Early Advice 4: Ideas are Cheap

There’s this vague idea I had when we began Modulate that if we just put our tech out there, one day we’d simply be “discovered” – some company would want to pay us millions of dollars for what we were building, and we’d kind of be “done.” I knew academically that this must be a vast oversimplification of what it will take to make Modulate truly successful, but viscerally, it was hard for me to shake this feeling.

This led to a pathological fear of discovering that someone else had been working on similar technology, and a strong resistance to sharing more than the barest details about how our technology worked with anyone. After all, what if they took the idea and, even with slightly worse tech, beat us to the punch of announcing “voice skins” and so were the ones to get discovered/acquired?

I no longer have this concern.

Part of this is that Modulate is now further along – we’re growing our team, we’ve raised investment, we have pilots underway – but part of it is also that I now know much more acutely what it took to get us this far – so I can understand much more of the chasm between the inception of an idea, and the success of an actual company. I thought the easiest way to share my new perspective would be through noting some of the more significant tasks completely unrelated to the product itself which we’ve discovered as we grew. These aren’t the only things that add new levels of complexity – product development can have just as many hidden layers – but given my technical background it was the depth of some of the management and business tasks that I’d been off the most on.

1. Incorporating the company

My initial estimate: 1 day once we find a lawyer who knows what we have to do

My current estimate: A few weeks if done correctly, more otherwise

Context: Before you incorporate – will you be an LLC? A C-Corp? An S-Corp? Many small companies – including Modulate – start as LLCs only to convert to C-Corp’s later. In some cases this is a good plan – in our case, retroactively I would have just started as a C-Corp, given that we knew we’d want to take investment one day. But understanding these options requires some real conversations with your lawyer and tax advisor. And it’s just the beginning. Once you decide on your structure, you’ll need additional docs like a stockholder plan or operating agreement. You may need to set up a board of directors, and if you’re planning to issue stock, you’ll need to authorize some and put in place an agreement on how you’ll manage it. Many of these documents are boilerplate, but there are many concerns which are worth thinking through carefully – from how your vesting might behave in case of an acquisition, to what happens if 50/50 founders have a disagreement, to setting up and paying for a registered agent if necessary.

2. Bringing on an employee

My initial estimate: Weeks of work in recruiting, then they come on board and we’re ready to go

My current estimate: About a day of work doing interviews and discussing compensation, then a few days to a week of work after they join. Recruiting is a perpetual background task with occasional upswings, and even after hiring employees there is a bit of steady work forevermore, managing things like payroll and HR.

Context: When you hire employees, are you giving them stock or stock options? The IRS will see anything you give them as compensation, and stock gets expensive fast as you raise money or bring in revenue, so make sure to discuss your intentions with advisors before you make any commitments to employees. Once you’ve brought them on board, if you haven’t formalized your stock plan, you’ll need to do so, as well as getting a 409a evaluation to set the price of your common stock for options. Oh, and make sure you’ve registered your new employees correctly! You’ll need I-9 forms, payroll forms, forms to update your state’s department of revenue, worker’s compensation insurance, most likely health insurance – and of course, any equipment or accounts they’ll need to do their job!

3. Getting customers

My initial estimate: Might take a while, but once someone gets interested, it’ll just be a matter of having them pay us and us handing them the product.

My current estimate: Anywhere from a few days to a few years.

Context: We’ve spoken to a huge range of potential customers, ranging from tiny outfits to AAA studios. Generally speaking, we’ve always seen a great deal of early interest – but, especially as the companies get larger, translating this interest into a full sale is a whole new set of challenges. Of course you’ll need to negotiate a contract – but before you can even get there, is the interested person the one who can even make purchasing decisions? They might need help convincing their boss to free up the funds, as much as they want what you’re offering. And is this even their priority? I’ve spoken to several startup founders who were extremely passionate about our tech, but quickly found themselves underwater with other concerns and simply unable to keep track of a new initiative at that time. In order to close a sale, you’ll need a much more complete picture of how your customer’s business works than you’d need to simply interest or learn from them – one that can indeed take years of networking and more low-key learning before you’re truly ready.

4. Raising funding.

My initial estimate: We’ve got some awesome technology and there’s a huge market whose end users clearly want this. I’ll set up a couple initial meetings over the course of a week or two, we’ll get some follow up questions, and we’ll be getting term sheets by the end of the month.

My current estimate: Ha. No.

Context: Fundraising is just like sales above – it’s easy to get a VC interested in learning more, but you’ll need to build a much deeper relationship in order to make them comfortable taking the leap. I’m now expressly not fundraising – and I will turn down most meeting requests by VCs – but even so, I will occasionally take a meeting simply to build a relationship which may be important in the future. And this doesn’t at all include actual diligence and negotiation over fundraising terms. Our negotiations were actually pretty straightforward, but the relatively minor challenge of getting a couple different firms coordinating with us and our law firm, and iterating even on a few simple points, ended up taking one or two weeks before we were truly ready to close.

I could talk as well about things like protecting your IP, managing your books and paying taxes, or finding an office space that meets your needs – the first two of which in particular take up much more time and focus than I’d realized – but hopefully this helps to outline just how much depth many of these administrative tasks can have. I’m the CEO of a 3-person startup, and while I’m not completely off of engineering at this point, it’s probably no more than 10% of what I do even at this early stage. 

In summary, ideas are cheap not because they’re easy to come up with, but simply because there’s so much work between having an idea and actually building something with it. So if you’re feeling wary of sharing your idea at an early stage, my advice is to ignore that instinct – even a little help you might get towards truly building the business more than offsets the risk of sharing the idea with one more person.

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