Strategy

🧾 Everyone knows most startups register as Delaware C Corps, but does anyone actually know why? If you need to ask (for a friend of course) this is a quick read that covers the different corporate structures and when each makes the most sense. The tl;dr: C Corps reign supreme because they have the advantage of no K-1s, favorable tax breaks, and familiarity amongst investors. There is really only one notable drawback – corporate income tax. At the federal level that’s 21%, plus whatever your state rate is. However, unless you are using your startup to generate cash (if your goal is acquisition or IPO then you are probably reinvesting profits for growth), this won’t have a major impact on you.

⚙️ While he doesn’t live in the world of software, Peter Rojas, founder of the gadget blog, Gizmodo, is another proponent of niche (or vertical) markets. In a recent interview, he explained why the creation of the web was the catalyst that made niche markets available, as prior to the web the cost to publish was too expensive to target anything but the largest demographics. Rojas admits that a more niche market comes with significantly less competition, and most of the growth Gizmodo has seen came from the gadget market growing as a whole, not acquiring customers from some other publication. 

🔧 For a while, many venture investors avoided vertical software because they felt its comparatively small markets would not produce target VC outcomes. That has of course changed in recent years, and CRV does a nice job of outlining why. They use the example of auto repair software – with 167k auto repair shops in the US and the lower priced players charging $2.7k a year, you conservatively have a ~$440M TAM (not the $1B+ venture gets excited about). But over time these software are able to further specialize and innovate within their verticals, both creating more solutions (more things to charge for) and improving their current offerings (giving them the ability to charge more), thus growing their TAM. What CRV is most excited about in vertical software is embedded commerce. Using the same example, embedded commerce would be selling auto parts directly through auto repair software, putting your website, booking system, POS, etc. all in one place.

🌳 There is a science to conducting customer interviews, and if you don’t believe me, Stanford even has a course on it in their entrepreneurship program. There are a few key principles though for those who don’t have time for a course, starting with asking open ended questions. Open ended questions remove an opportunity to bias your interviewee and can result in answers you probably weren’t expecting. But that does not mean you have to stick totally to the script, it’s good to ask for details and clarification frequently to dig up more information. For example, if someone tells you that migrating their data to your platform was difficult, you should ask them “what do you mean by difficult” to get to the root of the problem.