Lucas Carlson's Blog, page 3

How to Manage Side Project Risks

We have all had side projects go nowhere for months, but most entrepreneurs don’t know the first thing about how to manage risk. In fact we wrongly assume we can’t… that it’s simply out of our control.

Traditional ideas of risk make you think that it’s an unquantifiable quality of something that is mostly out of your control. For example, someone might call an investment “moderately risky”. But it’s something they don’t put a number on.

Roughly, risk levels usually fit into generic categories like:

– High Risk: Aggressive/Speculative

– Medium Risk: Moderate/Investment Grade

– Low risk: Conservative/Low Chances of Going to Zero

But what do these words actually mean? High risk of what, exactly? Is it a high risk of losing the majority of your investment?

But how high is the risk? Is it 1%? 50%? 0.005%? And during what time period? A year? Ten years?

The lottery is clearly high risk, but at least it is quantified risk. You know going into it your chances of losing and in what time frame.

So why, when it comes to startups, is risk such a hard thing to quantify? The only major statistic that is well known is that 9 in 10 startups fail.

The reason risk is so hard to put your finger on is because managing risks in a startup is the founder’s responsibility. Said another way, the amount of risk and speculation in a startup is based NOT on the nature of the business, but on the nature of the founder’s attitude towards the business.

It’s impossible to put a number on startup risk since the custodian of the business is always a variable in the risk factor.

How Do You Manage Risk in General?

Let’s look at the simplest form of a high risk scenario (as defined by ability to lose your entire investment): a simple coin flip.[image error]

What are your chances of bankruptcy in a coin flip? Well, it depends.

Worst case: If you bet all your money on a single flip, your chance of bankruptcy in one flip is 50%.

Best case: If you only bet 1% of your money at a time, you chance of bankruptcy in one flip is 0%.

Conclusion: Managing the risk of a coin flip is the responsibility of the bettor.

Statisticians can even show you an optimal strategy if you are trying to maximize your expected outcome in a series of coin flip bets while minimizing your chances of going broke.

If you bet 25% of your money on each bet, that’s the magic number for a coin flipping scenario. It’s the number that is most likely to get you the largest payout balanced with the risk of going bankrupt.

In high risk situations, nobody can predict the future. Nobody knows if the coin is going to go heads or tails next. Nobody knows if you have discovered the next Facebook idea or if it is going to fail like 9 in 10 other startups. But in the face of uncertainty, you can apply strategies that take this lack of knowledge into account.

The size of the bet is an enormous and often overlooked factor for risk management. It is also completely in control of the person embarking on the high risk investment.

Another Risk Management Technique

Before I apply these risk management concepts directly to startups, I want to explain one more tool that risk managers have in their toolbox: the stop-loss.[image error]

In his amazing book What I Learned Losing a Million Dollars, Jim Paul tells us how he was so certain that soy beans were going to go up in price that he kept holding on to them until not only his million dollars was gone, but until he was half a million dollars in debt and went bankrupt.

What did Jim learn from this hair-raising experience? He learned that although many speculators (and make no mistake, all startup founders are speculators) find great success with no risk management strategies, you will with certainty go bankrupt at some point if you don’t manage your risks.

The stop-loss is one of those techniques. In the stock market or futures trading, a stop-loss is the price at which you sell your investment… NO MATTER WHAT.

For example, let’s say you buy soy beans at $100 per share, you can put a stop loss in at $90 per share and it will automatically sell your investment when it drops to $90.

You can also use a trailing percent, like 10%. If soy beans go up to $120 and then drop 10% to $108, it will sell automatically. You could apply a tighter stop loss of say 5% and it would sell at $114 instead of $108.

There are two big advantages to using a trailing stop-loss while speculating.

1) You have quantified your maximum loss! Just like buying a lottery ticket, you now know with certainty how much you have put at risk. It doesn’t matter if the stock goes down 75%, the amount you can lose is now capped at your stop-loss.

2) You have locked in your profits! With a 10% trailing stop-loss, you don’t have to predict where the top of the market will be, because you know that you are going to be within 10% of a local maximum.

Professional risk managers use techniques like bet sizing and stop-losses all the time. And yet entrepreneurs rarely if ever talk about these things.

Applying Risk Management Concepts to Startup Ideas

Lean Startup techniques can be thought of as risk management techniques.

Minimal Viable Products is just another way to make smaller bet sizes. Failing Fast is just another way to say that you should put tight stop-losses on your startup ideas.[image error]

But what is failure? When do you know a startup idea has failed? When do you give up?

On the one hand, you don’t want to give up early. You want to give every great idea you have a fair chance.

On the other hand, you don’t want to be like Jim Paul and hold on to your version of a soy bean investment until you have more than gone broke.

One of the most important lessons from What I Learned Losing a Million Dollars is that you must decide on your strategy before you make your bet. If you are already doing an activity, you are intrinsically biased to justify why you are doing that activity instead of determine objective rules for when you know it’s failed.

For ten years, I didn’t have any stop-loss failure criteria before embarking on new startup ideas. I would go into a new project and keep working on it long after I lost interest in it and my heart knew it was a failure. I would feel like I was too deep into it to quit. I had told too many people about it. I was too invested to let it go.

Holding on too long to a losing idea is a surefire way of going broke.

When to Give Up

Setting a stop-loss is a very personal thing based on your own risk tolerance levels. In the stock market example, someone who isn’t worried about high volatility might make a trailing stop-loss of 10–15%. A more conservative person might put a trailing stop-loss of 3–5% or even less.

In coming up with startup ideas, you must also create a stop-loss criteria based on your own risk tolerance levels. My personal startup stop-loss strategy is based on my excitement about an idea.

When choosing a startup idea, the most valuable currency isn’t money (like in the stock market), it is your time. So the startup idea stop-loss is based on time.

If a startup idea doesn’t have paying customers before I lose personal interest in it, I will walk away from the idea without any hesitation. There is no debate and no exceptions. Sometimes this means an idea lives for just a few days or a few weeks. Other ideas might capture my excitement for months or longer. But when I am no longer excited, I walk away.

Does this mean that not all of my startup ideas will get as much attention as they might deserve? Maybe. That’s the inherent risk in using stop-losses. You might get stop-lossed out right before things really take off.

But the alternative scenario is much worse. Worse that missing out on a great idea that needs more time is holding on to a bad idea for too long. Trying to turn bad ideas into good ideas by execution effort alone is one of the saddest and most common flaws I see entrepreneurs making every day.[image error]

Great ideas are like trains, there is always another one coming. Worse than missing the first one that passes you by is to be so busy working on fixing a dead train that you miss the working one right behind you.

Success in Startups

A new trend among successful entrepreneurs like Ev Williams is to create their own personal entrepreneurial incubator systems like The Obvious Corporation. In his own words:

“We started investing, incubating, and experimenting to figure out what worked and what we wanted to do at this stage in our careers; we just knew we wanted to work together on stuff that mattered.” ~Ev Williams

Medium, the most successful experiment to come out of The Obvious Corporation, was a product of a highly planned risk-managed strategy. Do a few things not knowing which ones would turn out heads and which one would turn out tails. Once the coins landed, look at the results and double down on the one with the most traction.

History forgets most entrepreneurial mistakes. Speculating on business propositions is more about being in the game long enough for one of them to work than most people understand. Learning the craft of long-term speculation is what separates the great entrepreneurs from the forgotten ones.

For more on startup risk management and protecting your downside, pick up my new book, Finding Success in Failure: What I Learned From 10 Years of Startup Mistakes .

The post How to Manage Side Project Risks appeared first on Craftsman Founder.

Podcast 24: Writing The Martian and The Egg with Andy Weir

Andy Weir, bestselling author of The Martian and The Egg talks with us this week about how he writes, how he comes up with ideas, and what inspires him.

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Andy’s story personally inspires me because I am trying to finish my first novel right now and Eliot has written two novels with another on the way.

Moreover, he used to be a computer programmer (just like me).

Now he gets to live a life focused on writing entertaining-as-hell novels that millions of people will read.

Do not miss this interview, it will inspire you in many ways!

The post Podcast 24: Writing The Martian and The Egg with Andy Weir appeared first on Craftsman Founder.

Podcast 23: How to Raise Venture Capital Outside of Silicon Valley with Mike Belsito

Mike Belsito is a startup business developer who loves creating something from nothing. Mike has spent nearly ten years in various startup companies as an early employee, leader, and co-founder.

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This week we talk to Mike about new book, How to Raise Venture Capital Outside of Silicon Valley is a great primer for entrpreneurs who feel stuck and unable to raise money because they live somewhere like I do (Portland, Oregon) which is not know for a thriving investment community.

Here’s a quick description of the book: You have aspirations for creating a startup company that will change the world, but need startup capital in order to make that happen. Where do you start? How can you raise serious funding when you don’t have many connections or live outside of a major startup community like Silicon Valley?

We start out the podcast by talking about some of my favorite security and privacy tools.

The 25 Best Privacy Tools of 2015 for Phones, Browsers and Desktops

Mobile

Signal for iOS
RedPhone for Android
TextSecure for Android
Cyber Dust
SurfEasy VPN iOS (free app, $30/year service)
SurfEasy VPN Android (free app, $30/year service)

Web Browser and Plugins

Disconnect.me Browser Plugin
Disconnect.me Search Plugin
Adblock Plus
Ghostery
SSL Everywhere
PrivacyFix
Tor Browser

Password Manager

1Password (use this with BitTorrent Sync for the most privacy)
Dashlane
LastPass

Social Networks & Online Reputation

TweetDelete
Facebook Remover
Facebook Privacy Audit
Reputation.com
Delete You Google Searches


Read https://www.google.com/settings/dashboard and https://support.google.com/websearch/answer/465

OpenVPN

PrivateInternetAccess Mac/PC ($40/year service)
OpenVPN Compatible Buffalo AirStation N300 Open Source DD-WRT Wireless Router ($50)

Snail Mail

Reputation.com
PaperKarma
MailboxForwarding

Email

Fastmail
Tutanota
Horcrux Email Backup (Mac Only)

Podcast 22: How to Remember a Phone Number (Really Easily)

There has been a surprising amount of progress in the area of memory tools in the last 10 years. Memorization techniques aren’t nearly as archane and complicated as they used to be.

This week I will be teaching you how to memorize any phone number in just a few seconds, and you will be able to remember it forever.

If you have ever been interested in memory retention and haven’t looked into it for a while, definitely check this week’s podcast episode.

Subscribe to the iTunes Podcast or listen to it here:

Book-in-a-Box Revealed: Behind the Scenes Using Tucker Max’s Book-in-a-Box to Write a Book

I have a confession: I didn’t write my most recent book. Not alone at least. Thanks to an amazing new startup, anyone can be an author, even if you aren’t a good writer.

I want to expose to you the behind-the-scenes magic about how my book was created.

When Tucker Max was on my podcast talking about his new startup Book-in-a-Box, the idea immediately made sense to me. Any entrepreneur or professional should seriously consider having a professionally published book as a way to stand out. You do not need to get a traditional publisher to have a professionally published book as long as you use high quality editors, book cover designers and interior layout people.

Here was the basic process Tucker Max outlined for Book-in-a-Box:

Create a basic outline
Record an intensive interview with a professional writer
Transcript the interview
Have the professional writer edit the raw interview text into the first draft of a book
Edit the book
Get a professional cover design and interior layout

The process made a lot of sense because it was essentially the same way I wrote a programming book a couple years ago, except I had to hire the professional writer and transcription service myself. I ended up using a traditional publisher (O’Reilly) for their book cover, interior layout and distribution, but you do not need a traditional publisher if you don’t want one.

So I decided to try Tucker Max’s new startup for myself and ended up using Book-in-a-Box to write Finding Success in Failure. Along the way, I kept copies of recordings and early drafts of the book so that I could share them with you.

1. The Outline

Most clients of Book-in-a-Box are guided through a process to create an outline from scratch, but I had been wanting to write this book for a while, so I already had an outline in mind. Here is what I actually submitted to Book-in-a-Box. This turned into about 150 printed pages which was about 30 pages per section.

Introduction

Chapter 1: Picking Your Startup Idea
1.1 Why are you starting this company?
1.2 Who is your target customer?
1.3 What is their hair on fire problem?
1.4 Do they have a even bigger problem?
1.5 What kind of startup do you want to be?
1.6 What are your core values?
1.7 What are your strengths and weaknesses?

Chapter 2: The Logistics of Starting a Business
2.1 Have Hard Conversations Right Now
2.2 Pick a Name
2.3 Pick a Business Structure
2.4 Open a Bank Account
2.5 Setup QuickBooks and Evernote
2.6 Create a Landing Page
2.7 Create a Blog and an Email List
2.8 Write
2.9 Talk to a Lawyer

Chapter 3: Things I Wish Someone Had Told Me Earlier
3.1 Your Startup is a Reflection of You
3.2 Never Violate Your Core Values
3.3 You Are Not Your Thoughts
3.4 Your Product is Not Your Company
3.5 You Don't Have to Figure it All Out Up Front
3.6 Startups Are All About Relationships
3.7 Get Ready for the Long-Haul

Chapter 4: 7 Ways to Manage Founder Psychology
4.1 Take Care of Yourself
4.2 Practice Rejection Therapy
4.3 Big Problems vs Urgent Problems
4.4 Deal With The Biggest Urgent Problem First
4.5 Take Time to Reflect and Ask Urgent Questions
4.6 Read Voraciously
4.7 Surround Yourself with Advisors

I ended up re-ordering the chapters, but this was my original plan.

Before we started the interview process, I wrote about a paragraph of notes for each sub-section so my interviewer knew generally what I was thinking. Download the Entire Outline as a Word Doc

2. The Interview

The interview is the main part of the Book-in-a-Box process. It’s where all the content for your book is flushed out. This is turned into a transcript which is then taken by the editors and turned into your first draft. The interviewing process can take 4-8 hours, but I have condensed just 15 minutes out of those hours for you to get a sense for what the interview process is like.

If you want to listen to all 5 hours of my interview for Finding Success in Failure, download it as an MP3.

3. The First Draft

Here is an excerpt of the first draft of Chapter 2 (Logistics, which ended up being Chapter 4 in the Final Draft). You can listen to an excerpt of the real interview that generated this text above in the YouTube video (starts at around 10 minutes into the video).

DIFFICULT CONVERSATIONS WITH YOUR SPOUSE

Sometimes this conversation can be even harder—and scarier—than a tough conversation with your co-founder. One of the mistakes a lot of founders make is keeping their spouses or significant others on the outside. They have all this turmoil going on inside their heart and their mind and their head—they’re scared—but instead of talking about it with their partners they hold it in. You might assume that your partner won’t understand what you’re doing; or that they won’t care. Maybe you are worried about what your partner will say when you tell them about the risks. It can feel much easier to bury your head in the sand or to gloss everything over: “Oh, everything’s going to be great. Funding won’t be a problem,” than it does to pull back the curtain and let them see what’s going on.

The primary aim of these conversations is to honestly inform. You will need to discuss:

– What are the risks and realistic outcomes?

– How much time and money will be invested?

– Will your partner give you honest feedback?

The fact is startups can tear a relationship apart, no matter how strong it may be. Honest communication is key, not just in these initial conversations but also throughout the entire process. It is essential that you are able to tell the truth to—and hear the truth from—your partner.

If you want to see the whole first draft, you can Download it as a Word Doc

4. My Edits

I spent a couple months going through every line of the the first draft to make it sound like me. This wasn’t a required step in the Book-in-a-Box process, but it was important to me that it sound like me. After I went through it with my edits, I had about 50 beta readers comb through it as well and help me flush out areas that needed further development. Here is the final draft of the above excerpt:

DIFFICULT CONVERSATIONS WITH YOUR SPOUSE

My wife was six months pregnant when I quit my job to start AppFog. One of the biggest mistakes a lot of founders make is keeping their spouses or significant others on the outside. They have all this turmoil going on inside their heart and their mind and their head—they’re scared—but instead of talking about it with their partners they hold it in.

The reality in my experience was that often my wife was just as scared as I was. If I had told her “Oh, everything’s going to be great. Funding won’t be a problem and I will have a salary again in no time,” not only would she have not believed it, she would have felt alienated and alone with her fears.

The most important part of keeping a relationship together through a startup is staying on the same team. You can’t force your significant other to be on your team, and there will be times when you might feel like they are not on your team. This hurts a lot when it happens. After all, if you are like me, then a big part of why you are taking this risk is to secure your family’s financial future.

Being on the same team isn’t a logical thing based on reasoned thinking. It’s about being on the same emotional team. And that means you have to always be honest about your emotions: good, bad, and ugly. If you aren’t letting your spouse in, how do you expect them to stay on your team?

Maybe you think your significant other won’t understand, or worse that they won’t care. Maybe you are worried about what they will say when you tell them about the risks. It can feel much easier to bury your head in the sand and gloss over everything. Pulling back the curtain and letting them see what’s going on can be scary. But if you didn’t want to do this, you shouldn’t have started a company. This process is brutal. And it’s brutal for them too. Being the spouse of a startup founder is hard. Acknowledge that and show gratitude. They might know it’s for a family legacy, but sometimes that’s not enough.

The primary aim of these conversations is to honestly inform. You will need to discuss:

– How much time and money will (realistically) be invested?

– How much travel and time away from home is acceptable?

– What are the risks and realistic outcomes?

– Will your partner give you honest feedback or be your undying cheerleader?

– Which one would you like them to be?

– Which one are they comfortable being for you?

The fact is startups tear many relationships apart, no matter how strong they may be. Honest communication is essential, not just in these initial conversations but also throughout the entire process. It is essential that you are able to tell the truth to—and hear the truth from—your partner.

You can see that I spent a lot of time massaging the first draft to look and sound just the way I wanted it.

5. Cover Designs

The highly talented Erin Tyler created many cover design options for the book. Here are all the different options she offered me.

6. Audiobook

I first tried to record the audiobook myself. Here is the entire introduction in my own voice.

But everyone said that I didn’t do a good job, so I hired a professional voice actor. You can listen to his rendition of the introduction by subscribing to the iTunes Podcast or listen to Chapter 1 for free here:

7. Final Product

In the end, here is the final cover that my mailing list helped me pick:

The Book-in-a-Box folks did all the uploading to Amazon/B&N/etc for me, which was nice not to have to worry about.

Conclusions

So, all said, would I do it again? In a heartbeat.

The entire process went smoothly and quickly. The promise of getting a “Book” in a “Box” is real and it works. The result is a high-quality product that is indistinguishable from any other professionally published book. I want to thank Tucker Max, Zach Obront, Ann Maynard, Erin Tyler, and everyone else who helped make this book possible.

I definitely suggest any entrepreneur or person in business check out Book-in-a-Box and see if it can work for them. Let them know you found out about it through this article and they might even give you a discount.

Podcast 21: Free Audiobook Chapter of Finding Success in Failure

Finding Success in Failure has been a personal journey of a book, and I am proud to be producing it as an audiobook. Today’s podcast gives you a free sample from the audiobook which will be available on Amazon, Audible and Apple.

Subscribe to the iTunes Podcast or listen to it here:

Podcast 20: Dr Sean Wise on Knowing When to Quit Your Day Job

Dr Sean Wise, author of the new book Startup Opportunities: Know When to Quit Your Day Job, professor of entrepreneurship and innovation for the Ryerson University Entrepreneurship Program, producer of the Canadian entrepreneurship show The Naked Entrepreneur TV and consultant for Dragons’ Den (like the Shark Tank) is an expert at entrepreneurship and we are thrilled to have him as a guest on the podcast this week.

Podcast 19: David S. Rose: The Man, The Legend, and Original Inventor of the iWatch

When I read the following words, I nearly peed my pants:

I’ve been an entrepreneur for, oh, half a century or so, and I’m still making most of these mistakes! (And yeah, these are mistakes…his list is bang on target). When I grow up I wanna be Lucas or Jason, who not only know the pitfalls, but don’t keep falling into them [sigh].

It wasn’t the words themselves (which, of course, were very kind), but who wrote it that I couldn’t believe.

David. S. Rose.

When I saw the name I could hardly believe it. I have watched David’s TED Talk about raising investments about a thousand times. I’ve watched it so many times that I nearly have it memorized. I am certain it helped me raise nearly $10 Million from investors.

What makes David’s talk so special is that it gives you unique and actionable insight into the mind of an investor. If you have ever wondered what investors are really thinking and really looking for, there has never been a better explanation.

Whenever founders ask me for advice for raising funds, I always send them to David’s talk. I have recommended the video over a hundred times.

So you can imagine my excitement when I saw these words coming from a man I personally considered a legend and guru.

David’s comment was in response to my 30 Things to Stop Doing as a Startup Founder on Quora. As soon as I read the comment, I clicked on the name I was so familiar with already and thanked him profusely for the kind words and asked if he would come on my podcast.

Imagine how excited I was when the legendary man said yes!

I didn’t want to talk to him about about stuff he has covered other places, so instead of asking him how to pitch investors, I asked him just one question: how did David S. Rose get to become a legend?

His answer was EPIC and well worth listening to all the way through. Grab yourself a coffee and start a fire, because this story is a lot of fun to listen to.

David was generous not only with his time to come on this podcast, but has given us 10 signed limited edition hardback copies of his book: Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups to give away for free!

This giveaway only lasts until the end of January 2015, and the more you Tweet and Facebook about it, the better chance you have of winning! Watch the interview and signup for a good chance to win a one-of-a-kind book from a legendary man.

If you prefer to listen to the podcast, here is an embedded audio-only player.

David S. Rose: The Man, The Legend, and Original Inventor of the iWatch

When I read the following words, I nearly peed my pants:

I’ve been an entrepreneur for, oh, half a century or so, and I’m still making most of these mistakes! (And yeah, these are mistakes…his list is bang on target). When I grow up I wanna be Lucas or Jason, who not only know the pitfalls, but don’t keep falling into them [sigh].

It wasn’t the words themselves (which, of course, were very kind), but who wrote it that I couldn’t believe.

David. S. Rose.

When I saw the name I could hardly believe it. I have watched David’s TED Talk about raising investments about a thousand times. I’ve watched it so many times that I nearly have it memorized. I am certain it helped me raise nearly $10 Million from investors.

What makes David’s talk so special is that it gives you unique and actionable insight into the mind of an investor. If you have ever wondered what investors are really thinking and really looking for, there has never been a better explanation.

Whenever founders ask me for advice for raising funds, I always send them to David’s talk. I have recommended the video over a hundred times.

So you can imagine my excitement when I saw these words coming from a man I personally considered a legend and guru.

David’s comment was in response to my 30 Things to Stop Doing as a Startup Founder on Quora. As soon as I read the comment, I clicked on the name I was so familiar with already and thanked him profusely for the kind words and asked if he would come on my podcast.

Imagine how excited I was when the legendary man said yes!

I didn’t want to talk to him about about stuff he has covered other places, so instead of asking him how to pitch investors, I asked him just one question: how did David S. Rose get to become a legend?

His answer was EPIC and well worth listening to all the way through. Grab yourself a coffee and start a fire, because this story is a lot of fun to listen to.

David was generous not only with his time to come on this podcast, but has given us 10 signed limited edition hardback copies of his book: Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups to give away for free!

This giveaway only lasts until the end of January 2015, and the more you Tweet and Facebook about it, the better chance you have of winning! Watch the interview and signup for a good chance to win a one-of-a-kind book from a legendary man.

If you prefer to listen to the podcast, here is an embedded audio-only player.