Add clear headings throughout, and use lists so that users can scan easily. Don’t forget about dynamic text too, such as alert boxes.

• Writing for the web

Links

Don’t just assume all your links work. Click on them. You may often forget to add “http://” to links to external websites. Make sure your logo links to the home page, a common convention.

Also, think about how your links work. Is it obvious to new users that they are links? They should stand out from the other text on the page. Don’t underline text that isn’t a link because it will confuse users. And what happens to visited links?

• W3C Link Checker

Functionality Check

Test everything thoroughly. If you have a contact form, test it and copy yourself so that you can see what comes through. Get others to test your website, and not just family and friends but the website’s target market. Sit back and watch how a user uses the website. It’s amazing what you’ll pick up on when others use your website differently than how you assume they’d use it. Common things to check for are contact forms, search functions, shopping baskets and log-in areas.

• Silverback – guerrilla usability testing

Graceful Degradation

Your website should work with JavaScript turned off. Users often have JavaScript turned off for security, so you should be prepared for this. You can easily turn off JavaScript in Firefox. Test your forms to make sure they still perform server-side validation checks, and test any cool AJAX stuff you have going on.

Validation

You should aim for a 100% valid website. That said, it isn’t the end of the world if your website doesn’t validate, but it’s important to know the reasons why it doesn’t so that you can fix any nasty errors. Common gotchas include no “alt” tags, no closing tags and using “&” instead of “&” for ampersands.

• 10 reasons your code won’t validate (and how to fix it)
• W3C validator

RSS Link

If your website has a blog or newsreel, you should have an RSS feed that users can subscribe to. Users should be able to easily find your RSS feed: the common convention is to put a small RSS icon in the browser’s address bar.

Put this code between your <head> tags.

<link rel="alternate" type="application/rss+xml" title="Site or RSS title" href="link-to-feed" />

Analytics

Installing some sort of analytics tool is important for measuring statistics to see how your website performs and how successful your conversion rates are. Track daily unique hits, monthly page views and browser statistics, all useful data to start tracking from day 1. Google Analytics is a free favorite among website owners. Others to consider are Clicky, Kissmetrics (still in closed beta yet), Mint and StatCounter.

Sitemap

Adding a sitemap.xml file to your root directory allows the major search engines to easily index your website. The file points crawlers to all the pages on your website. XML-Sitemaps automatically creates a sitemap.xml file for you. After creating the file, upload it to your root directory so that its location is www.mydomain.com/sitemap.xml.

If you use WordPress, install the Google XML Sitemaps plug-in, which automatically updates the sitemap when you write new posts. Also, add your website and sitemap to Google Webmaster Tools. This tells Google that you have a sitemap, and the service provides useful statistics on how and when your website was last indexed.

Defensive Design

The most commonly overlooked defensive design element is the 404 page. If a user requests a page that doesn’t exist, your 404 page is displayed. This may happen for a variety of reasons, including another website linking to a page that doesn’t exist. Get your users back on track by providing a useful 404 page that directs them to the home page or suggests other pages they may be interested in.

Another defensive design technique is checking your forms for validation. Try submitting unusual information in your form fields (e.g. lots of characters, letters in number fields, etc.) and make sure that if there is an error, the user is provided with enough feedback to be able to fix it.

• 404 error pages reloaded

Optimize

You’ll want to configure your website for optimal performance. You should do this on an ongoing basis after launch, but you can take a few simple steps before launch, too. Reducing HTTP requests, using CSS sprites wherever possible, optimizing images for the Web, compressing JavaScript and CSS files and so on can all help load your pages more quickly and use less server resources.

Besides, depending on the publishing engine that you are using, you may need to consider taking more specific measures – for instance, if you are using WordPress, you may need to consider useful caching techniques to speed up the performance.

• Best practices for speeding up your website
• Web page analyzer

Back Up

If your website runs off a database, you need a back-up strategy. Or else, the day will come when you regret not having one. If you use WordPress, install Wordpress Database Backup, which you can set up to automatically email you backups.

Print Style Sheet

If a user wants to print a page from your website, chances are she or he wants only the main content and not the navigation or extra design elements. That’s why it is a good idea to create a print-specific style sheet. Also, certain CSS elements, such as floats, don’t come out well when printed.

To point to a special CSS style sheet that computers automatically use when users print a page, simply include the following code between your <head> tags.

<link rel="stylesheet" type="text/css" href="print.css" media="print" />

• Printing The Web: Solutions and Techniques
• A List Apart: Going to print

Download the Ultimate Website Launch Checklist!

Just recently Dan Zambonini has published a very detailed checklist that covers both the pre-launch and the post-launch phase of the web site life cycle. Among other things his Ultimate Website Launch Checklist contains checks related to content and style, standards and validation, search engine visibility, functional testing, security/risk, performance and marketing.

The pdf-version is available as well. The checklist is a very useful reference that may help you in your daily projects and will help you to prevent errors and mistake once the site is released.

You may also want to consider the Quick Usability Check List by David Leggett that highlight some of the more common problems designers should address on their own sites in a Usability checklist of sorts. Not all of these items will apply to every website, these are just suggested things to look for in your own site design.

What other checks would you list?

Make yourself a to-do list and keep it handy to check over before making any website live. Are there any other points you would add? Share them in the comments!

About the author

Lee Munroe is a freelance Web designer from Belfast. You can see his other writings on Web design on his blog, or follow him on Twitter.

(al)

© Lee Munroe for Smashing Magazine, 2009. |
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Post tags: checks, design, launching, release, usability

I am often asked what VC’s typically look for when performing analysis/due diligence on a business plan. Below is a plain and simple outline on what they look for:

1. Cover Page

1. Table of Contents

1. Executive Summary
   1. Company Intro
   2. Concept and Mission
   3. Mission Statement
   4. Strategy
   5. Company’s Products and Services
   6. Market Analysis and Trends
   7. Competitive Analysis
   8. Value Add of the Company
   9. Financing Amount, Purpose and Time Span
   10. Milestones
   11. Management Profile
   12. Financial Summary
   13. Exit Strategy

1. Company History and Current Status
   1. How Company Started
   2. Founders and Personnel

1. Revenue Model
   1. Nature of the Business
   2. Profit Margins of Industry

1. Technology, Products and Services
   1. Description of the technology (include diagrams)
   2. Value Add
   3. Competitive Advantages
   4. Proprietary Nature
   5. Current State of Development

1. Market Analysis
   1. The Overall Industry
   2. Market Segments Targeted and Rationale
   3. Customer Profiles (needs met/unmet, buying patterns)
   4. Describe how the company’s products will meet the needs of intended markets
   5. Describe all industry forces (suppliers, buyers, threat of substitutes)
   6. Barriers to Entry
2. Competitive Analysis

1. 1. Competitor Profiles (History, Segments Served, Market Share)
   2. Provide Solutions to Breech Entry Barriers
   3. Competitive Advantages (IP, etc)
   4. Anticipated reaction from competitors upon market entry

1. Sales and Marketing

Sales

1. 1. Material, Labor, Overhead Costs
   2. Methods of Promotion and Distribution
   3. Revenue Model
   4. Customer Selling Approach

Marketing

1. 1. Identify customer purchasing decisions and trends
   2. Identify current needs served and unmet by competition
   3. Identify company’s positioning (quality vs. price, innovator vs. adaptor, follower vs. leader, private sector vs. government)

1. Management Profile
   1. Background Information
   2. Capabilities
   3. Management Gaps
   4. Organizational Chart

1. Financial Strategy

Financial Operations

1. 1. List of all loans and terms
   2. Operating Budget
   3. Milestones
   4. Pro-forma income, cash flow and balance sheet

Financing

1. 1. Breakeven Analysis
   2. Amount Needed, Time Period, Total Amount Required
   3. Capitalization Table showing the amount raised and the percentage of ownership
   4. Exit Strategy

1) Never put your own money in past a prototype (and generally get the prototyped paid for by someone else) 

2) Use convertible debt that converts at a discount to the Series A round (discount, between 5-30%, depending on how long between when that debt was issued to when Series A closes) 

3) Sometimes allow for additional warrants or for the investor to double investment at original valuation at time of Series A 

4) Never assign a valuation until a Series A (not worth the mess) 

5) if you’re investing your own cash, have your wife or uncle do it through another entity in the form of debt (no reason to put your money in as common stock when you can get preferred) 

6) When you raise a series A, say you are raising a $5MM Series A at a $15MM valuation and allow for any investors for under $1MM to come in as convertible debt (this avoids the issue of raising angel money at one valuation and trying to raise a Series A at another simultaneously) . likely this valuation is too high but give some room for investors to negotiate it down. 

7) Never state your valuation in raising money in your presentations. First get interest from investors before talking valuation. Get the investor hooked on the company before any negotiations and you’ll have a much friendlier negotiation. 

Incorporate as a Delaware C-Corp (unless you are an insurance company, then use Bermuda- otherwise no exceptions) 

9) Create vesting in your initial shareholder agreement so your investor doesn’t try to change it later. However, give yourself a good vesting schedule based on a mixture of time and milestones and instead of 3-5 year vesting, use 18-24 months. It’s a lot easier to demand vesting when there is none then demand changing vesting terms. 

10) Always have an option pool. Between 10-20% (size of option pool is open to debate) 

11) Always create full business plans. It shows you can do it though no one will really read it and it’ll be good to have for yourself. Make sure includes: Exec Summary, Profile (elevator pitch + team), 1 pager, PPT Deck (5-20 slides), Milestones, Use of Funds. Preferably have: Full Bplan & Full marketing Plan & Product Rollout plan and financial model. Use this in stages. First send the profile then 1 pager, then use the Deck in person then the Exec Summary  then Milestones & Use of Funds. Then send financial model and other plans at once if you get that far. Also, be practical on your projections, never use the word conservative and when you discuss your financials, state the risks and assumptions and potential issues, don’t let the investor do it, do their due diligence for them. 

12) Have a meeting with a potential acquirer and get some level of interest, and if possible an offer to acquire you as is (even if its 50 cents a double cheese burger). This shows that there is serious interest and that you have thought towards the exit (the only thing your investor cares about). It gets people excited when they hear you already have an offer for the company (don’t reveal the offer or who it is from until much later). 

13) More management team, less advisors. Too many advisors makes you look like you’re window dressing. Unless your advisors are investing cash (then list them as investors not advisers) then don’t list many. 1-2 Spot on advisers is perfect. 

1. Subscriptions are the best revenue you can get. Subscription revenue is more recession proof than advertising and more predictable than traditional enterprise software licensing. As long as you don’t mess up, you will have a low churn rate. Then your new subscriptions drive your revenue growth
2. It is much easier to get subscriptions from a business than from consumers. Sure we all love the idea of consumer subscriptions, the potential is enormous. But do this reality check. How many subscriptions do you pay for? How many current subscription costs would you love to eliminate or drastically reduce? What would your really (no, really) agree to pay for every month? We are in a serious consumer recession in the developed markets that may last a while. What was always hard, just got an awful lot harder. Selling to business is much easier, if you focus hard on the next rule.
3. The other 80/20 rule. 80% of enterprise IT budgets just “keep the lights on”. Only 20% goes to new stuff. I learned this in the technology nuclear winter in 2002, when a 20% cut in IT budgets meant that no (zero, nada) new projects were approved. If you can show how to reduce that 80%, you get a better shot at the 20%. That 80% market is a replacement market. You need to know what cost you are replacing. The incumbents are looking at the 20% budget as well and they have the inside track. You have to attack the 80% to make it big.
4. “Parallel replacement” is new. The old enterprise replacement market was based on capital expenditure write offs. If the client bought a $1m license fee over 5 years ago, you had a shot at selling another license fee for something “better, faster, cheaper”. In the new enterprise world of SAAS and open source, upfront license fees are the exception rather than the rule. Buyers prefer to hold onto the old stuff a bit longer until they can see either an open source or SAAS alternative. Replacement is always very risky, leaving incumbents in control and startups banging outside the door in frustration. So you need to show that you can run in parallel with the existing solution for a period until you are established enough to be a viable, safe replacement. Step 1 is run in parallel, step 2 is replace. This is what Google Apps and Zoho are doing to Microsoft office (I use both Google Apps and MS Office. Even though I use Office less frequently I own a license, so why delete it? When I get a new laptop I will decide whether I need to buy Office). To play this new parallel replacement game you need to a) offer a free entry point (the Freemium strategy) so you get traction with a low cost of sale and b) you need to show one very clear new value proposition that will tap into that 20% budget for new stuff.
5. Have one simple new “blue ocean” value proposition that any business user can understand. You need this to access the 20% of budget going to new stuff. Being “cloudy” is not a value proposition, it is simple]y a way to deliver your value proposition. The incumbent can always launch their SAAS equivalent. Your free entry level just gets you through the door so that you get a chance to upsell to your subscription; free is not a value proposition. You have to show how you will do something really basic such as either a) increase revenue with a low cost of sale or, b) reduce cost on an existing process or c) create strategic sustainable advantage in measurable ways. Most likely you will do this by enabling better collaboration/communication, both within the enterprise but also, more critically, outside the firewall to the “extended enterprise”. For a startup, this has to be “blue ocean”, a market that has not yet been defined by the incumbents. By its very nature, this means the market size will be very hard to define and there will almost certainly not be recognized external authority that has defined the market size. Smart VC understand that Blue Ocean strategy and precise market size estimates seldom go together.
6. SaaS ++ means that Open Source is no longer a problem. Open Source has been great for buyers but it has also taken the entry level market away in most segments and that trend shows no sign of letting up. That is bad news for a startup looking to sell traditional software with a “better, faster, cheaper plus we try harder” replacement pitch. You cannot undersell Open Source. That has forced many ventures with great software and strong teams into the dead-pool. With a “SAAS ++” offering, you can use Open Source as the base, add a bit of new code and bundle it all up with hardware and service in a monthly fee. Unless buyers really want to do all that in-house, using their dwindling internal IT staff, you have a shot at it. SAAS alone however is not a barrier to entry. Anybody can replicate it. Which means (smart) VC will/should pass. You need the “++” bit as well. That is likely to be something to do with viral, communications and network effects that create a growing user base and proprietary data coming from that base. That is the “magic sauce”.
7. You need to become a very good financial and data modeler. You will need some old-fashioned face to face relationship selling to get large enterprises to understand your solution, so that the "powers that be" encourage adoption and do not seek to block it. But the business will grow one subscriber at a time and users convert to subscribers one click at a time. Modeling becomes a core competency. Modeling the costs of all the SaaS components (R&D, hardware, infrastructure software, software maintenance, system and data maintenance). Modeling the cost of subscriber acquisition using SEO, SEM, social networking, conversion from free to paid and inside telephone sales in a highly efficient funnel process that delivers the right $ per subscriber. Modeling the revenue growth with multiple what if variable assumptions. Modeling the ROI for your clients at various levels of adoption.
8. Most external market size projections do not help your business plan. Forrester Research reports that Enterprise 2.0 will be a $4.6 billion market by 2013. That is not nearly granular enough for a real business plan. You are not really in the Enterprise 2.0 market. Saying “we will get 1% of the $4.6 billion Enterprise 2.0″ market is totally meaningless and will simply get you shown the door in the VC office. You are in the market of solving a specific business problem, for a specific type of customer, competing against specific incumbents and startups. That is how you need to build a market size, from the bottom up. This is particularly true for “blue ocean” strategies where the market has not been defined by an incumbent. Building the real world, bottom up market size takes real hard work and detailed market knowledge. Look for a small enough market where you can get 20% and take that to 50% share and then leverage that market to get 10% in another market. Rinse and repeat. It is an old formula, but it works.
9. You need VC, they need you but there is a disconnect. Since 2000, most VC have sent any business plan with the word “enterprise” straight to the trash. With good reason. During the nuclear winter, the enterprise IT market was dead as a dodo. Then the big incumbents got into the consolidation game and it looked like you would count enterprise IT vendors on the fingers of one hand. The cost of entry was high, needing expensive sales teams upfront and the revenue was lumpy and unpredictable. Yech. Better to back a few inexpensive developers building a free service that some big vendor would buy and figure out how to monetize. That was a great game for a while. Most VC now view it as in its final innings at best. There is a shortage of buyers, no IPO market, we are in a cyclical downturn for advertising and in a major funk figuring out how social media can be funded by advertising. So VC need Enterprise 2.0. But they have missed the early winners. Very few of the current Enterprise 2.0 startups are venture backed. This is a disconnect. The early players always find it easier to bootstrap than later vendors. Today you need capital to fund the ramp-up and to build distance from competitors as the Enterprise 2.0 market moves from “below the radar” to “early hype” phase, thus dragging more entrants into every category.
10. Vertical is not the same as Horizontal. Classic Web 2.0 services such as Delicious, YouTube and Skype are geared at mass markets. Anything that is more niche has tended to be called “vertical”. That is confusing. Vertical means a specific industry such as banking, healthcare or manufacturing and sub-sets of those industries. Horizontal (applying to any industry) should mean a set of common and linked features used by a specific type of person in the company (e.g. accounts payable by Finance, CRM by Sales and so on). The general rule of thumb has been for vertical ventures to be bootstrapped and eventually rolled up into larger entities. VC tend to view vertical as too limited. Horizontal on the other hand is big enough.
11. Know how to deal with secrecy, structure and control needs. Social Media is about being open, loose, unstructured, informal and fun; no ties allowed. Enterprises are about secrecy, structure and control. Ties show that you are serious and fun is for after work. The ties and fun bit is just style. But secrecy, structure and control is real. If you threaten those, many forces within the enterprise will shut you out. It will be like the red blood cells attacking the foreign virus. On the other hand, if you go along with all the secrecy, structure and control rules of the enterprise you will lose the social media benefits of extended enterprise collaboration and innovation. Many people within enterprises understand this and some of them are in a policy-making position of authority. In general, the trend is towards loose, unstructured, “emergent business networks”. So “make the trend your friend”, but beware of the very strong forces of opposition and deal positively with their legitimate needs.

Conclusion

What is your position in the Enterprise 2.0 market. Do you work in IT in a large Enterprise? Do you work for a large incumbent Enterprise IT vendor? Do you work for a startup that is going to change the Enterprise world? Are you writing about this rapidly emerging market? Do you have unique insights or research to share? We would love to hear from you in the comments and maybe as a Guest Author. Email us if you’re interested in writing for ReadWriteWeb’s Enterprise Channel.

You can subscribe now to our special RSS feed for the Enterprise channel.

In this post, we explore the basics
behind corporate entities, stock, financing, and the key non-technical infrastructure
every company
should have.

To make an idea really powerful, a startup needs
to become a real company. In former days, this might have meant bureaucracy, and
lots of financial and legal infrastructure. Today’s
tech companies are simpler, but still require a set of rules, and you need a rudimentary
understanding of business law when forming a corporation.

Business Entities

There are several ways of conducting business in
the United States. The most basic is a
Sole proprietorship,
which is essentially self-employment. A sole proprietor, such as a grocery store or
restaurant, assumes full legal liability for the
business, but all income is direct personal income
and is taxed once.

Another form of business is a Partnership. This is a venture between several
individuals who share in the profits. Partnerships, and particularly Limited Liability Partnerships (LLP),
are created to address the personal liability issue with proprietorship. With LLP only one or a couple
of partners assumes the legal liability.

Corporations are a separate legal entity. When a corporation is sued, in
general the individuals
behind it (shareholders, directors, management) are not impacted. This legal protection
comes at a price – double taxation. Companies have to pay tax and only then can pay salaries and dividends to the shareholders.

In recent years, people have been incorporating in two principal ways – LLC and Inc. LLC is a limited liability corporation,
a hybrid between corporation and a partnership.

LLC enjoys the legal status of a corporation, but has partnership-like taxation. It is a great way to incorporate before you know how big your company
will become. The caveat
with LLC is that you can’t have more than a certain number of shareholders (typically around 70). For this reason, Venture Capitalists
would normally not fund an LLC because it’s impossible to take such a company through an IPO (Initial Public Offering).

Most tech startups end up being C-Corp or a corporation
(often,
you can start with LLC, then convert to a C-Corp right before raising substantial funding). A corporation
is the most sophisticated business entity. It is a powerful but complex vehicle,
with flexibility. 

Shareholders, Directors and Management

A company starts with incorporation – a process of forming. These days
it’s cheap (around $300) and straightforward.
You can either incorporate on your own or, better, utilise your accountant or lawyer.

You incorporate in a particular state, usually Delaware with its liberal laws and taxation policies.
You don’t need to live in Delaware to incorporate there, but you do need to also declare your existence to whatever state(s)
you plan to operate in. The corporate laws vary substantially, so ask your lawyer and
accountant about regulations in your state.

After incorporation, you issue a stock – a unit of ownership in the company. In startups before funding,
there is little reason to spend time on issuing shares, because when financing
comes you'll need to reissue.
Easiest is to declare that you have 100 shares of common stock and divide it between the founders as
agreed prior to
starting a company. 

There are three principal types of participants in every company – shareholders,
directors and management. Shareholders,
or the owners, vote and elect the board of directors, who set long-term strategic direction
and appoint executive management. The management (CEO, CTO, etc) is responsible for the day-to-day operation of the company.

While you might find this 3-tier structure initially confusing, it does make sense.
In large companies directors are mostly
outsiders. Directors represent the interest of shareholders and hold management accountable for the performance
of the company. In a large corporation, typically the CEO is also a President or Chairman of the board, but the rest
are directors outside the company. For small startups, the situation is simpler.
You are a shareholder, a director and a manager of your own company.

Key Documents

In a startup, you need to understand when to wear
the hat of a shareholder, director or a manager. Looking at a company from the perspective
of key legal documents helps you do that.

The first document is Articles of Incorporation,
which declares the kind of entity, state of operation, classes of stock, and number of shares.
The next is a Shareholders
Agreement, which typically discusses the rights and obligations shareholders have in
situations like sale of the company, sale of stock, or death of a shareholder.
And Corporate Bylaws is the guide by which
the board operates;
it specifies who can be a director, how often meetings are held, how voting is
done.

The employees of the company – e.g. CEO, VP of Design and Software Engineers – all sign
an agreement.
These days, employment agreements typically consist of a short offer letter and a lengthy non-competition agreement.
The letter outlines the position, salary, vacation, and other benefits. The letter
asks the employee
to obey standard corporate rules and regulations. In addition, a lot of startups offer employees stock options – a way
to earn the right to buy a stock in a company.

Legal and Finance

A first-time entrepreneur will find the
legal complexity and accounting for a corporation overwhelming.
It is essential to hire lawyers and financial professionals. There is a saying amoung startups
and VCs that a good lawyer pays for him or herself, despite the fact that hourly fees are
whopping.

There are three kinds
of lawyers needed in a tech startup. A corporate lawyer drafts the basic documents and
will advise on daily matters. A deal lawyer specializes in financing and sales transactions.
And
if you have intellectual property to protect, then you’ll need an IP lawyer.

Financials of a startup can be split into daily simple things and annual complex
matters.
For a startup, it is ideal to get a bookkeeper – a person to take care of payroll, monthly profit and loss,
and basic financial documents. You need an accounting firm for annual taxes and larger issues.

Accountants
are more expensive than bookkeepers, but since you don’t need to use them for daily operations, it makes
sense to have an accounting firm do your annual finances. In addition to taxes
the accountant
will product a compilation – a summary of annual activities. After you get funding, the board of directors
will ask for an audited financial statement – a full, certified financial review.

Venture Financing

To turn your idea into a big company, you will likely need to raise money.
This is essentially a sale of
shares to investors. A typical company goes through several financings – angel investment and then
a few rounds of venture capital. The angel round is typically small, traditionally less than a million dollars
and lately substantially less (thanks to YCombinator and TechStars).
In the angel (or seed) round, the founders may offer 10-15% of the company in exchange for a convertible loan.
Technically, this is not a direct sale of shares, but instead a right to buy shares in the next round of financing
at a discount, while accruing interest.

Traditional angels are wealthy individuals, often former successful
enterpreneurs and executives at
large companies. Each angel might be willing to put down between 10-100K, with 25-50K being typical.
So if looking to raise 500K, you would need to line up 10 or more angel investors. You can simplify
it if you find a local group, for example New York Angels.

The next round of funding, called Series A, involves Venture Capitalists (VC). A venture firm is essentially
a partnership that manages an investment fund. The fund raises money and invests
into startups and later stage companies.

The VC world is complex and it’s important to know how to navigate it.

The first rule – know what firms are right for you at what stage. The right firm will be the one that’s interested in the sector you’re in
as well as the size of the investment. VC firms manage anywhere between $150M – $1B, with
a typical
tech fund being around $300M. Since the time of each partner in the firm is limited, there
are only so many investments the fund can make. So, if looking for 500K, it doesn’t make sense to approach VCs.

A typical Venture Firm will look to own 20 – 30% of your company over its
lifetime. When the investors put money into your company, they will protect themselves in cases when the company
might not do well. They will ask to create a class of preferred shares (preferred stock) that will
be subject to different rules than the common stock (those you own). Preferred stock is paid first
in case of an exit, and it enjoys veto rights such as precluding you to sell the company, or the
opposite – forcing a sale.

It is common for a venture firm to elect a director on your board.
This is the partner you are essentially working with. In early stage companies,
a VC plays an instrumental role in mentoring the CEO and shaping the course of the
company. As the company grows and perhaps even goes public, the VC director steps down from the board.

More Funding

Each round of funding expands the number of Venture firms at the table and results in
dilution.
To understand dilution, one needs to understand the mechanism by which startups raise money. Each round of
funding
results in additional shares being issued by the company and sold to the investors.
Typically, investors are not buying
shares that you already have, they are buying newly issued shares.

The money raised is not going into
your pocket, it goes to the company. In some cases, when you’re doing stellar, investors would be
willing to
buy your shares – but this is atypical. As a result of each raise, founders and employees own less percentage of the company
(their number of shares remains the same, but the total number of shares increases). Prior investors are able to
maintain their respective ownership by buying additional shares (this right is given
via preferred stock).

Despite the fact that startups are reluctant to give up ownership to VCs, the economics actually make sense.
Even though your percentage of ownership goes down, the total value of the stock is higher after the financing, because
the value of each share rises. As long as the company is doing well, fund-raising makes sense and is beneficial to its employees.

Conclusion

There is a considerable amount of complexity surrounding building a company. Way more than just
a great idea
and elegant code is involved. But building a company, learning the intricacies, understanding the law and venture
world, is fun.

Instead of being afraid of this complexity, startups need to appreciate it and embrace it.
Most lawyers, accountants and investors are smart people whom you will
learn from. They will help you make your startup into a real company.

As a start point, you should create an LLC and not worry about much paperwork. Once you
get into investment, you’ll need to change to an Inc, get a lawyer, bookkeeper and accountant, and start diving
into the details discussed in this post.

There are two excellent resources to get additional material: Ask The VC -
a blog maintained by Brad Feld and Jason Mendelson; and Ask The Wizard -
a blog by former CEO of Feedburner, Dick Costolo.

As always we look forward to your questions and we also ask you to share your tips on the essentials
you picked up during your startup life. Join the conversation!

Anson Parker has created Domize another in the line of Ajax domain utilities. Here is what Anson had to say about it:

It is the fastest as-you-type
domain name look-up tool for web and iPhone users. Queries are
encrypted over SSL for security and privacy. Domize is really head and
shoulders above its peers in allowing you to quickly scout out an
available name.

It also has some cool innovations. The entire site is delivered in one
request for non-IE visitors (”data:” urls for images) and additional
functionality is only brought in after the page load (e.g. Google
Analytics). I used a cool technique to modify the stylesheet at the
bottom of the page through JavaScript and keep the whole thing valid
strict xhtml.

Domize also offers preview thumbnails of unavailable domains, which is
a great help in seeing “neighbors” of the domain you’re interested in
as well as letting you quickly see whether a domain is owned by a
squatter or legitimate site.

The time it takes to design, build and deploy web applications has been steadily shrinking, especially with frameworks like Django, Rails and Symfony. With that in mind, we decided to push ourselves and attempt to launch a web app in 32 hours. Four crazy days later, Matt was born.

The app we built is a simple tool that allows you to post to multiple Twitter accounts. We learned a ton during the experience so I’d like to share some of those lessons with you.

How we did it

We have a team of nine people which were divided as follows:

• Two developers
• One designer / front-end developer
• Two bloggers
• One copywriter
• Three PR folks

I would say you only need three people if you want to strip it back to the bare minimum, which would look like this:

• One developer
• One designer / front-end developer
• One blogger / PR person

Our app was built in Python using Django and is hosted at WebFaction. It uses the Twitter API, Git and Codebase for version control.

How much did it cost?

On a basic level it cost us a week of salaries (around $10,000). There are some other small costs which I’m not including like rent, electricity, coffee and taxes. We got hosting for free because of a connection we have with the company but if you paid for that you might expect to pay not more than $400 for the first month (for a simple app).

Team building

Building a web app quickly is not only a great idea if you need to get your idea to market fast but it’s also a great way to build team morale.

You don’t need to build a brand new app in order to benefit from this idea. You can actually take time off to work on a new feature or direction for your current app.

There are some serious benefits to stepping away from your normal work and producing something totally new and creative:

1. The best boost you can give you or your team is to provide the time to be creative. Turning off your phones and email and just focusing on something new and exciting will do wonders for your energy level.
2. It could generate some amazing buzz around you and your company or products.
3. You’ll come back to your current projects with a new perspective and renewed energy.
4. It will push your team to learn new skills. For example, Will, our head of sponsor relationships, spent the whole week doing PR – something new for him.

Tips on working wisely

Here are a few tips that you should keep in mind if you’re focusing on building apps quickly:

1. Limit meetings to one 10 minute chat in the morning and one 10 minute wrap-up at the end of each day. Meetings are the best way to kill productivity and crush creativity so keep ‘em short.
2. Get people away from their machines at lunch. Go for lunch together and maybe throw the frisbee or play Wii. The excitement and creativity will quickly deteriorate if you don’t have a break during the day.
3. Simplify the site and app as much as possible. Try launching with just ‘Home’, ‘Help’ and ‘About’.
4. Make sure to build on a great framework like Rails, Symfony, Django or Objective-J. Part of our experiment was playing with Django and comparing it to Rails and Symfony (a PHP framework). We’ve found that Django lacks the rigor of Rails or Symfony, thus might not be an ideal choice for future projects.
5. Go with the first logo idea and color scheme from your designer. You shouldn’t over-analyze the look and feel of everything as this process can go on indefinitely. Design the logo and move on. This is why you need to hire good designers and trust them to be good at what they do.
6. Be technologically agnostic. If your developers are saying it should be built in a certain language and framework and they have solid reasons, trust them and move on. Again, this is about hiring smart people and getting out of their way.
7. Coordinate how your designers and developers are going to work together. Our designer creates static HTML and then passes it to the developers who use the HTML as a basis for creating templates. These templates are then committed to a Git repository and from then on, the whole team works from that one repository.
8. It’s not enough to just have a designer and a developer. You need a dedicated person who’s focus is solely spreading the word about your application and working to get media coverage. There’s no way we could get the kind of coverage for Matt that we hope to achieve without several of us working full time on it. However, do not hire a PR agency for this – there needs to be an authentic passion for the app that can only come from your team. (For instance, I asked TechCrunch to cover it, and Erick came back with the suggestion to write this post).
9. Get your ‘Creation Environment’ setup correctly.

Building your Creation Environment

If you want to build quickly and creatively, you need to set up an environment that encourages and facilitates that process. If you don’t have the following basics down, your team will be constantly battling annoying issues instead of getting on with building. You’ll need:

1. Good version control. I suggest Git.
2. An easy-to-use source and changeset browser. We use Codebase.
3. Solid server infrastructure. Why not build on Flexiscale, Grid-Service, Mosso or EC2 and let the big boys worry about uptime and server load?
4. A ‘one-click’ deployment system. This means that deploying the code from your repository should take just one click. If it’s any more complex than that, there is potential for complications and downtime. Capistrano is brilliant if you’re using Rails.
5. Printers, chalk boards and meeting space. People need the physical space to throw around ideas. We’ve painted an entire wall with blackboard paint so the team has room to sketch ideas.
6. Coffee, water, music and healthy snacks.

If you really get these right, it makes building and creating so much more enjoyable and fast.

So that’s it …

Thanks for listening to the Matt story. Please share your advice and experience by commenting below. If you want to see a whole day of development squeezed down into four minutes, watch the video below. Enjoy.

Matt Week – Day Two Time Lapse – Music by MGMT

Related reading, ideas and tools

• Contest to build an app in 48 hours: Rails Rumble
• Post about the danger of too much functionality: Features are a one-way street
• Powerful web frameworks: Django, Rails, Symfony, Objective-J
• Version Control: Git and Subversion
• Source and changeset browsers: Codebase and Beanstalk
• Cloud hosting: EC2, Flexiscale, Google App Engine
• Easy deployment: Capistrano

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0