Startup commandments
What you REALLY need to create a successful startup.
In today’s world, building a startup is very often perceived as an alternative and more desirable career path than working in a big company. People with ideas more often tend to prefer working for themselves, rather than being on someone else’s pay list.
Therefore, the number of existing startups is growing rapidly, new ideas seem to emerge every day, yet most of them — even potentially great — fail in the long run. Why does this happen? Why is it so hard to maintain the initial momentum? Is it really that hard to build a successful startup?
The only three things you need to consider when creating a startup.
There is no magic formula on which you can build your startup to ensure its success. There are, however, three underlying foundations which will help you start your business the right way.
First: People
The most important factor are the people you’re going to work with. Usually there’s a rule that one founder is not enough to build a successful startup, because it’s very risky to have only one person going through the whole process. Building a startup means encountering plenty of setbacks and as a Founder, you’re going to need someone to help you.
So right from the start you should seek out some awesome founders and an awesome team, who will help you along the way and go with you through the process of building a startup with equal passion as yours.
If you create a startup strongly based on technology and you’re not 100% sure you can build a product yourself — work with a software house. Experienced and proactive software houses are pure gold when you’re trying to build a successful startup.
Second: Market
Even the greatest idea means nothing when there’s no market to which you can propose this idea. So when building a startup. you really need to take into consideration the market you’re trying to reach with your idea. You need to find a big enough niche for yourself, so that your idea can really make a difference and subsequently sell.
Of course, the ideal situation occurs when you have a so-called “Blue Ocean” — a niche where there’s no competition. But that rarely happens. This means you have to build your business differently in order to attract consumers.
Third: Product
The product exists somewhere between the people and the market. When creating a product, you must always consider your market and have the best people possible to build it. Only when you have a great product created by talented, passionate people, and a well-targeted market, can you expect some level of success.
These three foundations are not the recipe for instant success, but if you check all three boxes, you can sleep easy you’ve done the basics right.
Make these foundations your priority. Not money.
As counterintuitive as it may seem, this really is the best advice you can follow. And its constantly given by VC people, such as Marcin Zabielski from Hedgehog Found. “Take money as late as possible”.
Too many startup Founders today go after funds first, instead of focusing on their product. As a result of that attitude we see huge numbers of failed startups, poorly designed products, and crumbling businesses.
Investors like Hedgehog Fund try to eliminate such founders from their portfolio. Therefore, you should avoid focusing too much on financing your startup. Instead, focus on building awesome products which will sell and seek funding afterwards so as to scale up and speed up your growth.
When you’re seeking funds to scale up your business, here is what you should look out for to attract investors.
It is very important to understand that there’s no universal formula which investors use to hand over money to founders. It all depends on the startup, on the partner, on the region.
Usually though, investors back up startups on the basis of their experience and know-how. So if you’re looking for funds, you should pay attention to VC’s already backing similar businesses to yours.
You should also realize that when it comes to convincing an investor, everything counts.
It’s not enough to have a product to convince a VC to give you money. They will assess you and your business through everything you represent.
What are your values? What is your motivation? What is the genesis of your startup? What problems does it solve? — these are the questions you may encounter when seeking funds for your company.
On your part, it is very important to be knowledgeable about your niche and your product. But also — stay humble. There will always be someone brighter than you and that’s perfectly fine — use it and learn from such people. When looking for an investor try not only looking for the money, but also — for guidance. Surrounding yourself with people who are wiser than you also applies to searching for funds.
On the other hand — don’t be ashamed of your failures. Embrace them.
When an investor sees someone with a strong history of failures, he can assume that a certain founder had learned his lessons along the way. So treat your failures as opportunities. Not as something to be ashamed of.
The top quality required to build a successful startup and convince VC? Passion.
Passion is the most important thing, and should be present in you and your business every step of the way. Your product should be born of passion. Your business should be conducted with passion. And that passion should drive you, day in and day out.
That passion will ultimately grant you money, because when investors see a founder who is struggling every day and trying to break the wall they are more likely to give him money, rather than backing up someone focused solely on profit.
Hedgehog concept — a simple explanation of what makes a success.
It was Jim Collins, author of the book “From Good to Great” who came up with this concept. In short, it encompasses all of the areas you must understand to achieve success.
First area: Doing everything you’re the best in.
Second area: Being focused on what’s attractive to you.
Third area: You must make money out of it.
So in the end what it all boils down to is never losing your passion. Do what you can do best. Stay focused on that which you consider sexy, not what’s attractive to others. Find a way to make money out of it.
These are the core, underlining principles which you should hold on to, if you want to create a successful startup and not fail in the long run.
How much money do you need to build a startup?
That’s a very tricky question. Because sometimes, if you’re a developer or a businessman you need zero money. You can create a product with zero money. But it’s very rarely happening. So it also depends on the country, the region. In our region, central-eastern Europe I could say that (in seed) you need up to 200–300K Euro. This is this kind of money that can lead you to an MVP, to having first sales, first clients, trying to get some attention from the market.
After the seed stage you probably need a million or two for the growth stage.
That’s a pretty penny. How much of it can you gather from funds, from Venture Capital, financing rounds, etc.?
What usually happens is that Venture Capitals give you the rounds of money. For instance, in our funds we try to set up some KPI’s (Key Performance Indicators) just to achieve them. And after a founder of a startup achieves these KPI’s we raise and give another round of financing.
And what’s the other way around? If you don’t want to go through all of this financing, what can you do?
At the very beginning usually it’s like 3 “F”, which everybody knows — Friends, Fools and Family. So you take the money from these sources. I know some companies which have just used this kind of money and they’ve succeeded, so the rule I was talking about that you have to take the money as late as possible — it applies here.
The first thing that you need is to have a product which will sell, obviously, but afterwards you still can seek for some money just to scale it up.
Sometimes — even if your product is very good — you get as much money just to speed up the process. Just to scale up the resources. It’s pretty common for the companies. For example, you have big startups, big companies like Uber. They still take some financing just to scale it up.
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