Software Startups And TANSTAAFL

There is a free lunch in prison, but it isn't really free at all. A prisoner has to pay for the lunch by giving up their freedom. The acronym TANSTAAFL bluntly spells this out: There Ain't No Such Thing As A Free Lunch. Another way of putting this is opportunity cost. If you have one thing, it means you give up something else in exchange. This is an important concept in startups and I have seen it play out in the areas below (both for the founders and the employees).

Not Respecting The Complexity and Effort Involved In Project Management

It easy to look at project management, ticket systems, quarterly and yearly planning and think it is:

• Easy (Anyone can do it)
• Someone else's job
• Not as important as: writing software, fixing fires, creating revenue, product management, design, etc.
• Low effort

Software project management is none of these things. It may be one of the most important things in a startup. The most "important" people should be doing it, it shouldn't be outsourced to the least experienced person. If project management is easy at your startup, you haven't got the bill for your lunch yet and you might not be able to afford it.

A great rule of thumb to look at in your startup is the frequency, regularity and accuracy of your product releases. Do you have a set schedule where what you planned is released every 1-3 weeks, and it is consistent, i.e. you have done this for the last year? If you aren't regularly doing a weekly demo and 1-3 week release of your software, your in big trouble. (Yes, even in a 1 employee startup with the prototype being created from scratch. It is even MORE important for employee #1 to do this).

Closely related to regular, frequent releases of software is what your developer(s) are doing every day. DOES CODE ,ON THE THINGS YOU SCHEDULED FOR THEM TO DO, GET COMMITTED, DAILY. If not, why not (hint, there is no valid excuse)? If you were working on an essay for English class in Microsoft Word, wouldn't you save a copy every day? If your developer isn't checking in code daily, and demoing weekly, be very afraid!

Software Quality

Surprisingly as much lip service as is paid to testing, Big O notation, best practices, etc, the reality is it just doesn't happen. Two common things happen with an inexperienced or unenlightened developer:

Too little testing/best practices

Surprisingly, even experienced developers who have been deeply burned by outages and previous failed software projects, just don't do anything to verify the accuracy of their software. There are a lot of bad reasons to not test your software:

• You are the founder/CTO/Lead Engineer/Egomaniac and you have: 20 or 30 years experience writing software, or your language is compiled/functional/special, or you have an awesome stack overflow rating, or you turn into a wolf at night (insert horrible cognitive bias here)... you don't write bad code.
• Testing/Deployment/BestPractices/Monitoring is for other teams (The people you are superior to: DevOps/QA, etc).
• There isn't time for it.
• A deep skepticism that companies don't actually understand software and it is better to look good, then to make things that work in the long term.
• You are ignorant and just don't understand about technical debt and failure and haven't been burned deeply.
• You work with people that never created results and only wrote tests for code that never made it to production (see below).
• You create giant messes at startups/companies then leave before your technical debt (usually surfaces after a year) shows up. In this case, you may actually think your a guru, but didn't realize the horror you left behind for your co-workers.

Too much testing/best practices/DevOps

There are also people that don't create value for their company because all they do is write unit tests using TDD (Test Driven Development). They talk a great game, but just never get anything done. This is even worse than writing no tests, because you haven't even created something that looks like it works, you have created literally nothing.

Goldilocks Best Practices

The real answer is testing depends on each situation, but extremes cause huge issues. Daily thinking about software quality, ensuring there is minimal technical debt, and actually doing some basic automated testing is hard backbreaking work. If your company isn't doing this work, it will eventually need to pay for this lunch too. The lunch could be so expensive you have to stop work for a year on your core product. By that time your guru developer may not be with you to pay the bill.

The Guru Developer/Sales/(Insert Key Employee Here) You "Luckily" Hired At Your No Name Startup

Something that is all too common is for an early stage startup to hire a CTO/Employee #1/Co-Founder/Revenue "Rainmaker" that has something mysteriously good going on:

• They work for equity
• They are ex-(Google, Facebook, Linkedin,Twitter), or they went to (Stanford, Berkeley, Caltech, MIT).
• You are paying them dramatically undermarket because they believe in your vision.
• They require 5 times the salary of a regular employee because of how special the results will be that they deliver (it almost isn't fair you found them...you will crush your competition).
• They work from home and have the equivalent of cold-fusion they will deliver in six months....quit bothering them already (they might show up this week into the office)...they are a wizard.
• They name drop a celebrity in every sentence, but can't speak to hard facts about what they have accomplished. Their network is so huge, what could go wrong?

The amount of times I have seen a company and/or New Product burned by these types of situations is staggering. It is very surprising that there isn't more realism around hiring at startups, and no, whiteboard algorithm interviews are not the answer (especially if your looking for a co-founder/employee #1 and your non-technical). The answer is there is no answer. You have to use hard work and boring methods to figure out how to achieve the right key hires and revenue results. There is no silver bullet for any hire and there is no hero who will save your startup.

There is Unlimited Vacation And You Get Equity For a Lower Salary

Unlimited vacation, by definition, means you don't ever work again. This seems to good to be true and it is. Most startups use this as a way of reducing costs, but in practice you could get burned by getting burned out and not getting any vacation. Your "free, unlimited" vacation costs a lot, it may mean you don't get any.

Lowering your salary for higher equity is wishful thinking. Instead you should look at things like Oil Companies do...expected value. Probability * Payout, or (1% Probability) * (100,000 dollars in equity) = 1,000 dollars. Or whatever you think the probability is of the event * your payout in equity. Changes the "free equity" a bit doesn't it? Maybe it would be better to get a bonus and invest it in an index fund at 10% annual return?

The Investors, or Board (Of Profitable Company) Will Fund The Company or New Products Forever

I have heard this one a few times, at startups that are not profitable and working on New Products at profitable companies. Of course, the money will eventually run out, of course the board will shut down unsuccessful New Products. No business person will continuously put money into something that doesn't look like it will work out. If your company or New Product isn't hustling to create value, it will get shut down. The free lunch of "free money forever" is a pipe dream, don't believe it for a second.

Summary

I have never seen free lunches work in either direction, games just create more games. Your "free lunch" will cost you dearly, mainly in that what you think you will get you won't get. Are you willing to pay for a year of nothing for a "great deal"? Things are hard in a startup, and every day is a brutal, intense struggle for survival. Building a company from scratch is exciting and really fun, but don't fool yourself, it is back breaking work. On both the employer/founder side and the employee side, be careful of the free lunch. Free could cost you more than you are willing to pay.

References

1. The Hard Thing About Hard Things
2. Tricky Baby
3. TANSTAAFL
4. Opportunity Cost
5. Principles of Micro-Economics
6. http://paulgraham.com/startupmistakes.html