Why you should not build an internet service and drop out of school

Recently there was an article on Arctic Startup encouraging everybody to start an Internet Service. Being old and a little realistic and a father I think I should cool some of the enthusiasm. :-)

Firstly, don't drop out of school. Never! The higher your education the happier your life - the smarter the people you socialise with and the better you understand about what is happening in around. Don't do it even when you make it as an enterpreneur. Nobody likes an un-educated and ill-literate boss. An internet service is no different from any other traditional business and education is one of the few values that a person has. Giving it up just to make a few bucks would be stupid. Besides if we leave out some exceptions (like Bill Gates) then there are not that many rich people who don't have higher education. At some point you just need the general intellectuality. I have worked as a manager of IT specialists and I claim that there is a clear and visible difference between those who have higher education and those who don't. Not having higher education tends to results in a "ceiling of career and salary".

The other problem with Internet Services is the ease of starting them and their globality. If it is easy for you to start one then it is easy for everybody else also. This results in really harsh competition. There are practically no entrance barriers. Neither know-how, capital, geographical nor IP or licensing. You have nothing protecting your revenue. Actually I don't know if there is any other industry where you get so fierce competition. Even the cab companies and restaurants have more entrance barriers (a car, a drivers licence, geography) than Internet Services. As a result that even the profit margins of the PC industry (that are probably less than 5%) look really tempting compared to Internet Services. If every schoolboy can make a service on weekends with zero investment then you end up running the service for free for the rest of its existence. If on the other hand you want to make usability, features, marketing or a large number of users your advantage then be ready to invest - 10-s of thousands of euros.

Sales, Marketing and Developers

Probably the biggest reason why startup IT projects fail is that only the technical work is calculated into the project, but sales and marketing is forgotten. This is especially true when the founders are technical guys themself. For example programmers and server administrators. They usually think that an elegant technical solution and a clever service itself is thrive automatically people to using it. (To be honest I have also made that mistake in the past.)

Remember the view of Dilberts boss: "Everything that I don't understand can be done by one person in 10 minutes." This goes for techies planning sales and marketing.... and also vice versa.

But what should be the percentage of work spent on the technical solution compared to sales and marketing in a successful SaaS project? Should there be two, three or perhaps six sales and marketing persons per one programmer in a startup? Do you know if there are any statistics on this subject?

How about hosting and IT service providers? Should there be more sales and marketing people and customer service people than system administrators? In MicroLink's case the number of sysadms and IT-specialists is far greater than the number of sales, marketing and customer service people...which of course means that our customers get technologically great service that is not too expensive as we don't keep too many sales and marketing people on our payroll. :-)

If we look at statistics then the services industry calculates for 65% of western economies GDP. Can this be translated that for each techie there should be 2 sales and customer-service persons as an average?

"Startuping" in big companies

There is an interesting discussion on Arctic Startup and Jüri Kaljundi's blog about the importance of culture and how it affects the number of startup's being started in a country.

Most certainly culture affects the number of startups, but! Culture is something that changes. So the number of supportive measures by government and also media, universities, established companies and third sector help to change the culture. If the helping measures are implemented, enterpreneurship is made popular in the media then in a perspective of 3-5 year culture will change and the number of new startups starts to grow. We have seen similar changes in culture in Estonia. The rise of all kind of volunteer organizations, the green movement, movements promoting biking to work has been actually quite remarkable. If people are willing to take part in volunteer organizations then most certainly they are also willing to try their own businesses.

Another dimension of this discussion should be the "big" companies. As the culture of startups grows it also drives the big companies to innovation, product development and global markets. It comes through people, universities and media... through reading Arctic Startup for example. :-) As the big companies are not something isolated from the society and culture - they are affected.

Who helps you get your startup started in Estonia.

So you have an idea and want to start your own business - an internet or a tech startup. If you want to do it in Estonia or nearby you can use the following help and contacts.

1. If you just have an idea you can participate in the "Ajujaht" competition. This is a yearly competition with serious prise money (1 MEEK fund in 2008) and really experienced judges and mentors. You can get the first advise on your idea and if you get to the finalists this proves that your idea is worth something.

2. The post-competition training programs and contact events of Ajujaht help you develop your business and idea further.

3. After that you can go to the Tallinn business incubator or Tehnopol. There you get also startup mentoring, contacts and affordable office space. They also have useful training programs. With their help you can also get the Tallinn municipalitis starting business support (100 000 EEK) or (50 000 outside Tallinn).

4. At any stage you can contact MicroLink incubator. We support startups with the technical solution (the web application, server hosting etc.) We charge for it, as our employees want their salary, but for startups we have a really special pricing! Starting from 10 euros/month for the first 6 months. Read more on our website: inkubaator.microlink.ee.

5. Contact "Connect Estonia". They can help you with a springboard event. They have a network of specialists and investors. Good ideas do get advise and investment with their help!

6. Take a day or two and go through all the support programs of EAS. Visit their office and with the help of their consultants find a support program for your technical development or export support.

7. You also need internet marketing! Contact Altex, Dreamgrow or Peep Laja for that.

8. Cheap hardware and freeware system software you can get from Sun Startup Essentials program with our help.

Come to Open Coffee! The startups, their supporters and just interesting people gather on every first Thursday of the month at Mercado. Just show up, no fee, no registration. Sit to our table and tell us what your idea is about. Follow information on Facebook.

Communication. List your startup on ArcticIndex. Contact me or Arctic or www.tigerprises.com to write about your startup. Create a blog and a Twitter account.

Start a Startup in Bad Economy

Paul Graham wrote another of his essays covering the topic of Why you should start a startup in Bad Economy....that means now or in 2009. I agree that the people doing the startup matter 10 times more than the economic situation! To his thoughts I would add one more bonus of bad times. It is much easier to find co-startupers or co-workers during bad times and "all the good men" don't work for big financial institutions who raise their salary 10% every year.

IT is less than half technology...

There seems to be a difference between the SaaS/IT Startup thinking and the traditional SAP like thinking. The SaaS applications and the IT startups are really good tools, easy to start using, cheap to start using and convinient. Yes, but.... But for an organization, or actually for every IT system that is used by more than one person, the processes of using it become really important. Somebody has to implement those changes processes, somebody has to change the old ways of working and has to figure out what the new ways are.

The biggest IT systems, like the e-health systems, that MicroLink is programming and installing, need changes in legislation.

So an advice for the startup and SaaS world - if your product is meant for more than one - think of partnering with consultant firms! Somebody that sells and implements your product.

Listing Estonian startups

Here is a post on the Arctic listing the Finnish startups. Take a look and see what is going on there. I thought that maybe it would be interesting to do an Estonian list also, but then..... startup business is international and we could use international websites for that. Anyway, if you want to list your, your friends or any other Estonian startup then go ahead and write a comment here. Or If you know good startup listing sites then also all comments are welcome!

Open innovation: It is good to have those startup guys in your office

I continue the open innovation theme that the poll on the right side of this page is about. In case you have not voted, please do!

For a week now we have had one startup working in our office. And I must say the fresh spirit that the startup people bring to the company is something remarkable!

Here is a list of positive thoughts the startup people have and bring to the company:
"Me, you and everybody talks to customers. When the situation needs even the programmer can sell!"
"The new technologies and Web 2.0 things. We better test and use them! Now!"
"The useless thing, server or software we bought is a serious problem - my problem. We better use it or sell it!"
"We better not waste our time on useless procedures, papers, bureaucraucy"
"I am entitled for a new laptop, mobile or payrise when we have good net profit."
...

This all is due to the fact that in a startup business "company's success" equals "employee's success". In a bigger company the connection is almost missing and I am almost sure that it is not possible to have a straightforward connection. The limit when the connection fades out is about 30-50 employees. For bigger companies some people just don't "self-motivate" so easily.

So the point of open innovation is to use the "high pressured steam" in the startup people and turn it into successful products.

Startup ideas - waste of time?

I am from the "serious IT business" background and I after following the internet startup field for some time have started to wonder - why is all the attention in the startup field going to fancy, but mostly useless solutions. Micro-blogging, social networks, mashup chat and widget applications. They don't really create value and revenue in the traditional corporative sense. They make their customer's spend even more time online, with yet another widget to play with or even worse - they are a platform for creating widgets that make the people waste more time online. They don't make our offline life easier, rather they add a problem as now it is also necessary to have an online life and social networks to deal with. Why doesn't the Y Combinator, TechCrunch and Seedcamp have startups who do "serious IT business" - like for example an ERP or ITIL software or a new cost-saving IT solution for the logistics, telecom, manufacturing etc. businesses.

The vision and mission of MicroLink is "We create time and make life easier". I really like our new vision. :-)

Pitching skills --- overrated

When you read about the internet startup, incubation and VC business you get a lot of advice on pitching. Pitching - present your business case in "7 minutes". YCombinator even seems to have a pitching-training program for their startups.

Although good sales and presentation skills are important in starting a new business I think the skills of pitching are far overrated and it is unfair to decide not to invest into an idea by seeing only a 7 minute presentation. It is the VC-s who only have so little per idea and force this "fast-food presentation policy".

I mean if you cannot make a good 7 minute presentation of your startup it does not mean automatically that:
- The idea is bad
- You are a bad manager
- You can not make the business work.
- ...
Actually it does not mean much at all in my mind. So in MicroLink incubator we give the idea owners at least an hour for an interview.