Welcome! The following is the ultimate guide for startups. You might be in the middle of launching a startup. Maybe you’ve laid the foundation into the world of startups and have yet to start. Maybe you’re still in the ‘dream’ phase of launching a startup. Regardless, welcome. This journey is exciting, emotional, difficult, scary, risky, and rewarding – all at the same time. I get it and I’m here to help.
When you hear the word startup, what’s the first thing that comes to mind? Maybe a fancy tech venture rooted in Silicon Valley? Maybe a scrappy physical products firm pulling all-nighters in someone’s garage? You might even think of the founders and inventors who present on Shark Tank. It should go without saying, but startups mean different things to different people. This is the beauty of the concept. It’s totally up to you in regards to how you want to formulate, define, and grow your startup.
However, there is one element that is not totally customizable – the path to success. Each and every startup needs a validated idea, adequate funding, and an extensive list of users. Stuck on how to go about achieving the above goals? Well, don’t sweat it. That’s why I created this guide. The following will discuss how to validate your idea, secure the necessary funding, and ultimately grow your customer base. This post will also cover a few common startup hurdles and how to overcome them.
What is a startup?
A startup is a new business idea that’s formed to solve a problem for a specific target audience. The term startup refers to an entrepreneurial venture designed to scale quickly and is funded through bootstrapping, venture capital, or other means. When you hear the phrase startup business, you may assume that all ventures are early-stage. However, there are some startups that are newer than others and are earlier on in the process of establishing themselves in their respective industry and among customers.
What is an early-stage startup?
In most cases, an early-stage startup is a business with a product or service that hasn’t hit the market. The business may also be unable to pay its few employees because they’re still fundraising. Regardless of whether your business is early-stage or further along in the process of growth, you can likely identify which of the six types of startups it falls under. In doing so, you’ll be able to kickstart your strategy for a successful launch.
Types of Startups
There are 6 unique types of startups:
- Small-to-mid size business
- Large business
Let’s take a look at each of the six unique types:
Small-to-mid size business
These are the new companies that don’t intend on growing over about 2,000 employees
These new companies work to make a difference in a community and positively contribute to a social cause or philanthropic effort of some sort
This segment of startups includes companies that are designed to innovate and make substantial waves in their respective industry or field
These businesses are designed to scale immensely over time
This portion includes businesses that are created with the intention of being bought out at some point in time
This final format is created with the intention of focusing on the behaviors and activities (or the “lifestyle”) that the founders – and their target audience – are passionate about
In addition to the above styles of startups, you’ve also likely heard the phrase lean startup. The lean startup methodology refers to the development and growth processes designed to limit the needs for funding as well as market risks. This process saves precious time and resources – two resources that new companies simply cannot afford to waste.
No matter how lean, nimble, or scrappy a young company is – of which type of start you’re working for – more than 90% of them fail. Many of these failures are due in part to incompetence (typically involving cash flow and management troubles).
How to launch a successful startup business
Launching a new business isn’t a linear process by any means. Some steps influence others, but for the most part, the process incorporates a number of moving parts. The following section outlines the different spokes that make up the timeless startup wheel.
Setup your business
The first step towards launching a successful business requires you to establish a strong foundation. This step is critical in your ability to effectively grow and scale your business. In order to make this happen, determine which of the six types of startups your business best fits under. From there, you’ll want to consider various factors such as your strategy, budget, legal structure, and more. This is also when you’ll determine which type of business you’re creating.
Once you’ve set up your startup appropriately, it’s time to validate the product or service that you plan to sell.
Conduct market research for your product or service
So you’ve got a business. Now you need an idea! Let’s say you already have a great one. Subscription boxes for pets, toothpaste tablets, or a co-working space for servicing your car…whatever your idea is, you’ve got one. You’ve named it and outlined how it solves a problem that customers face. Most importantly, you’re excited about it.
All of that doesn’t matter…not as much as how excited your customers are about it. Ideally, they’ll be excited enough to pay for it.
By talking to your potential customers and understanding their wants, needs, and expectations, you can avoid investing in products or services in which your customers aren’t interested. The same applies to competitor research. This is how startups avoid wasting resources – by ensuring that their idea and product will be well-received before they take the time and money to create it.
How can you do the same? Well, by conducting market research of course!
Market research is a must when it comes to building a startup. It’s flat out invaluable for multiple reasons:
- Define and engage your target audience to learn more about how you can best go about solving their problem(s).
- Analyze your competition, research their product/service, pricing structure, messaging, and unique selling proposition (USP) to better understand how you can differentiate your business.
- Develop your positioning statement for your product and your brand.
- Fuel your go-to-market strategy to outline exactly how you’ll present your product/service to your target audience.
Obtain startup funding
Now, we need to talk about money. Did you know that the vast majority of starts up are funded by their founder(s) or by their friends and family? This is called bootstrapping – when the owner pays for their business’ expenses.
Bootstrapping is tough work – this is especially true when you consider that 90% of startups ultimately fail. Getting funded by outside investors doesn’t make life any easier either considering that 75% of funded startups fail in the end.
This doesn’t mean that you shouldn’t get funding. When done correctly, working with investors can give you more than money – it can also provide connections, advice, and mentorship.
There are a number of ways to raise money for your startup. The following section will help you decide which might work best for your specific business situation.
Incubators help startups accelerate their growth via support for management training, office space, capital, mentorship, and networking connections. A number of organizations sponsor incubators: for-profit ventures, non-profit organizations, academic institutions, and even community and economic development organizations. Incubators are organized by industry, niche, or location. Some may work specifically with fin-tech or agricultural startups while others only accept startups based in Kansas.
Some startups aren’t exactly great fits for incubator funding. Fit depends on capital and physical needs, size, location, and how much equity you’re willing to give up. Incubators are nonetheless worth looking into.
Venture Capital Funding
Venture capital (VC) is private equity (money) given to startups that show potential for high, long-term growth. We refer to this class of investors as Venture capitalists. They spearhead these specialized firms or funds and provide said funding.
VC is typically a give-and-take set-up. Venture capitalists provide funding and take equity – thus gaining a seat at the table for company actions. Some startups appreciate the added voice; whereas others don’t. Tools such as capitalization tables (cap tables) can help you understand your equity and manage your ownership.
You’ll also find angel investors under the VC umbrella. Angel investors are high net worth persons who are typically also entrepreneurs themselves. This grouping of investors often seeks out startups in the same industry as their own. Furthermore, they even sometimes “co-invest” with other angel investors.
Crowdfunding is a method through which you raise funding from your future customers and fans. It’s a superb way to obtain equity without giving away ownership. However, crowdfunding doesn’t provide the same level of mentorship and education as incubators or venture capitalists.
Crowdfunding is a great way to increase awareness around your brand and product since it markets your brand to a new audience. This in turn inherently validates your product or service ideas.
Grow your customer base
Successful startups scale fast for two main reasons:
- they target the right customers
- they continually work to grow their customer base
How do they do this? Well, it’s something called growth hacking. Growth hacking is nothing more than a fancy term for employing creative, innovative, and low-cost methods to help achieve exponential user growth.
At first glance, growth hacking might seem overwhelming and intimidating. However, if you’ve ever tested any element of your marketing strategy – email subject lines, web form format, or even social media copy – you’ve dipped your toes into the world of growth hacking without even knowing.
Startups can also grow organically. This method refers to growth achieved by internal efforts versus external funding and/or acquisitions. Some examples of organic growth include content marketing, social media marketing, search engine optimization (SEO), public relations, paid advertising, and email marketing.
Common startup struggles
It should go without saying that startups are hard work due to the high failure rate. Thankfully, the vast number of risk-takers and founders who have come before you have picked up a thing or two about common startup struggles and how best to overcome them.
This list is by no means exhaustive, here are three areas you’ll want to keep an eye on as you grow.
It’s wise to listen to your customers and continue to improve your product when designing and selling a new product/service. However, have you ever thought about an ultimate endpoint for your product/service? I didn’t think so, because not many founders do. This is where many startups begin to experience feature creep.
Feature creep is the ongoing, seemingly endless, expansion of a product or the continual addition of new features. Improvement is almost always a good thing. However, non-stop improvement can drain resources and eventually become unhealthy.
Think about it this way: if your goal was to lose weight, you wouldn’t lose weight until you die, right? No way! You’d waste away into nothing if you tried. At some point along your weight loss journey, it’d become more about maintenance and balance than loss.
The same concept applies to products. It’s awesome to have goals and to shoot for the perfect product. However, at some point, you must stop and focus on maintaining a best-seller. Then, you can redirect your resources to a new goal or product.
Ah, yes, the silent startup killer: money management and cash flow.
Countless startups fail when they
- can’t bring in money
- spend their money on all the wrong things
- manage their money all wrong
- all the above
It would be absurd to think that we can fix all of these problems. Doing so would depend on your specific startup and your corresponding expenses. However, we can equip you with a number of helpful tools that will help you better manage your funds.
- Operating income formula calculates your startup’s profitability. Profitability is a key indicator of success and potential future success.
- Burn rate shows you how fast you spend money before you reach profitability. A correctly calculated burn rate can be responsible for growth, planning, and future success.
- Debt-to-equity ratio shows how exactly your capital has been raised. This figure tells lenders and investors how financially stable or risky your business might be.
- Working capital calculates how much money you have left to pay off short-term debts. This indicates the current fiscal health of your business.
- Cash flow tells you how much money you have coming in and out of your business. It shows exactly where cash is coming from and where it is being spent.
Uses these tools and formulas to evaluate and improve the fiscal health of your startup.
If asked, I bet you could name a whole host of startup founders who’ve found success – Steve Jobs, Bill Gates, Jeff Bezos, just to name a few…
In the startup culture, it’s wicked easy to compare. On the same note, it’s also easy to alter our decision-making and problem-solving methods when we hear about what has worked for others. However, when we blindly focus on startup success stories – and ignore the plethora of failures – we risk neglecting the lessons that we can take away from said failures.
This is something called survivorship bias and, and many startups struggle with it. As you develop your startup, it’s vital to learn from both successes and failures. As amazing as the stories of Jobs, Gates, and Bezos are, they represent a minority fraction of the business owners that have come before you.
To avoid survivorship bias and grow you startup on your terms, try to keep your “business blinders” on. Focus on what’s directly ahead of you and do your best to avoid comparing yourself to the founders of other startup businesses. If you have a pressing matter, try to seek answers from both the haves and the have-nots. There will be plenty to learn from both in most cases.
Growth in the startup world moves quickly, and managing it can be extremely difficult. Keep your business’s growth on track by balancing your influence and focusing on your own business.