This is part of a series of transcripts of the proceedings of the Garage Ventures’ “Art of the Start” conference held in Mountain View. See the complete series of transcripts here.

Good morning, my name is Guy Kawasaki and I would also like to welcome you to our conference, called The Art of the Start. In particular, I found out that there are some people here who have come from foreign countries, so I’d like to thank you for coming so far for this conference. There’s a pretty large contingent of Canadians – I have to tell you that when the Calgary Flames lost to the Tampa Bay Lightning, I wanted to cry. Frankly, I believe the Stanley Cup does not belong in a city where you get snow in a cup. It just doesn’t fit. I’m a Calgary Flames fan – so, welcome to my friends from Canada.

I am going to give you an overview, a “big picture” view of starting a company. This entire conference is roughly based on the book that I just wrote, called The Art of the Start – it looks like this [slide reference].

This cover is actually an interesting story – it is using a photo from a company from Calgary called iStockPhoto. Any of you could have bought that photo for about a buck and a half and created this cover. iStockPhoto (Patrick Lor is the CEO) represents a new kind of market for stock photography: usually stock photography is about $300 a shot – this is a buck and a half a shot. And that’s Canadian.

So that’s the cover of the book that will be coming out in September, but this is not a promotion for my book. This session is about the big topics of starting a company.

For those of you who have seen me speak before, you know that I like to use a Top Ten format. There’s a historical reason for that – the historical reason is that I’ve seen so many hi-tech CEOs speak in my work that suck as speakers. I figured out early in my Apple career that if you’re going to suck and you use a Top Ten format, at least the audience knows how much longer you’re going to suck. I hope you don’t think that I, or Bill, or Bill suck, but in case you do at any given point, usually in our presentations you just have to subtract from ten.

I struggled (this is the introduction chapter of the book) to come up with a Top Ten the things you really need to do to start your company off correctly. And there are not ten things – the most that I could come up with (that are crucially important) is five. So this is a top five for you – I’d like to go through these top five things and discuss them in rather great detail from The Art of the Start.

Lesson 1: Make Meaning

The first thing I learned that, you know as Bill alluded to, is that we have seen literally thousands of companies over the past six or seven years, and we have met tens of thousands of entrepreneurs and entrepreneur teams. And with hindsight, although we were honestly swept up in it as much as they were, I think the thing that we learned the top level thing you must have. If you’re going to create company and that company’s going to be successful, it is because the founders of the company want to make meaning. Not money. Not prestige. Not power. Not status. It is about making meaning.

I would encourage you entrepreneurs as you’re contemplating your companies or forming your companies to think about what is the meaning going to be? Not the money. Money is the outcome of successful meaning-making, if you will.

Let’s analyze the types of meaning – I think there are principally four types:

• One is to make the world a better place by a product or a service.
• The second is to increase the quality of life of people.
• The third is to right something that is wrong, to fix something.
• The fourth is to prevent the end of something good.

Those are the four types of meaning that any company, any organization can make. My plea to you is to focus your efforts on making meaning, not making money.

Now, there may be an element of hypocrisy here because I will tell you that there were times in my life that I wasn’t focused on making meaning. I will pull a mea culpa, if you will. I look back, and I say, well in 1983 I was starting in the Macintosh division at Apple and I wasn’t exactly focused on making meaning. Basically in 1983, I, and the rest of the Macintosh division, wanted to send IBM back to the typewriter business holding its electric balls. So that’s not as lofty as making meaning. In 1987 at Apple, we were obsessed with beating Windows, beating Microsoft – we wanted to send Bill Gates back to making/serving Frappachinos at Starbucks. It was about Apple versus Microsoft.

But in 2003/2004, I’ve really come to this conclusion that a great company is about making meaning. That’s lesson number one – making meaning.

Lesson 2: Make a Mantra

Lesson number two is a passionate request from me for you to focus on making an organization mantra. Now a mantra is very different from a mission statement. A mantra is typically shorter – arguable the shortest mantra ever is “om” (the Hindu mantra) – it is a sacred verbal formula. It is thing where if you could ask any employee “what do you do?”, they would understand it immediately and be able to consistently communicate the purpose and meaning of the company.

Now I have to contrast mantras (because it is not a typical recommendation for an entrepreneur) with mission statements. Many of us make mission statements – how many of you have mission statements? Now let me guess how that mission statement was done. You took a group of people, maybe you even went offsite, you had each functional group represented, and for a day you hammered out this mission statement. And at the end of the day, every group had a little say in it: HR got to say “well, we have to do good for the employees”; the Finance person said “we have to return money to the shareholders”; the marketing person said “we have to change perceptions”; the engineering people said “we have to design something new and radical”. So at the end of the day, you had a mission statement that was about 25 words long that no one can remember. It’s just total Chop Suey. No one could care less about the mission statement. I have seen very few mission statement done well.

I looked up in a book, called The Mission Statement Book by a man named Jeffrey Abrahams – and he analyzed 301 mission statements. This is a very interesting statistic: of the 301 mission statements that he looked at, ninety-four use the word “best”, 211 used the word “customers”, 77 used the word “excellence”, and 169 used the word “quality”. The message here is that everybody uses the same kind of words in a mission statement. For this reason, I recommend to you that you forget about creating a mission statement. Make a mission statement when you’re a middle stage company, when you can hire consultants and go to Monterey for an expensive offsite. If you want to waste a day, go make a mission statement. But while you’re a young company, focus on a mantra.

A mantra is short and sweet. Let me give you some examples.

Nike‘s mantra is “authentic athletic experience”. If you were to ask a Nike employee “what do you do?”, it is about “authentic athletic experience’. Disney is about “fun family entertainment”. The Green Bay Packers football – “winning is everything”. Those are mantras, they are not mission statements.

By contrast, let me give you a mission statement. Starbuck‘s mantra is “rewarding everyday moments”. Starbuck’s mission statement is: “established Starbucks as the premier provider in the world of the finest coffee in the world while maintaining our uncompromising principles while we grow”. Which one do you think is easier to remember?

Let me give you more examples:

• Southwest Airlines: The mission of Southwest Airlines is “dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and Company Spirit”. The mantra that I would make for Southwest Airlines is “better than driving”. Also “cheaper than driving”.
• Coca-Cola: “The Coca-Cola exists to benefit everyone that is touches”. My mantra? “Refresh the world”.
• Wendy’s: “The mission of Wendy’s is to deliver superior quality products and services for our customers and communities through leadership, innovation, and partnership”. That’s for a hamburger. I think the mantra for Wendy’s should be “healthy fast food”.
• United States Air Force: “To defend the United States and protect its interests through aerospace power”. I think the Air Force’s mantra is “kick ass in air and space”.
• The March Of Dimes: “The March of Dimes researchers, volunteers, educators, outreach workers and advocates” – someone from HR got all the groups in there – “work together to give all babies a fighting chance against the threats to the their health: prematurity, birth defects, and low birth weight”. I think the mantra for the March of Dimes should be simple “save babies”.

The point here is to focus on mantras. Short, to the point, memorable. That’s point number two: make a mantra.

Lesson 3: Get Going

Point number three is to get going. One of the thing that Bill and I and the other people at Garage have noticed is that many people, when they decide to create a company, they think that the first thing is “buy Microsoft Office”. Because if I don’t buy Microsoft Office – because you need Powerpoint, you need to start creating presentations, then you need Word to write a business plan, and then you need Excel to create that spreadsheet and have a financial model. I am not nearly as anti-Microsoft as I used to be, but I am telling you the key to getting going is not spreadsheets, it’s not Powerpoint, it’s not wordprocessing. The key to getting going is to get your hammers, and your tools, and your compilers and your Autocad, and whatever it is that you’re use to create your product or service and create. Get going. Start making that product or service.

Getting Going

Let me give you some principles of getting going.

First of all, I encourage you to think big. Think big. Don’t just do things 10% or 15% or 20% better. Think 10 times better. Think more dramatic improvement. Think different curve, not same curve. Think getting to the next curve. Think creating the next curve. You know when Jeff Bezos created Amazon.com, he didn’t go to a Barnes & Noble Superstore and say “Wow, Barnes and Noble has 250,000 titles in this brick and mortar store, I’m going to create leapfrog them. I’m going to carry 275,000 titles in bigger brick and mortar store”. He went from 250 to 3 million in a digital book store. Think big to get going.

The second thing is you need to find soul mates. You know, in America, and particularly Silicon Valley, there is the myth of the sole entrepreneur. This it the Steve Jobs, the Henry Ford, the Anita Roddick, the Richard Branson, the Thomas Edison working alone, genius doing it by all by himself. And in fact, I think if you analyze even these companies history is wrong. All of those people had groups and were members of a team. History is wrong. It is not about one person, the sole entrepreneur, it about the group of entrepreneurs. Hence my second recommendation is you need to find some soul mates, the people who are drinking the same Kool-Aid that you are. Find some soul mates.

The third thing is when you design your product or service you should be not even not afraid, you should want to polarize people. You should want people to look at your product or service and say “I love it” or “I hate it”. The worst thing is indifference. So when you look at some cars – because cars is an easy example for people – look at the cars that you see that you “wow, I love that design” or “I hate that design”. When you look at a Mini Cooper, you love that design or you hate that design. When you look at an Infiniti FX45, you love that design or you hate that design. When you look at a Toyota Scion XB – that thing that looks like a little bread truck, you either love that design or you hate that design. But that’s what your product or service should do.

When we introduced the Macintosh it was definitely a bifurcation of the world. People either loved it or hated it. But the people who loved it are what mattered. The people who hate it don’t matter. The worst case is people don’t care. Don’t be afraid to polarize people.

Design Differently

The next recommendation about getting going is you need to design differently. You need to get out of the usual patterns of design. Let me suggest a few. One method is called “I want one” – which is you’re the customer, in this rare case there is no disconnection between what marketing says the customer wants and what engineering says we can do. It’s in the same body. You are the engineer, you are the designer, I want this, and I’ll make it. This is what happened with Steve Wozniak and the Apple. Another example, also from the car world is Porsche: Ferdinand Porsche once said, “In the beginning, I looked around and, not finding the automobile of my dreams, decided to build it myself.” I love this theory, the “I want this” theory.

The other theory is the “my employer couldn’t or wouldn’t do it” – this is where you’re working for a company and you see a market, you see a technology, you see a service that you want to do, but your employer doesn’t see it, your employer doesn’t want to do it. So you leave that company – hopefully you get your IP done correctly – and you go start a company.

Another theory, this theory is my favourite, which is “what the hell, it’s possible, let’s build it”. This is the spirit of Silicon Valley. What the hell, let’s build it! That’s how Motorola built the first cellular phones – what the hell, let’s build it, let’s go prove the market for cellular phones. You know, it was a completely foreign concept to think of carrying a phone with you – phones were at places, when you wanted to use a phone, you went to the phone. Retraining humans to think that you could carry a phone was majorly powerful in many ways. For Motorola, that phone was mainly engineering driven. What the hell, we can build a portable phone, let’s do it.

The last theory of designing different is called “There Must Be a Better Way”. This is when you’re sitting around one day and you’re saying “There is something just wrong with the system”. This was the genesis of eBay. Pierre Omidyar, when he started eBay, wanted a very market system. A better market system so that people could sell their stuff, their junk, online. The story of his girlfriend wanting to sell Pez dispensers online is more mythical than true. He really wanted to create a perfect market. A perfect market because he knew their must be a better way.

So those are the keys to getting going – that’s step number three.

Lesson 4: Define a Business Model

Step number four is to define a business model. This, for many people, may appear to be a “duhism”, as is “Duh! Of course you have to create a business model”. But we have found that many people do not pay any attention at all to the process of creating a business model. This is, I would say, a vestige of the dot-com era. Now, don’t get me wrong: no one wishes more for one more bubble than me. I just need one more bubble. Because this time, I know what to do. Having said that, that is my appeal, every night I pray to God for one more bubble.

But let’s suppose that actual bubble doesn’t appear – then it’s all about defining a business model. Now, I often lack subtlety (that may not be often), but I think the definition of a business model is: who has your money in their pocket, and how are you going to get it? That’s a business model. So let me give you some notes on a good business model.

Be Specific

First of all, be specific. Who is the customer, why are they paying you, when are they paying you, how much are they paying you? Be very specific. None of this, “Well, we’ll attract million of eyeballs and somehow we’ll figure out how to monetize it by building a community, we’ll sell advertising, or we’ll be the paid-for search engine for something, but don’t worry we’ll gather the eyeballs and figure it out later”. Not specific enough.

Keep It Simple

Also, keep it simple. You know if you need a partnership to another partnership and another partnership who will bring in this partnership to form a community to get revenue, it never works. You have to keep it very simple. Think of eBay’s business model – people post stuff, they sell it, eBay takes a piece of the action. See, that’s a business model – you don’t need a PhD from Stanford to figure it out. Keep the business model simple.

Another recommendation on business models is to copy somebody else’s business model. By the year 2004, pretty much all business models have been figured out. Why create a new model – copy someone else’s business model.

Ask a Woman

And I have one more recommendation about business models. It is one of the more controversial things in the book. This theory is that when you are developing your business model, what you should do is ask women what they think of the business model. Specifically women. Don’t ask men. The reason is that I believe men, deep in their DNA, have this code, this desire, to kill things. Men want to kill plants, they want to kill animals, they want to kill other people, they want to kill a lot of things. By and large, society has repressed this genetic need to kill things. By contrast, women do not have this DNA, do not have this need to kill things. So one of the problems with asking men about a business model is that men will always say, “That’s a great business model” because men are trained or genetically inclined to want to kill things – no matter how stupid your business model is, they will always say, “This is a good way to kill the competition, that’s a good business model”. Women, by contrast, don’t have this flaw. So ask women about your business model.

This is a very terrible indictment of men and their judgement – to reinforce this theory I suggest you pick a book called The Darwin Awards. The Darwin Awards is a collection of extremely stupid things that people have done that have gotten them killed. I read the Darwin Awards and I noticed a very interesting thing – there are approximately 12 chapters about people killing themselves in The Darwin Awards, 11 of them are about men. That should give you a rough indication. My favourite example is when, in 1998, two construction workers fell to their deaths – two male construction workers fell to their deaths – while they were cutting a circular hole on the floor. They literally cut a hole around themselves, then fell to their deaths. Would you want to ask that gender about a business model? I rest my case, I rest my case.

Lesson 5: Weave a MAT

The fifth and final step of The Art of the Start is for you to weave what I call the MAT. MAT is a very interesting thing – in the dictionary, a mat is defined as a heavy woven net of rope or wire cable placed over a blasting site to keep debris from scattering. And starting a company is very much like a blasting site that has debris scattering. So a mat is a very important thing. So what are the three things that MAT, M-A-T, stands for?

The first is M, milestones. When many people start companies, we’ve noticed – and I was guilty of this myself – when you start a company, it looks like there’s a whole bunch of things to do. You know you need to incorporate, you need to register with the government, you need to buy chairs, you need to find a building, you need to do all those kind of things. But fundamentally, there are only about seven milestones that matter to a company, and I would recommend that you focus on these seven milestones. These are milestones, these are life-changing, company-changing, company-setting events. These are the seven:

• First is proof of concept – that the science really says you can make electrons do what you say you’re going to do.
• The second is that you complete the design specifications.
• The third thing is that you finish a prototype.
• The fourth thing is that you raise capital.
• The fifth thing is you ship a testable version to customers.
• The sixth thing is you ship a final version to customers.
• The seventh thing is you achieve break-even.

Those are the milestones of a company. Every one of you should address those milestones.

These milestones, I believe, are a product of every kind of business. Whether it’s a new school that has to prove their concept of teaching, or a semiconductor company that has to prove that their chip will work. All of these things are products.

The second letter in MAT is A, A stands for assumptions, One of the things that I think is difficult for many companies is that they build financial models and business models with certain assumption and they never test those assumptions. Or if they do test them, it’s done looking backwards when it’s too late and you’re running out of money. I think it’s very important that you list and test these assumptions in real time. These are the kinds of assumptions: the performance metrics of the product – are you going to test the performance that you say you’re going to achieve. Another is to really test the market size assumption. Another is to test your gross margin assumption.

Other assumptions: how many sales calls can a salesperson make? What is the length of the sales cycle? What is the return on investment for the customer? How many technical support calls will you get per unit shipped? What’s the payment cycle for receivables? What’s the payment cycle for payables? What’s the compensation requirements for the kind of people you require? What are the prices of parts and supplies? These are the kind of assumptions that should be tested. Indeed, many of them should be tested as you achieve milestones.

So now we’ve done the M and the A. The T stands for tasks. Tasks – here I ask you to create a comprehensive list of the major tasks that are necessary to achieve your milestones. This is a subset of the totality of the tasks, these tasks are only done to achieve milestones. They are things like renting office space – it is necessary to rent office space to finish your prototype, for example. Another task is finding key vendors. A third task is to set up accounting and payroll systems. A fourth task is to file and fill out the legal documents. And the last kind of task is to purchase insurance policies.

The whole thing is woven together: What are the major milestones? What are the assumptions in those milestones? What are the tasks we have to do to get to those milestones.

These five things, these five absolutely crucial things, I believe, are The Art of the Start. It is the art of getting the company going. These five things are the most important things that you need to do to get your company off and going well.

With that, I would now like to go to the panel, where we’ve going to bring up some people from our community service providers and other experts who are going to discuss the art of starting. I’ll ask you for a sixty seconds while we set up the stage. Thank you very much.