The Art of the WordPress Startup: Part 1

So you’ve decided to create a startup and have decided to build on top of WordPress. Maybe you’re building a web app, a dev shop, design agency, or a pageview monster that generates AdSense revenue. Regardless, if you’re a first timer, you’re bound to have lots of questions bouncing around in your head. The title of this post is in reference to the first startup book (The Art of the Start) I read back in 2004, shortly after graduating from undergrad. It answered many of the questions you may have, but a lot has changed since then so consider this an updated CliffsNotes version.

Before we begin, please do not consider any of the following legal advice. The following are my own observations and experiences. You should consult an attorney for your specific situation. None of the links in this post are affiliate links. I know that might sound crazy. Ok, let’s get to it.

What type of company should I form?

You should first educate yourself on the various types of company formations in your home country. Here in the U.S., the main ones people seem to choose are sole proprietor, LLC, LLP, S-Corp, and C-Corp. Then there is the tax aspect. For example, you can be a single-member LLC but file as an S-Corp for tax purposes. Sounds confusing right?

In general, if you’re looking to raise capital down the line or anticipate being acquired, then a C-Corp is the common approach. In addition, filing in Delaware gives you certain advantages, most of which have to do with way the laws for corporate governance are written in that state. Most VCs and angels prefer to invest in a company formed in Delaware, and it makes paperwork easier in an acquisition because the acquiring firm will most often be based there as well and be familiar with their laws.

You don’t have to pay state income taxes at the Delaware rate provided you don’t physically operate there. So for example, you can have a C-Corp filed in Delaware and then operate in say Texas by filing as a “foreign entity” doing business there. That way you have the tax advantages of Texas with the corporate governance advantages of Delaware.

If you’re starting a web agency for example and don’t intend to raise capital or be acquired (at least not for quite some time), you’ll probably want to have your attorney explain the advantages/disadvantages of going with an LLC, LLP, or S-Corp. If you’re a freelancer, then going the single-member LLC route is probably the most common approach. It has minimal paperwork and filing fees, plus it keeps your taxes relatively simple. You file what’s called a “Schedule C” and can even do your return via something like TurboTax Home & Business. If you intend on having partners and don’t want to be liable for their conduct, then you can consider the LLP approach. It’s commonly used for partnerships comprised of doctors, architects, lawyers, and accountants.

An S-Corp has more formality and compliance obligations than an LLC, with things like creating a board of directors, annual reports, and shareholder meetings, whereas an LLC is pretty informal and the requirements are minimal. Another striking difference is that with an LLC, profit/loss can be allocated disproportionately among owners. With an S Corp, profit/loss are assigned to each shareholder based on shares of ownership. One main advantage of an S-Corp over an LLC is that if you do decide/need to convert to a C-Corp at a later date, it can be done much faster and easier. Converting an LLC to a C-Corp can involve lots of headaches, time, and expenses.

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Should I raise capital?

The answer here depends on your personal preference and the type of business you are starting. If someone tells you to “never raise capital”, then they’re an idiot. Try starting an electric car company or something like Amazon without capital and see how that goes. Obviously some types of businesses absolutely require raising funding and others do not. If you’re starting a web agency or a business that requires little money to get off the ground, then you’re better retaining 100% ownership and running things the way you like. However if you’re going into a field where scaling quickly makes sense to avoid being squashed like a cockroach, then you’d better get your pitching shoes polished.

Do I really need a co-founder?

Many studies have shown your odds of success are higher when you have a co-founder. Most incubators and startup accelerators actually prefer you have one, but it’s not required. Ideally you want a co-founder who has a complementary skill set. Apple was so successful because Jobs and Wozniak were perfect complements to one another. Each was strong where the other was weak. In addition, working as a team can be fun and it’s easier to get through the low points when you are sharing them with someone else. Would you rather stay up all night alone and crank out pitch decks, or do that with someone by your side? Speaking of which, in addition to being complementary in skill sets, make sure you don’t mind being married to your co-founder in a sense. You’ll be spending a lot of time with them, and if you don’t jive personally, neither of you will be having much fun.

I’m a hacker. Do I really need business types on my team?

There’s a tendency for those with technical backgrounds to look down upon those who didn’t choose computer science as their undergraduate major. I’ve been on both sides of the fence, as I went to a Tier 1 undergrad for a BBA double majoring in finance and economics, with a minor in information systems where I mainly took programming courses including VB, C++, and Java. I’ve worked in some of the top rated tech incubators in the country, done consulting at the world’s largest advertising firm, and co-founded a company that grew from zero to $10MM in annual revenue prior to acquisition. I’ve worked extensively with technical and non-technical people for quite some time. I’m a Harvard (grad school) dropout, although I’m not sure if that makes me a genius or a moron.

Technical types oftentimes mistakenly have the attitude that MBAs and “business types” are stupid. MBAs definitely aren’t stupid, as they account for more millionaires than any other graduate degree. A whopping 12.8% of millionaires with a graduate degree held an MBA, more than any other type including law, engineering, mathematics, computer science, and medicine. In addition, the average salaries of “business types” at venture funded startups according to AngelList meet or exceed those of engineers.

But how can that be? The answer is simple. Great sales, marketing, and management/leaders are extremely hard to find. Sure, the C student from University of Who Cares in business or with an MBA from an unaccredited online school isn’t worth a dime. But neither is a crappy programmer. The truth is that great people have tremendous value, regardless of their field of study. And for the business/MBA types out there, be sure to respect your partner or employees who are developers. Good developers are equally hard to find, and if you’re the creative “big picture” type, you probably wouldn’t be able to do the type of work they do for extended periods of time.

Do I really need salespeople on my team? Aren’t those just for big companies?

If you think of someone on a car lot when you think of salespeople, then you’ve got it all wrong. At places like Oracle, the salespeople are the highest paid in the company excluding the C-level executives. Need proof? The average salesperson at Oracle makes $250K per year, with some earning over well over $500K. But why would Oracle pay them so much? Because those reps are paying for themselves many times over, and very few people are closers.

As the founder, you’re going to be selling all the time. Whether it’s to potential customers, potential employees, or potential investors. So if you think selling is “below you”, you’re going to sink fast. In addition, you need people skilled in sales if you want to scale up properly. From HubSpot to AdWords, talented technology companies have employed salespeople to help them grow to substantial size. These are companies with access to the best UI/UX people on the planet.

Can’t I just contract out design? Do I really need a designer on my team?

As for designers, they are equally valuable. How many sites have you stumbled upon and thought, “wow, they have great features but this UI makes me want to puke”. Probably more than a handful. The other day I went over to HootSuite and almost had a panic attack. They are one of the leaders in social media, but it sure doesn’t look like it. It is really that hard to have a designer create a nice theme? Dave McClure of 500 Startups is famous for saying that the best founding team consists of a hacker, hustler, and a designer. Considering he’s well on his way to funding 500 companies, I’d say finding a better perspective would be fairly difficult.

I’m a business guy/MBA, can’t I just hire a developer on Elance to build my app?

This typically doesn’t work out for a few reasons, but there are exceptions. The most notable is that the best developers aren’t on Elance, so you’ll be picking from those who didn’t make the pros for the most part. In addition, a freelancer/contractor won’t have equity or a vested interest (keeping their job) to put their heart and soul into the project. So you’ve got a mediocre developer who doesn’t have passion for the project, and you can already predict the results. You can however hire a freelance dev on one of these sites to help build a working prototype to show to other developers or investors, so you at least have something. However don’t expect to find the next Zuckerberg using a reverse auction system. There have been some exceptions to the rule and rumors have it that Kevin Rose hired a freelancer on Craigslist for $1000 to build the first version of Digg, but stories like those are few and far between.

How do I hire and retain employees?

Studies have routinely shown that emotional intelligence is the most important predictor of career success, more than any other single factor. Prior to this finding, researchers scratched their heads at the fact that average IQ people outperform those with the highest IQs a whopping 70% of the time. Now we know why. Why does this matter? Because emotional intelligence is critical in being a good boss. You need to understand what motivates your employees and act accordingly.

But what happens if you aren’t a good boss? Well, your employees will leave. There’s a good chance your employees are getting job offers all the time without your knowledge. I probably get one offer per month, and I don’t publish my email address, nor do I have my LinkedIn set to “seeking opportunities” or whatever they call it. The point is somehow recruiters and competitors contact me, and I’ve purposely made it difficult for that to happen. Your employees will likely have less barriers to being reached, and if you don’t treat them like gold they’ll be gone. Retraining is expensive and time consuming, so you want to avoid that as much as possible. Turnover is also a surefire way to kill morale. Nobody wants to work at a chop shop.

Do I need a formal business plan?

Probably not, unless you plan on entering a business plan competition to win some cash. You’re probably better off spending your time on developing your product, recruiting a team, and raising seed money if you need it. It’ll be next to impossible to get a bank loan anyways, and they’re the only places left that ask for a long winded 30 page document. If you’re planning on pitching angels and VCs, then start researching how to create an awesome pitch deck.

Do I need to read all the startup books out there?

Probably not. Each type of company is different, so there’s no magic formula and the lessons learned from a particular person’s biography may have limited use, even if they created a company in your same industry. For example, the personal computer market looks a lot different than it did in the 70s and 80s, so reading biographies on Gates and Jobs probably won’t teach you much about the current climate. If you want to read startup books for motivation and/or entertainment, then here are some good ones to consider:

  • “The Lean Startup” by Eric Ries
  • “Mastering the VC Game: A Venture Capital Insider Reveals How to Get From Start-up to IPO on Your Terms” by Jeffrey Bussgang
  • “Pitch Anything” by Oren Klaff
  • “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” by Brad Feld & Jason Mendelson
  • “Founders at Work: Stories of Startups’ Early Days” by Jessica Livingston
  • “Delivering Happiness” by Tony Hsieh
  • “Purple Cow” by Seth Godin
  • “Getting Things Done” by David Allen
  • “Influence: The Psychology of Persuasion” by Robert B. Cialdini PhD

Now stop reading blogs and get to work!

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