For Starters #4: Coordination Costs Everything
“But a fool to wait for the laggard behind
Down to Gehenna, or up to the Throne,
He travels the fastest who travels alone.”
- Rudyard Kipling, The Winners ( https://www.kiplingsociety.co.uk/poem/poems_winners.htm )
The early stages of a new venture are about raw speed;
Speed to learning about the market.
Speed to a compelling value proposition.
Speed to money.
Speed to repeat customers.
Speed to shutdown. [1]
The only way to achieve this kind of speed is to minimize the coordination costs - by minimizing the number of people involved.
The cost is not just in the increased communication and division of responsibilities required of every long-running, intimate relationship ( see The Beatles: Get Back & Metallica’s Some Kind of Monster), it’s that every additional person is implicitly incentivized to stay the course - simply for their own survival within the group. This makes pivoting on the value proposition difficult - even if the benefits are obvious. In the pre-revenue stages, we just don’t know enough about what customers want to be able to make this commitment. It’s all a hunch. The hunch could be wrong - thus anything built off the hunch would be complete waste. One startup founder I worked with a decade ago was able to keep his in-house dev team in tact for the first pivot….but not for the next.
This all evokes Coase’s Noble Prize winning, 1937 essay ‘Nature of the Firm’, https://en.wikipedia.org/wiki/The_Nature_of_the_Firm, which suggests companies grow to minimize their operational transaction costs. Which is to say, the firm will create an internal department once coordinating with an external agency becomes too cumbersome and expensive to achieve timely business results. I’d like to posit that Alex Komoroske’s ‘How Organization’s are Like Slime Molds’ ( https://komoroske.com/slime-mold/ ) describes the upper limits Coase’s theory (Yes, ‘Slime Mold’ is 170 slides long. Yes, the length only reinforces the point, Yes, it’s worth it).
In practical terms, this minimization of coordination costs is the conventional wisdom of, “don’t hire a dedicated sales person until the sales process is repeatable, otherwise it’ll just frustrate both of you”. The same is true of software engineers - as their idle guesses are even more expensive than a salesperson’s.
Knowing the importance of speed in early stages, I deliberately aim to increase my responsiveness in my work with startups - I know a partial answer they can integrate yet this afternoon is more helpful than a perfect answer that doesn’t arrive until next week - even if that partial answer is “that doesn’t seem like the best use of your resources at this moment.” As there’s a high chance, on the outset - especially if your previous experience was in established companies - a bunch of presumed prerequisites for the venture to get initial traction aren’t actually. I know I was initially surprised by this when I went out on my own http://garrickvanburen.com/youre-not-going-to-need-it/.
“But, Garrick - you’re advocating I do this entire venture all alone?”
For Starters, setting aside the obvious hyperbole in the statement, you’re not all alone - you should have enthusiastic customers, other advocates open to being loosely coupled will appear later in the journey.
Today our world is so full of month-to-month SaaS tools, a solo founder can go tremendously far without engaging anyone else; Google Suite, Calendly, Shopify, WordPress, Quickbooks, Zapier, Stripe, Square, etc, etc, etc.
Again, the pre-revenue work is mostly phone calls with potential customers, so most of this list also falls under, “You’re not going to need it”. Once the venture approaches steady revenue (see #5 in For Starters #3 - https://tinyletter.com/garrickvanburen/letters/for-starters-3-all-ventures-face-the-same-6-riskiest-assumptions) - you’ll know enough to know specifically what unique help you desperately need - what your own JobToBeDone is that’s so unique to your venture that a SaaS tool will no longer cut it. Then, bring on a person to really understand the uniqueness. Until then, every moment spent on recruiting is a moment not spent with customers.
This week, I heard an apocryphal story of a MN startup that reached $5M ARR running off Google Sheets before shifting to fundraising. I suspect they’re not the only ones. Maybe you’re part of an early venture fully leveraging all the operational tools at our disposal today.
1. As one person said to me this week, "You're really into stopping things." To which I replied, "It's about being true to the project and what the world is asking for. Often we're incentivized to be selfish rather than intellectually honest."