Creating a startup from scratch is a whirlwind of emotion, from excitement and pride to a constant fear of failure. With the SBA reporting only 50% of new businesses survive past five years and a third making it past ten, the fear is justified. The first year will go by the quickest and you will undoubtedly run into obstacles that shake your resolve to continue.
Even if you formulate a clever product and receive a large sum of venture capital there’s no guarantee everything else will fall into place. That product may be far from what your market wants and you can foolishly squander the funding. There will also be one or two unexpected crises to deal with. Here is advice on how to preempt these obstacles and secure a future for your budding company.
1. Build a cohesive team
The year will be easier to handle if you find a cohesive team early on. You want the members of your initial team to be experienced, capable and willing to advise you. Look for people who are seasoned in building a startup. They may or may not be close to you but should have the same “hunger” for the company’s success.
Distribute the work appropriately and trust in your team to do their fair share. Avoid putting all of the responsibility on one person’s shoulders, including your own. The solo worker will not only be worn down by stress but the company will suffer if for any reason the person cannot perform.
Early on this may be more difficult with a smaller staff. As you hire more people, senior employees should mentor junior staff. Develop a company culture that encourages employees to voice their ideas and work towards a larger common goal. You want everyone to have a meaningful role in attaining the goal without burning out.
2. Probe the market
With everyone clear on what the company wants, find out what the client wants. Your concept can be a huge success once it hits the public but it is safer to sway the odds in your favor with market research. It gives you the chance to tailor your product and advertising to the most likely customer.
However, a quick survey with a small, possibly biased, sample group will be misleading. Eric Brandenburg, manager of the UK market research company Maketest, stresses the importance of conducting unbiased and reliable market research. Analyze a target group of your most likely customers and find statistically sound data to present. Conducting research with integrity will garner a positive reputation customers can rely on. It gives credibility to your business when presenting to investors who are initially skeptical about the company’s chances. Understanding your market ahead of time will give you the advantage you need to be competitive.
3. Secure and conserve capital
Once you’ve found what your customers want and a team to supply them you’ll need to secure funding to make it all possible. Investors want to see progress before they supply any money, however you will need money to make significant progress. Convince investors to take the initial chance with a business plan detailing realistic milestones you have for the company and the actions you will take to accomplish them. Be honest with yourself and investors about the time it will take as well as the budget you will require. They will know when your proposed budget can’t support the company’s goals and will lose confidence in your ability to accomplish them. Seventh Generation Ventures general manager Pete Alberse values a transparent relationship with the companies he funds. They are investing first and foremost in you and your team, not just your product.
After receiving your first round of funding be ready to spend carefully. Take into account all of the expenditures that will accumulate, including smaller operational costs. Even if you allocate funding for everything you need, mistakes are bound to happen. You may need to revise your product before it is ready or hire a consultant to quickly give you advice. Having some buffer room in the budget will make it easier to adapt to these changes.
Retain this money by being frugal when purchasing for the office. When buying anything from office furniture to computer monitors search for savings opportunities as a consumer would. Instead of surrounding yourself with luxury, settle for shopping around and buying used. Splurging now will leave you dependent on investment capital for a longer time, straining that relationship. These cost-cutting measures should help make your company profitable as soon as possible.
4. Spread the word
One worthwhile investment is in product promotion. Use the market research to advertise specifically to your desired customers and pay attention to feedback. Pinpoint the unique attributes of your product that will intrigue your customer base. Highlight the new tech integrated into the product or the numerous studies conducted that show the product’s effectiveness. If the advertisement effort targets the right audience a few customers can breed more through word of mouth.
It also helps to let other entrepreneurs know about your business. Join a startup community to reap the advice of companies that went through the same process. Attend their local events and make a name for yourself in the community. The benefits don’t stop at advice; you can find everything from investors to employees at these events. Discover what niche is out there for your company to fill.
5. Expect to face trials
Getting everything in place is tricky but all of that work can be completely derailed by an unexpected crisis. Start-ups have a harder time recovering from a crisis than a large company with experience. Entrepreneur James Hong reflects on his first few years running the dating website Hot or Not. “We weren’t trying to figure out what kind of boat we needed to build, we were trying to keep from drowning.” After discovering that their hosting solution was going to cost $ 150,000 a year, he panicked. Hong and his team then spent the next eight days getting only eight hours of sleep, cutting costs and using impromptu solutions to keep the website up and running.
Specific issues like the one Hong faced are hard to predict ahead of time. Instead, make a risk-management plan to mitigate crises as they happen. This includes choosing leaders that will not cave under pressure and having trained backups for important roles. Hopefully you won’t have to use them but having contingency plans in place will make an uncertain future more manageable.
6. Self reflect
Lastly, it is important to meet regularly with your team and discuss the company’s progress. It is a way to keep them on track for reaching milestones. Evaluate the performance of your employees, and let go of people if necessary. It may be a difficult decision to make with a small team but their negative impact can bring down everyone else’s ability to excel.
At the end of the year you should be able to answer the following questions: What goals were met? Was funding used wisely? Are we ready for the next year?
Work with your team to answer these questions and set realistic goals for improvement in the next year. There is no guarantee the years to follow won’t bring their own challenges but taking these measures should make them easier.
Don’t forget to celebrate and look forward to the company’s future!
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