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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Hiring Too Early

Comments (10)

I was pondering the early days of Feld Technologies tonight, thinking about what mistakes we made (and boy did we make a lot of mistakes.)  I wound the clock all the way back to the beginning (sometime in 1987) and tried to figure out what the first major mistake we made that could have killed the company.

Both Dave Jilk and I started working full time on Feld Technologies in the summer of 1987.  I had just gotten my undergraduate degree from MIT and Dave had recently quit Viewlogic to help start Feld Technologies.  We decided to rent an office across the street from our fraternity (the fourth floor of 875 Main Street) and go for it.

We rented 1600 sq. ft.  We borrowed someone’s pickup truck and went and bought some shitty used furniture somewhere for a couple of hundred dollars.  We went to Service Merchandise (I think that’s what it was called) and bought a few phones.  We called Nynex and got some phone lines.  Dave brought his old college half refrigerator into the office.  We “borrowed” a plant or two from somewhere.

We then hired about a half dozen people.  I remember all of them – Pat (who was already working for me and had worked for me the previous summer on our one major client – Bellflower Dental Group), Mike (a friend from Petcom who lived in Texas but moved to Cambridge for the summer to work on our first product – DOSBox – a bunch of DOS API calls), Mike (a frat brother who was usually stoned, but was an outstanding programmer), Dan (another frat brother who was also frequently stoned, but was an equally amazing programmer), and Rob (I can’t remember where we met Rob.)

We had some business – beyond Bellflower – but not much.  I think we broke even for a month or two but then lost $10,000 in August when we had an office full of people but no business.  Ever the optimistic entrepreneurs, we didn’t panic.  We figured we’d find some business somewhere.  We lost $5,000 or so the next month (I’m making the numbers up – these are the approximate ones.)  Our “team” went back to school (including me – I was doing the second year of my masters degree) so we rationalized our costs would be lower because people wouldn’t be working as much.  True – but they also didn’t produce anything and since we were doing everything on a fixed price basis, we kept losing money.  On Monday October 19th, 1987 the stock market lost 22.6% of its value.  I remember sitting around in Dave’s office listening to the radio.  I took the T home that night, wondering if the world was going to come to an end.  I didn’t have any stocks of significance, so this didn’t really impact me, but this was my first real awareness of financial panic.

We realized we couldn’t keep losing money because we had none (duh).  We also realized that we (Dave and I) were doing all the work, but paying everyone else.  Now – they were good guys – but they were going to school and our clients and our business weren’t their top priority.

We fired everyone a few days later.  We somehow got out of our lease, put almost all the crap we had bought (except a few desks and phones) into storage in Somerville, and moved our offices into the spare bedrooms in our respective apartments (we both lived in One Devonshire Place in downtown Boston.)  We started paying $50 / month for an office share in Faneuil Hall Marketplace so we could have a real business address (6 Faneuil Hall Marketplace.)  We had no overhead (I think we used the same desks and phones for a couple of years.)  It took us another year before we hired our “next first” employee (Shawn).  By that time, we were making a profit of $10,000 / month after paying ourselves decent salaries.

Hiring too early almost killed us.

  • http://andrewbfife.blogspot.com Andrew Fife

    Depending on what one needs to be accomplished, “hiring” interns can be a great way to get things done without many of the risks that come with fulltime employees. The key to effectively bringing on interns is taking the time to ensure that they get something out of the experience, otherwise they won’t stay interested very long. So I’ve found the trade-off to be how much of my time does it take to get productivity out of them.

  • http://entrepreneurevolution.com Adam C. Dudley

    This post couldn’t have come at a better time for me. I’m currently embroiled in my first bootstrapped (shouldn

  • http://www.erikfantasia.com Erik Fantasia

    875 Main Street! I live next door – above Toscanini’s.

  • Ted Rheingold

    Everytime someone outlines for me their bootstrap plans to start a web service, I cringe when they ask if I know who they can hire to build it. Usually web products that do not exist elsewhere are not something you can spec correctly in advance, especially if you are not the kind of eprson who has made similar product before. You can only guess what it will be and then learn as you develop it … as you make it.

    So the thought of having to pay someone not only to make your envisioned product, but then have to pay them for all the revisions that will go into it before it is really making sense means dropping a /big/ chunk of change before upfront for something you have no idea will be desired.

    Everytime I hear this I say spend $100 on LAMP books and while you waiting to get funding or an available engineer see if you can get even a simple version of the site going.

    I’ll send them to this entry now too ;>

  • http://corporatecasuals.com andrew callen

    I agree and am pretty shrewd…so I haven’t put our company in this situation….yet;).

    ..But how do you answer the VC’s who say you need a “team” before we’ll consider it? the old horse and cart problem.

    what i have said is we’d rather spend the money we are generating on marketing and sales…not auxilary resumes.

    I’m not sure that’s the right approach but wonder your thoughts…since you’ve likely said you wanted a team and yet warn against hiring too fast. I’m sure you have to thread the needle as to when to hire folks but any insight would be great.

    thanks and really enjoy your blog!

  • sigma

    Of COURSE one should do a two person, plus some, software
    start-up from existing bedrooms with no additional staff until
    (1) have plenty of fairly predictable revenue and (2) have
    plenty of cash on hand.

    The US, on Main Street and elsewhere, is just awash, coast to
    coast, in successful sole proprietorships started with minimal
    invested cash and no employees until they got (1) and (2).
    Hiring employees and not being able to meet the payroll is a
    really seriously bad BUMMER.

    Starting a business from a bedroom is not a point of shame.
    Some businesses move on to much more, and some do not, but in
    either case vast expenses with half-vast revenue is a BUMMER.

    A business in software has some astounding advantages: (1)
    Can be nicely setup for software development for a few thousand
    dollars in hard/software, and would need much more for most
    Main Street businesses, e.g., an auto repair shop, an auto
    body shop, a pizza restaurant, a BBQ restaurant, a franchised
    fast food restaurant, residential general contracting, an
    insurance agency, or just the truck and supplies for an
    electrician. (2) Software, once written, usually has near
    zero per unit cost of reproduction, and this fact can create
    nearly a license to print money. (3) A piece of custom
    software frequently needs revisions, and the revisions can be
    really easy for the original author and essentially impossible
    for anyone else forcing them just to discard the existing
    program and start over, thus, putting them at a terrible
    disadvantage compared with the original author. (4) The
    software business continues to change rapidly yielding good
    new business opportunities for people leading the change. In
    strong contrast, in nearly all the Main Street businesses,
    change usually comes very slowly with nearly everyone in the
    business able to do nearly anything that is done. (5)
    Software gets to surf the wave of Moore’s Law along with the
    growth in the Internet, digital media, etc.

    These advantages, however, do not mean that a software
    business should rush to having expenses far above revenues.
    So, still run the business with used furniture, cheap tables,
    dangling cables, stuffed into a back bedroom until finances
    clearly indicate it is time to get some actual office space,
    etc.

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