The "Founders Discount" and other things you Need To Know when starting your own tech company

So, Simon Murdoch told the UK digerati this week week that he reckons it’s a great time to be an Internet Entrepreneur “Right Here Right Now”.

Adding to that, it also looks like Monday Night is Dragons Den night over at Tech Crunch UK as they try to jump start the investor meets entrepreneur Equity Gap

And we are told there has never been more money looking for a home.......I'm sure its not true, but someone told me last year that there were more VC's than Entrepreneurs starting companies in London last year.

However, before everyone starts slaving over that hot business plan this weekend, as a public service duty I thought it might be useful to see if the blogosphere had any good advice for aspiring Web 2.0 startups.

First up was Caterina Fate of Flickr, who has written a very sharp piece on why its a lousy idea to start a company right now. But then she has cashed in already

On the other hand, I did find these very useful Ten Rules for starting up a web company by Evan Williams, who gave birth to Blogger

But then more dire news....the October edition of the Academy of Management Journal has the first good research I have ever seen on the "Founders Discount" from Harvard assistant professor Noam Wasserman. Essentially as a Founder you typically make less money, for longer, than if you were a similar level employee of even your own company (typically a c $30k difference - c 15 to 20% - in the USA). As failure rates are so high, this is seldom made up in any equity benefit. What this means is that the risk / reward structure for the founder is very often badly skewed verses nearly everyone else involved with the enterprise. There are various reasons as shown, but at least when data is open like this the Founder understands the hidden games and can do something about them.

I think this sort of research is very good, because in the long run giving entrepreneurs a more equitable deal will attract more high quality entrepreneurship. I also think this issue is worse in the UK, simply because running a small business here has fewer benefits for the owner - legal obligations, write offs against tax, red tape et al seems worse than in the US - so you don't get as many benefits from being a small company owner here.

A pdf of the full paper is here but a precis of it can be found in this article called Give Yourself a Raise. His blog is actually a pretty good Entrepeneur's 101 handbook.

Even Web2.0 apostle Paul Graham's advice advice (I am finally reading Hackers and Painters by Paul) is very sobering.

But, despite all the doom and gloom though, there will always be Entrepreneurs - mainly because its more fun than most other things one can do, and everyone hopes they can be the next Skype or YouTube. However, it always helps to have ones eyes wide shut when jumping in......

So, an uplifting final thought from Google VP of Engineering Adam Bosworth who did this very good video at a Salesforce.com jamboree. Some very good thoughts there.

This had been a public service announceblog