Presentation from Philip Rosedale's June 20, 2012 class at Parisoma: "The First Steps to Starting a Startup". Philip Roseldale is one of the Co-founders of Coffee & Power and the Founder and Chairman of Second Life.

1. First Steps to Starting a Tech Startup
Philip Rosedale, Co-founder of Coffee & Power and the Founder
and Chairman of Second Life
Original presentation given June 20, 2012 at Parisoma, San Francisco
Thursday, June 21, 2012

2. “I can only show you the truth.”
http://goo.gl/RpE1t
Thursday, June 21, 2012
I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.
My personal story is also the story of how technology is likely to keep changing everything.
So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought in
an analog computer that I had made for show and tell. But I also took 4th grade twice -
because my social development was so retarded.
Once computers became available, I bought my first one here at a swap meet for $20. My
first two computers didn’t have storage, so I would code all day and then just have to turn
them off.

3. Agenda
❖ Who am I?
❖ Why did I start a company?
❖ Should you?
Basic Stuff
Advanced Stuff
Thursday, June 21, 2012

4. I was born in 1968
I graduated from college
in 1992
Thursday, June 21, 2012
I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.
My personal story is also the story of how technology is likely to keep changing everything.
So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought in
an analog computer that I had made for show and tell. But I also took 4th grade twice -
because my social development was so retarded.
Once computers became available, I bought my first one here at a swap meet for $20. My
first two computers didn’t have storage, so I would code all day and then just have to turn
them off.

5. “My God, it's full
of stars!”
Thursday, June 21, 2012
How many people know what the color image is? How about the second one?
My friend and I were zooming over and over into the Mandelbrot image, until the original
image was the size of the surface of earth.
Automata like the ‘game of life’ could theoretically create self-replicating structures once a
sufficient size scale was reached.... imagine 10,000 laptop screens all with this same code.
So I was really really obsessed in what could happen if we could use the internet to connect
computers and create a huge new virtual world.

6. Thursday, June 21, 2012
At its height, Second Life had billions of user-created objects, hundreds of millions of dollars
of transactions and revenue and hundreds of articles a day written about it.
But what made it SO compelling? It rocketed into the popular press and struck a chord in a
way greater than any elaborate Lego building set, however advanced, could be.

7. Inventing Improving
✦ User Testing
✦ Ship Early ✦ Focus Groups
✦ Angels / ✦ Stealth Mode (*maybe)
Kickstarter ✦ VCs
✦ Community ✦ Partners
Thursday, June 21, 2012

8. Different Kinds of ‘Entrepreneurs’
✦ Inventor
✦ Thrillseeker
✦ Non-Conformist
✦ Profiteer
✦ Competitor
✦ Do-Gooder
✦ Social Climber
Thursday, June 21, 2012

9. Questions
(from class)
1. I have an idea/business plan, what steps do I need to take to secure funding?
How do you identify the right people to help you build your product in the early
stages? How do you validate your product before getting in too deep?
2.I am currently a freelance consultant. I have a few ideas for start-ups. I am
having a hard time deciding between starting something small that I can kick start
without a lot of help vs. starting something that will require team of people and
considerable funding at a very early stage. What advise you would give to help me
get through the process of making a decision?
3.How do you stay motivated and focused? Do you need to quit your full-time job
in order to be successful? How do you find the right key people to help you
succeed? How do you find a mentor or find someone to help you through the
learning curve of being an entrepreneur?
4.Steps an F-1 visa holder can take to start a business in the US?
5.Best ways to find a technical co-founder? Best ways to find a mentor?
Thursday, June 21, 2012
I never felt like i knew how to have a mentor or that I needed one. Mine sorta found me.

10. Sources of Funding
✦ Second Mortage
✦ Kickstarter
✦ Crowdfunder
✦ AngelList
✦ Venture Capital
Thursday, June 21, 2012
Convertible note - move fast - talk about how to use this to make it really simple
10M cap, 25% discount
Nothing complicated
No need to use fancy lawyers - should only cost $5K or less
DO NOT raise too much money
Take questions

11. Risk
Thursday, June 21, 2012
Even in Silicon Valley, and in some sense especially in Silicon Valley, REAL risk-taking is rare.
When I was a kid I cut through two ceiling joists to make my door go up into ceiling. I did this
in the hope that girls would like me more. My other big unfinished idea in that direction was
to build a hovercraft and drive that to school - before I could legally drive.
The really crazy ones aren’t motivated by money (more by vanity), have some sort of troubled
childhood, usually fail, and are very rare. They irrationally pursue almost impossible ideas
that they can’t get out of their heads.
The entrepreneurial community rallys around these people, but statistically speaking is NOT
made up of them. Entrepreneurs, for the most part, are normal people.
The SV startup community is probably responsible for pushing too great a degree of risk-
taking on everyone, both with the offer of financial return (Which statistically speaking will not
happen), and with cultural acceptance and respect... “Me and my cofounder” is the new pickup
line.

12. Tech Co-Founders per
100,000 people
(Which place would you go,
if you were a gazelle?)
Thursday, June 21, 2012
If you were an Antelope, where would you go?
Creating a vibrant startup community isn’t about encouraging innovation or risk-taking!
The secret is actually to create safety in numbers - to reduce risk. This is probably true of
anything other career too, like Performing Arts (New York), or Car Design (formerly Detroit)
SV is the only place in the world where “Technical co-founder” and “Entrepreneur” are CAREER
CHOICES. My friend from SL says that her favorite new pickup/wingman line is “Me and my
cofounder”.
But technology and mobile COULD collapse the distance between these people enough to
create a vibrant ecosystem. IF that could be done, the lower cost of living, unjaded friendly/
collaborative nature of people could actually allow a place like here to rapidly displace SF or
Seattle.
Further on this subject, the accelerating rate of tech change means that education and
experience matter less and less. So the person whose never done it (or even heard stories
about) is at less and less of a disadvantage.
Kansas City - 24, Omaha 21, Des Moines 27. But does it get much better if you move to
somewhere else? Los Angeles - 40, New York 51.

13. “I can only show you
Thursday, June 21, 2012
I was not at all comfortable with eye contact as a kid. I know this seems strange, but it’s true.
My personal story is also the story of how technology is likely to keep changing everything.
So as a kid I was a big reader, and also discovered electronics early. In 4th grade, I brought in
an analog computer that I had made for show and tell. But I also took 4th grade twice -
because my social development was so retarded.
Once computers became available, I bought my first one here at a swap meet for $20. My
first two computers didn’t have storage, so I would code all day and then just have to turn
them off.

14. “It just doesn’t make sense to say - as
the democratic revolutionaries do - that
people can govern themselves ... People
can try, you think, but it certainly
couldn’t work as well as having a wise
and just king.”
God Board
King CEO
Subjects Employees
Thursday, June 21, 2012
Second Life was too complicated to have an engineering hierarchy. So I tried to figure out
other ways to make people work together.
Plus, I read this amazing book by Tom Malone
But why should the nature of work change now... well an economist named Ronald Coase -
who won the Nobel Prize in 1991 for work he did in 1932.
But what happens as technology makes the cost of those negotations less? Smaller firms and
more markets.
Also - the trend toward flatter and more rapidly changing platforms make the idea of
‘kings’ (CEOs) who plan everything out successfully less likely to be optimal.

15. Thursday, June 21, 2012
In 2005, in an attempt to keep very high transparency alive in our rapidly growing company, I
made the ‘love machine’
Beyond the simple delight of sending love, there were two important things that happened
that I hadn’t anticipated:
1. The log and wordcloud of love became the best ‘executive dashboard’ for how we were
doing.
2. The history of an individuals received love became the core of a very effective
performance review process.

16. Coworking
Thursday, June 21, 2012
If you have lots of autonomy and public recognition, couldn’t the collective opinions of
everyone replace the management-led process of giving out bonuses?
You can test the strategy by asking yourself and your managers who ‘should’ be on the list,
then running the process.
It doesn’t matter whether this system is better in allocating funds - nothing is perfect - the
power is in freeing management from the burden and risk of evaluating people, and letting
them instead lead!

17. CEO survey
Thursday, June 21, 2012
So why have a CEO at all? With lots of employee autonomy, you might think that democratic
processes would be best for making strategic decisions,but you would be wrong. A
community will only agree on not making changes. You need to entrust leaders who can take
calculated risks for everyone - and indeed in the absence of needing to do performance
evaluation, those leaders can do even more of that.
If you really have guts, the best strategy isn’t to let your board of directors hire or fire you.
It’s to let the whole company do it.
Think of the internal confidence of every member of a company in which the leadership is
willing to use this process.

18. Thursday, June 21, 2012
We initially intended to work in both bars and cafes, but the bar thing only lasted a couple of
days.

19. Worklist.net Our Distributed Development Process
63 Contributors
$229,000 work
11 Months Coffee & Power 1.0
Thursday, June 21, 2012
Both because we were living in Cafes, and also because we wanted to
Top person on Coffee & Power did about $50,000 work, lowest was $20.

20. Since January 2011:
9760 Jobs
Worklist.net $535,000 work
115 Contributors
Thursday, June 21, 2012
Hybrid model: In-house effort max on feature design, product vision, graphics
‘Powered Exoskeleton’
Plus big benefits:
Use different specialists at different times
Many eyes on code, no single point/person of failure
Low ego - easy to back up if you are wrong
Easy way to interview/train/recruit junior people

21. Worklist Lifetime Earnings
Since January 2011:
9760 Jobs
$535,000 work
115 Contributors
Thursday, June 21, 2012
Hybrid model: In-house effort max on feature design, product vision, graphics
‘Powered Exoskeleton’
Plus big benefits:
Use different specialists at different times
Many eyes on code, no single point/person of failure
Low ego - easy to back up if you are wrong
Easy way to interview/train/recruit junior people

22. “What's the
good word?”
Thursday, June 21, 2012
When I first went to these workspaces, what I expected to see were a bunch of deadly-serious
startup teams hunkered down doing development. What I actually found was more like a
scene from ‘The Office’.
The people who come to these places do it for social contact, not efficiency. They are
reconstructing the office social structure that has been removed by the relentless efficiency of
the open market.
Which makes me wonder if the employer of the future is the startup, or maybe some new
form of labor union - for example a sort of ‘Hacker Dojo’ where all the Ruby-on-Rails devs
commit X% of their contract income to have health insurance, etc?

23. Coffee &
Power 2.0
Thursday, June 21, 2012
Quantified WORK
Imagine you can find people working, where they actually are. Like vampires or a secret
society.
Even beyond what we are doing in first version of C&P, what if all the young entrepreneurs in
Des Moines could share risk by putting a % of their income into a pool that would pay them
when they were between jobs? Or buy health insurance? What if they could all rate each
other like what we did with the rewarder, and that ranking became both a public resume as
well as a gate for entry into the community?

24. Microsoft EBay
Thursday, June 21, 2012
A final observation is that the era of the gunslinger may be over, where the greatest CEO’s
were cowboys and the most infamous robber barons.
Networks and Facebook make it impossible to hide, and we are seeing more and more female
CEO’s - a trend which I first saw in SL, where the ‘Land Barons‘ were so often... women.
But exploiting disruptive change - making really crazy products - still requires cowboys, so
keep us boys around, we’re still good for something.

25. Measuring past Deciding what to do
performance next
NOW
Thursday, June 21, 2012
Companies of the future will probably compete/succeed by maximizing in two ways existing
companies did not:
* Crowdsource/democratize the measurement of past performance
* Use markets to assign risk to new projects

26. Thank you! Questions?
philip@coffeeandpower.com
philiprosedale.wordpress.com
twitter: philiplinden
www.coffeeandpower.com
Thursday, June 21, 2012