5 Things Every Startup Should Have
Every week, we meet many up-and-coming companies here at Playground. A large portion of these teams seek our advice on a variety of topics that range from how to build a product, raise funds, and develop future strategies. The majority of these companies are in an early prototype or a pre-product stage. While some have seed funding, others get by through bootstrapping. But at the end of the day, they all share a few commonalities. Most lack a critical know-how of the basic pillars associated with starting a new venture. Not every start-up requires the same advice, but there are definitely some similar threads that apply to almost every company attempting to build a new digital product. Outlined below are five essential points, that I have tried and tested with numerous emerging companies.
1. Have the right partners for the job
It’s definitely not a new idea, but perhaps, a start-up company’s biggest asset are its people. It’s important for an entrepreneur to have a partner. This not only comes in handy for business and technical reasons, it is also helpful in maintaining one’s sanity. It’s also pivotal to know that you and your partner are ‘right for the job.’ A recurring mistake that we at Playground have noticed is when companies try to make a technical product without the presence of a technical co-founder. The explanation for this recurring mistake a the belief held by many young entrepreneurs. They have little technical skills, but believe that a freelance developer or an offshore development company will build their product. This leads nowhere, and quiet simply, it won’t work. On the flip side, if your business is sales-focused, as the owner, you should have sales skills. Having the right skills and domain knowledge are not only critical to your ability to execute your vision, but they are possibly the most important factors in raising capital. It’s not enough to just have the right skills. It’s a type of a ‘do-or-die’ situation when you undertake such enormous responsibilities. This is precisely why the owner and partners need to work full-time for a product, because very few companies have succeeded with ‘part-time’ co-founders. Having a dedicated attitude helps one understand the difficulties of embarking on a start-up. I’ve been in partnerships that have excelled tremendously, and others, that failed miserably because of a personality clash. Rule of thumb is, if you can’t picture yourself living in the same space as your partner, then it’s probably not a good idea to start a business with him/her either.
2. Have enough runway
Most entrepreneurs falsely believe that their business can be revenue-positive in under a year. Some even go as far as believing it will take off in less than six months. It’s an implausible mentality that many entrepreneurs have when many don’t have a a monetization plan. Building a new product takes time. Getting people to use that product takes longer. More importantly, getting people to pay for that product might never even occur. Generally speaking, building a new product can take at least three months to get it to the prototype stage. Then it will take another three months to get it market-ready and then another six months to polish it. From this point, you and your team will most likely have a few months to gain traction and raise capital in order to move forward. It’s crucial to be financially and entrepreneurially savvy as a start-up. Understanding your burn rate, having enough capital to stay operational for at least 14-16 months are important, because they help you in staying lean.
3. Know your product/market fit
Many new products aren’t made to solve world issues. But what’s worse is when these products create new problems. Y Combinator co-founder, Paul Graham brilliantly says it best, “make things people want” — advice every entrepreneur should heed. The idea of a product/market fit means a particular product’s value to the larger market. And once this product is built, its users/customers would feel a void if it was taken away. Before even building a product, hiring your team or raising funds, it’s always good practice to validate your idea. In order to execute this, an entrepreneur needs to reach out to the product’s target users and try to learn more about enhancing the product. A working prototype or detailed mock-up isn’t necessarily required to do preliminary research. Often, the simplest thing you can do is highlight compelling attributes of your products to these users in order to get feedback. After the research is completed, there is a chance that your original concept requires considerable revision, or, in some cases, even a complete overhaul of your vision.
4. Minimum viable product
Nearly every start-up that comes through Playground’s doors, knows where it wants to be in the next five years. However, they have no idea of what to focus on in the present. Disorganization, lack of priority (that leads to burnout for many team-members), and missed opportunities are some of the leading causes or start-up failures. Understanding your company’s priorities is crucial to getting any task completed. Once you know your product/market fit, it’s important to comprehend your minimum viable product. Rather than build every feature imaginable, build as little as possible. Understand the priorities and aggressively reduce the scope of your product. Once your product is in the market, you can roll out additional features and test new concepts more effectively — all with an understanding of what your customer really wants.
5. Understand your metrics
You have to know about which numbers drive your business and how to track them in an aggressive and organized fashion. A good example of understanding metrics is Dave McClure’s AARRR system of metrics. It dictates five numbers that you should focus on: Acquisition is the cost of acquiring a new lead. Activation is the number of times you can make customers do something. Retention is the number of users who come back. Referral is how those users spread the word. Revenue is the amount made from each user. Focusing on these numbers allows you to understand the costs of acquiring a new user, versus the amount of money made per user. These numbers allow you to create a feedback loop between your product’s features and profitability.
This list is certainly not meant to be exhaustive of all things related to start-up companies. But, I think, it’s an accurate reflection of the major points to keep in mind when starting a new company. There is a lot more to comment about these issues, but I’ll explore that in another entry.
