This is not a statement of doom and darkness. It’s just math.
Each and every person these days has a startup idea. All of them have one dream – to make the next killer app and get rich. But, before you jump on the bandwagon, do read.
Good data is hard to come by. But estimates are that only 1 in 10 startups get an angel/seed round of funding. Out of these, only 1 in 10 make through Series A,B,C funding. Do the math. Just 1 in 100 startups make it to the series rounds, leaving the other 99 in the elephant’s graveyard. Only a tiny fraction of the funded 1% ever hit the unicorn stage, and rarer still are the ones that get a successful IPO. The data could vary depending on who you believe. Either way, only a tiny fraction ever get to a stage of funding where the startup can build a serious business.
The game only works if few survive. Only then can they get the dizzying valuation. It is in the interest of the investors to pick just a few winners and leave the rest to their fate. These winners and their investors create such a hype that everyone is forced to say “hey I am missing out; I want in”. Everyone wants to be in that Casino.
There is also a lot of good that is coming about with this gold rush. A lot more people are looking at a lot more problems in the world to solve. A lot more minds are getting connected. A lot of fundamental business paradigms are being questioned. A lot of enterprises are created.
But what about the Club 99 and all those associated members – founders, workers, early investors, families, vendors etc. What are they supposed to do? They have sacrificed time, money, opportunity and relationships to chase a dream which turned into a nightmare. Their livelihood cannot be just brushed away in words like ‘boom and bust cycle’, ‘down rounds’, ‘winner takes all’ and any other term used frequently within the startup circles.
The purpose of this post is not to discourage. In fact, it’s quite the opposite. There can be life after death for every business. But only if you prepare for it from the beginning. A friend told me recently that it is unfortunate that the term ‘startup’ has come to mean a business which gets VC funding, usually technology-enabled. But that’s only one kind of business opportunity. There are so many more ways of approaching a new business idea. I agree with him 100%. Here I offer a few pointers which can be helpful for every startup.
Related Article: How Funding Works – Splitting The Equity Pie With Investors
Get a hold of your dream
All founders espouse their ‘dream’. But most of what I have heard, when translated in simple English, means ‘I too want to get rich, like that other guy’. This is not a valid dream, vision, mission, or whatever you call it. The dream of your business has to be truly linked to the problem you want to solve.
What problem are you going to solve?
Has that been thought about enough? Have you lived that problem? How many people you personally know who face this problem frequently? Is it a real problem?
How good is your solution?
Is it really doing something no one has done before? What are you innovating? Improvements will make you fail. It has to be radical, fresh and powerful. You need 300 ideas for every winning idea. Next think what problem will your solution create and for whom? Every good solution must create a new problem.
Know your customer
A business that is looking to gain customers needs to first determine and focus on what true value are they giving to the customer – something that no one else can match. Role of brand and marketing is to enhance and communicate the perception of this value. And, this value can only be determined if you spend enough time with your customers and truly understand how they ascribe value to your brand, not how you measure that value. Once that value is evident to your first customer, she will do the job of bringing others in.
Understand the market
Know everything there is to know about your market. The dynamics, the technology, the competition. Competitors are not always evident. Define your competition on the basis of the problem and not on the basis of who else has a similar business model. For instance, Uber sees your personal car as its competitor.
Always make 2 business plans
Plan A for Club 1, where you will get funded at every stage. Plan B for Club 99, where you won’t get funded. There could be multiple versions of B. This is your survival kit. It is possible for a lot of business ideas to survive without funding, if planned appropriately. Always work for Plan A but never loose sight of Plan B.
Do not follow templates and guidelines
There is a lot of advice and templates on how to prepare the pitch deck, how to approach a VC, how to structure your startup, templates of websites and apps. Anything you need to create, there is a template for that. Problem is everybody has the same template. So, how will your business stand out? How will you showcase your innovation? The most successful startups did not start with any templates. Templates will limit your thinking. Guidelines will bind you down. Think of your approach to business and funding as part of the problem you have to solve.
Delay investor funding
Never be in a hurry to take money from investors. Investors bring capital but take away stake and freedom. They also bring templates, Metrics, pressure, advisors, and their own dreams.
Do not let investors run your business
I know a lot of my investor friends will not like this statement but the fact is, if they were as good at running your business, they would have done it themselves. Take their inputs but own your business. Run it your way. A good investor will respect it.
Only do what you are really good at. Don’t do things you can’t. Outsource operations. Stranger source new ideas.
This is another term that is fast becoming the bane of startups. ‘Course correction’ is fine. But talk of pivot is distracting. It takes conviction away from the original idea. No problem can be solved overnight. But rather than working hard on that solution, a lot of startups keep changing the model, ‘hoping’ it will work. Unfortunately, hope is not a business term. Each time you pivot you loose sight of your original mission and problem.
Watch what you spend
Make every penny count. Learn about cost of everything. Question every cost. Why do we need an office? Why so many people? Why free coffee? Everything. Invest only in things that will directly build the business. If you are known as an unreasonable miser in your company, you are doing something right.
The best human instincts come out of fear. We are programmed to survive when faced with dire situations. That’s when super human feats are achieved. Work like everyday is the last day of your business. You will be surprised with the results.