Michael Parkatti and Mike Marrone are in Cambridge, Massachusetts participating in the 2008 summer session of Y Combinator, a new kind of venture firm specializing in funding early stage startups, to begin work on their new stealth-mode Internet startup.

They intend to publicly launch their website in August and will be filing a weekly report.

Aug 11, 2008 — Week 9

While it's hard to believe that the summer is almost over, there's been a lot happening in the last couple of weeks to keep our minds off of the impending cramped flight back to Canada.

An off-hand comment I made in my last entry alluded to the fact that we've been working a large amount of hours to complete our product — an innocent observation I thought. After all, isn't that what working in a startup is all about? Late nights, Red Bull, and 30 open Firefox tabs? I was surprised when my comment was picked up in the blogosphere and twisted into a crudely crafted argument against Y Combinator and entrepreneurship in general.

All I'll say about it further is that if you don't think you can sacrifice some of the more comfortable things in life, you really shouldn't consider working in a startup. However, this shouldn't imply that entrepreneurs are one-dimensional robots who cannot rationalize their own happiness. It simply means that you need to be able to commit to something against your better logic by suspending the normal definitions of a balanced lifestyle and making it work. You need to put your head down temporarily and create.

There is a risk in this singularly focused state of mind. Mike and I were so focused on getting something done that we lost sight of why we were making it. Last week we had some sober re-examinations of what we were building, and questioned whether we truly loved what we were working on.

An entrepreneur may need to spend the next 5 years of their lives thinking and breathing one product — and it's important to consider whether you want to work on it for that long. Mike and I have always wanted to work on something that we were passionate about, but we realized that we were instead working on something that we assumed other people might think is useful.

The most compelling products are usually created out of clearly defined pain. It's not a coincidence that this pain is usually felt by the founders themselves, who then use that experience to craft a product that addresses the pain. One of the most awkward positions that an entrepreneur can find themselves in is when they assume pain exists in the world when it may not.

We had no doubt that what we were building could be useful, but we weren't comfortable with the fact that we didn't know for sure. Being forced to continuously explain to people why your product could help them instead of that being instantly recognizable is not a good position to be in. We were trying to solve a big, old, hairy problem ... but perhaps problems become big, old, and hairy for good reasons.

So, we threw it all out and started with a fresh idea that will be wonderfully simple to explain, execute, and market. Before the first line of code was written, we spent time visualizing how the final product would work and look like. But perhaps most importantly, our new product will solve pain that we have actually felt ourselves.

This decision was not easy, especially considering we had already changed course once this summer. Paul Graham, who ran Y Combinator for three years (and sold his own startup — Viaweb — to Yahoo in the late 90's), was nice enough to invite us over to his house, where we spent a couple of hours talking it all over. After we expressed our concerns about changing products at this point, he reminded us how early in the process we actually are — our business has been in existence for only two months. We just needed to follow our gut instincts and do what we felt was right. Not to mention that we're far from being either the first or last Y Combinator group to re-co-ordinate themselves at this point in the process.

The downside to this is that we won't have a lot to show for demo day this Thursday in Cambridge. When that's compared to demonstrating a product that we weren't entirely sure about, I'd say we're in pretty good shape.

July 28, 2008 — Week 7

With less than three weeks to go until the first demo day of our product, it's amazing how much the pressure and intensity on the teams continuously increase.

Let me talk a bit about the challenges we've faced.

From a personal perspective, Mike and I have been working 18 hour days for almost two straight months, and we can definitely feel the stresses increase on many different levels. For starters, almost an entire summer has elapsed while we've been bunkered indoors in front of our laptops. It will be Labour Day before we even have a chance to take a breath above water -- but we all pretty much understood that this would be the way it was before coming to Y Combinator.

In startup life, Paul Graham talks about condensing an entire life's worth of professional work by a factor of 10, so you work the equivalent of 40 years in the space of four. I've worked in startups before, but it really does change when your name is on the marquee. Opening my laptop is the first thing I do when I wake up every morning, and closing it is the last thing I do before falling unconsciously asleep every night.

Every meal we eat is either over a keyboard or within an arm's length of one. Our house does watch the odd movie together, but deciding whose laptop we'll use to play it is like drawing straws. Everyone else watches the movie with the notebooks in their laps while the unlucky guy is forced to relax entirely.

This period of the summer is also when the most critical product development happens, which can cause massive amounts of friction amongst founding teams. Mike and I have butted heads together numerous times in the last couple of weeks — but I know that we're far from the only founding team where that's true. Everyone is simply passionate about what they're doing and what they're creating. Couple that intensity with extremely irregular sleeping patterns, and the friction is bound to go up.

Both of the teams in our house have yet to launch, though we are feverishly preparing to get to that point. Plenty of the other teams have launched so far, including Posterous, Awesome Highlighter, Startuply, Anyvite, and Slinkset. They've all been well received, which gives us extra motivation to get out there and start getting user feedback on what we've built so far. I really don't use many internet services, but I can honestly say I've tried all of their websites and love what they've made.

The web application that Mike and I are working on may not be fully featured for another couple of months, but we intend to release a free trial version of what we have simply so we can start the feedback process. If we were developing in a previous generation of the web, we might have waited until everything was completed. However, contemporary wisdom holds that releasing as early as possible is absolutely key to your product's success. Though the product will not be perfect, but it will give you invaluable user input that can drastically change your preconceptions about how it will work and how to make it better.

For aspiring Web entrepreneurs out there, take this process to heart. There are plenty of stories of founders who created their products on a shoestring budget and simply never stopped improving them. Glitzy launches are not really worth all that much. The products that last are the ones that generate their own organic growth, because of their realized value to the end user.

Last week's dinner included a speech from Paul Graham about what to expect in the coming weeks and months, with an emphasis on the fundraising process. Different funding options make sense for different kinds of startups, and he basically laid out what to expect under each option.

This is a topic I've been thinking about lately, as I realize that the end of the summer is fast approaching and we need to start planning for life post-Y Combinator. I'm starting to formally put together our investment information and begin the pre-fundraising process. At the same time, I still have to keep a hand in our product development and remember to eat and sleep.

Sometimes it is alarmingly easy to forget about the latter two. ...

July 18, 2008 — Week 6

One of Y Combinator's greatest strengths is the fixed time span of three months that it offers the founding teams. No matter how ambitious your idea is, no matter how much complexity it involves, and now matter how long it would traditionally take to build in 'real-world' time, every team operates on the same deadline.

Some teams had the advantage of having fairly complete products before they arrived in Boston, and some team started with nothing. The reality is that we all have to present our progress to investors in August, and we have to reduce as much risk surrounding our product's success as we possibly can.

There is no doubt that Mike and I have a fairly large problem to solve. All things being equal, I would rather try to solve a difficult problem than an easy one. We also want to make sure that we're solving problems with large implications, rather than the problems of a 13-year-old on his parent's computer.

Our product development phase will extend beyond this summer. In fact, no software product is ever "finished." All we can do is perpetuate the dual tasks of building and commercializing.

This week we had a fantastic dinner with Bill Warner, founder of Avid Technologies and Wildfire. He talked at length about his experiences with both companies and correlated his original intentions with their eventual successes. He reminded us that the inventions we make are fuelled by our intentions — and to take the time to truly understand our own motivations behind pursuing a new venture.

Listening to him talk, I was struck by how genuine he was. It's good to continuously re-affirm that you don't have to be cold-hearted to succeed as an entrepreneur.

We met with Paul Graham again this week, and he gave us some good ideas about how to refine our product. In the 17 days since changing our idea, we've built a lot of software and made a lot of tools, but we now need to focus on how these tools come together in a coherent package. The problem we're working on involves applying a new approach to an old problem. This means that we not only need to make our product useful, it also needs to be extremely intuitive.

A problem with a lot of software out there is that people have a high threshold of adoption. They don't want to take the time involved to understand what it does, why it's useful, and why they should care. People live their lives successfully without software. It's a massive burden of proof to break through their preconceptions, and show them how their lives could be made better or simpler by using software.

We believe that what we're doing does have potential to improve people's lives. Essentially, we need to make other people believe the same thing.

July 11, 2008 — Week 5

Last week I chronicled about how our startup refined our idea to build a new product. Over the last 10 days, we've started from scratch and grown confidence in what we're building again.

In that time-span we've been able to create the core product in terms of basic functionality — this includes the functionality that any iteration of our final offering will need. It's a pretty well-oiled machine of planning, building wireframes, development, final design/interface decisions, and user-flow integration. The focus of YC has allowed us to build something in 10 days that might have taken us a month in a different setting. We essentially have a month before we demo our product in front of investors, which is a major motivation in itself.

The Y Combinator dinners have been fairly helpful over the last few weeks. We had Hutch Fishman come in to talk to us about finance in technology startups. Hutch is an experienced Founding CFO with a lot of different successes on his resume including Sonus Networks and Winphoria. He basically walked us through everything we needed to know about financing, equity, liquidity events, and budgets. I have a business degree on my resume, but he still managed to clarify concepts I always found confusing, such as the reasoning behind issuing both common and preferred stock in a startup.

Last week Jonathan Seelig came to chat with us about his experiences as a Co-Founder of Akamai (which is quietly one of the largest tech success stories of the last 10 years). He's a venture capitalist now, but his talk was delivered from the perspective of a successful entrepreneur to a roomful of aspiring entrepreneurs. We heard at length about the initial months of Akamai and what they did to achieve their enormous success. He gave us some tips on what to watch out for as we begin looking for investment and business development deals. To say that the room was rapt with attention would be an understatement.

Finally, this week we had a talk with Steve O'Leary, an investment banker with a long history of giving advice on some of the highest profile M&A deals in technology. His talk centred entirely on liquidity events, and mostly on acquisitions. The art of doing a deal is complex and highly nuanced, so he gave us some advice on what to look out for, what signals to expect from acquirers, and how to stay focused during the distractions of success. He took a lot of questions from a roomful of us who obviously like thinking and talking about reaching liquidity.

YC also held its 'Prototype Day' session in which every founding team presents what they've built in the last month to the other startups. It's not supposed to be a presentation per se, but simply 5 minutes to show off your developed technology. Mike and I had chosen to switch products only 44 hours beforehand, so instead of demoing the old product we built, we decided just to give a quick pitch on what we were going to build.

I think it went pretty well, if not a bit challenging to describe a product that doesn't exist yet. I'm not the kind of entrepreneur who likes to spout empty rhetoric about what we're doing, so it was nice sharing some of the details of our product plan with our fellow founders and get some feedback. Everyone was actually really supportive of our plans to change our idea and seemed excited about the new direction we are taking.

Paul Graham mentioned that he was surprised at the quality of all of our demos and pitches, saying that we were perhaps the most prepared groups he's seen for the prototype day presentations. I agree — I'm really proud to be a part of this session of founders, as the groups are all very strong. Some groups are further along than others, but everyone is extremely talented and ambitious. It's fun following as we launch our products one by one.

And it should be our turn in a few weeks to do just that.

July 4, 2008 — Week 4

If you read Jessica Livingston's book about the narratives of past successful startups, Founders at Work, you realize that perhaps the most common underpinning of any entrepreneurial success is perseverance. Expecting the unexpected graduates from a trite cliché into an everyday reality.

What kinds of things can you expect to go wrong? First, this week my computer decided to start crashing on a bi-hourly basis. I wanted to blame the hardware, but after some trouble shooting I realized it was because of the operating system I was perhaps defending beyond a reasonable doubt: Microsoft Vista.

Do you:

• a) send it back to the manufacturer and perhaps lose 3-4 weeks of productivity
• b) listen to the fanboys and finally buy a Mac
• c) wipe your hard drive clean and install a distribution of Linux, the free open-sourced operating system, and make it work?

If you are a cost conscious entrepreneur, the correct answer is c). I lost a couple of days setting it up, but I'm actually quite happy with my installation of Ubuntu, a user-friendly Linux distribution. Once you make the plunge, you realize that there isn't an open-sourced alternative to any commercially available software.

What's another thing that can go wrong? You could have your laptop bag stolen from the subway, which is what happened to one of my housemates this week. After spending a day spent hounding it down, he realized that it probably wasn't going to turn up. One trip to the Apple store and $1299 (U.S.) later, and he's the proud owner of a MacBook that he didn't exactly ask for. Imagine every file you've ever worked on suddenly disappearing at the exact moment you needed them most. It's just another thing to deal with.

Probably the most unexpected thing we've had to deal with this week is a significant and material change to our product idea. Did I mention that there are only six weeks left to finish it before the three Demo Days in mid-August where we make our pitch to investors?

We were planning on launching what we had built some time this week. After four weeks, the site was almost completely built — it was simply waiting for some final testing before being pushed live.

When we started using our website, a couple of things occurred to us. Firstly, we weren't in love with what we had built. When you're not passionate about your product, it's something that you can't ignore.

Secondly, our product didn't have a clear business model. One thing Mike and I agreed on when we started this process was that we didn't want to create a website entirely dependent on mass amounts of page views and advertising dollars to succeed financially. I think some web entrepreneurs have the golden ticket mentality, where they build something fun and hope the world flocks to their door without having the slightest idea of how to make that product into a sustainable business.

If I have to choose between building a website that could only succeed through a speculative acquisition or building a website that could potentially sustain itself through offering a clear value proposition, I would choose the latter. And that's exactly what Mike and I have done.

Our previous idea was simply proving an interesting hypothesis. That's something that one of the early speakers told us to avoid — specifically, working on a research project and not a business. You have to ask yourself:

• 1) what does this website do
• 2) how could that activity make money?

Without a clear answer to number 2, how can you say that you're building a business and not a research project?

It's much too easy to delude yourself while answering these questions. The easy answer to provide someone when they ask about your business model is to say that you're exploring many different future avenues to revenue, including advertising, subscriptions, micro-payments, referral fees, freemium, etc. In reality, you need to plausibly equate one activity on your website into a direct route of accepting money.

Business isn't a game, and I think some web entrepreneurs treat it that way. Your investors' money shouldn't be used to prove your own personal hypotheses — if you don't have a solid idea about what your product actually does and why it's valuable, you are setting yourself up for a massive failure.

We realized that one specific aspect of what we were building was more compelling than the whole. Distilling that one thing into an idea seemed to make a lot of sense. It's given our product more focus, flexibility, and makes it more valuable as a stand-alone piece of software.

This also has the effect of transforming our company's identity from a consumer website into a productivity web application. Instead of launching our site and hoping for the best, we're going to launch a product we can sell. The key performance metric instantly changes from traffic to dollars.

In the end, which would you rather have?

June 23, 2008 — Week 3

Only three weeks into Y Combinator and time is already at a fantastic premium. The focus at this point in the session is to simply create a product. When you consider that development schedules for major software products is usually on the order of years, the fact that most groups are planning, building, testing, and launching a product in just a few months is quite remarkable.

On such a truncated development schedule, we don't really have time to deal with a lot of distractions, but curveballs are always in various stages of being thrown at us. Case in point: our landlord decided to do some light yardwork last week with what can only be described as heavy machinery. One sliced cable wire later, and our entire house has been without any Internet connection for the last week.

It's a hard task to try and launch a couple of Internet companies without, you know... the Internet. However, we have been resourceful enough to "borrow" other wireless connections while waiting for the cable company to come sort it out.

The weekly dinners have started, which are held at Y Combintor headquarters in Cambridge. Each one features a guest speaker who comes to impart knowledge and meet with all the different founders.

The first featured founders from previous YC companies CrystalRoot and Reddit who spoke to us about general things that they wish they had known in their first week. CrystalRoot is a company that handles online promotions and events from the summer 2007 batch, while Reddit is a social news and link-sharing site that was part of the inaugural summer 2005 session. Reddit was acquired by Conde Nast in 2006.

Our second dinner featured Mark Macenka, a partner in the law firm Goodwin Procter, who spoke to us about legal issues that most startups need to handle. Topics included incorporation, founders' vesting, and intellectual property. This was a topic that not many of the founders had dealt with before, so his advice was very well received.

The latest dinner featured founders from four different YC companies, including Heroku (a platform to create and edit your own web applications) and SnapTalent (precisely targeted job advertising).

They spoke generally about their experiences in the program and how they successfully transitioned into fundable companies afterwards. The stuck around for a while after their discussions to talk to the founders and answer any questions we had. We ended up chatting late into the night and getting a lot of fantastic insights from them.

It was almost sobering in a way to hear about the challenges ahead. It's clear that even though we're all obsessively building our products, this is nothing compared to what's ahead of us. Previous founders stressed to take advantage of this time while we have it, because we'll look back on this period in hindsight and question whether we truly worked as hard as we could have.

Another consistent theme has been to not be afraid of iterating and evolving our ideas if they require it. The most important thing in determining success is whether you created a product that people actually wanted. To underline the point, every founder got T-shirts with the phrase "Make Something People Want" on the front. If a YC company ever reaches a liquidity event, the rumour is that you receive a shirt that says "We Made Something People Wanted."

Mike and I have been faced with this problem ourselves. We know that the underlying concept of our product is inherently valuable — the challenge at this point is deciding how best to translate that potential into reality. Every single day we're learning a ton about our idea, refining it, and changing it when necessary.

When it comes down to it, we really just want to launch as soon as possible — the absolute best way to learn about the efficacy of your product is to have people actually use it.

June 16, 2008 — Week 2

It's a common assumption that the most challenging aspect of starting a company is summoning enough courage to begin in the first place — once you've made the plunge, it forces you to think and act in a way you wouldn't have otherwise.

I hadn't really considered that my first major challenge would be even getting the chance to make the plunge at all. After visiting friends and family in Edmonton, I assumed that making the quick flight to Boston would be a relatively uneventful affair.

Even though I'd brought a ton of documentation trying to explain what Y Combinator was, the border officials took an hour to decide that I was, in fact, a student, and that I needed to get a student visa before being granted entry. They took my mugshot and kindly escorted me out of the customs area before I fully understood what was going on and why. Thankfully, my airline had the exact same flight leaving the next day, so I had about 24 hours to figure out the intricacies of American immigration policy.

After some tense phone calls, frantic web searches, and about 3 hours of sleep, I'd compiled the documents I thought would address their concerns. The next morning I faxed a thick portfolio to the U.S. border officials at the Edmonton International Airport, and spent the next three hours in Visa-related purgatory. However, the hard work paid off and I was granted permission to enter the United States that evening. (For those visa status junkies out there, I was given a B1 Business Visa for 3 months and 3 days).

I flew through the night, first to Seattle and then onto Boston. When I touched down at 6:30 am EST, I'd only had 3 hours of sleep in the last two days — but the adrenaline from what I was embarking on more than compensated.

Mike, of course, had flown in from Toronto without incident. He'd printed off a couple of sheets of paper and shuffled on through. Typical.

I hadn't seen Mike since our interview together a month before in Silicon Valley, so we spent the first week in Cambridge juggling our initial product discussions with the usual moving-in headaches. As Y Combinator in not an 'incubator,' it requires you to provide your own working space (usually wherever you live). Our place is located near Central Square, which is about equidistant from Harvard and MIT. Seeing as Cambridge is a fully functional student town, the location is set up well for most anything we need (my loose definition of "need" includes office supplies, food, and beer).

We set up our improvised office space in my bedroom. It's a fairly large space with a lot of light — though it's already getting very hot here (I had no idea that Boston heat routinely eclipses 100 degrees Fahrenheit during the summer). We're working off the same square table. Mike stands as he codes; I hunch over my laptop. Working in such proximity is a massive benefit — at this stage we're constantly bouncing ideas off each other and making important decisions with a bare minimum of debate.

There's another Y Combinator pair living with us in the house working on a totally unrelated product. We spend a lot of time hanging out with them, talking about our products and getting advice from each other. In the evenings we usually migrate out to the common room where the four of us eat dinner around our laptops and chat about new things we're working on. When people talk about living and breathing a project, I think now I'm starting to understand what that's all about.

After the first week, we've gotten our bearings and are starting to hit top speed. In the upcoming week we'll be attending the introductory dinners (Y Combinator thankfully holds weekly dinners rather than meetings, ostensibly as a way to bribe attendance from starving founders). We're both really looking forward to it.

June 09, 2008 — Week 1

I think it's pretty safe to suggest that becoming an Internet entrepreneur is a proposition that's lost a bit of lustre in the last 10 years.

As innovative and useful as the online world has become, I'm guessing a fairly small portion of the Canadian public would even recognize the era of 'Web 2.0' has arrived (and in some opinions, already gone). High profile online flameouts (see: Pets.com) are still much more common than success stories (see: YouTube.com). Pursuing web entrepreneurism continues to be an extremely risky career choice.

However, the dim prospects have not deterred my business partner, Mike Marrone, and I from throwing caution into the wind and participating in the most high-profile entrepreneurial launch pad possible: Y Combinator.

For those unfamiliar with Y Combinator, it can be roughly described as a Venture Capital firm that provides seed funding for startups. However, their obvious corollaries with the traditional venture capital industry end there.

From a first-time founder's perspective, Y Combinator is exactly the sort of program that provides the means to achieve our ambitions. On top of the seed investment, they also provide many of the intangibles (product advice, connections, ready access to hundreds of potential investors) that first-time entrepreneurs usually lack. In exchange they receive a small percentage of equity from each founding team. For the current three-month session (June to August), 22 teams have converged on the Boston area.

For two Canadian guys from St. Albert, Alberta and Belleville, Ontario who are long on ideas and short on connections, it's exactly the opportunity we were looking for to take our startup to the next level. Mike and I have both followed the typically circuitous career routes of entrepreneurs. It's been almost three years since I finished my post-graduate degree at the London School of Economics. In that time I've begun a career as a management consultant, worked for an Internet startup in Calgary (taking my finances to the breaking point), worked for a startup in Vancouver, committed to start a PhD program and now have started my own company.

I suppose you could characterize it as a feverish search to find my true professional identity.

Mike Marrone has a similar story. In the three years since finishing his Bachelor's at Trent University, he's worked at a small technology company in Ottawa, an Internet startup in Calgary, and Yahoo Inc. in Sunneyvale, California. He's been searching for many of the same answers I have.

We met 18 months ago in Calgary. We had both left fairly comfortable employment for the grand allure of participating in something new and innovative. I'd always wanted to learn how entrepreneurship worked from the ground level, and it certainly allowed me the chance to discover my genuine passions and talents.

Since meeting, a primary goal of ours has always been to start our own company. With recent advances in technology and cost advantages in open-sourced software, the fixed costs of starting an Internet company have plummeted to almost nothing. All you really need to get a website up and running is an idea, a computer, and the ability to fiercely execute.

Mike is a developer. After years of creating websites, this is almost second nature to him. Though I've learned how to code myself in the last year, I handle the more business-related issues of our startup. We've learned to work together in a way that's necessary in this industry: fast, efficient, and decisive.

Our entrepreneurial story is the most archetypical possible: we're simply two guys trying to make something that people want. We've made choices that some would consider to be questionable career moves. We don't really have a firm idea of how we're going to afford to eat next month. We've sacrificed almost everything to arrive at this exact point in time. And we wouldn't have been happy any other way.

Starting this week, I'll be writing a weekly diary of our experiences while participating in Y Combinator over the next three months. Beyond merely documenting what I observe around me, I hope to provide an honest reflection of what's it's like to create free enterprise from its most humble tenements.

Founding a company has one of the steepest learning curves possible in life. Everyone has their own preconceived notions as to what it involves. Invariably, perceptions change, lessons are learned, and myths are debunked. It's time to find out how accurate our preconceptions of entrepreneurship actually are.