Managing and growing a successful startup is ripe with challenges from all sides – from keeping employees and investors happy, to raising money and constantly improving your bottom line.
Today, a founder needs to be skilled not only at handling the minutia of running a business, but he or she also can’t lose sight of the bigger picture items that can make or break a business even before its first product or service has even launched.
If you’re looking to build a company, there are several core aspects of the process that should always be kept in mind. As someone who’s had the chance to work with many great start-ups, here are what I believe to be the 5 key success factors:
1. The business idea – Success is different for everyone, but let’s assume that in this context, success means a $1bn exit. Even if you’d be happy making millions, you’ll never get there unless you shoot way beyond your dreams. If this is the case, then chances are that you will need financing. VCs want to see a business idea that can scale fast, something that disrupts an existing industry. If it’s a “me too,” then why is it better or different? They want to see a strong, driven and capable founders team. The idea and business plan needs to be robust and show that it can ramp-up users and revenues very quickly. Make sure you’ve thought big enough to attract brilliant people and partners. If you’re looking to build a smaller vision, then adjust your needs and team accordingly, in which case outside financing may not be an issue. In the world of technology, having the ability to grow fast prevents copycats from taking your idea and executing it with more resources. Startup tech companies are usually in an arms races. The smartest and best-capitalised teams with a clear vision usually have the best shot.
2. Raising money – If you need to raise money and can raise money then DO, even if you don’t think you need it. Some seasoned entrepreneurs always say to ‘raise money when you need it the least’ because when you need it the most you’re probably running out of cash or will have to compromise to a great degree with investors and board members. Chances are that when you need it your negotiating power is much smaller. If you think you will need $2m then try for $5m. It’s often the case that revenues don’t ramp as quickly as expected and costs ramp faster. Bottom line, get as much as you can while you can and don’t worry about squeezing the VCs. If the situation was reversed, you know they wouldn’t hesitate to do the same.
There are currently two modes of thinking when it comes to raising funds. First try to build out your business as much as possible and generate traction and even revenue before you bring in a traditional institutional VC. This will give you the best negotiating power. Secondly, raise funds in good economic environments, like now where cash is flush and it will take a shorter period of time to pull in capital. Beyond traditional VCs there are literally hundreds of other capital sources to tap first. Early stage companies should target angels and submit your business to websites like Angel’s List. If you’re looking for a more structured startup environment and more hands-on assistance and leadership, investigate startup incubators in your area like Y-Combinator, TechStars, YouWeb or Tandem Entrepreneurs that all have different ways to helping startup teams.
3. The team – A great idea executed by a poor team will always fail. A bad idea executed by a great team has the potential for success. Case in point, the iPhone app, colour. The company raised $41m based on the talent of its team regardless of the app being panned by consumers. Smart and seasoned people can easily tweak a product but not so easily can they tweak their own skill set. Chose your partners and first employees very carefully as they will set the tone for your business. We have seen countless examples, Seesmic to name one, where products have been scrapped but the team has stayed intact. Your leaders need to have the three P’s – Performance – They need to know their eggs and be respected for the work they do. Personality – it’s a small team; people need to enjoy working for someone and respect them. Process – The leader needs to set the strategy for the team, follow up on it and conduct their orchestra.
4. Set the plan, measure and iterate – Your business plan and product/service will change a number of times in its first years and you will need to change with it. You will have a better chance of doing this if you know what success looks like. Set a plan, execute on it, set KPIs (Key Performance Indicators), and measure against them and then iterate. This will give you the information to know which direction to take and will help you manage your investors and board. The pure process of communicating with board members and investors is a true art form. Consider bringing on an advisor to your company who has experience in managing investors and board members to guide you through that process. Typically advisors that have the time and interest should be compensated with some stock in the company.
5. Follow the dream – You created this start-up because you had a dream, a vision of a better tomorrow. You were bored of being the cog in the wheel; you wanted to work with people you respected.
Startups are often stressful and intense work places where typically people are overworked and underpaid. So why are they there? Because they are following a dream. Make your dream their dream so everyone can follow their own vision and apply passion to the startup lifespan. Give yourself the time to work on the culture and well-being of your staff and you will be well rewarded by a work place that is inspirational and a great deal of fun for everyone. Without this feeling, team chemistry and the drive to succeed can be quickly compromised.
For any new startup, there needs to be an understanding that it will take a lot of hard work and sweat to get to where you want to go, and even with that sweat, success is never guaranteed.
Not every start-up or idea is the same, but if you apply the correct framework and take time to ensure you have a strong business foundation, you will give yourself the best potential to succeed.