So you’re thinking of building a startup?
So you’re thinking of building a startup? Strap in and keep reading for exactly what you need to know before you embark on this journey.
A question often asked is what is a startup and how is it different from a small business. The answer here is nuanced but there is a clear difference. The distinction centers on the scalability of the business and the growth trajectory. A startup is looking to grow quickly and often has an exit plan. A small business is driven more by sustainability and long term success. Before you jump into the startup world, there are a few key terms you must learn.
Minimum Viable Product (MVP)
An MVP is the simplest version of your product. It is the bare minimum needed to go-to-market. Throughout the lifetime of the startup, this MVP will be built upon or altered to achieve product-market fit.
This is a term that refers to the degree to which a product satisfies strong market demand. All startups must find product-market fit to succeed. Regardless of how great you think an idea is, if there is not a strong market demand then the startup will fail.
This is the growth potential of a business. It refers to whether a business can be easily and rapidly expanded.
Valuation refers to the financial value of your company. This can be based on a variety of factors including traction, previous investments, revenue and profit, and more. This valuation will be used to determine the investment structure you offer to investors. In the most simple example, if your company valuation is $1,000,000, a 5% stake in the company would require a $50,000 investment.
This refers to an end goal for the business, common exit plans are an initial public offering (IPO) or an acquisition. An IPO is also known as taking the company public, in this case, the goal would be to offer shares of the company on a stock exchange. An acquisition is when a larger company purchases a startup.
Flexibility and Feeback
The startup world has its own language and the above are just some of the key terms you will need to understand as you embark on your first startup. These terms, in order, also highlight the path many expect their startup to take. The belief that your startup will take such a simple path, however, is a recipe for failure. A startup is an ever-evolving animal. This is where another key term comes into play. Pivot. Every startup founder learns the meaning of this term and the earlier you accept it as a reality, the more success you are likely to have.
A pivot is a shift in a company’s business strategy to accommodate changes in its industry, customer preferences, or any other factor that impacts its bottom line.
It is very common for founders to become emotionally attached to their original concept. This attachment can be extremely detrimental to the success of the company. The more flexibility and emotional detachment you have, the easier it becomes to pivot. It is crucial to keep an objective view of the business and focus on the market’s response to your business. Startups are likely to pivot several times before reaching product-market fit. Pivots can be smaller adjustments or shifts in your entire concept and business model.
In the early stages, when you have launched your MVP, listening to feedback is the most valuable thing you can do for the business. It is important to gather feedback from a variety of sources. These sources should be objective and honest. Family and friends are great for emotional support but may not be the best sources of constructive feedback.
Quality feedback should guide your strategic decisions. In order to grow, you must actively seek out the opinions of your target market. This can be done through surveys, focus groups, or asking to speak one on one with existing and potential customers. If you are receiving criticism regarding your business, resist the urge to defend your concept or to ignore this criticism. Instead, carefully listen to the criticism and take advantage of these new insights. If a few people are bringing up the same points, chances are a lot of your potential customers are finding the same flaws. It is your job, in this stage, to determine whether the resolution of these issues requires a small tweak or a massive overhaul. Without this process, you are almost guaranteed to fail. Adhering to this feedback-pivot cycle will improve your chances of success, but there are no guarantees when it comes to startups.
The Harsh Reality
Standing outside of the startup community, looking at all the success stories, many are lulled into a false sense of confidence. As an outsider, you see a beautiful hockey stick growth pattern and overnight success. The harsh reality is that most startups, about 90%, fail. For those that do succeed, the founders will tell you that the beautiful straight line of growth is a fallacy. Building a startup is a crazy journey that is not for the faint of heart. If you are stepping into this world expecting to get rich overnight you need to step back out.
There is no amount of mental preparation you can do to fully ready yourself for the realities of building a business. You must, however, step into it with an open understanding that you will work harder than you ever have and will face challenges you never imagined. Success can feel like you have climbed to the highest peak but getting there is a jagged, rocky path. Most don’t make it to the top.
You are encouraged to read more, discuss more, and learn more before you embark on this journey. Never believe you know it all and always be open to hearing from those who have walked this path before you. Only by living the realities of startup life will you ever truly understand what it takes. Stay tuned for articles on every stage of startups and every circle of the community. There is a lot to learn!