Earlydays Guide: The Roadmap for First-Time Entrepreneurs
For entrepreneurs, there are two levels of management. At the high-level, you decide your objectives, set your time and money constraints, and develop a sequence of milestones. At the low-level, you work on your next goal, trying to stay within budget and deadline. After each milestone, high level picture can be reconsidered.
High-level: What to do?
Low-level: How to do it?
Here we talk about high-level: objectives, scale, and stages.
Mistakes in strategy could result in months of lost time. With this ten minute guide you can double check your plan.
You may notice that there is a lot of conflicting advice. Some say to focus on your investor pitch. Others advocate bootstrapping. Some recommend to start with a business model, others insist that you should spend all time on selling.
It all comes from a simple reason: there are many effective ways to build a successful company. Different styles come from different answers to the question: Why are you building a company?
Are you primarily looking for
(2) turning your passion into a business,
(3) profit, or
(4) solving a hard problem?
Portrait. You are new to entrepreneurship and just want to learn it. You like entrepreneurial lifestyle. You have some income or financial support and want to do something meaningful. You save some great skills but never sold anything.
Game plan. Learn to make something valuable and get money for it. Start with a one-time business project instead of fully functional, defensible, and scalable business.
Resources and timing. Getting to revenue fast is much more important than the size of revenue and profit. Most entrepreneurs build their biggest company as their effort #5 or higher. So go fast through your first business projects. There are many ideas that can bring revenue in the first 24 hours. Not everyone is comfortable with these types of projects, that’s fine. But by all means, you should get your first revenue within three months and with initial investment of $10 000 or less.
Mistakes. Do not start with an idea. Start with a customer. Look for people with needs that you can fulfill. Know your resources and look for a project within these constraints. Bigger opportunities will wait until you get some experience.
Portrait. You have a passion. You love to do something. Perhaps, you run a small theater or a pottery studio. Now, you want to turn it into a self-sustaining business.
Game plan. Bridge together what you love and what people want. Add new offerings. Change pricing. Learn how to sell and promote.
Resources and timing. With a serious attention to marketing and sales, and a small investment in new offerings and distribution, passion-centric businesses can grow their revenue 2x-5x within 6 months.
Mistakes. Do not hope for just hiring someone for sales and marketing. At the start you have to lead the business side yourself. After six months of marketing focus you can hire someone to take over it.
Portrait. You are high energy and very pragmatic. You love success.
Game plan. Find and capture a great opportunity. One one side, always explore needs of people and organizations, look for large and high-priority pain points. On the other side, explore the solution space: suppliers, unused real estate, and new technologies.
Timing and resources. It can take 1-3 months to find and validate your first great profit-making opportunity. Then it can take another three months to start making a profit. You do not spend much money on exploration period. There profit making opportunities for any investment budget, just look for ones that fit the resources you have.
Mistakes. Do not commit to long projects (over 9 months to first revenue) or projects with uncertain demand. Keep exploring until you find a opportunity to quickly connect a strong demand and a cheap solution.
4. Hard problems / Large opportunities
Portrait. You know your industry really well. You were a top manager or an individual contributor at one of the leading companies in your area. Now you want to start on your own. You have identified a hard problem (or large opportunity) in your market and you know how to solve it.
Game plan. Spend two-three months on your business model. Key areas of focus: validating demand, distribution strategy, team and financial plan. Then either raise money for the first version from industry insiders or build first version on your own resources.
Timing and resources. It should take 2-3 months for planning and prototype launches, 3-6 months for building the first version and 1-6 months of iterations for making customers really happy with your product. Then you can scale it.
Mistakes. Manage the time of every stage. Most of all, build your first version as fast and cheap as you can. It gives you a second chance, if customers are completely rejecting your first product.
“I have an idea and I want to make it a reality”. Well, be careful what you wish for. It can all come true, but customers would not be interested in the slightest. “Solution in a search of a problem” is an almost unfixable situation.
“We want to start with a free product”. This can work for serial entrepreneurs or teams with large initial capital. If you are first-timer without much money and experience, start with a revenue-making project.
If you are originally motivated by product vision, try to reframe your project as experience-centric or profit-centric. Problem-centric approach (1+ year to breakeven) only works for experienced and well-funded teams.
Every project has its scale. How large are initial capital expenses? How much time will it take to first revenue? To breakeven?
Here are some typical numbers for first-timers: 5k-100k$ of initial capital, 2-6 months to launch, another 3-6 months to breakeven, 2-10 people on the team. Of course, there is a huge variation by country, city, and industry.
Beginner scale example. Ice cream cart in a park. Can take two weeks in market research and under 1000$ to set it up. Time to revenue can be less than a month, and the very first month can turn an operating profit. In three months you can recoup your initial investment in equipment and marketing, close the summer in overall profit, and move on to your next business adventures.
Medium scale example. Graphic designer leaves big company to start his own design agency. Planning takes 2 months, setup costs are 10 000$. The money from first contract come to bank account after another 3 months. On 6th month of operation, the agency shows its first monthly profit.
Large scale example. A new airline. Market research and business plan development can take a year. Another year to lease your first aircrafts, get all permissions, and secure slots in the airport schedules. Two-three years to first revenue, another year to operating profit. At least five years to turn an overall profit on the venture.
Scale choice comes from your experience and available capital. Beginner teams should aim at 3 months or less to first revenue. Teams with medium experience and resources should get to operational breakeven in 6-12 months. Strong teams can take 9-18 months to first revenue (or other forms of strong customer traction).
Match your scale and speed.
Either do small-and-fast projects or large-and-slow ones.
Do not do small-and-slow.
There is no shame in starting small. Focus your ambition on what you can achieve in the next 3-9 months. Many great companies were built out of small and profitable ventures. IKEA was selling pens by mail order before it moved to furniture.
The process of building a company can be decomposed to a sequence of smaller, more manageable “stage projects”. After completing these stages you get a sustainable company.
Five stages to build a company: (1) prepare, (2) discover demand, (3) build first version, (4) create more value, (5) get more customers.
Management by stage is based on a few simple principles:
- Know your current stage. Your mid-term (1-4 months) objective is simply to move to the next stage. For every stage there are natural criteria of stage completion.
- Set time and budget for the current stage. Check with experts in your industry, how long and expensive this stage typically is. It’s good to have a realistic timeline and budget for the next few stages.
- Focus on activities that are critical for your current stage. Prioritize things that are moving you to the next level.
- Be honest about negative results. If things are not working, declare a crisis. It is absolutely normal to go back and forth between stages.
Let’s review every stage: goals and completion criteria, key activities, typical mistakes.
1 Preparing for entrepreneurial career
What to do. First, start learning. Study your industry: interesting companies, trends, forecasts. Learn basics of entrepreneurship from guides like Earlydays. Find role models in your city and in your industry. Get around people and organizations who have interesting problems and money to spend. Move to the center of your industry. Start doing “co-founder trials”. Work on short-term projects (1-7 days).
Activity focus. Networking, industry research, sales practice.
Stage exit. Project execution experience, co-founder candidates, basic industry knowledge, commitment for 3-6 months and 1000$-10000$ in savings.
Opportunity-founder fit. Finding ideas. Pre-startup projects.
2. Demand discovery
What to do. Study your market or markets of interest. Generate many ideas. Pre-sell them using only words and pictures. Run every promising opportunity through idea checklist.
Activity focus. Market research, demand validation, opportunity assessment.
Stage exit. Idea checklist is passed, you have a list of customers who eagerly wait for your launch.
Market research. Oneliner. Value proposition. Financial model.
Selling without product. Idea checklist. Goal setting.
3. Initial product
What to do. First of all, do not go to this stage prematurely. If you do not have a list of strongly interested customers go back to demand discovery. Start this stage with defining your first version. Look for minimal version that delivers real value to your most promising initial segment of customers. Then, do a company setup: initial capital, team, legal, and naming. Once you are ready, start building. Cut features, but launch early. You time to market should not take more than 20-40% of your initial resources/time.
Activity focus. Company setup, product definition, building first product.
Stage exit. First customers are using your product or service.
Initial team. Initial capital. Version one. Project management.
Legal setup. Naming. Pricing. Vendors and suppliers.
4. Product-market fit
What to do. Once you have a product or service on a market, there is an urge to start promoting it aggressively (get more customers). In reality, it is a bit too early. Instead, focus on iterating to higher customer satisfaction (create more value per customer). You are in a much more powerful position when a few people absolutely love you than when many people just think positively about of your existence.
Determine deadline/budget for this stage. If you can not get happy customers after a few fast iterations, go back to opportunity search and look for building a second product on top of your current knowledge and customer base.
Activity focus. Product iterations, correcting value proposition, customer service, identifying most enthusiastic customer segments.
Stage exit. You get first strongly satisfied customers. They use your product/service regularly, enthusiastically recommend it to friends, and would be hugely disappointed if the product is discontinued.
Product iterations. Customer service. Sales.
5. First promotion campaign.
What to do. Your have a product/service enthusiastically supported by a small group of early adopters. Now it is time to promote it aggressively, look for most effective distribution channels, add rigor to financial management and evolve team to become operationally independent from founders.
Activity focus. Marketing & sales, business operations, financial management, team evolution.
Stage exit. Operational breakeven, ability to take your first vacation without destroying the business.
Internet marketing. Offline marketing. Press relations.
Financial management. Business operations. Team & culture.
Next: Growth or exits
Professional funding (business loans or venture). Business operations. Investment in distribution. New product lines.
High-Level Entrepreneurial Management
Fixed written overview of what you are planning to do is extremely helpful. Write it today. Debate it with team and advisors. Write a revision a week later. Then work for three months to move your company to the next level. Review the high-level picture after each major milestone.
Why are you starting a company? What category (experience, profit, passion or change) is the closest to describe your case?
What is the scale of your project? Is it closer to beginner level (ice cream stand), medium level (design agency), or large scale (airline)? What are your estimates of setup costs, time to revenue and time to breakeven?
What is your current stage? What are your key activities at this stage? How much time and money will it take to get to the next stage?