Turn a great idea into a scaling business
From the moment an idea is formed all the way through a liquidity event, there are a series of challenges that face entrepreneurs and their startups.
It’s impossible to address every issue that an entrepreneur may face. However, there are some common challenges and phases that growing companies will inevitably encounter. My hope is that the general framework presented here can act as a basic guide to measure your success against.
The Great Idea
Everything begins with a great idea. This could come in many forms but one constant is that it should generally address either a need or want in the market. If it does not, then the market demand and the business opportunity itself might be limited. Don’t get carried away with your excitement and be honest with yourself as you consider your idea.
With a need or want identified, the second component becomes how you differentiate. This is generally solved through either a revolutionary process or a disruptive technology that is going to change the way things are done. It’s the marriage of these two components that will give your startup the greatest chance of success.
With access to limited capital initially, you will likely need to bootstrap in order to prove your concept and start fishing for external investment. You can source whatever angel capital might be available, but ultimately you need to be willing to live and breathe your startup for it to have a chance at succeeding.
You don’t need to be a genius or a visionary, or even a college graduate for that matter, to be successful. You just need framework and a dream. — Michael Dell, CEO of Dell
You have your dream. Now it’s time to start developing a framework.
Birth
Identify what’s needed to actually get a business off the ground. To begin, the following three key components should be fully considered:
- Time — It’s important to truly understand this is a marathon, not a sprint. It may take a year or two before anybody believes in what you’re building (enough to give you $$ at least). You need to be willing to change your life to commit yourself to this journey.
- Money — This is going to be a full-time job. In most cases, you will not be able to hold down another job on the side. So understanding how much you need to live and sustain your new business is crucial.
- Partners — You can’t do it all yourself. The idea of having partners is that no one has expertise in everything. If you are a very strong marketer, find someone who is excellent at product or technology; find someone else that’s great at finance. Start packaging together your dream team.
Patience in showing results, deep research into the opportunity, and ultimately a plan for your product will result in the birth of your business.
Validation
Are you ready to test your hypothesis with a Minimal Viable Product?
With a hypothesis in place, you now can enter into an iterative development cycle in order to reach business/product validation. As you build your MVP, iterate based on measured analysis and feedback to improve performance and reach validation. In the worst case, don’t be scared to reconsider and potentially pivot — this is the least expensive time to make that move.
Assuming your hypothesis is sound, you will eventually hit the right product/market fit. The moment you hit validation, your market will suddenly come alive. People will seek out your product; traction will increase exponentially. This is when you are ready to seek out external investment, i.e. your first institutional Seed or Series A funding round.
… customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add servers… — Marc Andreessen, The Pmarca Guide to Startups
Traction
At this point you have some investment, and you are in a position to prove traction and prove your business model is scalable. Begin by building out your core team, in order to drive the skill sets needed to get your product/brand to market.
Depending on your business and type of product, you will either drive organic traction through product & engineering and/or market traction through sales and creating a great brand (or a weighted blend of the two). It is crucial that you are able to define and drive measurable goals. By having good metrics, you are setting yourself up well for your next growth investment round, potentially a Series B or C.
Scale
Having raised more money and established traction, now your employee base and entire organization will grow. At a foundational level, clearly communicate your vision to employees, investors, and the outside world. Focus on building expertise in the business by attracting great talent, and be sure to foster and maintain your culture as the team grows. It is easy for culture to fade with growth and a bad culture has the potential to kill a business.
Perhaps most importantly — and as an entrepreneur it can be hard — you will need to give up some of your control and trust others at this stage of growth. Transition from being a jack of all trades to becoming a good leader and driving your autonomous team to take responsibility for results.
Operationally speaking, think about the health of your business model. If you built demand with a bad economic model, that’s fair enough — but if things are taking off, which is ultimately the goal, correct these things and make sure that scale doesn't kill your business. Along with economics, your processes will have to scale and you must manage your resources to ensure that you are investing in the right areas to help support your growth.
The final layer, referred to as the “model” layer, is a focus on your product and your market. Evaluate the scalability of both your product functionality and the associated market opportunity. If you are too niche on either aspect, your growth will plateau once your product has served its purpose or the market is tapped out, think about how to evolve to ensure that your solution can grow and service far larger audiences.
Once you have a proven scalable business the sky is the limit.
Predictability
You are now approaching the tail end of the building process for a complete and successful business. In order to prepare for the liquidity opportunities that will come, your business methodology will change — the excitement of growth takes a back seat to predictability and formal structure. You become more focused on the external view of your business and your ability to communicate a clear vision and effective business measurement.
Clearly as you move towards being a public company, probably even more than growth, there is huge value based upon predictability. — Mark Pincus
Controls take a front seat with the introduction of audits, security compliance, HR compliance, etc. You will have to build revenue models and customer acquisition predictions with near certainty, ultimately resulting in a business that has clearly managed risks and has data-oriented expectations.
Liquidity
With steady growth, a strong organization, and a clear vision, this is the moment you have been working so hard towards. Your dream is a certainty, and now it’s up to you where it goes. Being public is not the only option, but there are pros & cons to each option as they are presented to you:
IPO
This gives you access to capital and valuable liquid equity. It opens doors for acquisition and global growth that may not have previously existed. Furthermore, your investors will receive the liquidity that they want.
On the other hand,
Being public also provides constraints that might not fit your desires. Your job will change significantly, with an increased focus on investor relations and external visibility rather than operations and growth. Market expectations and quarterly reporting changes the way in which you can run your company and forces you to focus more on short term results. And your personal liquidity is limited as long as you remain an executive in the business.
M&A
This often presents itself as an option as you prepare for a potential IPO. It provides both you and your investors immediate liquidity, and a good acquisition can also open up many growth opportunities by leveraging the power and assets of your acquirer.
On the other hand,
You will likely lose the identity of your business, and you will now report up into a new larger company. Cultural integration is also very hard, and often seemingly harmonious acquisition opportunities become very difficult as you try to navigate operational integration with the acquiring company.
Staying Private
This is also a meaningful option. It allows you to continue running your own business, maintain your identity, and the freedom to plan for longer term strategies without quarterly oversight and fixed expectations.
On the other hand,
This option provides limited liquidity to all; the most you could offer investors would be dividends and you may be put under significant pressure to pursue an alternative option in order to create the liquidity they desire.
Wrapping up
As I’ve stated here, every business is different and there is no prescriptive solution to building a great company. If any of the steps outlined here feel familiar to you, feel free to lean on these experiences to guide how you think about your particular concerns or issues. The one constant is that this life-cycle, in whatever form it takes, will likely represent the steps in your process as you evolve from your great idea to the fully developed business you desire.
And finally, in building your business do not specifically target an exit, as many mistakes can be made this way and the exit is never certain. Rather, focus on building a quality business: in doing that the exit will take care of itself.
Good luck to every entrepreneur chasing their dream! If you found this helpful, feel free to recommend and share. You can also reach out to me on Twitter anytime.
