I just re-read “Getting Real” over my most recent trip to New Zealand. If you’re not familiar with it (you should be), it’s 37Signal’s manifesto on making simple web software. They are simply fanatical about making software that is as simple as possible.

It’s delightfully amusing when someone counters with the inevitable response of, “Well, that’s just ridiculous. Simple doesn’t work for EVERYTHING. What about Fortune 500 Accounting Software?” Their response (I wish I could find it, but I couldn’t come up the search query to dig it up) is, rougly, “Then you shouldn’t solve that particular software problem. Go solve something else and leave the complex problems to some other schmuck.”

I *love* that.

When starting up a company, you truly have a choice of what problems you want to solve (other people aren’t so lucky). I wholeheartedly endorse the idea of solving simple problems (which allows you to stick to simple solutions).

I’ve recently been attending Seattle Tech Startups meetings, which has exposed me to lots of startups that are in various stages of their existence. With a few exceptions, most of them are looking for seed stage or Series A funding.

As I considered it, it occurred to me that solving a problem whose solution is dependent on outside funding is a choice as well.

Don’t get me wrong. Funding is valuable, and sometimes critical for success.

But starting a company is pretty much laying down a bet to test a theory. Maybe you’re betting that your formula can make a better search engine. Maybe you’re betting that users want to share video online. Maybe you’re betting that jobseekers want a better utility to help them with their job search. or maybe you think that there’s a small (but passionate) group of lifehackers out there who want a time management tool. Regardless of what problem you are solving, you are betting your time and your money that you have some sort of secret sauce that allow you to build a business. Unfortunately, you can seldom test your theory without adding some “fuel” to your new company’s tank (in the form of time and money).

I’m constantly astounded by the people who seek funding before they’ve managed to test their initial theory by building and launching the absolute simplest feature-set that would solve the problem they are hoping to solve. The side effects of going after funding too early seem downright painful:

  • It’s a huge time sink. You have to write and iterate on a business plan. You have to deliver countless dog-and-pony shows. You have to deal with lawyers. All of these things distract you from executing on your idea.
  • Without at least some demonstration that your users/customers are responding positively to your solution, you are long odds for an investor. Even a proven team has a 70% of outright failure, and only a tiny chance at tremendous success. Chances are, an investor is not going to be eager to give you particularly favorable terms if all you have is an theory that you’d like test out. Conversely, if you can show even the slightest growth and can hand your investor a pile of emails from people who are excited about your offering, his odds for a good return on his investment just went up.

I totally recognize that building your idea and vetting it with a small userbase (acquired through word-of-mouth or some clever guerrilla marketing) isn’t always easy. I also recognize that bootstrapping can be painful. And, of course there are a lot of ideas that cost a pile of money before you can ever know if they are any good (for example, if I thought I could run a cable tv company better than Comcast, I might need a few dollars to lay down the fiber).

But, the more I hear stories of crappy term sheets and overbearing VCs, the more I feel compelled to limit myself to ideas that are simple (a la 37Signals) and cheap.

[edit: a friend of mine mentioned that his initial response to this post was that cheap ideas weren’t defensible. If you can build the idea without significant capital, what’s to stop the next guy from doing the same thing? I’d offer two responses to this. First, I’m only saying that it should be cheap to TEST YOUR THEORY. The person who wins in a given space is often the guy who builds the better business. Once you’ve tested your theory, you’d better be willing to dive in with both feet (and more money, if necessary) to make it happen. Second, just because an idea can be easily duplicated doesn’t mean that the business can. Digg was built in a weekend– exactly how easy would it be to knock them out of their position of relative dominance?]