We have an idea, we discuss it with a few close friends and start working on it. We are building for months and when somebody asks us what we do, we fondly reply “I have a startup”. But do you?… There’s a hidden word after “Startup”, and that word is “Company”, doing a website and building a Company is like comparing apples with oranges.
You have a “Startup Company”, there simply is no “Startup website”! In this post we’ll explore the significance of this simple detail and what it means to your success or failure, but first some boring blog housekeeping staff…
Interlude :: From Minus Twenty to Zero
Many months passed since my last post, i’ve been too busy dealing with my US Visa application, working on my new startup, building a team and moving through continents. My stay in Silicon Valley was so much educating that i’ll need to create a whole new section about what i learned and the experiences i gained from that trip.
Currently i am back in Athens, Greece finishing the last details of my Visa. I must admit it was way more difficult than i expected, not even mentioning the time you have to dedicate to the process, especially if you are an absolute newbie like i am. In the near future i’ll post my full experiences on that issue, enlightening anyone who wants to take the same path…
The Technical Entrepreneur’s Weak Spot
So back to our subject, most first time entrepreneurs with a technical background [like myself] tend to focus on product. We create an incredible feature set for our website, most probably doing it in super cool-io stealth mode, and strongly believe that once everything is ready the world will be wowed by our genius and awesome personality. Needless to say, this is one of the most basic mistakes we can do, and the reason why Eric Ries is up in arms evangelizing about the Lean Startup Model.
However, even if you study and follow the Lean Startup Model (which you should), there is still a chance you are missing the “Company” aspect of your startup. The idea you have may be indeed something cool and original, and may even get you up to some point if you prototype it. However it’s the “Company” aspect that will really make that idea take off, and that, is not something to be thought out “afterwards”.
The Most Important Factor
I remember back in my MBA days, we used to debate with our professors and among ourselves, which was the most important department. Our Marketing professor told us that we could have the best product in the world, if we didn’t know how to position and distribute it in the market we may as well shut our business down. Our Financial professor made us understand that without controlling the company through economics, death was just a quarter away. Our Strategy professor explained to us how every other department was ultimately a set of instructions and operations that had to be done re-actively to our environment, but what was really the single most important aspect of a Company was it’s Strategy.
In the same tune we made arguments with every major course’s professor, Operations, HR, IT, Sales, Legal… So who was right? Which department was the single most important one? Well so far, you, me, seem to have picked ours off, Operations. Operations must be the most important factor, since we dedicate all our resources to this aspect of our “Company”. In the internet nothing else matters, because you see, you built a website, and the next day millions of users will be flocking in your doorsteps and hundreds of VC’s will beg you to take their money.
But is it? Is Operations the most important department in our company? The one that requires our fixated, exclusive, uninterrupted focus of attention and resources? Certainly not. I assume you’ve done your homework and i don’t need to get into how important it is to have a company with a viable revenue model, or why achieving product-market fit must be your primary mission when starting up. I will however try to convert the traditional mechanics of business building and management to the unique nature of an internet startup company.
Sales? Who Needs Sales?
You do. Sales is what you need to do to acquire your first users. Now i am not talking about the awesome marketing strategy you have devised “i’m gonna do you viral“. Or the later-stage steps where your company will be featured by Oprah. Rather, the day to day operations of selling your services to users out there at the very beginning. At this point the game is pretty much like a door to door sales of brick and mortar businesses. You have to devise campaigns, plan them, create lists, and go out there and execute them. Find leads and convert them to accounts. Every single user, one in one.
Once you make the link that users == customers, you are ready to start implementing day to day sales tactics and working your way through your one millionth user. Devise, target, plan, execute. Be creative, you can discover pockets of users in the most unimaginable places, why not go fishing in your competitors’ yard? He can’t see you entering the premisses (the benefits of doing business in the internet). Sell to journalists and bloggers, sell to influencers and trend-setters, widen your net, experiment. But be consistent and constant, the moment you start making your mark you should draw a line, not dots, not splashes, a line. And this line can curve as much as you deem necessary, but it has to always have a course and a speed. Pace is everything and what will eventually bring you the desired results. No single effort you do may work, however if you are consistent and have a constant pace the odds will be in your favor.
What About After Sales Service?
Hey mama, look i’m flying! I have built a Groupon clone in two months! And yes you did, and yes it’s pretty neat too! Oh my and it scales to infinity! So what are your 5 biggest
friction pain points for your visitors in numbers? [...]. Metrics, metrics, metrics. This is really an issue that deserves a post on it’s own, and it will get one in the near future, however it’s so important that i have to mention it.
We have such a blessing of operating in such an environment where we can measure and observe the exact and complete experience for each of our
customers visitors, that it’s a criminal act to let it go to waste. Depending on the exact nature of your business you should dedicate no less than 5%-10% of your production resources in building metric systems. They should provide insights that will help you understand how your visitors interact with your services and show you the way forward. A must read primer on this issue is Dave McClures’ slides on Metrics for Pirates…
Human Resources Management
In the early stages of your startup HR boils down to two major areas, team building and recruiting. Whatever your setup may be, you are a team. Even when you start solo, eventually you will become a team (or fail). I need not get deeper into the subject of team building, so many have been written about it over the years. Don’t take this issue lightly, it can make or break your business.
Recruiting is a task that startup companies outside the valley take very lightly, if they even give it a thought at all. Yet it’s the biggest bottleneck for the path to your company’s growth. And it’s one of the things that don’t happen overnight, ever. You need to cultivate long-term relationships with your tech community, everybody must know you and you must know them. Understand who are the players, the users and the new-comers. At which point, in their business cycle, are they in? Just hired? Tired? In between? Ultimately, your mission as the startup’s CEO is to make it a billion dollar company. Do you believe you can do that with a band of two people? Don’t throw this ball down the road, you need to be working on it even before you type your first line of code.
Strategy and Business Sustainability
A strategic way of thinking is a prerequisite for anyone venturing on anything anywhere. That said, there is nothing else that enables strategic thinking but information. Information about your environment (say PEST), your competition (SWOT), your market and the universe. The better understanding you have and the more informed you are the better decisions you can take. That takes time, especially in the very early stages, right after you got the enlightenment and way before you start implementing, you have to be thorough and exhaustive with this process. Even if you miss as much as 1% of the big picture for the industry you are venturing on it can cost you time and resources down the road. Think fractals here, you are at your first minute of creation, a 1% deviation multiplied by months to come will most certainly result in a not so desirable outcome. Pivot all you want, if you don’t have the picture you are shooting ducks in a lake blind-folded.
If you are thinking “Business Plan” you are not too far off. I am not suggesting that you should do the 30 page behemoth that a BP should be, not at all actually. What i am saying however is you should know your math. Let’s do a quick and dirty assessment of your company’s sustainability and challenge your business:
- Open a spreadsheet and try to figure out two numbers: How much will my company cost to operate yearly after 3 years? How much after 5 years? Account for every expense, payroll, hosting, legal, everything… Bored? Simply multiply how many people you believe will be at your company by $200K, this grossly includes everything.
- Estimate your Customers’ (real, paying ones) Lifetime Value. Try to be realistic here, maybe try two values.
- Divide the cost from step 1 with the CLV. Now you know how many customers you need to break-even.
- Estimate your conversion rates from visitors to users and from users to customers. Typically 10% and 1% respectively.
- Reverse your conversion rates to estimate total visitors required based on the customers you need to break-even that we calculated on step 3.
An example for calculating your startup’s sustainability
Get this simple spreadsheet from Google Docs.
So in conclusion, execution is easy. It’s the fun part actually. However, you should take it for granted and focus on everything else. Think execution as a step towards success and not the end purpose. With todays development tools, execution doesn’t even pose much of a challenge. What is a challenge however is building your company, every aspect of it. Product is no more important than anything we have mentioned in this post.
Let me know what’s your opinion in these issues and discuss it in the comments.
First photo on top courtesy of Craig Steinberg – It’s like comparing apples to oranges
“The King Chess Pawn” on the Strategy Paragraph courtesy of Doctor.t – ramdom act’s of bordem