If the goal of your startup is to succeed, this is probably the most important article on entrepreneurship that I have yet written, The following ten points will help you focus your team, company model, and financial situation, taking much of the guess-work out of execution and giving your startup maximum focus.
1) Are You Selling to Companies or End-Users?[login] This is one of the biggest pitfalls there is and can completely dis-focus the efforts of a company. Selling to companies appears very lucrative and attractive because one enterprise software sale can provide salary for all the co-founders. Yet as lucrative as it might seem, selling to companies is enormously difficult. Be prepared for deadly-long sales cycles. Selling to enterprise also requires connections in order to get attention and in the door of some of these places. Plus you need a more mature product than you would if you were selling to consumers, requiring more resources, possible investment capital and a longer time horizon for your company — all adding extra risk. Selling to consumers is also tough. Unlike the enterprise world where only one customer is needed, when selling to a consumer mass market, it is imperative to regularly and cheaply reach a wide and consistent audience who is finicky and have attention span of 3-year olds which you must figure out how to capture. If you do not, you will not stay afloat.There is no right answer as both roads are tough. Make sure you pick just one and stick to your guns because perusing both, the business customers and enterprise customers is a sure death trap.
2) Investment or No Investment?There is already an article devoted purely to why you should not pursue investment, but investment capital can be great for some companies. It can give your company great connections (the investors themselves) and capital with which to buy resources and man-work-hours. The negative side of getting capital is that a tiny percentage of people get it; usually those who have built successful companies before. Plus it takes quite a bit of time to prepare investor presentation materials (investors will get annoyed if it is not up to snuff) schedule meetings, meet, travel to meet, etc. This all costs you time and money, which you would be getting with their capital, so it’s a bit of a Catch-22. If you have not been a successful entrepreneur in the past, you may gain quite a bit of focus if you do not try to secure investment, but instead allow yourself a longer amount of time before you need to reach out to investors. Also, you can try to realign your company model to be simpler, so that the founding team will need less investment or none at all. The road to investment capital is long and windy if you have not done it before, so if you can avoid it, do.
3) Partners or No Partners?It has been traditionally considered that all start-ups need a founding team. With the rapid decrease of development and hardware costs, this is less true now than even 5 or 3 years ago. Code snippets can be taken from examples online, so can html templates, and man other things. Founding partners can be great, but finding great ones is much more difficult than finding flakes, dishonest or crazy people. Plus, if a founding partner leaves, it can really cripple a young company. And at the end of the day, finding partners takes time and effort — why not just spend it learning that skill you think you don’t have and the reason you are looking for a partner in the first place?
4) If Partners, What Kind of Partners?If you opt for finding a founding team, try to find people with these qualities:
- * Honest and integrity
* Should have experience starting projects and companies
* If possible, great people you have worked with in the past
Here are some signs that should make you run from your potential founders:
- * Arguing and disagreements early on
* Truly crazy smart people (you need sane smart people)
* Lack of Professionalism
* If they are looking for work at the same time
* If their time horizons are less than 6 months
* If they do not show too much interest (don’t chase people for a particular skill)
* People who tend or show tendency to lead you on — this is a silent killer as it is a tremendous time-waster
5) Financial Focus and Risk ToleranceFinancial uncertainty can really dis-focus a company. If you need income, you will be more likely to chase investors or go after bad or inappropriate monetization models. Before you embark on a project, try to have a clear idea of how long you can stick with it, and how much money you can lose. In general, just as stock market investing, it can be healthy and sane to have some stop-loss conditions which dictate the amount of dollars and/or months you will be able to spend on the project. Know how much you can risk, but do not lose sigh of the tipping point where risk becomes recklessness and hop clouds up reality. As a very general rule of thumb, the younger you are the more you can risk, and as you get older, your risk tolerance should become smaller as you probably have to support people around you, and save for your own retirement. Ideas and startups can be very luring, but you must be realistic about risk, and consider whether it is right for you.
6) Time HorizonsJust like with financial stop-losses, try to set concrete time-horizon goals for yourself on when you think you should quit. Calling quits on a project is very difficult and emotional, this will have to be a calculated and disciplined move. Know your limits and stick by them. Failure is not the worst that can happen. Prolonged floundering is much worse. Many projects can drag on and on, so you have to set clear rules for yourself on when to quit and under what conditions. If the company does well, it is great and you don’t ever have to act on these decisions, but if the company does not, to help yourself, set firm rules for yourself on when to get out. These rules can help you avoid spending too much time in a slowly dying company that never really lived.Be careful not to make the time horizons too short, because it might prevent you for giving it a valiant effort.
7) End GoalsGo into business knowing where you want to take it. Do you want to own it for 20 years and be your own boss, and enjoy that lifestyle? Or do you want to sell it ASAP and just cash out? In either case, answer these questions for yourself and if you have co-founders make sure their goals match yours:
- 1) Will I want to do this for that number of years?
2) What will I do if things are progressing twice slower than I initially expect?
3) What is the required financial investment on my part is larger than I expected?
8) Getting Site Traffic and Company ModelThis is one of my favorite topics because customers are the lifeline of your business. You obviously won’t know exactly what your customers will think about your product, but you should definitely have some vision on where you are going and how you want to get there. So ask yourself these questions;
- 1) Will the product be something people might want to show off or recommend to friends? (Potential to go viral)2) Do I make someone’s life better (Potential getting more inbound links to your site)3) Is it something really cool and new? (Will help attract customers not averse to unknown products)4) Will it be a high-margin business (Can afford to advertise)5) Will it be a low-margin business (Harder to advertise)6) Is it entering an overcrowded market with 800-pound gorillas, or just semi-crowded market? (Overcrowded markets are death traps as cost of customer acquisition is huge and pleasing them is harder as well)7) Does it fit well for social media? (Social media is very much about browsing and discovering, so if you can lure people to your site, will your business be catchy enough to make them stay?)8) Is it going to be fun and game-like? (Ties into the previous point)
9) Will The Company Be Able to Financially Support the Founding Team?Consider the minimal amount of money the founding team needs to consistently carry forward. People can’t live of savings forever and they have to ultimately earn a living. If one way or another you do not make enough money to keep afloat, it will crumble the company. If the founding team is one person, the company only needs to make a thousand dollars or two to stay afloat until business picks up. If the founding team is 3-4 people, the company must bring in about 10k per month just to keep the founding team fed with a roof over their heads. The vast majority of sites out there do not make even $1k per month for a long time, so before starting to pile up co-founders and embarking on a business idea, considerWhether the company will be able to sustain itself, how long it would take to get to that point, how the team can fund itself before it gets to break-even, and most importantly be realistic and not hopeful with these considerations.
10) Market SizeMarket size is a very confusing topic because with Internet scale, all markets are absolutely huge; and they are. But for every huge market there are a number of 800-pound gorillas who take up most of it, and leave the bottom-feeders to fight for the rest of it. The competition for space in a crowded market is suffocating because it is very difficult to get attention of customers, and even once it happens it is very difficult to please them because they know they have abundant options. Marketing costs skyrocket, and it becomes impossible to monetize the users enough to make up for the marketing costs on top of the already existing development costs.If markets are small, competition may be less fierce (sometimes more fierce because there is a smaller pie to divide) and they come with their own difficulties depending on why they are small.
- * If the market is small due to being new: there is increased risk that maybe the market as a whole won’t take off, which usually means death for startups.
* If the market is new because there isn’t much money in it, a 1-2 person team might be able to give it a good try because over time, they’ll out-compete the bigger-spending competitors.
* If the market is small because it is local, it might also be winnable by a 1-2 person team and do well.
It is essential to understand the market you are going after, its difficulties and soft spots, and decide whether you will be competitive in it with the resources you have.