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Being a first-time entrepreneur can be daunting. This is especially true if someone is from a family whose members have never ventured to start their own businesses. When a person with a steady job and a steady income gives it all up in the pursuit of starting their own venture, they are likely to face not just questions from well-wishers, but a lot of self doubt too. With statistics such as the fact that more than 90% of startups fail, it is wise to proceed with caution. What are some things to keep in mind when going at it alone or with one or more co-founders?
Do a thorough market analysis
Don Valentine, who founded Sequoia Capital, stated that “great markets make great companies.” When you are setting out to build a product or service, the ultimate goal is to sell it. A complete picture of the market (as is reasonably possible) is vital before throwing oneself and one’s organization down the path of designing and creating a product. If necessary, use the services of business analysts to write a report about the potential market/s for your product/service.
Invest time in design before implementation
According to Peter Thiel, good innovation sells itself. In his book Zero to One he stated, “If your product requires advertising or salespeople to sell it, it’s not good enough.” Based on the market needs, design your product. This may go through many iterations. Markets are not static and if one has picked a market that is volatile, then it is imperative to take any changes into account as part of the design.
Money, Money, Money
Raising seed capital is the ideal way to set out. Investing one’s personal savings is not just risky, it adds to the stress level in an exponential fashion. The second largest reason why startups fail (29% of cases) is due to running out of funding and personal money.
Make sure your founding team is strong and well-balanced
According to Marc Andreessen, “We are biased towards people who never give up, who never quit; and that’s something you can’t find on a resume. We look for courage, and we look for genius. There’s all this talk about how important failure is. I call it the failure fetish. ‘Failure is wonderful, it teaches you so much, it is great to fail a lot,’ they say. But we think failure sucks. Success is wonderful.”
In more practical terms, the qualities that are essential for founding a startup are:
- Being able to see the big picture and take a long term view.
- Having the stomach of a well-seasoned salesman to knock on doors for money and customers.
- Being an expert in the technology that is key to the startup.
Even if all of these qualities are possessed by one individual, it is still a good idea to form a team of founders. The simple reason for this is that there is an enormous amount of work that goes into starting and running a company. People sacrifice their families and health when doing this. Taking all of the key responsibilities by oneself is a sure-fire way to burn out.
Networking, Networking, Networking
Introductions are vital. Andreessen’s VC firm invests only in companies where it has been introduced to the founder. The reason for this is that the skills that enable someone to seek funding are the same skills that are needed to sell to customers, collaborate with partners, talk to the press, etc.
Good communication and mutual respect
Startups are stressful. Miscommunications and unhealthy arguments will add more stress to what is already a pressure cooker situation. Make sure that the team of founders is likely to work together smoothly.
Be very selective in hiring
In large organizations, weak links are compensated by excess labor capacity. There is absolutely no room for excess labor in a startup. Every person is key. One employee with a weak work ethic or inadequate qualifications for the job could lead to the slowing down of the entire team. Also, money is scarce and precious. Payroll is a big chunk of the cost. So, make every dollar spent on employees count.
Grow at a sensible rate
When one is flush with seed money, there can be a temptation to grow quickly—hire many people, get a good office, and so on. It is very important to have an eye on the market, especially the customer pipeline. Have reasonable heuristics to assign probability figures to each potential customer being converted to a sale. Take into account best and worst-case scenarios. If the expected inflow of cash is not strong, then temper your growth accordingly.
Have a well-informed sales team
Many a startup has failed because of a sales team that does not really understand the product. They, deliberately or inadvertently, misrepresent the product. There is always the temptation to say what the potential customer wants to hear. This may be great for signing up the customer. However, being able to deliver and have a happy customer who will be a good reference is also important. Another reason it is important for the sales team to be knowledgeable is that they are a rich source of information about customer needs. The design of the product will undergo iterations and it is best if those iterations are based on actual customer feedback rather than what the engineers think the customers need.
Startups are hard. Not for the faint-hearted. But, there are many success stories out there. Make sure you have given thought to all the points mentioned above. Get your ducks in a row before taking the plunge and keep them in line as your organization grows and hopefully, succeeds.
Have any more advice for first-time entrepreneurs? Let us know down in the comments.
This article originally published on GREY Journal.