11 Things to Know When Starting a Business in 2016
By Jason Heltzer
With 2015 in the rearview, it’s time to make plans for accomplishing your 2016 goals. If your New Year’s resolution involves launching your own venture, these tips from Polsky Center entrepreneur-in-residence and adjunct assistant professor of entrepreneurship Jason Heltzer will guide you on the right path.
1. Plan for Mobile
There is no longer a distinction between businesses that are “mobile” and those that aren’t. Frankly, the businesses that are not on mobile are not businesses for very long these days. This is true for software businesses and traditional businesses alike. The way consumers discover products will increasingly shift to mobile and app stores, and winning companies will learn quickly how to be discovered there.
2. Barriers and Strategy
The barriers to entry to starting a business are as low as ever. This is especially true for software companies where infrastructure can be leased, a company pays only for compute cycles and storage that it consumes, and development talent can be rented around the world inexpensively. That is great when you are starting a business, but these factors invite more competition after you are up and running. This means your company’s strategy is more important than ever. Think hard about how your company’s unfair advantage. How will it utilize its resources more effectively than the competition and what makes its product or service unique? How does the company build barriers against competition? Do not confuse goals (a destination) with strategy (how one gets to the destination efficiently and before others).
3. Access to Talent
Talent markets continue to be tight, and having a talent recruiting plan as you launch a business is more crucial than in recent memory. Why will an employee choose your business over another? Why will they stay? How will you source talent better than your competitors? How can you design equity incentives and is that worked into your financing plans? Elevate recruiting from an administrative task to a strategic initiative.
4. Build Virtual Infrastructure, But Consider Integration, Security and Privacy
We are in an unprecedented time where companies can rent software and not have any physical infrastructure. New companies need to take advantage of this to be competitive, but also should mindful of concerns like integration, security and privacy. Where are all of your critical data? Are they backed up? Can your email system work with your CRM system and your accounting system? How can all these best-in-class functional software silos be integrated with one another? Are you taking sensible precautions to protect your and your customers’ data? All these challenges were a lot easier to solve when software, people and computing devices were on premise and owned by the company. It is now a lot more complicated, and being aware of the trade-off between convenience of virtual infrastructure and these other factors is important.
5. Prepare for Changing Interest Rate Environment
The Federal Reserve recently raised interest rates for the first time in nine years and has indicated a bias toward gradual additional increases in the coming years. If you are 31 years old or younger, you have never witnessed an interest rate increase in the US during your professional life. While startups over the last nine years had the luxury of ignoring the impact of rate changes, new companies today do not. At the same time, increasing rates will create opportunity for some companies, paving the way for revenue models that were prohibitive in a zero interest rate environment.
6. Engineer for Experimentation
Set up your business from the beginning to embrace experimentation. The tools exist today to instrument all aspects of your business (marketing, technology, product, sales, HR, etc.), and the earlier these tools are implemented, and the deeper they are integrated, the more valuable the insights. It is harder for incumbents to retrofit, so take advantage. Deliberately design your company’s culture to invite a scientific experimentation approach, and to cherish and learn from failure.
7. Looks Matter
Millennials are now in their thirties. They have had the Internet and mobile phones their entire adult lives. For most, a smart phone has been in their possession a majority of their professional lives. Ask any Millennial if they read training guides to learn how to use any app on their phone, and you would get a funny look. As this demographic continues to reach seniority levels in companies, you will see higher and higher expectations of software user experience in the enterprise. Business software will look more like consumer software. The complexity of business software will be increasingly handled behind the scenes, enabled by relatively unlimited on-demand computing power and storage.
8. Raise Capital Thoughtfully
The dollars invested in VC deals in 2014 and 2015 have been the highest since 2000 when the dollars invested were about double. The last several years has seen the expansion and institutionalization of the seed investing market, and it has been the most favorable environment to raise seed dollars since I started in the business in 2001. The seed market, however, is the most sensitive to macroeconomic factors. It’s hard to call the direction of any capital market, but when capital is flowing, consider raising capital if capital can ease the constraints on your business and deliver growth. Carefully weigh waiting for that optimal moment to maximize valuation vs. availability of capital.
9. Be Picky in Choosing Investors
It’s easy to get caught up in the hysteria surrounding valuations in private companies, and many entrepreneurs these days focus on maximizing terms as they raise capital. While terms are no doubt are a crucial part of a financing, the partnership with investors and what resources the investors can bring to the company are often under weighted in the decision. How will your investors react if progress is poor? Can investors bring you customers? You should do as much diligence on your investors as they are doing on your company.
10. Remember Market Size
Many companies’ reaction to the intense competition and low barriers to entry prevalent in today’s markets, is to carve out a niche, whether it be by target market, a very narrow solution or otherwise. Early customer traction gives entrepreneurs confidence to pursue the business, and the company declares interim victory: “we have no competition”. Why is there no competition? Good reasons: your company has a unique and defensible solution or recent technology changes now permit a solution. Bad reason: the opportunity is too small for the big companies. If that is true, how will you build a big company? While there is merit in discovering a solution for initial customers, a company has to continuously evaluate the size of the opportunity without emotion. It is okay if the market is small today if there are factors that lead to dramatic growth. Also remember when sizing a market that some industries operate the way they do for good reason. If the macro trends have eroded those reasons, that industry is ready for disruption. If the primum movens remains the same, disruption is unlikely and the opportunity may be small.
11. Be a Contrarian
I read a quote recently that “the world was never changed by someone normal.” I consider it a great privilege to work alongside entrepreneurs, and if I were asked to do the impossible task to select the one defining characteristic of great entrepreneurs it would be that they tend to have a contrarian view and are quite comfortable — perhaps most comfortable — going against the grain. Society has labeled this “crazy” or “abnormal”, and good entrepreneurs know they are doing something right when they are labeled as such. Peter Thiel summarizes this more eloquently: “What important truth do very few people agree with you on?” This position can be uncomfortable for some, but for those of you out there that see the world differently, and have good reasons for it, embrace your different worldview. Let the rest of the world be intimidated, have their minds shaped by the herd and conventional wisdom. Humans are lazy, we crave heuristics and sound bites. However, it is the deep, independent thinkers who create change, capitalize on big ideas, and build gigantic value. Go for it.
Jason M. Heltzer is both an Adjunct Assistant Professor of Entrepreneurship and an entrepreneur-in-residence with the Polsky Center for Entrepreneurship and Innovation at the University of Chicago Booth School of Business. Jason is also a partner at Origin Ventures and been in the venture capital business since 2001. You can follow Jason on Twitter at @jheltzer.
