Success in a Startup
It's funny doing a post on Startup success because there are so many around the web. Even more funny is that most will all say the same things. In fact, today, on Hacker News, there is an article about lessons learned from failed startups.
Firstly, in most cases, a "Startup" is no different than starting any business. The main differences are your expected trajectory and the investment that you will hope to raise. In most cases, the word "Startup" is used to imply a company that will grow as big as possible and raise as much as possible even though 99% of companies will either fail or remain at a relatively small level (to suit market or ambition).
In other words, in the famous words of Paul Graham, the aim of a business is to "make something that people want to buy". This simple phrase has many implied lessons such as the ability to make something and the ability to make it good/desirable but this needs to be the first question of anyone starting a new company, regardless of the money they might or might not have.
Q) Is my idea valuable and can we build it?
The second important lessons that people should learn is that the founding team is critical. Like in all lessons, you might survive a toxic founder or someone who doesn't add any value but this is possibly the main area where you have the least amount of slack. If someone is CTO and not technical enough or fast enough or pragmatic enough, you are likely to fail, if your CEO doesn't do anything other than "ideas" you will probably fail. If your head of sales cannot sell, you are likely to fail. You get the idea. Ideally, everyone in your business will be great but firstly, great people can cost money and you might not have much cash and secondly, as you grow, there are only so many great people, after which your talent pool will dilute. How many people at Facebook or Google do you think are amazing at their job? Certainly not all of them!
Q) Who should be on my founding team?
It is common for the person who has the idea to be a founder but that is not enough. Another common phrase is that "ideas are worth nothing, execution is everything", which means that every founder needs a skillset that the company needs on day one and they need to execute well in that area. You might find a skilled sales person, but can they run sales single-handedly and be the "expert" in what needs doing/how/when? Ditto for design, tech, finance etc. Plenty of founders have failed because quite simply they didn't have what it takes to run a company. You aren't born with experience but unless you are confident in your ability to learn fast then you are better working in other small companies to learn how things work before going it by yourself. You also need at least one other person. Pretty much, you will not succeed by yourself.
Q) How am I going to get to market?
Technical founders have a stereotype that they will create such great tech "it will sell itself" but in reality it will both swallow cash and then not sell. Creating that market presence can be very difficult indeed. Even with contacts, convincing your potential customers that your company can be trusted and your product is worth the cost/risk is not usually straight-forward at all. You might not be in a position to sell on day one but what about Branding? Strategy? Market segmentation? How will people recognise or remember you? How will you be ready when your MVP is available to go to market and start selling?
Q) How do I ensure quality of employees and acceptable performance?
It is much easier for a CTO to measure the performance of a developer than for a CEO to understand whether a CMO is doing well. Unfortunately, for the CEO, it is not only necessary but critical that this question is asked early on. Many companies suffer from under performing people because the CEO (or other Manager) is unable or unwilling to do anything about it. Some companies have a "Head of people" or "Head of HR" from day one. If you have the cash, it is probably a great idea because people will be both your biggest asset and also your largest risk.
Q) How much should I raise and spend?
We all wish there was an answer to this. If you raise $1M, what should you spend it on? Your mentors and shareholders will have opinions and you will probably have your own. The difficulty in most areas of running a business is that all of the opinions will make sense but they will all involve unknowns that are generally unknown by everyone. Someone might suggest outsourcing a piece of work, which might work really well in one instance and terribly in another. How can you know? The answer is you can't. The order of the day is to have a strategy and be consistent in your approach. Of course you can change strategy if something really isn't working but you have to know that it isn't working because of external factors leading to the change, not because you don't know what you're doing. Distraction is the enemy of traction and changing minds and strategy every other week stops anyone from getting a good run at their work - technical, marketing, design etc.
Q) Who should I sell to?
There are two schools of thought, although the first is really for specific scenarios. Firstly, you can find a single customer who has a big enough problem and deep enough pockets to basically bootstrap the early days of design and development. You get a single stream of feedback (ideally) and get to develop a commercial product that is probably very consistent. However, you risk a product that suits one customer very well and doesn't fit with other customers. If you do this, have you painted yourselves into a corner or is your product something which has a simple fit and will work with everyone else? Also, you need to agree for your partner to pay for this privilege. Many startups are not confident enough to tell a large company, "we are solving your problem, you need to pay us". If you do not, you can literally burn all of your cash and end up with nothing.
The second idea, which is good if it works, is that your product is easy for smaller companies to buy so you just go to the mass market. Even if you only get 10% of the market, if the market is 1M companies, you'll be doing OK. Remember, at this point, you do not have to be cash positive. Investors like large customer books even if you are not covering your costs! In fact, an Investor would usually prefer making a loss with 1000 customers to making a profit with 1 customer!
A reason this decision is important is that your whole strategy will be different depending on your target market. If you are going the corporate route, you have loads of work to do with support, manuals, on-premises etc. that simply don't arise in selling to the smaller SMEs. If you are going to need a load of deliverables that you can't produce before your customer is going to pay anything, what are you going to do?
Q) How to focus
Someone said the trick is to "do 1 thing really well instead of 1000 things badly" which is useful. Focus can be hard. If you have half a lead to a sale which is dragging on and someone else turns up wanting something different but seeming more urgent, what do you do? The naive leader gets pulled around every time it happens and ends up losing momentum and loyalty in the team. The arrogant leader stays with the first plan, regardless of whether it is going to end up anywhere. The wise leader understands what the product is and will become and will continue to get movement and buy-in from sales leads, terminating any that are not moving anywhere and certainly not adding new features unless they were kind of ready to implement anyway or the customer is going to commit to a sale.
This article could be another 18 chapters but I think this is enough for now!
Firstly, in most cases, a "Startup" is no different than starting any business. The main differences are your expected trajectory and the investment that you will hope to raise. In most cases, the word "Startup" is used to imply a company that will grow as big as possible and raise as much as possible even though 99% of companies will either fail or remain at a relatively small level (to suit market or ambition).
In other words, in the famous words of Paul Graham, the aim of a business is to "make something that people want to buy". This simple phrase has many implied lessons such as the ability to make something and the ability to make it good/desirable but this needs to be the first question of anyone starting a new company, regardless of the money they might or might not have.
Q) Is my idea valuable and can we build it?
The second important lessons that people should learn is that the founding team is critical. Like in all lessons, you might survive a toxic founder or someone who doesn't add any value but this is possibly the main area where you have the least amount of slack. If someone is CTO and not technical enough or fast enough or pragmatic enough, you are likely to fail, if your CEO doesn't do anything other than "ideas" you will probably fail. If your head of sales cannot sell, you are likely to fail. You get the idea. Ideally, everyone in your business will be great but firstly, great people can cost money and you might not have much cash and secondly, as you grow, there are only so many great people, after which your talent pool will dilute. How many people at Facebook or Google do you think are amazing at their job? Certainly not all of them!
Q) Who should be on my founding team?
It is common for the person who has the idea to be a founder but that is not enough. Another common phrase is that "ideas are worth nothing, execution is everything", which means that every founder needs a skillset that the company needs on day one and they need to execute well in that area. You might find a skilled sales person, but can they run sales single-handedly and be the "expert" in what needs doing/how/when? Ditto for design, tech, finance etc. Plenty of founders have failed because quite simply they didn't have what it takes to run a company. You aren't born with experience but unless you are confident in your ability to learn fast then you are better working in other small companies to learn how things work before going it by yourself. You also need at least one other person. Pretty much, you will not succeed by yourself.
Q) How am I going to get to market?
Technical founders have a stereotype that they will create such great tech "it will sell itself" but in reality it will both swallow cash and then not sell. Creating that market presence can be very difficult indeed. Even with contacts, convincing your potential customers that your company can be trusted and your product is worth the cost/risk is not usually straight-forward at all. You might not be in a position to sell on day one but what about Branding? Strategy? Market segmentation? How will people recognise or remember you? How will you be ready when your MVP is available to go to market and start selling?
Q) How do I ensure quality of employees and acceptable performance?
It is much easier for a CTO to measure the performance of a developer than for a CEO to understand whether a CMO is doing well. Unfortunately, for the CEO, it is not only necessary but critical that this question is asked early on. Many companies suffer from under performing people because the CEO (or other Manager) is unable or unwilling to do anything about it. Some companies have a "Head of people" or "Head of HR" from day one. If you have the cash, it is probably a great idea because people will be both your biggest asset and also your largest risk.
Q) How much should I raise and spend?
We all wish there was an answer to this. If you raise $1M, what should you spend it on? Your mentors and shareholders will have opinions and you will probably have your own. The difficulty in most areas of running a business is that all of the opinions will make sense but they will all involve unknowns that are generally unknown by everyone. Someone might suggest outsourcing a piece of work, which might work really well in one instance and terribly in another. How can you know? The answer is you can't. The order of the day is to have a strategy and be consistent in your approach. Of course you can change strategy if something really isn't working but you have to know that it isn't working because of external factors leading to the change, not because you don't know what you're doing. Distraction is the enemy of traction and changing minds and strategy every other week stops anyone from getting a good run at their work - technical, marketing, design etc.
Q) Who should I sell to?
There are two schools of thought, although the first is really for specific scenarios. Firstly, you can find a single customer who has a big enough problem and deep enough pockets to basically bootstrap the early days of design and development. You get a single stream of feedback (ideally) and get to develop a commercial product that is probably very consistent. However, you risk a product that suits one customer very well and doesn't fit with other customers. If you do this, have you painted yourselves into a corner or is your product something which has a simple fit and will work with everyone else? Also, you need to agree for your partner to pay for this privilege. Many startups are not confident enough to tell a large company, "we are solving your problem, you need to pay us". If you do not, you can literally burn all of your cash and end up with nothing.
The second idea, which is good if it works, is that your product is easy for smaller companies to buy so you just go to the mass market. Even if you only get 10% of the market, if the market is 1M companies, you'll be doing OK. Remember, at this point, you do not have to be cash positive. Investors like large customer books even if you are not covering your costs! In fact, an Investor would usually prefer making a loss with 1000 customers to making a profit with 1 customer!
A reason this decision is important is that your whole strategy will be different depending on your target market. If you are going the corporate route, you have loads of work to do with support, manuals, on-premises etc. that simply don't arise in selling to the smaller SMEs. If you are going to need a load of deliverables that you can't produce before your customer is going to pay anything, what are you going to do?
Q) How to focus
Someone said the trick is to "do 1 thing really well instead of 1000 things badly" which is useful. Focus can be hard. If you have half a lead to a sale which is dragging on and someone else turns up wanting something different but seeming more urgent, what do you do? The naive leader gets pulled around every time it happens and ends up losing momentum and loyalty in the team. The arrogant leader stays with the first plan, regardless of whether it is going to end up anywhere. The wise leader understands what the product is and will become and will continue to get movement and buy-in from sales leads, terminating any that are not moving anywhere and certainly not adding new features unless they were kind of ready to implement anyway or the customer is going to commit to a sale.
This article could be another 18 chapters but I think this is enough for now!