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How to Build a Startup - Part 2

11/26/2013

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Obviously, the first thing you need in starting a business is the idea for the business: what product or service are you going to provide?

Most of us choose something we're already familiar with, probably something we've done in the past or are doing now.  This should help minimize the risk of failure in your new business. 

However, there are a few who decide to go for a complete change.  A good friend of mine was a successful lawyer who dropped all the stress, pressure and incessant compromises of law to purchase a UPS Store franchise.  He did quite well with his first, and now owns several. 

Keep in mind that having expertise in an area is no guarantee of success.  Another friend purchased a break-even retail business.  She is an expert in the field and very well respected.  She has superb marketing and communication skills and a solid track record.  Unfortunately, although her products and her services were well-received, there just weren't enough buyers in Santa Cruz to sustain sales of her higher-end products and she's been forced to close.  She made the mistake of not fully assessing her market.

So what do these non-tech businesses have to do with your high-tech startup?  

The bottom line is that for any business to succeed, high tech, low tech, product, or service, you need to have a market which is sufficient to sustain and hopefully grow your business.  

That may seem obvious, but too many people fail to make a realistic assessment of their markets and of how they're going to get penetration into those markets.  You need to completely understand the size of the demand for your product or service in your target market. 

For my first startup, I got lucky.  I had worked for IBM, then a startup, then a consulting firm.  For both the startup and the consulting firm, we used client-funded software development to build our products.  Having lined up most of these clients and brought in enough revenue of this type to grow these previous two businesses, I was confident that I could do the same thing with my fledgling service business. 

Without producing a formal market analysis, I started the business and was profitable from day one - a contact introduced me to a large Japanese company who paid me to consult and ultimately funded software development.  Starting out, I was 100% certain that my service offerings would immediately generate revenue.  From that point, I put together a business plan. 

Again, it may seem obvious, but you need a business plan.  My first was wildly optimistic on the sales side and surprisingly, I was lucky enough to achieve my goals.  I'll get into this more in upcoming posts on bootstrapping and raising funding, but for now, let me just say that 'wildly optimistic' forecasts are normally the first steps on the road to failure.

For each idea you have for your business' service or product offering, you must assess the market.  This can be difficult for a new type of product or service, but if you understand your market and its associated demographics, and can come up with an approach for how you're going to enter this market, you should be able to generate some useful numbers.  At the very least, this is a sanity check.  Once you think you've got something viable, have someone else, who isn't going to be associated with your business, play devil's advocate and try to tear it apart.  

If your idea survives that, it's time to move onto your business plan.  A business plan is critical because:
  1. It helps you organize your thoughts about what you're offering.
  2. It serves as a roadmap for moving forward.
  3. It should be a checkpoint to keep you from ruining yourself financially when things don't go well - if you're missing your projections, you need to reassess them and your entire plan. 
  4. You won't raise investment funding without one.
Of these, (3) is probably the most critical.  Most successful entrepreneurs fail twice before succeeding.  I've seen too many people pour more and more money into their businesses thinking they'll turn the corner if they can keep going a bit longer.  They lost their savings, their homes, and in some very sad cases, their families. 

To ultimately be successful, you must know when to throw in the towel.  To continue with the fighting analogy, throw in the towel and be healthy enough to fight another day.  If you don't, you may kill yourself financially and never be able to recover.  

To get a business plan started, you can spend money for consultants and/or pay for books or online resources.  However, I've found that the Small Business Administration has a fantastic set of guidelines, and tools for startups - all kinds of startups including high tech.  This resource didn't exist when I started out and wasn't very good even 5 years ago, but I think they're now the best source on the web, paid or not.  Check them out here.

My next posts will get more into the subtleties of actually getting started.  We'll start looking at Funding options.  Boostrapping will be first.  


How to Build a Startup - Part 1
How to Build a Startup - Part 3
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How to Build a Startup Company - Part 1

11/18/2013

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So, you want to start a business. 

Why? 

That 'why' may sound a bit facetious on my part but realistically, it's an important question and a good place to start.  It's important to understand your own motivations.  As you dig deeper into what's required to get your business going, you will have to make choices.  If you know exactly what you want or need to get out of the business, hard decisions will be much easier to make. 

Why do you want to start a business? 
  • Do you want to be your own boss and quit working for others?
  • Do you want creative control over your own ideas?
  • Do you want the satisfaction of building something larger than yourself?
  • Do you just want a decent income that can support you, your employees and your family?
  • Do you want to get rich?
  • Do you want to spend more time away from your family?

Okay, that last one may not be a good reason to start a business, but rest assured, it will certainly be a consequence of going into business yourself.  Almost every entrepreneur I've known, whether starting a construction business, a retail business,  a high tech business - any business, has put a strain on their family and their relationships.  Many ended up dealing with multiple divorces.  Between the time spent away from home - evenings, weekends, holidays - the stress that never seems to leave you even after work, and the inevitable financial crises, you likely will become very difficult to live with. 

There are lots of statistics about the number of businesses that fail. In future posts we will discuss ways to improve your odds.  But, I haven't seen too many statistics about the impact of startup businesses on entrepreneurs' families.  If my own experience is an indication, those numbers are probably pretty bleak. 

It seems to work best if you start a business during either of these two periods of your life:
  1. Before you have a family (kids) or much to lose financially.
  2. Once the kids have left home (ideally after college is paid for) and you have reasonable financial security: enough to risk part of your savings without completely jeopardizing your eventual retirement. 
If you're single without many financial responsibilities, you really don't have much to lose.  You may not have experience, but with a good idea and strong motivation, you can bet it all.  Win big or start over. 

If you're married without kids, don't have too many financial obligations, and your spouse is supportive, you can often put in the time and money needed to get started.  If your business fails, you can start over without having lost too much. 

That long in-between period with spouse, kids, and financial struggles is generally not the optimal time to put it all at risk with your new venture.  That's not to say it can't be done,  but if you have kids, you'll not only lose time with them and your spouse, but your spouse will often resent you for not holding up your responsibilities at home.  Think carefully if you're in that period.  Divorce is painful.  Divorce with kids can be a disaster.

Finally, perhaps one of the most fun times to start a business is when you've reached middle age and have survived that in-between period.   You have experience, contacts, an idea of how business works, and an understanding of the financial risks you're willing to take. Wisdom and experience can lead you to success.

In Part 2, we'll begin to take a look at goals, the need for business planning, and considerations in looking at options for funding your business. 


How to Build a Startup - Intro
How to Build a Startup - Part 2
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How to Build a Startup Company

11/14/2013

2 Comments

 
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Tony Deblauwe's interview at WorkBabble.com got me thinking.  He asked about my motivations to write, about my thoughts on the Silicon Valley and about starting and running new companies. 

In particular, I realized that the following questions would be good jumping off points for my thoughts on how to form a startup.
  1. Given your passion for technology and recreation, how have these two passions influenced your view of how to run a business?
  2. What are the new challenges for getting start-ups off the ground today versus when you started your first business?
  3. What guidance would you give new Founders regarding scaling their business?
  4. Describe the ideal team culture.

Over the coming weeks, I'm going to describe my experiences with not only my three startups, but with the startups my friends created.  As you might expect, while several of my friends took their companies public.  More failed.  Most started again and saw some degree of success.  However, several ended up bankrupt.  I'm hoping that by going through these experiences, those of you considering a startup or who are already part of one can avoid the mistakes my friends and I made.  Note that even without mistakes, pitfalls await.  You will encounter unscrupulous people, greedy investors, employees who will put you and your company at risk,  and competitors who will resort to whatever is necessary to ensure you fail. 

Balancing all of that is a challenge.  We'll get started in my next post.

How to Build a Startup Company - Part 1
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    Steve Jackowski

    Writer, extreme sports enthusiast, serial entrepreneur, technologist.

     
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