Thursday, December 17, 2009

How to Start Up a Startup

Last week, I was talked into going to Startup Saturday, an ongoing initiative by Headstart that hosts a monthly, community-driven forum for entrepeneurs to help them build their businesses. I go to, perhaps, mentor. I'm beyond and far more experienced than most of the people in the room and I meet a lot of naive and idealistic short termers that don't fully understand what being an entrpreneur does to you, personally, and to your loved ones (who won't see you as much as your employees).

If you really, really want to be an intrepreneur, here's a few tips that, while I think they're pretty basic and common sense, I'm repeating over and over again...

Rule #1: Do What You Love.

Rahul Jain, who runs a business coaching consultancy, asked the question, "Why do you want to start a company?" to the audience and the main response was to make a lot of money. If you want to start a company just to make a lot of money, STFU and go away. You won't be happy. You'll be unfocused. You'll take on any project just for the money and that leads to a company that does a lot of small business, works hard to get paid and in the end, scratches by, barely making a profit. I've seen this over and over and over and over again during the 25 years I've been working with startups and small businesses.

My grandfather used to tell me to "do what you love and the money will come". He was an artist and sculptor in NYC and even though he was unsatisfied with the art world as a whole, his passion was creating, expressing, and making commentary. He did what he loved his entire life and he did well. My passions are varied and many, but I love to build and create. I take companies to the next level - attempting to attain the entrepreneur's exit strategy. I've been through so many mergers, buyouts and IPOs that they don't give me the rush they used to. Nevertheless, it's the building and creating that make me enjoy my work. And I do well enough. I'm not rich by any stretch of the imagination, but as a single parent, I am capable of providing my family with a comfortable life and that's pretty much enough. Money doesn't make you happy - it only complicates your life. Really.

If you're doing what you love to do, getting a paycheck for it is like getting two desserts. :-) But before you decide to chuck that cushy job at the big multinational to make fruit flavoured pin cushions, make sure that you can clearly state what the problem is that you will solve for your market, how big of a problem it is, and whether the target market can afford to pay you what you need to solve the problem. Answer this and you are ahead of 80% of new company launches.

If you can't answer this, STOP here, and keep your day job.

Rule #2: Screw the Business Plan, But Do the Math.

Once you figure out what you love and have decided to forge ahead, you need to figure out how to make money. This is the main thing in my life that pisses me off, more than not finding a parking space, cancer, anything - don't start ANY business without understanding how to make money off it!

Let me say this again:

Don't start ANY business without understanding how to make money off it.

I will stab the next person who tells me that you can build traffic first and then figure out how to monetize the damn thing. Fuck that. Revenue is what drives a business. Revenue is required for a healthy cash flow. Your employees expect to be paid. They've risked their livelihood to take jobs in your company. Their lives are now your responsibility. Vendors need to be paid for what they have done to support your business. You need to spend money to market your business. Of course, you can borrow money, attract investors, sell your house, whatever, but bottom line, having a plan on how to generate an initial revenue stream is paramount to your success.

The math you need to do first needs to describe your initial needs. How much do you need a month to run your business? Let's say, after paying yourself (which I strongly suggest), office rent, supplies, etc., you'll need about 100,000 rupees (US$ 2,000) a month to pay your expenses. Then ask yourself what are you willing to spend on marketing and sales? Typically, 20% of your profit should go to marketing/sales expenses. Let's say between your advertising, networking expenses, etc. you'll spend, 30,000 rupees (US$ 650) a month, that means your profit should be around 150,000 rupees, which is a healthy ROI. This provides a goal to reach for each month. You need 250,000 (US$ 5,000) a month to make your business profitable and provides the cash flow you'll need to invest back into your business. You should do this math every month as things evolve, and they certainly will, if you do this right.

If you can't figure out how to earn this much money each month, STOP here, and keep your day job.

Rule #3: Focus On Identity & Messaging.

Develop one sentence that states the problem you solve for your market. You have 30 seconds to describe what you do (and that's only if your contact is patient and open - not me). What access points will be most effective for your target market? Who are they? How can you emotionally connect to them? What makes you different from the competition? What can you do to minimize the risk your prospect will take by making a change - engaging you - instead of their current vendor.

In the States, we call this the Elevator Pitch. You get into an elevator and are surprised to see the CEO of the biggest company in your market. If you were able to get his (or her!) business, your success as a company would be assured. You introduce yourself to them and they ask, "What do you do?" You have 30 seconds before you get off the elevator - what do you say? This is the Elevator Pitch - quick, refined down to the last syllable, and should generate interest in getting more information. Everyone around you should be able to tell you back what your company does just as easily. Get this done.

Building your identity system is important because it defines the quality of your company. If you have a shitty logo, most people will assume everything else about your company will be just as shitty. Your logo should differentiate you from the competition, and define who you are, what you do, and how you do it. Are you open, casual and friendly? Are you formal, conservative and not a company that takes unnecessary risks? Your identity should reflect it. Then ask a couple of people in your target market what they think of it. Once you've gotten feedback, refine and launch your identity.

You may have to find someone, hire someone, to help you with this. Get the best you can afford. This is a significant investment in your future.

As part of your 30 seconds, you will need introduce the problem you solve, differentiate yourself, and minimize risk for your prospect. These are your core messages. Ensure you get these messages into everything you do, from web site, collateral, business cards, everything. Sometimes a tagline in conjunction with your logo helps; sometimes not.

At this point you'll need a web site, a 10-slide Powerpoint Presentation, and a one-page executive summary. Start with the executive summary. This is the outline and overview of your company, focused on the Elevator Pitch. Then build out your PPT, expanding on the pitch. Use WordPress or some other easy CMS system to build your web site, drop in your logo, add a matching theme and you're ready to add content. Move the powerpoint content over, expand into a little more detail if required and you're good to go.

Obviously, if you're selling products instead of services, this requires a little more work. Services are "easier to fake". Products require descriptions (based on your identity & messaging), specifications, SKU#s, etc. but once that work is completed, your company is ready to launch. Services only require a proposal. I'm not going to get into pricing strategies, researching competitor data, etc., in the post, but I feel it worth mentioning that you should understand the marketplace well and develop your product offering/proposals only after doing your homework.

If you can't write a clear, concise Elevator Pitch, STOP here, and keep your day job.

Rule #4: Jump in with Both Feet, but Stretch First.

Startups are a hell of a lot of work. Don't expect to see your family if you plan to be the sales, marketing, customer service, billing, quality control, etc. for a company. Novices assume that if you do Rules 1-3 that the rest takes care of itself. No, actually, you can do those rules while working for someone else - now you need to close your eyes and jump off the deep end. Passion and Sacrifice go hand-in-hand at this point. As an entrepreneur, you have give up having a normal 9-5 job so you better enjoy what you're doing. Your "work/life balance" is fucked for at least a year, usually three. As your company grows, you can hire people to do the parts of the company you like the least (mine was accounting/billing, next was HR.). As you hire employees, the complexity of your business increases, so streamlining systems and processes, careful documentation of each position will enable you to focus on higher level things, like, um, taking your business to the next level.

Eventually, as some entrepreneurs do, you'll begin to miss the rush, the insanity, the chaos that starting a company inflicts upon you (much like giving birth) and start reflecting on the "good old days". Sometimes, you discover the germ of a new endeavor, a new passion, or one you've wanted to explore... This is the realization that you are a serial entrepreneur.

You'll need to decide what your exit strategy will be. Some will do this until they die and will the business to their family; some sell it and move on; others will go IPO...

Sometimes, things just don't work out. The passion wasn't sustainable, you misjudged the potential of the market, perhaps you mismanaged the messaging, who knows. You may have to start ten companies before you build one that grows up to be something. It's worth it for the person with the fortitude (and some call insanity) to make the leap.

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