Austin Hill at Startup Empire: Slow Down and Speed Up

by Joey deVilla on November 14, 2008


startup_empire The second presenter at yesterday’s Startup Empire conference was Austin Hill. Austin’s one of the founders of the Company Formerly Known as Zero-Knowledge Systems (they’re now Radialpoint), where he served as both Chief Technology Officer, Chief Strategy Officer and Executive Vice President. He’s the co-founder of Montreal-based tech startups Akoha, where he serves as CEO and Standout Jobs, where he is Chairman. Austin’s blog is Billions with Zero Knowledge.

Here are my notes from his presentation, Slow Down and Speed Up: Handling a Fast-Moving Startup in Turbulent Times.

Reality Check

  • It’s time for a reality check
  • The general attitude: things are bad out there — there’s a lot of fear
  • Summed up in Sequoia’s presentation, R.I.P. Good Times
  • The collapses of companies are mirrored by collapses of infrastructure in the U.S. (shows picture of bridge in Minnesota)
  • The reality: There is a very rough recession out there

Business Models

  • Mary Meeker’s take: advertising is get killed, and the upcoming downturn will be worse than the last one
  • I don’t believe advertising is a business model
  • A business model is something that answers the "How can I get customers no one else will get?"
  • Advertising is just a way to get revenue
  • Look at the tech blogs: you’ll see lots of stories on firings and layoffs
  • Blogs like TechCrunch are becoming "Fucked Company 2.0"
  • Most of the companies laying off people have a burn rate of $10,000 per employee per month
  • Companies like Mahalo had a burn rate was $600,000 a month — in many cases, without a business model
  • This is not the model Canada exists in
  • You hear stories saying that the VC model being broken; the truth is that it’s been broken for years
  • The IPO market has been closed for tech since the last downturn
  • The VC model will only get worse, especially in the US — the economics do not hold up
  • "In a tornado, even pigs get to fly"
  • The guys who weren’t serious and didn’t provide real value will start going home
  • Everyone in US is playing "lemming meets ostrich"
  • The myth of tech startups went like this:
    • You have a great idea
    • People throw money at you
    • You flip the company
  • Can’t do that any more
  • Top-tier VCs and investors are looking at these times as an opportunity to create real value


  • In Canada, we’ve already washed out the hosers and posers
  • VCs in Canada have funds ranging from $5 to $150 million
  • They’re well-sized and can pay off their entire VC with one fund
  • The remaining funds are solid
  • US VC funds got a reprieve
  • Here in Canada, our entrepreneurs know how to operate lean
  • Back in 1996, my ISP’s customers were estimated to cost $1000 per year
    • Held strategy meeting to find out how to turn away customers — couldn’t afford infrastructure to maintain the customer base
    • Sold the company for less than 1x revenue
    • Company we sold to went on crazy ride: for a $35K investment, they got a $13 million return
  • 2001: Zero-Knowledge
    • Fortunate to raise money at the end
    • $2.5m revenue, but expenses like mad
    • A "crazy, crazy structure"
    • We survived it very well — went back and bought out VCs and sold a minority stake to a large private equity fund — all in the middle of the worst downturn
    • How did we do it? We cut expenses, but cozied up to a few key customers whom the big vendors ignored: Telus and Bell Canada, who’d been dumped by Symantec and McAfee
    • If you can get in good with key customers, they’ll feed you good requirements

Self-Assessment Test

  • The title of this presentation, Speed Up and Slow Down, is about self-assessment
  • Runway: How much cash do you have?
  • If you’re 2 or 3 people, you can be "Ramen Noodle Profitable" — a handful of founders, mostly programmers, can be profitable this way
  • If you’re a larger company:
    • Know exactly where youre going
    • Be efficient
    • Watch the gauges
    • Don’t go on "sightseeing trips"
  • You need to have a cash flow model and be able to answer the question "What is the minimum amount of cash to take us to the next risk reduction milestone?"
  • You need paying customers
  • If you’re running any type of decent burn rate, your #1 job is to not hit the wall
  • Watch the gauges:
    • How much cash do I have?
    • Are we accomplishing what we’re committed to doing?
  • Keep an eye on the end game too
    • Some businesses may pay you but not scale
    • Think about what the market will look like in 3 – 5 years
    • Can you get a defendable customer acquisition strategy that will be profitable?
  • Think of the company as a motor vehicle:
    • How far will our gas take us?
    • Many people come to me presenting companies based on a "rickshaw" model — a good "lifestyle business", which pays the bills, supports them and their families, but really isn’t set to grow and not really a VC candidate
    • Can’t go with a "Tesla" concept car model for your company either
    • Nor a "Hummer" model where it’s all brute force
    • Go with the "Prius" model for your company: practical, goes easy on the gas
    • The most dangerous model for your company: the "Submersible RV":
      • The car that tries to do everything but as a result accomplishes nothing
      • It show that you don’t know what you are
      • You need to be able to answer the questions:
        • "What kind of company are we running?"
        • "Is it the right size and structure for where we want to go?"

Where are You Going?

  • Need to paint a picture of what your business will look like in 3 – 6 years
  • This picture needs to be based on the market, not your feature set
  • "You’re pitching a product, not a company!"
  • There are big trends and shifts occurring:
    • Cloud computing
    • Environmentalism
    • Social software
    • Time spent online
  • There are huge demographics that don’t go away just because Wall Street had a hiccup
  • Store metaphor: your business can’t be like a convenience store or bodega — investors don’t go for that
  • Your business has to follow the model of either:
    • The Apple Store: a profitable niche
    • Walmart: a big box
  • Learn to pitch!
    • I’ve seen CEOs who couldn’t pitch their way out of a paper bag
    • Practice your pitch and get good coaching
    • 95% of Canada sucks pitching
    • In the Valley, you see people working on their pitches and honing them
    • You have to get across the idea of why your biz is viable
    • When you step into an investor’s room, make sure you’re ready
    • There are lots of people who can give you coaching on your pitches
  • Analytics
    • You need to know your numbers
    • Go to SlideShare and look up "Pirate Metrics"
    • Go to Startonomics
    • You need to have a waterfall and cash model
    • You need to be able talk about your business in that flexible way: "With x money, we can do this, and with y money we can do this…"
    • Have a risk reduction model
      • You need to talk to investors and existing shareholders about this
      • If you’re in web properties, use Product Planner — it helps map out user flows
      • Shows what you should be tracking every step of the way
      • It’s a YouTube for user flows for the most successful companies
    • "Pirate Metrics": the mnemonic is "AARRR!":
      • Acquisiton
      • Activation
      • Referral
      • Revenue
      • Retention
    • Balsamiq
      • It’s a wireframing tool
      • When you talk to investors about what you will build, you need to be able to show wireframes and sitemaps
      • What part of your app drives acquisition? Investors need to be able to see this

My Advice

  • Ask "Who is losing the most money? How can I help them?"
    • Cozy up to customers who have needs
    • Standout jobs saw this coming and made money helping HR companies feeling the pain of the current economic/job situation
  • Go talent shopping
    • People say "Fire, fire, fire!", I say "Topgrade!"
    • Ask yourself "Am I getting the best people?"
    • Watch the layoff rolls. We were doing this actively — I watched companies I admired and who were laying off people and talked to their HR departments
    • Build up a "bench" of good people, even if you’re not hiring now
    • Get good at outsourcing. There are a whole bunch of freelancers out there and you can make use of them if you can write small specs — but don’t do at expense of having a tech team
    • Use communities and open source to get leverage
  • Think very wide on your fundraising strategies: build your pitch so you have angels, advisors
  • Fire for culture, not expenses
  • Having "double vision" is critical: you need to have both an immediate and long-term view of your company. It’s like driving a car — you need to look at your dashboard instruments and down the road

Why am I giddy like a schoolgirl?

  • It’s now a great time to build meaning
  • Over last 4 or 5 years, we’ve been building "hammers for carpenters"
  • Nerd tools like bookmarking, sharing video, vertical social networking: we can now use this stuff for real-world meaning
  • If you have a way to make real-world meaning rather than tools for technologists, you can do well


What if you have great ideas, mediocre people and no VC contacts?

  • Go join a startup and gain experience
  • Ideas are a dime a dozen
  • I have never seen an idea so time-specific that I leapt on it — the quality of the people in the company are far more important

How do people show that they an understanding of their market?

  • DO NOT QUOTE GARTNER REPORTS! It’s the surest sign you don’t know what you’re talking about
  • You need to be able to talk intelligently in a 10-minute conversation about your market
  • Most people fall down when it comes to talking about their competitors: "No! They don’t have this feature!" — your end customers don’t care about that
  • You need to be able to talk about:
    • Global trends and shifts
    • Unique ability
  • Come in with customer references — be able to say "We’ve done specs with x customers who’ve agreed to be beta users…"

What are the red flags for hiring?

  • A lack of passion. Luckily, most programmers can’t fake passion
  • Note: sales and business development people can fake passion — it’s their job!
  • Can’t pass practical exams
    • When hiring a community manager, I gave him five days to answer a set of questions using community tools
  • Bad cultural fit
    • Don’t hire a 9-to-5er for a company that requires lots of dedication outside 9-to-5 hours
    • You can’t afford a culture clash right now
  • Someone who can’t talk about results
    • They need to be able to answer the question: "Can you hit these targets in 30 days, 60 days, 90 days?"
    • Great top performers love having specific requirements like that

What is meaning?

  • Meaning always translates to money
    • Consider the meaning provided by Youtube: "Explore your world through someone else’s stupid videos"
    • They’re still working on how it’ll make money, but no one who invested in it feels bad
  • My preference is for companies that:
    • Provide entertainment or
    • Promote or assist energy conservation or
    • Have strong social goals

Austin Hill / Rick Segal discussion

  • The rule about pitching is: "Hearts, minds, wallets". Hearts first!
  • The elevator pitch, where you don’t have very much time, is always about the heart
  • Answer a question and place that question in the person’s mind
  • Don’t talk features; talk about end results. Say "we had a beta customer who saved money and got their info organized thanks to our product/service"
  • The next step is to walk them through the revenue model.
    • An examples: Real-world asset sales for online game — player average revenue per user is in line with teen casual games
    • Used a reference to Webkinz, a point of reference that both customers and investors will understand
  • Need to be able to answer the "Where are you?" question: need to have a specific answer "60 days out of beta"
  • Believability is key when you pitch an investor
    • When you say unbelievable things like "We can do a 10x return", it means I have to retrain you
    • Say "Here’s what we know, here’s what we don’t know"

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startup_empire The first speaker at yesterday’s Startup Empire conference was Microsoft’s own Don Dodge, Director of Business Development for Microsoft’s Emerging Business Team and author of the blog Don Dodge on the Next Big Thing.

Don’s been in the industry for over 20 years. He started with Digital’s database group and went on to work with five startups over the next dozen years: Forte Software, AltaVista, Napster, Bowstreet and Groove Networks. He now works with VCs and startups in my home away from home, the Greater Boston area.

I got a video interview with Don about BizSpark that I’m currently encoding; in the meantime, here are my notes from his presentation, Starting a Company in Difficult Times.

It’s a Good Time to Start a Company

  • In spite of the business news out there, it’s a good time to start a company – it’s a tough  time, but a good time
  • Markets are driven by two things:
    1. Fear
    2. Greed
  • Fear is rampant now
  • Even Microsoft is down 40%, Google down 60, maybe 70%
  • When fear takes over, markets get irrational
  • But remember:
    1. Fear is temporary
    2. Greed is permanent
  • Greed will eventually take over and markets will get better

Why start a company now?

  1. People are the most important determinant of success
    • #1 hurdle is finding great people
    • When the economy is in a shambles, great people are available
    • During the AltaVista/Napster era, it was the boom times, and it was hard to find people
    • In bad times, companies entrench and do just the core things
    • The good people at companies get bored doing just the core things — it’s a hiring opportunity for you
    • Great people get bored during lulls
    • Startups are fun — they’re challenges, but people like challenges
    • Startups create tremendous value that allow great people to make a lot of money
  2. When the economy is bad, customers want to save money
    • If you have a product or service that will save them money, they’ll buy it
    • Tough times make customers willing to try new things if they believe they’ll make times less tough
    • You have to demo to customers how your product/service will save them money
    • Productivity boosts are not enough
    • Ask yourself: "Is your product or service a vitamin (a nice-to-have) or painkiller (a must-have)?"
  3. VCs are sitting on tons of cash right now
    • In Boston, 10 VC firms are sitting on $2.5 bn
  4. Infrastructure is cheap

It’s Who You Know

  • In the recent past, in Silicon Valley and Boston, even marginal ideas got funding
  • Times are tougher now, and “me too” ideas will no longer get funding
  • Of the 200,000 companies that got VC funding since 2001; only 380 went public
  • That’s a small percentage of successes, but those 380 were enormous hits
  • Venture capital is like the music industry; it’s a hit-based business – just as one hit single or album can pay for dozens of so-so ones, so can one great investment
  • Ad-supported models will be questioned
  • Do the math to figure out what how many hits and what CPM you need to make a million dollars from advertising — it’s shocking, I tell you
  • Experienced people with great ideas will always get funding
  • Investors will fund people they know or ideas they understand
  • The difference between angels and VCs
    • Angels are easier to convince to invest in you:
      • If they know you or know people who vouch for you, or
      • If they understand the business and have an affinity for it
    • If they don’t know you, they’re more difficult to convince
    • VCs are easier to convince in you if your situation isn’t suited for angel investment — they take more risks and are more willing to “think outside the box”
  • Networking is incredibly important
  • In Silicon Valley, "we have events like this [Startup Empire] every week"
  • Investors get comfortable with people they see all the time
  • Take time to do some homework on the investors, know who they are and who they’ve invested in


  • Infrastructure is cheap
  • When we were starting Napster, it was the boom times
  • Finding people and getting office space were incredibly difficult
  • Our office’s landlord made us pay 2 years’ worth of rent up front in cash and also demanded stock options
  • In these recessionary times, the tables are turned
  • Several companies have renegotiated their leases — one has cut their lease down to one-quarter of the original
  • You can sublease spaces — many companies have leased too much space and are looking for people to fill it for peanuts
  • Office equipment: you can buy used


  • Another way to save money: Microsoft’s BizSpark program
  • BizSpark provides software for startups, basically for free
  • Your startup is eligible to participate in the BizSpark program if:
    • Your startup is less than 3 years old
    • and makes less than $1 million per year
  • Program members get full-featured software:
    • Development tools like the full versions of Visual Studio and Expression
    • Platform tech like  Windows Server, SQL Server and Sharepoint
  • You’ll get visibility from being promoted on Microsoft Startup Zone
  • We’ll connect you with a united global community of support resources
  • It’s so easy to start a startup right now — everything is in your favour
  • Cloud computing make things cheaper — you can go with Amazon, Microsoft or other cloud providers
  • For more about BizSpark, contact David Crow, Mark Relph or Don Dodge


Q: What’s the idea behind BizSpark?

  • Microsoft can’t succeed without lots of companies building on its platform and technologies, using its tools
  • We’re competing with open source
  • When startups are tiny and just getting started out, they take the easy route and go with free software
  • Why not level the playing field and make our software free for startups for the first three years or after they get $1 million in revenue?
  • So we give them free software, support and visibility

Q: Is Microsoft’s cloud service available through BizSpark?

  • Yes. It’s not just the tools, but the cloud services are also available for free
  • More details on the site

Q: Are there any particular types of applications that BizSpark is looking for?

  • BizSpark is open to any application
  • If you’re building an application that adds value or fills a gap, we want to talk to you
  • MS acquires about 20 companies a year
  • Those companies are generally filling gaps in our product line, doing things better than us or opening new markets
  • We partner, and if things go well, we acquire

Q: Do we sign NDAs before going on BizSpark?

  • We don’t get into that
  • Don’t tell us your secrets
  • VCs are the same — most will not sign NDAs
  • In my experience as a VC, not a single NDA was invoked — they’re kind of pointless

Q: Could you provide some examples of the types of companies you’ve acquired?

  • Powerset
  • Fast
  • aQuantive
  • Currently, the “hot spots” are advertising and online services, but our acquisitions are all over the map


“Startup Empire” Happens Tomorrow

by Joey deVilla on November 12, 2008

A Conference on Startups? In the Middle of a Meltdown?

startup_empireGiven the doom and gloom coming from all the business new outlets, it may seem crazy to try and start a startup in the current economic crisis. Y Combinator’s programmer-turned-essayist-turned-venture capitalist Paul Graham would disagree:

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.

When Microsoft and Apple were founded.

As those examples suggest, a recession may not be such a bad time to start a startup. I’m not claiming it’s a particularly good time either. The truth is more boring: the state of the economy doesn’t matter much either way.

If we’ve learned one thing from funding so many startups, it’s that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it’s rounding error compared to the founders.

If the quality of a startup’s founders plays a far bigger role than the state of the economy, the question changes from “Why would would you want to start a startup when the economy is in such sorry shape?” to “How do we prepare our startup’s founders to be at their best?”

There are many answers to the latter question, and tomorrow’s Startup Empire conference’s goal is to showcase and share as many of those answers as possible. It’s a small conference with a single track and completely dedicated to providing the best advice, ideas, information, inspiration and contacts to help entrepreneurs get their startups off the ground. Organized by the people at StartupNorth and DemoCamp’s (and Microsoft’s) David Crow, the speaker and attendee list is packed with entrepreneurs, mentors, VCs and other people in both the local and international startup ecosystem. It’ll be interesting to see what happens when you gather them all under a single roof and put them in a more intimate, focused conference setting.

The conference is sold out, but I’ll be attending and providing lots of coverage and notes from the sessions. Watch this blog for reports!

Who’s Speaking at Startup Empire

Here’s the final schedule for Startup Empire:

8:00 a.m. – 9:00 a.m.

9:00 a.m. – 9:10 a.m.
David Crow

9:10 a.m. – 9:45 a.m.
Why You Should Startup in a Downturn
Don Dodge

9:45 a.m. – 10:30 a.m.
Slow Down and Speed Up: Handling a Fast-Moving Startup in Turbulent Times
Austin Hill

10:30 a.m. – 11:00 a.m.

11:00 a.m. – 11:45 a.m.
From Napkin to First Steps
Mathew Ingram, Darryl Ballantyne, Thomas Whitiker, Mike Kirkup

11:45 a.m. – 12:30 p.m.
Your First Structures: Legal, Organizational and Funding
Rob Hyndman

12:30 p.m. – 1:00 p.m.
Why Now is a Great Time to Start Your Startup
Howard Lindzon

1:00 p.m. – 2:00 p.m.

2:00 p.m. – 2:45 p.m.
The Funding Game, from Friends to VCs
Craig Hayashi

2:45 p.m. – 3:30 p.m.
The Ins and Outs of Term Sheets: Angel Loans to Preferred Shares
Suzie Dingwall Williams

3:30 p.m. – 4:15 p.m.
Instapitch: From Elevator to PowerPoint
Roger Chabra, Kevin Talbot

4:15 p.m. – 4:45 p.m.

4:45 p.m. – 5:15 p.m.
We’re So F***ed
Hugh MacLeod

5:15 p.m. – 6:00 p.m.
Boulder, TechStars and Why VC Doesn’t Have to Matter
David Cohen

6:00 p.m. – 9:00 p.m.
Microsoft BizSpark Launch Party


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Salmagundi for Tuesday, October 21, 2008

by Joey deVilla on October 21, 2008

Like Being on a Deserted Island

The Lord of the Flies from "The Lord of the Flies"

Evan “First Blogger, then Odeo, now Twitter” Williams says “Starting a company is like landing on the shore of a deserted island”. The first question that came to mind was “Is that a regular deserted island or a special Lost-style deserted island?”

The simile is apt. Earlier this year, I was in a start-up that was pretty much like Gilligan’s Island or the one in Lord of the Flies.

Geeks vs. Suits

The techie view of a company vs. the business view

In the blog pl patterns, Jonathan Tran writes about Techies vs. The Business, in which he compares the ways techies and suits look at the same business:

For technical people, they know computers. They know software. Given the right resources, they can make a computer do anything — anywhere, anytime. Their deep-rooted belief is that passive income can be achieved by writing software once (a fixed cost) and distributing it to millions who each pay a fee (variable income).

For business people, they know cashflow. They know the symbiotic relationship between employees and business owners. And in this day and age, there will always be people looking for jobs. Given the right resources, they can employ people to do anything — anywhere, anytime. Their deep-rooted belief is that passive income can be achieved by creating a repeatable business process once (a fixed cost) and teaching it to thousands who each execute the process (bringing in variable income).

What technical-minded and business-minded people are doing is essentially the same. What differs is their belief in what scales.

Future Creep

Zapp brannigan from "Futurama"

Over at 37signals’ blog, Jamis Buck says Beware of Future Creep, warning us about the dangers of adding infrastructure to your products in preparation for features that may or may not be added later. It’s a variation on the YAGNI (You Ain’t Gonna Need It) principle.


Nine Startup Diseases and How to Cure Them

by Joey deVilla on August 13, 2008

"Game Over" screen from the '80s arcade game "Battlezone"

Maybe I’m a glutton for punishment: my current job as Tech Project Manager at b5media marks the fourth startup for which I’ve worked; if you count Mackerel Interactive Multimedia — whose story, Burying the Fish, was written by Cory Doctorow for Wired but never published — I’ve worked at five. I like the “feel” of working at a startup, and now that I’ve got experience and real-world and blog-based reputations to back me up, startups are willing to pay me not only to be part of their team but to also be the “adult supervision”. At the ripe old age of 40, I’m an elder statesman in these parts (and playing an old man’s instrument only adds to that image).

That’s why I read SitePoint’s article Nine Deadly Startup Diseases—and How to Cure Them with a sense of deja vu, going through each item in their list of mistakes and saying “yup, did that one…did that one too…”

Put together, the startups for which I worked had all but one of the diseases listed in the article except for “Marketing Blind Spot”. For some reason, there was always a marketer in our midst, drumming it into our heads that marketing was necessary.

I’ve taken their list of startup diseases and cures and summarized it in the table below. For full explanations behind each disease and cure, be sure to read the article.

Startup Disease Cure
Imaginary User Syndrome: Your product isn’t targeted at anyone in particular. Establish a small, defined set of users who could benefit from your product and tailor it to them.
Frenetic Distraction Pox: Wasting time on non-essential tasks that don’t bring the business closer to break-even or profit. Focus!
Wrong Hire Infection: You’ve hired people who can’t perform or who underperform. “The smart, brave solution in those cases is amputation. Let them go gently if you want, but let them go.”
Implicit Promise Fever: You’re assuming that there are certain promises made between you and your co-founders, but you haven’t discussed them directly or put them in writing. “Have those discussions. Write the results down.”
Stealth Product Delusion: You’re waiting way too long to show your product to users while honing it to perfection (or as close to perfect as you can get). Get people to look at it! They’ll have some criticism, but that feedback is going to be very valuable.
Wrong Platform Fracture: The platform on which you’re developing (language, framework, technology) keeps getting in the way of development. Maybe you think you’ve gone too far to turn around and switch platforms. Switch platforms! ““We’ve walked this far already” isn’t a good enough reason to continue heading in that direction. Chances are, you’re much, much further from the completion of your product than you think.”
Other Interest Disorder: Other interests are pulling at you; you’re either saying “but I’m still working on my startup” and “I’ll get back to my startup soon” or working on several startups at once. Pick the project you want to work on, and break cleanly from the others.
Perfection Hallucination: You’re spending a large amount of time getting your prodcut to the point where it’s perfect, especially close to the end of the product development cycle. “Users are more forgiving of progress in the wrong direction than of a lack of progress. What you’ve built will never be perfect, but if it’s close enough your users will tell you how to improve it…Release early, release often.”
Marketing Blind Spot: You’re not doing any marketing. Do some marketing! “Marketing doesn’t have to cost much, but if you don’t do enough of it, you’re setting yourself up for failure.”


Ten Most Densely Populated Technology Startup Regions is a list created by Valleywag by using the Google Maps mashup Startup Warrior. The regions listed are: Downtown Palo Alto, San Francisco around the 101 between McAllister and Grove, Mountain View near Google, Midtown Manhattan between 34th and 40th, Downtown Manhattan just west of South Street Seaport, Seattle near James Street, Santa Monica near where the Santa Monica Freeway turns into Palisades Beach Road, Sunnyvale near Yahoo!, Austin around Congress Avenue, Downtown Vancouver – especially around Gastown.


What They Don’t Tell You About Starting a Startup

by Joey deVilla on April 28, 2008

What They Don’t Tell You About Starting a Startup: “Most of the times when we discuss startups, we only discuss success stories. We just see the end result of entrepreneurs making multi-million dollars. We talk about what a great life that entrepreneur must be living now. We always neglect the other side of entrepreneurs’ life. The painful life.”