So, you’ve decided to start a company. You’re certainly not alone—many people have been down this road before, and there are some proven steps you need to follow if you want to do well.
The first step, obviously, is to determine a product or service that can generate revenue. Too many people think they need a disruptive, revolutionary, or paradigm-shifting technology. These folks also believe that first to market is always the best. This is simply not true. Many very successful companies simply improve on the business model of their predecessors. Before Walmart there was Kmart, and before Facebook there was Myspace. The iPod is a cousin to the Sony Walkman, and Netflix is the grandchild of Blockbuster. The term disruptive can apply to a business model just as well as a product. Once you’ve determined a product concept, you have to consider how you can build a business around that idea.
That brings us to the second step, which is to write a simple business plan. Stop your whining—I promise you’ll thank me later. Constructing a business plan forces you to consolidate your thoughts and research your product concept. How long will it take to develop your product? Will it require third-party funding? How much do you need? What kind of people do you need on your team? Who are you competitors? How will you market your product, and how big is the market? How do you plan to price your product? These are all important things to consider. Your business plan doesn’t have to be a novel, but it does require a great deal of thought, research, and planning.
EARLY INVESTORS INVEST IN THE PEOPLE
Even if you plan to bootstrap the company, you should present your business plan to those who might have insight. Startups that seek outside financial assistance tend to be more successful—not only because they receive funding, but because they get to hear the perspectives of others who have seen tons of companies unfold. Develop an elevator pitch—a short, 30-second presentation on the product concept and business strategy. Most advisors and investors start by hearing the presentation and or reading the executive summary. In the early stages, product vision and the credibility of the team are the most important elements. Early investors invest in the people. Contrary to popular belief, the business strategy very well may get more attention than the product.
Funding is an important aspect of any startup’s early days. I hear investors talking all the time about how entrepreneurs should really focus on bootstrapping and wait to approach outside investors until they have proven their product concept with customers. Investors want to know they’re going to make money.
If and when you do approach the investment community, you need to be aware of your options. Some venture capitalists have drifted into later rounds or becoming asset managers, while others remain committed to seed rounds. Collectively, angel investors provide more funding to startups than venture capitalists. Almost every region has an angel investment group, and many angels do not invest too far from home. Established companies may also invest in small startups, and there’s always the traditional network of friends and family as well. Whatever the path, getting financed is not a quick process. Early on, founders spend a big chunk of their time looking for funding.
Be persistent. Colonel Sanders of Kentucky Fried Chicken got more than a thousand rejections before his first deal. Getting funding is very much a sales process, and even the best salespeople hear “no” more than “yes.”
LISTEN TO WHAT PEOPLE ARE TELLING YOU, KEEP AN OPEN MIND, AND BE READY TO ADAPT
Startups have the advantage of being able to change rapidly. As soon as it conflicts with the market, customers, or investors, your initial business plan goes out the window. Your original idea is not likely to materialize as you envisioned it. Listen to what people are telling you, keep an open mind, and be ready to adapt. This is very difficult for new entrepreneurs.
Like I’ve said before, success is a journey—not a destination. You know which direction you’re going, but you have no idea where you’ll end up. Your product concept may be applicable to a wide range of markets. It may evolve into something completely new. You may change your business model as times and markets change. There are a lot of variables, and you can’t possibly predict all of them long-term. You just have to get started and enjoy the ride.
This post is part of our ongoing Start Up Your Startup series.