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What it takes to start a startup

10/10/2019

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There are two kinds of people in business: those that have and those that do not have the entrepreneurship DNA. Test yourself to figure out if you fit to be an entrepreneur.

Can you sacrifice?
This is the foremost important issue: can you drop all and (almost) everything you do right now, from your current job to family and social life, and dedicate, truly dedicate your money, blood, sweat, tears and time 24/7 to your startup? If not, don’t bother reading on and stay put, doing what you do or trying to do now. Without 100% commitment, your startup will never materialize. If you have a great idea, just sell it to the highest bidder. But if you want to build a real business, create something innovative, get funded, recruit & manage people, survive success or failure, do good & be good, make potentially lots of money, and have fun doing so, read on.

Note that “drop everything” does not mean you should leave your partner. To the contrary, you should convince your partner to think along, help and support you. But there is a cost for your partner as well: you will not be around as often as you are maybe today.

Are you absolutely great at what you do?
There is no room for mediocrity when establishing a startup. Excellence, Expertise and Experience. If you don’t have all three of these traits yourself, don’t despair: find the right business partner who does. But expect to let go of your supposedly guarded ownership of your startup.

Are you a people’s person?
A high IQ is fine, but a high EQ is what an entrepreneur really should have. It’s all about people, about building and maintaining relationships. It’s not about being smart, waving university degrees, or boasting about insanely fantastic accomplishments. Arrogance is a killer. Rewards and diplomas do not count. It’s all about YOU as a person: who you are, what you are, what you have done, whom you have worked with, who have worked for you, but foremost, what you can do. If you don’t have high standards and if you think telling stories to impress are important, you will not add value, and you and your startup will not last, let alone start up. Entrepreneurship is about emotions, your drive, enthusiasm, perseverance, reactiveness, dialogue, trust and, last but not least, reliability.

Are you excited, REALLY excited about growing your own business?
In established businesses, you usually have a job with job description and specific tasks, where you just do your work and go home. But successful startups are made up of people who think and act like true entrepreneurs. Who feel personally invested in their own company’s success.

Can you wear different hats?
Startups usually start up with a handful of people. Some are even a one-man show at the onset. Everyone has to multitask, pick up different kinds of tasks without complaint, or being asked to do so. Often there is nobody to ask “do this for me” anyway. So, if your motto is “that’s not my job” instead of “whatever it takes”, then a startup is not for you.

Are you flexible and able to shift gears quickly?
A new company trying to find its niche has to move fast. What you’re working on today might change tomorrow. When that happens, not only you, but your whole team (if you already have one) need to be able to follow new avenues and strategies without losing momentum or getting ruffled.

Can you work fast?
Timing is everything when you get a company going, and entrepreneurs understand that. They must turn work and solutions around as quickly as possible. They are also great time managers that produce more than the average person. Time is of essence, and being on time even more so. Nobody is waiting for your idea. You constantly have to entice, create awareness, and make noise. Nowadays with the Internet it’s easier - and faster - than in the old days with snail mailings, press releases and advertisements. You must be capable to improvise, respond immediately. Long meetings and extensive planning are out of the question.

Are you willing to work long hours?
With a lean team and short deadlines, you’ll work long hours and weekends to get a company off the ground. Forget about vacations. Then there are the bouts of manic perfectionism that will leave you unable to turn your brain off to sleep. If all this is not possible for you, then don’t even think about starting a startup.

Are you drama-free?
Office politics, grapevine gossip and personal drama are toxic in a new company, well, actually in any company. Can you leave your ego at the door and focus on what’s important rather than getting sidetracked with what’s not?

Can you stretch your finances?
In the beginning you have to work with a tight budget, with your own money, from your savings, selling your car, getting a second mortgage, bank overdrafts, credit card loans, and friendly money from family, friends and fools. So you need to find ways to get things done on the cheap. Getting the most bang for your buck is a hallmark of startup success. Most importantly: do NOT get money from unfamiliar small investors, because you will run the risk losing most of your company if you give away equity for a small amount now in order to get you to the next month. Stretch it till you almost burst.

Can you get ready?
Most of your first money has to be spent on getting ready. This may shock you if you are a first-time entrepreneur, but getting ready does NOT mean getting your product ready, yet. BEFORE going from idea and sketches to a product (prototype) you need to know if there is a real need for your product. People buy benefits, not stories or features. You must figure out if you are going to sell a must-have, not a nice-to-have. Unless you want to flood the market with cheap the-same-of-the-same by undercutting prices Made-in-China style, and wiping out competition, which doesn’t require true entrepreneurship.

You have to ascertain many aspects:
  • Are you allowed to produce it, or does it infringe existing patents?
  • Are there regulatory restrictions or stringent demands?
  • Are you solving a need, want or pain. If so, what, and what is your solution?
  • Do you know who and where your buyers and users are? Can you create personas?
  • Do you know what it takes in terms of people, time and money to launch, market and sell your product?
  • Can you produce it at a cost so you can make a profit, eventually?
  • Do you know how and where to produce it?
  • Can you sustain production, and scale up easily if your sales go through the roof?
  • Can you get a team of excellent, dedicated FTEs together once you are up and running?

This whole “getting ready” segment is called Upstream Marketing. A topic on its own, too much to squeeze into this blog.

Can you let go of your pride and get outside help?
So ask yourself if you and your business partners have the capabilities, expertise and experience to get ready. Be frank and open to yourself. If not, find outside help, but be prepared that this will cost you. As Oscar Wilde said: “Experience is one thing you cannot get for nothing”. Professional help costs money. The myth that professionals work on a success fee (that strange phenomenon from the ambulance chasing attorneys world) or for (yet worthless) equity is a true fable. YOU are the one that is responsible for YOUR success, not the people you may engage to get you ready.

Getting ready means determining the strengths and weaknesses of your product and company, as well of your competition. You must be familiar with the market opportunities and threats. You must have your sales objectives and marketing strategies ready. You must know how much everything will cost: production, R&D, purchasing & inventories, marketing, legal, regulatory, accounting, FTEs, distribution, logistics, and so much more. How and when will you make a profit? Some investors demand a full-fledged business plan, others prefer answers to their questions – which oftentimes one would find in a business plan. It may sound old-fashioned and stuffy, and sure, many investors don’t even read it. In essence a business plan is for yourself, your business bible, your road map, continuously updated as time goes by and your company progresses.

No matter what, you need to convince an investor to give you money for you to achieve your dreams. You need a professional presentation to attract attention, entice and convince those investors to spend a few minutes listening to you. Then you must be able to submit yourself to an avalanche of questions, comments and criticism. If you cannot get ready, you might as well give up and continue doing what you did before you came to this bright idea setting up your own company. Nobody will spend time and efforts, let alone money, on something unclear, incomplete, unproven and not validated. 

Can you negotiate a big investment?
Imagine you passed the tests, questioning, interrogations, and physical torture. Do you have it in you to negotiate with the big boys and girls from the financial world? Be scared, because they are vultures and can be scrupulous. They may smile, and the cookies may be appetizing, but the road towards money will be rough and full of obstacles. The checklist what to and how to is long and elaborate. But falling back on character, you should not succumb to pressure. One aspect where you can show your strength is to discuss your terms, fervently and convincingly.

Keeping as much equity as possible in your own startup should be your ultimate goal, but another issue is your and your team’s salaries. Sure, don’t expect to have top salaries from the day you are funded, but on the other hand you must negotiate a worthy salary, and offer deferred payment of 40-50% of that until the company gets traction, meaning revenues. Without you and your team there is no product, no innovation, to make your startup a success. Just as experience costs money, so do the people that are experienced in the product and technology. Another important aspect is that investors want to see you believe in yourself, in your own worth. They don’t expect to fund a startup, pay all its bills, and not pay market value for the people that have to make it happen: YOU and your business partners. The way you negotiate your salary is a clear sign for investors how tough you will be when marketing your product. Are you up to this?

Will you fall for the equity trap?
Do not accept the story that, since you have equity in your startup (of course you do: you started with 100%), you should not get paid a salary based on your expertise and experience. The chances that you will become multimillionaire from a huge exit are very remote. According to a 2012 McKinsey report, 0.2% of startup founders in the USA made more than one million from an exit. Sure, you as founder should be able to keep equity in your own company, as much as you can. It’s your right. But equity does not pay your bills. Be clear: if an investor claims that without their money you have no chance for success, counter by saying that without a motivated and not-impoverished you, there will be no chance for the company to become successful. If investors are prepared to pay all bills, they should be aware that this regards your bill, i.e. your salary, as well.

In spite of the pace, do you also have the patience?
There will be awesome highs and soul crushing lows. It will be an emotional roller coaster. As Lao-Tzu said: “Do you have the patience to wait until the mud settles, and the water is clear? Can you remain unmoving until the right action arises by itself?”

Bottom line
Setting up or working for a startup is not for everyone. But if you think it’s right for you, if you can respond positively to the above, it could be one of the most rewarding experiences in your life. Creating and building your own company can be very satisfying. And, if you get really lucky, the equity you have managed to keep might even pay off and give you a gratifying reward for all your input.

Choose your business partners wisely. Choose your employees wisely. Choose your advisors wisely. Choose your investors wisely. You are going to be in the trenches with these souls for the next 3 or more years. You will see them more than your family and friends, and you want to be pretty sure that you aren’t surrounded by idiots and greedy bastards.

Trust me: been there, done that.

Robert Barzelay


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