STEVE JACKOWSKI

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How to Build a Startup - Part 2

11/26/2013

2 Comments

 
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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
2 Comments
Colitco link
12/17/2020 09:31:45 am

Raising Business Capital is one of the important and toughest part of starting any business. The process involves both patience and grabbing the opportunity. Thank you for sharing content on this topic. I am sure young entrepreneurs will learn from it.

Reply
Steve
12/17/2020 10:29:29 am

Looks like your company is in a great place to help budding entrepreneurs. Keep up the good work!

Reply



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    Steve Jackowski

    Writer, extreme sports enthusiast, serial entrepreneur, technologist.

     
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