I’ve distilled over ten years in the tech industry and the content of multiple books to pick out the top twelve steps to give your startup the maximum chance of success.
1. Find a problem to solve
This is the fundamental starting point for any entrepreneur. You need to ensure your business has a strong commercial reason to exist. In order to attract paying customers you’ll need to establish the value you are creating for them and the “pain point” you are taking away in exchange. There are a number of key principles to focus on in order to establish that you’re really on to something:
- Minimum Viable Product (MVP) — once you have established the “pain point” you are going to address you need to show potential customers how you will achieve this. An MVP can be as simple as a website that captures customer leads and information about the pain point they’re suffering and a suggested solution. Don’t worry if the solution isn’t perfect, focus on getting something out there and see if you achieve traction with customers.
- Proof of Concept (POC) — next you need to provide evidence that your business is feasible. An POC is a small project that tests the core theory showing how the product can be successfully implemented. It should test the key metrics you can then input into your business plan. Some key questions you want to answer here are things like the customer acquisition cost and conversion rate from leads into paying customers. How often are customers coming back to you and how price sensitive are they?
- Unique Selling Point (USP) — this helps protect your customers from choosing alternative solutions to the “pain point”. Are you providing them with something they can’t get elsewhere or is it simply a better product or service? Your USP will protect your business from competition and that’s why many people call this the “moat”.
Remember you should always be asking questions and feeding back responses into your product. Be curious and inquisitive about all aspects of your interactions with customers and you’ll have a better outcome. Remember your first customers probably won’t stick around for long so learn as much as you can from them whilst you still have their attention.
2. Find your target demographic
Never underestimate the importance of demographics on the success of you business. You need to understand the value being provided to your core customer base and whether your product is a “must-have” or a “nice-to-have”. If your customers aren’t yet paying you, find out why and whether this is related to price or other factors such as their income or age. More often than not you will be surprised by what you find out about the core decision maker when it comes to a purchase and how frequently they will repeat purchase based on their age and gender.
3. Identify your addressable market
Don’t look at a large addressable market from the top down. I have heard far too often that entrepreneurs are trying to capture “1% of a billion dollar market”. That’s not how businesses work. Start from the bottom up and calculate the value you’re creating on an individual basis. Why are they using your product or service and how often? You can then look at the total number of potential customers you can address to calculate a total addressable market.
4. Differentiate against your competitors
We’ve talked about finding USP and building your “moat” but you will also need to differentiate from your competitors in a number of different ways:
- Team — this isn’t just about experience around the table (which is often under-utilised) but the strength of the relationships within the team and the milestones that have been achieved together rather than as individuals. Teams and organisational structure have an immense impact on the potential success of the business so think hard about how you are building yours to be different.
- Branding — is one of the most difficult assets to quantify but also hugely valuable. Great businesses are built on brand recognition, and not just the name of the company but what it stands for and how customers interact with it. Your brand identity should be built over time and reinforced by your employees so that customers can immediately identify what it is that makes you unique.
- Intellectual Property — this can be anything, from patents to source code, that you can demonstrate protects your competitive edge. You should be able to explain why in particular your solution is innovative and prove it. Ensuring the ownership of any IP developed by employees and consultants is clearly protected is fundamental to protecting your business.
5. Launch, test and repeat
Testing your product and gaining feedback is key to the success of your business. You will not build the perfect product the first time so you should continually invest in and refine it. Far too often entrepreneurs will shy away from releasing a version of their product because it’s not perfect. The truth is no product is perfect and the only way of making progress towards perfection is to test it and find out what works and what doesn’t. Don’t forget that your product will mean different things to different customers so bear in mind the demographic you’re focusing on. It’s all too easy to stop once you have paying customers. A successful business should be obsessive about its product on a daily basis.
6. Establish whether you’re ready to scale
Before you start scaling your business you need to establish whether you have correctly identified the customer value proposition and whether you are able to scale it profitably using the core principles below:
- Customer Lifetime Value (LTV) — the customer lifetime value is one of the most important metrics for a growing business. You will need to calculate your average customer spend, how often customers repeat the spend and their life span (ordinarily 1 divided by your annual customer churn rate). Often investors will look at the gross margin attached to this value to show the true LTV that will cover your fixed cost base.
- Customer Acquisition Cost (CAC) — once you have established your customer lifetime value you can compare this to the cost of acquiring your customers to see whether you can scale profitably. You will be acquiring customers from multiple channels (e.g. Facebook, Google, PR) so you can work out a CAC for each based on the number of paying customers you’re
- LTV/CAC — the core calculation to measure whether you will be able to successfully scale your business. If the cost of acquiring a new customer is below the lifetime value of that customer you can continue to invest in marketing to scale your customer base. You can also focus your marketing spend on channels which have the highest LTV/CAC to optimise your growth.
7. Write a business plan
By now you’ll be up and running with some paying customers. No doubt you’ll have bootstrapped your business to date and will need some external funding to start scaling it. Before you do that, you’ll need a comprehensive business plan to put in front of investors. It’s key that you that your plan has been tested and verified by third parties and be realistic with your growth assumptions. Don’t assume you’ll knock it out of the park with millions in VC funding as it rarely happens. It’s easier to sell the dream at a later stage, and much harder to re-set expectations if you miss your numbers.
8. Raise some funding
Once you’ve created a business plan and investor presentation you can start reaching out to investors:
- Friends and Family — this is the most common starting point for raising funding. Tap into your network and provide them with a strong rationale why their hard-earned money should. Many will support you blindly so be careful to explain that they may not get their money back. Importantly, this isn’t a never ending supply so remember the taps will turn off at some point.
- Angels — raising funding from Angel investors can be incredibly useful as a source of capital and business validation. Getting some experienced heads to invest in your business is a great demonstration that you’re on to something. It’s important you establish the reasons why they’re investing, whether they’re backing you for the right reason and whether they intend to follow their money. However, ensure you’re not too reliant on Angels as this can cause further problems down the line.
- Grants — often overlooked, grant money can be a cheap source of finance without any of the hassle of dealing with external investors. I know an entrepreneur that relocated his business purely to get a grant and has never looked back.
- Crowdfunding — crowdfunding can be a quick and easy way to monetise your network. However, you will need some support from existing investors and/or Angels in order to maximise the success of your campaign. You should also be prepared for a significant investment in marketing amongst your network and on your time and resources.
- Incubators — incubators can be a great source of funding and support in order to get you prepared for institutional investment. They prefer to see teams and ideas that already have traction and can be a great way of refining your product before scaling.
- Venture Capital — there are a number of early stage funds out there that focus on pre-Series A funding. A referral from someone in your network is usually required in order to get their attention and you need a clear demonstration of how you’ll be able to successfully scale your business based on the information above. Take a look at their portfolio businesses and investment amounts as you will need to clearly fit their brief. Also, remember they see a lot of businesses so you’ll need to stand out.
When you’ve successfully taken on investment it’s super-important that you focus on investor relations on an ongoing basis. Keeping your investors up to speed with progress and mapping out the performance milestones you’ve achieved is essential. There’s nothing more infuriating for an investor to be kept in the dark, and more so, for plans to change without an explanation why.
9. Start scaling your business
Scaling your team is where most startups run into problems. There are so many road blocks that it’s impossible to list them all, so I’ve included some common ones below:
- Follow up on every lead — your focus should be on building your sales pipeline and converting every lead you get into paying customers. Some leads will be better than others but don’t neglect the lower value leads. Often taking on smaller customers as loss leaders will lead to larger repeat custom down the line as customers gain confidence in you and your product.
- Retention — early on you will have plenty of leads that do fail to convert but as soon as you have a paying customer, treat them like gold dust and keep up regular communications. A key barometer of success will be your customer retention rate. If you’re creating value for your customers they’ll come back time and time again. However, if you have a poor customer service and neglect your customers once they’ve paid you they will vote with their feet.
- Communication — your sales team and your product and marketing team need to communicate regularly. If leads are flowing in but they are poor quality then this will harm your conversion rate. By providing a good avenue of communication between sales and marketing you can ensure you’re getting good feedback on your product and both teams will be aligned. Importantly this will also help reduce wastage in your marketing efforts.
10. Deal with problems head on
As an entrepreneur you will need to make lots of difficult decisions however the one thing that’s worse than making these decisions is delaying them or not making them at all. As an entrepreneur you need to show good leadership and that is all about making the hard choices. No matter what people say there is no such thing as a “born CEO” and you have to learn on the job so get on with it and make things happen.
11. Believe in yourself
Running a business isn’t easy but you have to believe in yourself and what you are trying to achieve. Not following in your convictions will come back to haunt you and you should always trust your gut. All experiences, whether good or bad, help build character. You will learn from your mistakes so keep a positive attitude and remember that everything that happens is teaching more about yourself and the way you deal with the uncertainty of startup life.
12. Have fun
Finally, no matter what happens you need to have perspective, so enjoy yourself and celebrate the little successes, confident in the fact they will lead you somewhere great.
Alistair Malins is an experienced entrepreneur, corporate financier and venture investor and founder of Seed Ventures.