The Right Way to Startup

Defining Your Target Market

Clearly defining your target market is a very important step in any startup’s initial days. Not having a defined target market leads to a loss of money and resources.

There are 3 steps in defining your target market.

Step 1: Start out with identifying the use cases for your startup.

Step 2: Once you have the use cases, define the users who would most likely use the product/service offered. Try to be as detailed as possible in defining users by stating demographics like age, sex, income levels, status etc. , whichever are relevant.

Step 3: Lastly define the location you intend to target in different phases of your growth.

Once you have the target market defined, it becomes easier to come up with a marketing plan which can be focused and targeted so as to get the best return on the marketing spend.

The Stealth Startup

A stealth startup is one which tries to avoid any public attention. So why would a startup try to avoid any attention because as we know, the more attention a business gets, the more potential customers.

The reasons for a startup operating in stealth mode can be the following.

Protecting the Idea – We all know that ideas, once in the public domain, get copied. Filing a patent is a lengthy and expensive proposition. Hence some entrepreneurs prefer to run their startup in the stealth mode upto a point where they are able to gain sufficient traction and headway over others who might look to copy the idea.

Product – Entrepreneurs running in stealth mode also look to keep fine-tuning their product before it goes into the public domain. Generally the product is tested with a small group of people who generally are asked to sign an NDA.

With these advantages comes some disadvantages of running in stealth mode.

Attracting Stakeholders – Without publicity, the stealth startup may find it difficult to attract stakeholders like employees and investors. The startup’s public image plays an important role in getting these stakeholders onboard.

Testing – Since the startup prefers to limit usage to only a handful of users, there may be a risk of getting results based on data which is inadequate and biased.

BloomReach is a startup which serves as a good example. They started out in stealth mode as they were trying to offer SEO as a service, a service which requires a lot of investment in the product and which could be copied quite easily. The team realised that good execution is more important than being out there early on itself. When the startup launched publicly, it was a great success.

How Much Investment Can My Startup Raise?

A standard question which comes up in the mind of an entrepreneur when looking for funding is how much investment can his/her startup potentially raise. The amount of investment which can be raised by a startup is totally dependent on 2 factors.

Traction – This is what the startup has already achieved. This can be actual sales, users acquired, traffic acquired etc. The higher the traction, the more confidence an investor gets in a startup model and hence higher is the amount the startup can potentially raise. (Also if you do not need to raise a high amount, lower equity can be offered)

Business Potential – This refers to the vision of the entrepreneur and potential of the scale of the business. The bigger the potential, the more money an investor will be willing to put in.

To conclude, the amount of investment a startup can raise is directly dependent on the traction the startup has been able to achieve till that point and the potential of the business going forward.

Note: This being said, a startup must only raise the amount which is actually required. Taking more money leads to inefficiencies and also a higher offload of equity to the investor.

Big City Startup vs. Small City Startup

Starting up in a big city differs a lot from starting up in a small city. No matter what business model, there are certain fixed differences when you start a company in either case.

Costs – Big cities tend to have higher costs of living and an entrepreneur will find it more difficult to sustain himself/herself.

Availability of Talent – A startup is as good as it’s team. Finding the right talent is crucial for any startup. Bigger cities tend to have a higher number of better and specialized colleges (though this cannot be generalized) and hence the availability of a good talent pool is higher. Also talent from bigger cities generally avoids settling in smaller cities due to the loss in lifestyle.

Regulation/Support – Bigger cities tend to be some years ahead in development as compared to smaller cities. The regulatory and support systems in bigger cities tends to be stronger for new entrepreneurs.

Market Size– Bigger cities have a bigger population, which implies a bigger target market for the startup.

Competition Levels – Startups in bigger cities tend to have more competition as compared to startups in smaller cities (this can partly be attributed to the bigger market size).

Starting Up Alone

Is it a good idea to start a business alone? My parents have always told me not to have partners in my business as they believe partnerships almost every time lead to conflicts and eventual break ups. Modern business gurus say that a solopreneur company will find it difficult to survive. So which of these should you believe?

BENEFITS OF STARTING ALONE

No Disturbance/Conflict: Since you are the only one running the company, there is no scope of any conflict.

Clear Focus Also a single founder has a fixed focus which translates into the focus of the startup.

Bigger Share for the Founder: This tends to give a stronger sense of responsibility and ownership to some founders.

CONCERNS

Limited Skill Sets: A single entrepreneur will have certain skill sets. The startup will require other skill sets which will need to get fulfilled by hiring a team member.

Expensive to Acquire Skill Sets: Hiring team members will be expensive and a team member may not have the same passion and interest in the startup, as much as a founder will have.

No Backup: If the founder falls sick, there is no backup.

Difficult to Raise: Most investors are not comfortable in investing in single founder startups, especially in it’s early days (due to it’s limitations as mentioned above).

Entrepreneurs should look at what matters to them and should analyse their startup concept and plan before making this decision of whether to go at it alone or with co-founders.

Should Startups Outsource?

If there is any skill set which is required and is not part of the founding team’s skill set, outsourcing is an option. For example when we started Bitequest.com, we did not have a technology co-founder and hence got a web developer to make our website for us.

Outsourcing benefits the startup in a number of ways.

Immediate Solution: Solutions are easily available and the time to start work is immediate.

Quality Skill Set: A good vendor will have good skill sets and can do better work than what you can do is you try to acquire the skills somehow.

If not outsourcing, entrepreneurs have a couple of other options.

Getting someone with the skill set on the team: This is the best solution. Finding someone will take time. But this option will eventually turn out cheaper and more controllable as the product has been built in house.

Learning the skill set: The founder(s) can decide to learn the skill set and build the product in house. This takes time and the learning and product may not be as good as in the other options available.

Hence, a lot of entrepreneurs prefer getting things outsourced, especially during the early stages of their startups. Once they grow and want to have a better control over their processes, teams with the relevant skill sets are built to get everything in house.

The 4 'Investments' Required in a Startup

How much investment do we need to startup? A lot is required but not necessarily in monetary terms. Investment in a startup can be done in many ways.

Time: This is the biggest investment required. The more the number of people investing their time, the better the chances of the business taking off.

Skills: Investing time is good. If the invested time can carry a better weight, i.e. the time is from people having great skills, the better it is. The more the skills backing the time invested, the bigger the investment.

Passion: The passion is what keeps all other investments going. Investing your passion into you startup ensures that the other investments will keep getting co-invested along with it.

Money: Money is required in any business.

So the first investment an entrepreneur makes is Passion, which is followed by Time, Skills & Money. Even if you do not have very many skills or much money as of now, investing passion and time can ensure that you keep moving and can take you to a stage where the other two investments will automatically start coming in.

Defining Responsibilities in a Startup

Be it for co-founders or for any other team member, it is important to define their responsibilities. Although one has to do everything in a startup, especially the co-founders, defining responsibilities basically puts the onus of different activities on different individuals. Taking ownership of different parts of the business is important to avoid confusion/conflict and to ensure all parts of the business are looked at well.

Why Do We Need Funding?

Early stage startups tend to focus on growing their business to a stage where they can get funded. They keep discussing what they need to do before they reach this stage and how funding will be raised. A question which they often forget to think about and is as or even more important is why they need funding.

Let’s try to define funding. Funding is raising money to do what they are doing on a bigger and better scale/platform. Now before we start looking for funding, we need to be sure about these 2 things

What we are doing: We need to analyse our business and be very sure that whatever we are doing currently is scalable and efficient. If it is not scalable, putting in money will result in a loss of money. If not efficient, we will end up burning some money till we become efficient.

What we intend to do: We MUST know what exactly we intend to do with the money. Since we should have already worked out what we are doing currently, this becomes easier. We need to  pinpoint things we need to do with the money and the results we expect from them.

Once we have concrete answers to both these questions, funding makes sense for us. Till then, do not waste time simply thinking of funding. Look internally and sort out the business first.

Allocating Equity to New Team Members

For a startup, equity is the most important asset it has. Equity is distributed by the founders to raise investment and even to hire great talent.

Giving equity to new team members has some benefits

- The startup may not be able to afford a talented person it wants to recruit. Giving equity helps in attracting that person to join in despite offering a comparatively lower salary.

- Giving equity to new team members is a great way to align their interests with the interests of the startup as a whole.

On the flip side, giving equity means that you are giving a piece of the company and are assuming that the new hire and the startup will find each other to be a good fit for each other. To reduce the uncertainty in this assumption, a lot of startups offer equity options, which get converted into common equity after a particular period of time, during which the fit and understanding of the new hire and existing team can be studied and assessed.

So having decided that equity can prove to be a great tool to get new talent to join, how do we decide what percentage is fair. This is an analysis which the entrepreneur must do.

Value the amount of money, time and effort which has already gone into the business. Now add to it the value of time, money and effort which will be put into the startup going forward. Let’s call this sum A. Now value the money, time and effort which the new team member will put in going forward. Let’s call this B. Dividing B/A will be a good proportion of equity to offer to the new team member. You can probably add to it a little growth premium to account for any additional growth the startup may see because of the hiring.

Am I Ready To Startup?

To answer this question, you need to analyse how you stand on the following:

Idea – Do you have idea which is robust and sustainable? Is the market big enough for you to enter? Anaylse your idea thoroughly. Read more about Vetting your Idea.

Team – You need to have the right skills to implement the idea. This is where most startups fail. Identify what skills are required to execute the idea well and build on those which you are lacking in. Read more about Finding Co-Founders.

Passion – You need to be fully convinced in your mind that the journey is going to be a long and tough one. Be mentally prepared to last it out. Only your passion and zeal can push you through it.

Sustaining Capacity – Your startup may not be able to give you any money for a long period of time. You need to know how you will sustain in this period so that at no stage do you feel the pressure to close down.

If you have all of these going for you, do not wait or overthink it. Startup Now!

Do Startups Need Lawyers?

Contrary to popular belief, a startup should be in touch with a lawyer. We would normally believe that keeping a lawyer is not required for startups and would be a waste of resources (which are anyways in shortage). However, I came across this article which mentions some very genuine and possible cases where a startup will need a lawyer immediately.

‘1. What if your product contains a defect that makes it hazardous?

As an entrepreneur, it is a great feeling to create and sell a product in the most ethical manner. Moreover, it is expected that entrepreneurs go a step further and stand by their product in the event of a defect.

If you are a food manufacturer, it is your job to recall any products that could have been at risk of being contaminated with E. Coli or Salmonella. Failing to do so will endanger your customers to falling ill and bring on a lawsuit.

However, there are isolated incidents, where a customer will sue your business for a perfectly legitimate reason.

2. What if your employee becomes a victim of medical malpractice and sues your business?

As an entrepreneur, nothing more is satisfying than having a team of happy employees. Their happiness is contingent on the work experience that you provide them as their employer. Work benefits play a significant role in maintaining employee satisfaction.

You cannot control every tidbit, but you can mitigate problems by giving your employees the best that you can offer them. As an employer, you can opt to give your employees the best healthcare plan. Alternatively, you can try to cut costs by giving your employees a lackluster healthcare plan.

Cutting costs on your employees' healthcare benefits could be one of the worst decisions for your business.

Employees expect their health to improve when they seek medical treatment. In some cases, the very opposite can happen. Did you mitigate your chances by offering your employees a healthcare plan from one of the best healthcare providers? Or were you so fixated on trying to save money?

If your employee feels that your thriftiness is more important than their well-being, they might not only sue the hospital for medical malpractice but also sue your business for subjugating them to a lackluster healthcare provider.

3. What if your customer sues you for giving them bad professional advice?

As an entrepreneur, it is wise to have business insurance. Unfortunately, many entrepreneurs run their business without obtaining an insurance plan.

Like product based businesses, it is just as important as a service based business to have a lawyer on standby.

Let's say that you are a health coach. What if one of your clients implements your health advice and feels much worse before consulting with you? If their condition is severe enough, they may feel justified to file a lawsuit against you.’

In such cases, is it better to already have a lawyer standing by or will you be scrambling in trying to find a good lawyer to handle the case.

Developing a Habit of Following Up

You don’t have to spend every waking moment immediately responding to the chime of your email, but when you do allow time for this task, make sure you respond to everyone. If you don’t have time to give a long reply, then at least respond with a brief note telling your contacts that you received their messages and reviewed them and will get back to them soon. Then make sure you follow up.

In a startup, you’re building relationships with vendors, customers, investors, professionals and other entrepreneurs. That little bit of effort of responding to messages will go a long way in helping you build and maintain relationships.

(taken from http://www.entrepreneur.com/article/271335)

Your Business Card

Your business card is the first impression you make when you meet someone for the first time. It speaks a lot about your company and it's culture. The designation you mention, if you do, gives an idea about how your company is structured, again pointing to the culture and value system of the company.

It's important to make a good business card which is in harmony with the working style and culture of your company. This first impression does play a role in building new relationships.

"A good business card should feel like a good handshake – flexible but firm"...Manish Sharma, Printo

Keep your Churn Rate Low

Churn Rate is an annualized percentage at which a business having recurring customer base (customers hooked onto a plan offered by the business such as subscriptions etc.) loses its customer base. For example, a churn of 5% means that the business loses 5% of its customer base during a year.

So why it is important? This is going to happen in any business and we can always get new customers.

This thinking is wrong and can prove expensive for the business. We focus so much on customer acquisition that customer retention tends to get ignored. It is a proven statistic in any business that acquiring a customer is much more expensive than retaining your existing customers. Hence it becomes important to focus on customer churn. Rather than spending all of our marketing budgets in acquiring new customers, we should look at spending a significant amount on retaining the existing ones. A business cannot get onto a sustainable high growth trajectory merely on the basis on new customers.

How do we reduce churn?

To retain customers, we need to look at customer experience and feedback. Customers will keep coming to you if you build trust first and can subsequently offer a service which is equal to/better than your competitors. Focus on how users interact with your product, what they like, what they dislike, and use these metrics to keep enhancing their experience over time.

Start up and Stick it out!

Your time will come. You need to stick it out till then. Keep at it and don't give up!!!

Be Empathetic

Empathy is your ability to relate to and understand someone else’s situation and perspective. Strong, enduring relationships are almost always built on empathy. It’s a life skill that requires self-awareness, practice and experience. The ups and downs of your personal and professional life will influence how you empathasize, and with whom.

Common experience connects people through an instant bond and a shared level of trust. For example, I can easily empathize with others who have lost a job, started a business, had cancer, struggled with finances, or written a book because I too, have experienced those circumstances.

Just be aware, empathy does not mean you have to agree with others’ opinions or try to please everybody. Instead, consider the feelings of your employees, partners and colleagues when you make decisions. To cultivate this skill, react less, listen more and try to put yourself in the other person’s position.

Next time a client or employee is struggling, take a few moments to listen and, if you can relate, share a personal story.

(taken from http://www.entrepreneur.com/article/233709)

Build a Prototype First

A good prototype is very important for a startup as it is the first offering by the startup which gets to interact with the target market. The most important deliverable we can get from this is good, authentic market feedback.

A good prototype should

: convey exactly what the startup intends to do. Never confuse the product by adding features which do adhere to the core business idea. We tend to add more features to the product so as to make it more acceptable by our TG. For example, if I am trying to create a website to sell premium teas, I should not add other beverages to increase acceptance by the market. The aim of the prototyping stage is purely to get a feedback for the core business idea. So build a prototype which does exactly that.

: be a minimal product which can be easily modified. Sorry for being repetitive but the aim of prototyping is purely to get market feedback and make necessary amendments before going full steam ahead.

Prototyping is really important and is a stage which a lot of us tend to ignore completely. We go with our gut and end building a final product without taking any market feedback. This leads to a waste in resources as once we enter the market and get feedback, making amendments to a more complicated product is a much more costly affair.

Hiring a Co-Founder

Probably the first very important task of an entrepreneur, building a strong founding team. An entrepreneur should first sit down and identify what skills would be required to execute the business idea well. Once you have the skills listed down, you can start the process.

Look Within your Network: You know the skills you require. Start looking within your network of family, friends and acquaintances. Finding someone you already know is beneficial as you already have some background about the person.

Listing on Websites: There are various websites for finding cofounders, some being https://www.cofounderslab.com, angel.co, http://hiringdecoder.com.

Networking: Start joining clubs and networks in your country which are based on themes/skills which are required by you. For instance, in Beveragewala, we were looking for someone with Tea/Coffee retailing experience. I had joined the different Tea/FMCG marketing groups in Delhi & Mumbai to meet and identify people who could possibly join us.

Events: Attend startup events and try to meet as many people as you can who may be interested in startups. Keep pitching your idea to people who interest you. You never know when and where you might find the right one.

Take your time in identifying the right person to join you. Do not hurry this up as it is very crucial to induct someone who will be a good fit. Also in the meanwhile, keep pushing the idea yourself.