What to avoid when building a startup

Building a startup is a very difficult thing to do. In a recent blog post, Ben Evans (I highly recommend you follow his blogpost) mentioned - “If you take a normal, mature company to zero in a few years, you probably screwed up, but if a startup doesn’t make it, generally that’s just the risk you took. Pulling a company into reality out of thin air, through sheer force of will, isn’t easy. But you’re only reading this because of the entrepreneurs who took that bet. This is how invention works.”

That is how the top five companies by market cap in NASDAQ has been built — making a big bet out of thin air. Recently, Apple, Alphabet, Microsoft, Amazon, Facebook became the top five companies leaving behind Exxon Mobils of the world. But all these five companies have started from a simple idea and now been where they are — multi billion dollar companies, impacting all aspects of our lives and came to existence just out of thin air.

So, if you happen to be one of those people, who dream of building a company that will impact billions of lives, following is a list of things you might want to look out for….

  1. Work for five/ten years to become an overnight success — One of the most prevalent narratives out there is story of how a company has become overnight success. How facebook took the world by storm, or Amazon became such a large ecommerce giant- nothing can be further from truth. There is no such thing as overnight success. All of these founders have spent countless nights, been on the brink of losing everything, slogging through numerous hours tinkering their products to build what we use now. Even Pokemon Go, which seems like coming out of nowhere is a result of years of test and experimentation and failure. A general thumb rule is it takes anywhere between two to three years to get the initial product/market fit from when you launch the product.
  2. You can not game the system — If you happen to be part of a large company, there are many ways to game the system. Unfortunately, when you are building a startup, a company out of thin air, you can not do that for long. Market is brutal and blunt. You may follow a few vanity metrics and show some user growth to convince your investors for a period of time, but unless your unit economics is right and users love your product, you will be soon out of business. There is no shortcut to build a facebook.
  3. Assemble the best team — It has been said many times so won’t hurt to say once more. Bring people around you who are much better than you are. People who can conceptualize better, solve problem better, manage team better, develop process better….anyone who can complement and help you manage the many weaknesses you have. This of course is difficult to do…specially when you do not have money and working from a small apartment and have nothing to show but a concept paper. So, you need to be a good storyteller, a visionary, someone who can convince others to come along to build a company knowing fully well that it is not very clear how you will go there…hell, you do not even have money in the bank to survive more than six months!
  4. It stops when the light is switched off — The game is over when you can not pay your bill any more. Till then, you can do all your experiments with product, market, people, you can pivot if you need to but if there is no money at the bank to pay the bills, the company is shut down and the experiment has failed. Therefore be cautious how you spend your money….make every dollar count. Sometimes it is surprising to see founders spending money on nice offices (because Google has it!) to be cool when there is not enough runway to take the product to the market or the path to monetization is not clear. Your best employee will not join you because you have a ping pong table or a nice couch, they will join you because they believe they can change the lives of billions of people!
  5. Be ready to do the boring — Building a company is not only about the grand vision and interesting stuff, it is also about doing the boring things diligently. Keep your books in order. Build robust processes around mundane stuff — because when your investors come knocking at the door, it is these small things that is going to jeopardize your grand vision.

Going back to the original theme, failure in startups is highly likely. If you are not successful in building your company out of thin air, it does not mean that you have failed personally, it just means that the risk you took did not pan out. I have invested in startups, helped many founders and now building a startup — what I mentioned above is my observarions and not something exhaustive. Follow at your own peril.

Saying that, be brave, jump off the cliff, build a company to change a billion lives! That is what makes the world go around….

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