How to be a startup CEO: The early stages

7 min read
11 Dec 2018

n the early stages of your company, the CEO (chief everything officer) is responsible for everything from building a team and a product, to determining factors such as equity split, all the while keeping costs as low as possible.

The iContact Team in October 2011. Photo: Ryan Allis

This article was written by the original owner of, Ryan Allis, and published on his website in 2012. Read more about why Ryan was happy to hand over his website domain to us here.

Being the CEO of a startup is one of the most challenging roles out there. Your job is to build a product customers love, recruit a team, find funding from customers, partners, or investors, and guide the overall prioritization of work.

In my experience the three most important components of the startup CEO’s role are:

1.Creating a product that solves a real customer need (and convincing customers to pay for it).
2.Making sure your users and customers have an extremely positive emotional experience with your product.
3.Recruiting a great team to build your product.

Yes, you’re also in charge of incorporating, finding a place to work, creating the foundations of your culture, hiring your first employees, setting up a bank account, creating a web site, finding early stage funding, and taking out the trash. You’re basically the Chief Everything Officer at this early stage.

But these activities matter little if you can’t figure out how to create something of value and convince others to pay for it in an exchange that benefits both parties.

Figuring out your value proposition – in other words, what you sell that brings value to others – is key in this early stage. Once you show there is market demand for your core value proposition, the remaining steps in building a business are relatively easy.

Here’s what I learned at iContact about being a startup CEO.

Determining the initial equity split

When you first start your business you’ll need to determine who gets what percentage of the company. The initial levels of ownership are determined when you file your incorporation paperwork.

If there is no one else involved then you’ll simply own all the outstanding shares and 100 percent of the corporation. If there are other individuals involved then you’ll need to negotiate what is a fair percentage for them to receive, and for you to receive.

Once you show there is market demand for your core value proposition, the remaining steps in building a business are relatively easy.

There are some key factors to take into consideration when deciding who should get what at the formation of a company. These factors include:

4.What role in the organization will each person have once the business is incorporated?
5.How much time will each person be putting in going forward?
6.How much money is each person putting in at the start of the company?
7.How much business and entrepreneurship experience does each person have?
8.Will one party be contributing any existing intellectual property to the new corporation?

If there are multiple parties involved, it’s important to vest ownership over a period of years to make sure they don’t walk away with the full amount if they quit after six months.

The most common vesting time frame is four years with a one year cliff, which means that they get nothing if they leave in the first 364 days, twenty-five percent from day 365-730 and fifty percent from day 730-1095, and so on.

If you’re partnering with an experienced entrepreneur or engineer who has had multiple successes, lots of contacts and who will be putting in hundreds of thousands of dollars of their own money and working full-time on the venture together with you, expect to have to give up a lot more than if you’re partnering with a first time entrepreneur or engineer.

I recommend not splitting a company fifty-fifty. It’s generally a good thing for the speed of decision-making for one person to have more than fifty percent of the shares (and thus the vote).

Figuring out which person this should be is up to negotiation. If needed, you can ask your lawyer to divy up the shareholder vote differently than the economic interests by creating separate class of stock with extra voting rights.

Incorporating your business

There are many important reasons to incorporate your business. The most important benefits of incorporation are:

9.You are taken more seriously by prospects, vendors, potential employees, and potential investors.
10.You are able to open a business bank account and begin to build credit for your business.
11.You are able to protect yourself from some personal liability.
12.You pay less taxes. As an individual, you effectively pay taxes on your total income (with a few allowed deductions). As a business, you pay taxes on your net income.

Keeping costs extremely low

You may need funding prior to developing your product or service. My strong recommendation is to raise as little money as possible, but enough to get the first iteration of your product or service to market.

Be as creative as you can, offering ownership in your company in exchange for early employees’ work or for critical services like legal and accounting, or requesting deferred payment so that you can pay when you are able to.

Keep your costs as low as possible until your monthly revenues grow and enable you to increase your expenses. Do contract consulting work on the side if needed to have money to live on.

Instead of hiring, find a business partner willing to take equity in the company, vesting over time, and who will be willing to take only a very minimal salary and defer it for a couple of years.

When Aaron Houghton and I started working on iContact in 2002, we deferred our salaries for three years until we got to $1 million in annual revenue in 2005. We survived by keeping company and personal costs extremely low and by doing consulting work on the side.

I kept my monthly personal expenses under $1,000 by living in the office that first summer and eating lots of ramen noodles. We didn’t have any other choice.

Understanding the role of the entrepreneur

Growing up in Florida, I didn’t really know much about entrepreneurship and business, but as I began working in companies around the age of sixteen and seventeen, and started my company, iContact, at 18, I discovered that there’s an entirely different world out there.

There’s a world of prosperity and great wealth out there for you to reach for. You can enter this world, but first, you have to be aware that it exists and you have to work hard to create value for others.

An entrepreneur can delay gratification and has a drive to achieve and the abilities to plan, build a team, inspire and lead, and prioritize.

There are multiple ways to build wealth over time through entrepreneurship. You can take an annual salary, you can take profit distributions (dividends), and you can sell stock in the company that you own (later on, when it has revenues and profits) either in private markets through firms like Second Market or in public markets via an IPO. A successful entrepreneur who builds a strong team and brings immense value to a large customer base can earn tens, or sometimes hundreds, of millions of dollars for disrupting an industry.

It’s the entrepreneur’s role to bring together the people and resources necessary to build your product and company.

An entrepreneur takes initiative and has a bias toward action, has the ability to take feedback, has a high tolerance for stress and is very determined. An entrepreneur also has decisiveness, courage, and the ability to deal with failure.

An entrepreneur is often someone who is quite creative, has the ability to learn quickly, and perseveres through nearly anything. An entrepreneur can delay gratification and has a drive to achieve and the abilities to plan, build a team, inspire and lead, and prioritize.

I kept my monthly personal expenses under $1,000 by living in the office that first summer and eating lots of ramen noodles. We didn’t have any other choice.

When I hear first-time entrepreneurs say, “All I need is $250,000 to start my business and as soon as I raise this money I’ll be able to get started,” I get concerned for them.

Unless they have a wealthy family member who is willing to take a big bet, I worry they are going to spend the next nine months of their lives trying to raise this money, only to find it is not available, or not available at terms they can live with.

Instead of planning to raise $250,000 and then getting started, plan to raise $10,000 from your own savings and close friends and:

14.Figure out how to convince people to work for you for next to nothing (in exchange for equity and deferred salary).
15.Create a product or service that you can sell.
16.Start selling.
17.Use the revenue you are making to finance future product improvements and development.
18.Once you get to $15,000 per month in sales, then go look for seed funding to improve your product ‘s scale up if needed!

Filtering out the “talkers” from the “doers”

It may take you a year or more to get your business to $15,000 per month in sales. That’s okay. Generating revenue for your business without much outside capital is really hard. It is supposed to be.

There are millions of people with great business ideas, but only a select few, perhaps two to three percent, can take their idea and execute it by turning them into something that people will pay for, over and over.

This difficult process filters out talkers from doers. Most people are talkers. Investors know that investing in someone who has figured out how to create something from nothing provides a much higher chance of generating a return, than investing in someone who just has an idea and “needs” your money to even get started.

Entrepreneurs who simply “can’t” get started on anything until they get lots of funding need to figure out how to pull together an initial product that customers will pay for, or at least a prototype that proves there is demand.

Creating something from nothing

I’m not saying that if investment funding is available pre-revenue, don’t take it. I am saying that in most cases, as a first time entrepreneur, investment funding pre-revenue will simply not be available without a herculean effort that may end up diluting you so much that you wish you had found a way to fund initial expenses with sales or personal funds.

By focusing on building a real company, with happy paying customers and growing revenue, rather than an app with no clear revenue model, you’ll have a higher chance of creating a sustainable business in which revenues are greater than expenses.

Sustainability of cash flows buys you time and it prevents costly dilution. Time is a good thing to have in business. Cash flow is king, as they say.

This is the first in a three-part series of articles which give an overview of how to be a startup CEO while growing as a company. Read the second part, how to be a startup CEO with 1-5 employees, here.

Main photo: Unsplash

*This article was originally published on October 17th, 2018 and updated on December 11th, 2018.