I’ve read too many startup post-mortems lately. “If only we would have done X instead of Y and Z, we would have wasted less time and money and maybe survived.” And yet, all these late epiphanies are just rediscovering what is explained over and over in the ecosystem. What goes wrong? Why doesn’t it stick? After discussing online with many of you, I’ve tried to get to the core of running a startup as a quick and dirty guide for first-timers.
As to be clear, this “guide” only concerns early-stage startups. Early-stage means from pre-launch to 12 months post-launch. A startup means you intend to innovate (more on this afterward) and expect to get into exponential growth (widely forgotten in Europe).
In this exercise, I tried to distill everything that really matters into 5 core principles. These are the ones that I honestly believe anyone with significant experience with startups and no vested interest in selling whatever they do will tell you.
(Why new startupeurs are still misguided)
I’m going to vent off a little bit, skip that part if you want to get directly to the 5 principles.
The fundamentals of running a startup are not shrouded in secrecy anymore. They are even pretty forward.
Now, of course, it’s usually difficult for entrepreneurs to “just listen.” They have an ego as they should, plus the advice they are given conflicts with everything they learned in regular companies (or worse, in research facilities)… Then, ‘startups’ have been a trendy thing for a few years now, and everyone is now a bloody expert on tech ventures because they got a keynote on design thinking.
What I think is that most of the problem is coming from the innovation ecosystems themselves. There are just too many structures trying to “help.” Too many clusters, incubators, accelerators, hubs, networks, BAs, VCs, meetups, events, and contests. Any day an entrepreneur needs advice, s/he will have three to five conflicting opinions. Who do you listen to then?
As a disclaimer before we jump into it, remember that anyone giving you advice has a vested interest. You are a product. Me? I want to sell you strategic consulting and be able to brag about the startups I’ve worked with (not because they raised a crapload of money, but because they achieved sustainability and delivered on their innovation promise). But mostly, I work with innovation programs and not startups directly anymore… So I guess I’m relatively harmless.
Now, let’s get to it with the 5 principles:
1. Don’t be a lone ranger
Lone entrepreneurs never survive. Most will tell you that startup will have to be resilient to the psychological pressure of the constant roller-coaster you’re getting in. And yes, that’s true. There is also the reasoning that you need enough complementary skill sets to start with… And as a side note marketing > design > engineering > sales > finance when you start.
But the core reason is that you will try to build something that no one has really done (at least in the way you intend). To do so, you need to build a vision and challenge your perspective to other viewpoints. If you do that with too many external stakeholders, you will run in a circle; you need a core team that develops its own vision of the future of the market you want to achieve.
Also, as soon as possible, build an informal board around your project with 2 to 3 seniors highly skilled profiles in a) your business (market access), b) your tech (roadmap common sense), and if possible, c) startups. Giving them 0.5-1% of capital as goodwill is a thing, but not necessary. If they start to demand more, go away. The key thing is that you want to talk to them once a month over the phone or lunch to check that you’re keeping your bearings right.
An initial team of 2 working on the project full-time is a bare minimum, 3 is better, 5 starts to be too much. Build an informal board. And yes, diversity helps.
2. Stop inventing, start innovating
You have to quickly understand that a startup is about one central thing: changing a corner of the market. Fun fact, this is also called “innovation.” This means that “invention” (creating new technology or, worse, science) has no value in the market. The only goal is to create enough new performance for customers, that they will accept the pain of switching away from their old habits and put you in business. Everything else is your ego and/or your old culture in charge.
Again, to be crystal clear: no one cares about your tech, you’re not in a lab, and you’re not applying for a grant. The usual mantra you will be hearing from everyone is, “What is the problem that you solve?”. It’s a good mantra. It’s the BEST!
If you don’t solve a problem for someone, you have nothing.
Stop being smart about your tech and find the problem it will solve in the market, if any. This is innovation and everything else is you getting unfocused.
3. Fuel with risk, don’t go overboard
Consecutively, as soon as you demonstrate that you could change a significant part of any market, investors and partners will start to project the possible value of these future changes. The more change you intend, the more value you will have… but also the more risk you will have to take (change is hard). And that’s the obvious catch: more risk means more value, means fewer chances you’ll deliver. Understand that there is a thermodynamic tension between taking a lot of risks to achieve a Google-like market transformation and surviving the heat involved. Not enough risk, not enough innovation, you’re worth nothing. Too much risk, too much innovation, you’re going to explode rapidly.
This “heat” involved with startups and innovation is essentially about two things:
- Will the market accept to change behavior and do what you want them to do?
- How long before everyone will be able to use the technology you are using?
Understanding how much risk you’re willing to deal with is important for your team. It’s is also important for your investors which whoever they are, usually only fund risks of a specific nature and at a specific level. But more importantly, it speaks about what kind of team you need to run any given startup…
Risk is not a bad word, it’s your fuel. It is volatile though, and you have to assess what can you manage as a team. This will define your project in return. When pitching your project or designing your strategy make sure that this is at the forefront of your mind and your storytelling.
4. Find your canaries in the mine
Now that we have asserted that startups are fueled by risk, we have to admit that no one can really foresee if the change you want to happen will really happen. As soon as new entrepreneurs realize that their banker or their accountant has no clue, they just want to stay in their office / lab / workshop and try for 24 months to build the “best” product possible and then put it on the market by doing “marketing” (aka “black magic”). Then they launch and are shocked as no customers succumb to their brilliance and throw money at an unknown company to buy an unproven product.
Again, this conundrum is easily solved by doing something admittedly very uncomfortable: find the first subset of potential customers with much more of a problem than the core market you‘d want to address. Sell something to them ASAP and don’t invest too much time making it the perfect solution you’re dreaming of. They are your canaries in the mine: as critically challenged customers right now, even an imperfect help would already go a long way for them. They can deal with your current crappiness because they have no choice. Test your assumptions on the future market with them (and be nice).
Do you want to sell artificial intelligence solutions? Who needs to achieve the highest-speed decisions on most complex problems in the narrowest field of work TODAY? Start here, even if it means just consulting for 1 month with your tools and not building your Skynet.
All the business plans and pitches in the world mean nothing compared to a first “minimum viable product” or a “proof of concept” that someone has paid for. And of course, you will learn along with how your core market really is (again, another discussion that would be too long here).
When you read that you should “Do things that don’t scale”? This is why.
Finding your “first canaries in the mine” and solving their problem is the top priority to validate your innovation and then understand how to pull off market adoption at larger scale. This also helps focus your tech roadmap with pragmatic feedback, and not get in over-designing / over-engineering frenzy.
5. Move fast, cut acceptable corners
Now that you have your priorities in order and rewrite your professional culture to run a startup, you’re still facing huge constraints on your resources. Accept that there is no real way to get over this. It will be uncomfortable.
And here again, your common sense will try to kill you: most of the things you will want to get more resources will be a net loss for your project. Especially, raising money early stage is an immense mistake: you’ll be eaten alive on your crappy valuation, then will be diluted to minority on the next round the year after, and then you will realize the time you spent pitching and negotiating was 30% more than the extra runway time you got.
Here’s a quick cheat list of cutting the corners where you need to:
- In Europe, get in a public incubator. I mean it, they might not look sexy most of the time compared to a flashy acceleration program. Still, they’ve been in the market for 10-20 years, they don’t make money on your back, and worst-case scenario they will help you navigate the jungle of offers on financing to get 50-100K “on the cheap” (they are part of my customers by choice).
- In case you want to enter a private accelerator in Europe, don’t. Check the outputs they had these last 5 years; it’s abysmal. If they don’t even have 5 years of existence, you’ll end up paying for their education.
- If you’re committed to getting in a corporate incubation program, read this (they are also part of my customers, I know them inside out — they can burn you away if you’re not specific on the questions you should ask them before anything).
- If you need to deal with intellectual property, again spend as little time and money you can afford on it. Realize you don’t have attorneys on retainer to defend yourself if a big company decides to be a copycat; your only protection is market penetration (then you’ll get legal muscle). Anything above 10K spent on IP is probably madness.
- Linked to that: stay away from every type of tech transfer unit/organism (talk to your friendly neighborhood public incubator).
- Stay away from consultants like me unless you really know what you are doing (early stage, we’ll meet through a public incubator, and that’s usually enough).
- Stay away from anyone with “free” offers (you’re definitely the product in the transaction) or the ones that are clueless enough to ask X% capital of your unproven business.
- Stay away from big events, networks, clusters, etc… More than everywhere else, you’re a throw-away product for them. Unless your canaries in the mine are there, in which case hack your way in and don’t pay a cent.
- Don’t pay for PR and don’t put interns (or worse, an agency) on your marketing. At this stage, marketing and strategy are the same; this is about your DNA, the core of everything. If you don’t know how to address your early customers, no one will. Boot up a WordPress, and just don’t be shy.
As an heuristic don’t spend more than 20% of the total time of the team outside of trying to sell your innovation to a first part of the market. This means your local ecosystem too, chances are your customers are not there anyway.
A few more things…
(Please, don’t read this if you still want to see me as a nice person, when I’m working I’m your average level, functioning psychopath…)
Whenever I have to evaluate a European startup, I usually check the website for a whopping 2 minutes. This might be interesting as a final thing to understand:
(1) Is the website in English with a .com? (Or anything but a country top-level domain such as .co.uk, .de or .fr, etc.) If not, they are culturally stuck in a regional perspective. Chances for ramp up and seeing enough market opportunities are slim; they will probably fail.
(2) Do I understand in 20 sec the problem they want to solve and for whom? If not, they are doing research, engineering, or anything but trying to change a part of the market. They don’t get innovation, and most of the time, it’s already too late; they will probably fail.
(3) Do I see a price or at least clear metrics on a value proposition? If not, they think they shouldn’t disclose this “critical” information for competitors’ usual fear. They don’t get the high-speed nature of what they are doing, and that testing both pricing and value offer ASAP is critical… they will probably fail.
(4) Do they speak about the innovation prizes they won, who’s backing them, or who’s talking about them in the press? If they do, they’re spending time on side tracks and got caught up in their ecosystem extravaganzas… you know what I’m going to say.
(5) I read the business plan in 2-3 min if there’s one but essentially don’t care (unless I’m contractually obliged to care about it).
Is it fair? Oh yeah.
Keep your focus
As I discussed in the introduction, the startup game is sadly made difficult by inflated ecosystems and “enthusiastic” players. I’m sad about it, it’s frustrating, but there is not much I can do about it. But once you get the logic, it is actually a simple game. There is not much magic on how to run a startup, but it’s admittedly quite counter-intuitive the first time around, especially when fresh out of a research lab or a big corporation. Once you get that, you will easily find fair advisors and good help around you: they are abundant (just a bit drowned in the background noise).
The real difficult things should be the engineering and the design of proper innovation, not the startup part. Keep that in mind. : )