Ultimate Cheat Sheet By James Altucher Is Bad Advice
Published Nov. 14, 2015Recently James Altucher wrote a post called The Ultimate Cheat Sheet For Starting And Running A Business that has stirred alot of ideas in the startup space. He presents it as the official FAQ on starting a business, which is unfortunate because its not entirely good advice. James Altucher comes from the VC world and is good at promoting himself, which is why his ultimate cheat sheet is little more than a PR stunt.
The Ultimate Cheat Sheet Is Mere A PR StuntThree dead giveaways that the piece is not to be taken seriously. First, starting and running a business doesn't neatly fit into 100 points you check off. Second, the depth of advice in each point is lacking at best. Third, his advice on some of the points is absolutely catastrophic for any small business.
James Altucher Is Throwing Young Entrepreneurs Off Course
If you present a piece as the ultimate or official guide to anything, put some effort into making it as such. Entire books have been written on starting a business. People learn and accumulate lessons over years. Young entrepreneurs are facing a gauntlet of lessons learned. What gives James Altucher the right to literally make up a poorly vetted, tested, or reviewed list of personal anecdotes and call present it as the ultimate guide to anything.
Ignore James Altucher And His GuideThe piece is a PR and SEO play for a guy who loves the lime light. Applause for getting some attention, shame on us ( myself included ) for playing along. I hope this post shows up right under his in SERPS so people can follow up on something useful instead. James has crossed over to the dark side, whatever lessons he may have had are now tainted by the need for attention.
Resources You Should Learn From Instead
The Four Steps To The Epiphany ( Book )
Paul Graham Essays ( Online )
Good To Great ( Book )
Cryptonomicon ( Book )
Middle Men ( Movie )
Why James Altucher Is Wrong In DetailFor those of you that want to know why his advice is bad, I've put in some time to explain. My qualifications? I haven't failed as many times as James Altucher but I've gone through the grinder on startups, anglels, VCs, marketing, legal, accounting, and generally building a profitable business.
1) C Corp or S Corp or LLC?
Wrong: Go with an LLC, $80 filling done in 3 days. If you need to just don't get bogged down in lawyers and bylaws early on. He contradicts himself right off the starting line when he later advises to stay away from lawyers as long as possible.
2) What state should you incorporate in?
Wrong: Delaware is great if you have enough revenue and want to avoid taxes. It also will require a lawyer to set up, contradiction again. If you're starting a business, just do a local LLC in whatever state you're in, then later when you meet a VC you can restructure.
3) Should founders vest?
Altucher: Yes, over a period of four years. On any change of control the vesting speeds up.
Wrongish: Its not that simple, vesting comes with cliffs to protect the core team should anyone leave. Vesting time really depends on the duration of the project, some startups don't last 2 months, not to mention 4 years. If you have vesting, have cliffs.
4) Should you go for venture capital money?
Altucher:First build a product, then get a customer, then get friends and family money (or money from revenues which is cheapest of all) and then think about raising money, But only then. Don't be an amateur.
Rightish: Build minimal viable product, test, acquire customers is all sound advice. Skip friend and family money, odds are you'll lose the money and the friends. Raise money as a bridge to a larger market, not to launch. It takes months to raise money, odds are you can get to revenue faster. Remember $50K in VC money is the same as $4K a month in profit without any debt over your head.
5) Should you patent your idea?
Altucher: Get customers first. Patent later. Don't talk to lawyers until the last possible moment.
Rightish: Odds are your product will change so patent later when you have minimal viable product. You may endanger your patent by filling after the product is publicly available. Try a provisional for a few hundred dollars. Or skip the patent altogether, you're running a business not selling IP.
6) Should you require venture capitalists to sign NDAs?
Altucher: No. Nobody is going to steal your idea.
7) How much equity should you give a partner?
Altucher: Divide things up into these categories: manage the company, raise the money, had the idea, brings in the revenues, built the product (or performs the services). Divide up in equal portions.
Wrong: Thats the worst idea ever, its a sure fire way to lead to lawsuits deadlocks and a falling out of the founders ( good news for hostile VCs ). At all times one person should have the ability to have controlling ownership, everyone else has the option to be compensated fairly for their contributions. Thats why vesting, cliffs, and options were invented to protect everyone who doesnt own a majority share.
8) Should you have a technical co-founder if you are not technical?
Altucher: No. If you don't already have a technical cofounder you can always outsource technology and not give up equity.
Wrong: Worst idea ever, Y-Combinator requires a technical founder because building a good product or service demands commitment from the technical team. A good technical co-founder is a product and design person, not just a coding monkey. And the reason is so bad, to protect equity? Seriously? A good technical cofounder 100x increases odds of success, find one and make him or her vested in your success.
9) Should you barter equity for services?
Altucher: No. You get what you pay for.
10) How do you market your app?
Altucher: Friends and then word of mouth.
Wrong: If all your friends are VCs maybe but for the rest of us your friends are the worst initial market. They give bad advice because they want to make you feel good. You give them the product for free so they don't assign value to it. Plus you'll need your friends to have fun with, focus on selling to complete strangers like a real business.
I Ran Out Of SteamYou get the point, this trend of being mostly wrong goes on and on and on. Lets see out of 10 ultimate tips on starting a business 6 are bad advice. You'd make better decisions flipping a coin.
Keep It GoingHere is a good lesson, build what people will buy, test incrementally and proceed if product is viable. For every 10 likes on each network I'll analyze 10 more questions. Thanks!