Ever wonder if you have the chops to start your own business? In this new essay, Paul Graham walks readers through the steps of launching a start-up. Graham has some street cred in this area; he started Viaweb in the 1990s and later sold it to Yahoo. But Graham also has a straightforward and very readable writing style. If you write code for a living, or want insight into the minds of those who do, his book Hackers and Painters is a good read – even if you disagree with his strong opinions or his programming language of choice. Graham uses this latest essay, How to Start a Start-up, to explain why companies should aim for niche markets, why it’s better to grow slow and why good people are more important than good ideas.

Some excerpts:

On having people with business smarts help run the company: Do the founders of a startup have to include business people? That depends. We thought so when we started ours, and we asked several people who were said to know about this mysterious thing called “business” if they would be the president. But they all said no, so I had to do it myself. And what I discovered was that business was no great mystery. It’s not something like physics or medicine that requires extensive study. You just try to get people to pay you for stuff.

On starting small: Start by writing software for smaller companies, because it’s easier to sell to them. It’s worth so much to sell stuff to big companies that the people selling them the crap they currently use spend a lot of time and money to do it. And while you can outhack Oracle with one frontal lobe tied behind your back, you can’t outsell an Oracle salesman. So if you want to win through better technology, aim at smaller customers.

On keeping it cheap and simple: In technology, the low end always eats the high end. It’s easier to make an inexpensive product more powerful than to make a powerful product cheaper. …It’s very dangerous to let anyone fly under you. If you have the cheapest, easiest product, you’ll own the low end. And if you don’t, you’re in the crosshairs of whoever does.

On finding angels: Once you’ve got a company set up, it may seem presumptuous to go knocking on the doors of rich people and asking them to invest tens of thousands of dollars in something that is really just a bunch of guys with some ideas. But when you look at it from the rich people’s point of view, the picture is more encouraging. Most rich people are looking for good investments. If you really think you have a chance of succeeding, you’re doing them a favor by letting them invest. Mixed with any annoyance they might feel about being approached will be the thought: are these guys the next Google?

On VCs: And as you go down the food chain the VCs get rapidly dumber. A few steps down from the top you’re basically talking to bankers who’ve picked up a few new vocabulary words from reading Wired. (Does your product use XML?) So I’d advise you to be skeptical about claims of experience and connections.