PY Ch 4 — Startup Stages

Preseed Yoga is going to be assisting you across all the stages mentioned below, as we progress forward on our mission to empower you in building your company. The goal of the ‘sum of all the initiatives will be ’ to cover with you all the stages of startup from 1 to 8.

The following are the typical stages in a startup’s life before it becomes a large organization -

Stage 1 — Idea

(Observe, observe, observe a little more and while you are having fun observing you will find your Idea)

Ideas are cheap and they are a dime a dozen. Give high regard to the ideas that come out of problems of your own. Or, a problem of the society you live in.

There are 2 reasons for that –

1. When your idea allows you to solve a problem of your own you know that you are trying to build upon that idea not just to build an organization but to make meaning, to above all, you. This works as the best motivator for founders.

2. When you are solving a problem that the world still faces then you are doing two things really good for your business

a. You are attempting to take the world forward by adding some real value into people’s lives who in return reward you back with an extra-ordinary response. Your stake holders will love that. As a result you earn some default evangelism of your business.

b. You are trying to solve a problem that is still not solved. Hence, you may be attempting to operate in a new market space thus, skipping unnecessary competition.

Stage 2 — Further Research

This process reinforces your idea upon you with reasons and facts. This is the process largely possible from sitting at the comfort of your own house because of the internet. Internet can give you answers to nearly all your questions better than most people around you. Research about enough to compile a draft of your assumptions and tasks before you could achieve the next stage on directions set in this stage.

Cost of this process = Cost of your sustenance = Self Financing (by you, your parents, your extended family, your friends, or anyone else who has faith in you).

In most cases your family must still be taking care of your sustenance, you don’t really have to worry about your sustenance at this stage. Try to cover this stage in a reasonable amount of time so that you don’t start burdening your family with your expenses for too long.

In other cases where you have gone past the stage where your family would/could take care of you, you should perhaps speak to a friend or an uncle to lend you some funds so that you could research on your idea a tad bit more. Or, perhaps work somewhere for some salary.

Stage 2.5 — Plan of Action

A subset of Stage 2

After you are thoroughly convinced about your idea/solution and your vision you should lay the immediate plan of action on a notepad or just in your mind if that works fine for you and follow the immediate plan of action. In most cases the immediate plan of action should be the plan about the 1st stage of execution, stage 3.

Stage 3 — Doing (Prototyping)

This is the most important stage as it covers the essence of entrepreneurship — doing, and not just, learning to do. Here you are expected to create a working model of your business. Actually by just keeping certain assumptions in mind you could even achieve a B-plan at this stage but that plan is not going to be of any utility more or less. This plan is least likely to be picked up by you when you are actually doing the real thing. We personally feel that this plan is just a summary of whatever your research tells you so far. The plan you make after getting your hands dirty with the ‘real thing’ is the real plan.

Having said that, there are 2 cases in real life –

1. In which you create a prototype of your idea and achieve a few milestones before you write a business plan — the case we recommend. The additional component prototype adds to your business plan is ‘historical data’ due to a functional ‘prototype’. Your prototype is the proof of your concept which is even more important than your business plan or you.

In most cases, even to start the step 1 of your prototyping stage you would need funds and the best way to get these funds is further self-financing through a personal loan from friends and family by showing them what your stage 2 research suggests. It really makes sense to raise money in form of personal loans from friends and family, make a prototype and then write it’s business plan to pitch to an early stage investor.

2. Just incase you don’t get further self-financed, you will require an early stage investor to provide seed capital for your new business because you need to either carry out market research to see if the business project is viable, require money for proof of concept to ensure that the product will actually work as believed, or require investment for product design which is typically an expensive process. Therefore early stage investors provide funding to businesses that are still a long way off from starting, when the business is not even a business, it’s just some ramblings on excel sheets, word and power point. Since, it’s at it’s riskiest best, the seed investors deservingly will take worthy equity in your business.

The amount of investment you could expect at this stage is between Rs. 2,00,000/- to Rs. 10,00,000/-. (The numbers can vary from case to case).

In such cases the only thing that is going to get you an investment is ‘you’ not your Business Plan. The business plan is just going to help them reinforce their decision of funding you, which happened because of you, in the first place. Which means, that you automatically land the stage 4 without going through the stage 3.

There is a famous quote by Reid Hoffman, the founder of LinkedIn, which really resonates with some entrepreneurs: “If you are not embarrassed by the first version of your product, you’ve launched too late”.

Stage 4 — Pitch / Presentation

Pitch is what you deliver to stimulate interest or to lead someone to get to an agreement. A high energy entrepreneur spends a lot of his time pitching. For him, talking is pitching. Pitch has to come before the business plan and its goal should be to stimulate interest and not to close a deal necessarily. The investors may take their decision on you much before ever reading your full 30 god damn pages detailed business plan. Hence, it should be done in less than 15 slides.

A pitch whether to an investor, team, sales partner or anyone else gets not more than 1 hour. And, it goes beyond the first 20 minutes only after your first twenty minutes were impressive. In the first 20 minutes you have got to tell them what you think would be important for you to know if you had to invest on someone like you in 20 minutes.

You would probably want to know apart from the names of your investees and their organization (which is covered in the opening slide called ‘title slide’) –

1. Problem -The problem investee is going to solve that is going to take the world forward.

2. Solution — How will investee solve the problem? Does the audience understand your solution?

3. Business Model — How is the investee going to make money and not necessarily how much, just yet?

4. Underlying magic — Any underlying magic that sets an investee apart? It could be technology, business model or network effect. Think about that from very beginning and put efforts toward sustaining it.

5. Marketing and sales strategy — If he/she has a cost effective marketing strategy.

6. Competition -What does the competitive landscape look like?

7. The key team, only top 5 — (founders, key employees and partners, investors, advisors, etc.)

8. 5 year Projections — Customers, conversion rates, and revenues and the assumptions that gave these figures should be included as comments.

9. Current Status — Milestones achieved current status of your idea and the NEAR future.

10. Use of funds — The amount of funds needed and how will they be used.

All of this should be in a 30 point font and 80% of it should be delivered by one person in the team quite contrary to the belief of team work.

Stages of Pitch / Presentation –

a. First 30 Seconds — Generally on the phone or an email subject. It should not be more than 2 lines in any case. This is the same stuff that will also go on the cover of your cover slide. It may be your tag line with a few more words.

b. Next 5 Minutes — Generally on the phone or an email ‘body’. It’s also called the ‘Elevator Pitch’. Read more about it on a post in Venture Hacks.

c. Next 20 minutes -The Main Pitch, also called ‘a slide deck’, a presentation with about 13 slides that should be sent as a PDF attachment (with coversation notes below the slide . But, it always works better face to face with the investor.

If you got this stage right, you are almost certainly going to get your investors cheque!!

d. Next 35 minutes — May be for your business plan and a face to face conversation with you and your key team.

(P.S. — Please don’t be boring)

Stage 4 of this post is influenced by the writings of Nivi of Venture Hacks, Guy Kawasaki, David Cowan of Bessemer Venture Partners, Brad Feldand such men.

Stage 5 — B-plan

Your business plan is the detailed version of your pitch (that is why pitch precedes B-plan) with the title slide being replaced by executive summary of approximately 4 paragraphs consisting of the problem, its solution, the business model, and the underlying magic. Investors like to know how capital efficient is your project. They generally like projects that have ability to grow multifold with regard to the investment made also called ‘disproportionate growth’. Your business plan can take up 20 pages build upon the framework provided by the pitch with only 2 pages for financial projections as investors don’t have the time to give an eye to your stationary expenditure. Just tell them how much money is needed by the business before the company can support itself with its own cash flow. Remember that assumptions are more important than projections as they form the basis for the numbers that give a sense of the number game that investors are going to be keen on. Do not copy paste, your investors are smart enough to understand that. They really want to see an original plan out there which is deliberate and they don’t mind you changing the business model as you evolve so don’t wait for the perfect plan to move to the next stage called ‘Seed Funding’. Infact be willing to change.

Even if you are not trying to raise money you should still write a business plan for it brings your idea in tangible debatable form at least on papers taking it beyond just late night discussions over cigarettes, pot and coffee. It enables you to find the gaps you had ignored because of your post ‘last milestone achieved’ ecstasy. The process of writing a business plan is more important for founding team than the business plan itself just like the process of heading towards success (or failure) is more important than achieving success (or failure).

Stage 6 — Seed Funds

You send your deck to the investors who relate the best to your industry and who apart from capital also bring a lot of expertise in your domain. Although on the surface it just seems like the process that gives you one of the resources needed to move to the next stage i.e. funds but, funding is only a by product of what it really is. It is a mentor-mentee relationship more than a investor-investee relationship, or at least it should be that. Among many roles the most important role the investor plays is of that of getting you the further industry connections that will help you take off apart from sharing his experience.

The valuation that you come to agree upon at this stage is normally is the intersection of what you think is the value of your business plan & team put together and what the investor thinks about the same. Generally there is no thumb rule to that. Another very important quality you need to identify in your investor is that, he is willing to give you the freedom even if he thinks too much freedom might cost him his investment.

Stage 7 — Hiring, Partnerships, Task and Milestones

This is the part of the journey the experience of which cannot be summed up even in books. It is going to be most likely the single most knowledgeable and thoughtful experience in your life. This is where you are going to make the maximum amount of mistakes but don’t get bogged down by these mistakes as these mistakes are only going to add to the ever growing important list of ‘ways in which things don’t work’. The more you have on this list, the more will be your probability of succeeding.

Hiring — Have a clear hiring plan. You have got to know in advance with crystal clarity about the gaps you want to fill in your organisation through this hiring. Don’t base too much of your opinion on your hirees’ resume and past achievements. Have conversations with them; understand their interests, passion and their capabilities based on these conversations. Get the best to work for you not for huge salaries but ‘stock options’ or maybe a combination of both. These guys who seek lot of salaries in the initial stages turn out to be the ones who did not have the same goals as you do and that is not right for your team. Your initial key members have to believe in your idea and your capabilities as much as you do and they have to show it by accepting stock instead of salary. Learn to let go, as there is a strong chance that the employee who works or could work for you now, is a better fit somewhere else. Letting go is going to be good for both you and them.

Partnerships — Create a business structure in which you and your team focuses on what you guys are best at and your partners/vendors focus at everything else, for you. Outsourcing really allows you to focus on what you do the best, what you don’t do the best is handled by the rest who do it the best. It also enables you to learn from the experts while they are on your projects. Besides, having the right partners/vendors can open your perspective beyond the four walls of your organisation.

Running a smaller team is easier than running a large team. Research your vendor partners well before you get into a deal with them.

Tasks and Milestones

You can’t really achieve much at this stage without having tasks listed out against timelines. Not doing in time is as good as not doing at all. You don’t want you to face the ‘we had the same idea’ problem, as, sooner or later you will learn that someone else somewhere in the world had the same idea as you did, when you did, and he did it before you could.

Celebrate milestones and move to the next. About 10 long milestones will give you the company you wanted.

A piece of advise — Bootstrap till you have a proof of concept.

Stage 8 — ‘Extraordinaire’