The cost of launching a startup has dropped dramatically in the past decade. One does no longer need the permission of west coast VCs to innovate, and technology improvements like cloud infrastructure and open source reduce the barriers to entry for new entrepreneurs and make it easier to reach a global audience from day one. In many cases, entrepreneurs outsource the development to third parties, making it possible to launch a web or mobile app without a technical background. Arguably, there’s never been a better time to launch a company!
It all sounds very easy, but we all know what are the chances of survival for a typical startup… 10% would be a very generous estimate. To succeed, startups need to achieve “Product-Market Fit“, which in simple terms, means “getting people to use/pay for your product and be strongly disappointed if it were to disappear”.
So, if you are thinking of launching a startup now, or are trying to take an idea to prototype in a short period of time, follow the recommendations below to maximize my chances of success. I’ve included some ‘homework’ reading recommendations as well.
1) Spend time understanding the problem – I’ve seen many entrepreneurs who start by ‘looking for a problem’. As Paul Graham says on “How to get startup ideas“: “by far the most common mistake startups make is to solve problems no one has”. So I’d spend a fair amount of time working on customer development – understanding the problem inside out by talking with users, understanding their pain and how they currently solve it. My friend Rob Fitzpatrick just wrote a book about this called the Mom Test – he says “You shouldn’t ask *anyone* whether your business is a good idea”. You’ll know if it’s a good idea or not by asking the right questions. Get as much feedback as possible, from as many people as you can. Find everything that’s negative with your idea and fix it. The bible on customer development is of course, The Four Steps to the Epiphany, but if you prefer the shorter version, read this instead: The Entrepreneur’s Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany
2) Find my “EarlyVangelists” – as Steve Blank puts it, Earlyvangelists are a special breed of customers who are willing to take a risk on your startup’s product or service because they see the potential to solve a critical and immediate problem they are experiencing. An “EarlyVangelist” is a combination of Early Adopter and Internal Evangelist. To qualify, the Earlyvangelists need to have willingness to pay or tap into budget to use your service. They are buying the vision of your product, not just your first release, and their passionate usage of your product will provide golden feedback. They are almost part of your team! More about how to find and keep these customers is available on The Lean Startup: How Constant Innovation Creates Radically Successful Businesses
3) Learn the psychology behind user behavior – with most new products, we are asking the user to change their habit in order to purchase, try, download, sign up etc to a new product. We then want them to share our product with their friends, rate it and give us feedback. For each of these actions, our users go through a subconscious decision making process. If you don’t take that into consideration, how can you optimize your product. There are many great books on the topic, so I thought I’d flag a few I’ve read or came highly recommended:
- The Power of Habit: Why We Do What We Do, and How to Change – How to instill new habits in people
- Spent: Sex, Evolution and the Secrets of Consumerism – Why people buy
- Contagious – Why people share
- Webs of Influence: The Psychology of Online Persuasion – Why people click
- The Referral Engine: Teaching Your Business to Market Itself – How to let your customers do your marketing for you
4) Traffic (SEO, SEM and Social) – how to get it, how to keep it and how to grow it. Eric Schmidt said that “Revenue solves all problems ” in business. I agree, and it all starts from having users (in consumer businesses) and clients (in B2B ventures). There’s no substitute to building a great product if you’re looking for sustainable traffic, but at least in the beginning, you need to make users aware of your service and there’s a few good tools out there for that purpose.
- Landing pages – with tools like LaunchRock, Kickoff Labs, Launch Effect or Unbounce you should have a landing page that captures emails before you launch the product. Use the email list to let people know when the product has launched.
- Create great content – it’s not only the “voice” of your new startup, it’s also great for SEO. People share content they perceive will have value to others, so quality posts that entertain and delight your audience will pay dividends in traffic and in social engagement on Twitter, Facebook and G+.
- SEM – Adwords is a great way to drive traffic to your site and experiment with early users, especially when a transaction is involved (i.e. purchase, download, sign up etc). Google just released a MOOC on Adwords, a great free way to learn about the tools in online advertising. Sign up here: http://goo.gl/3aDYTV
Lean Analytics is a great primer on how to use data (traffic, engagement, retention, etc) to make decisions and build your product faster.
The presentation below from Andreas Klinger, is an excellent primer of startup metrics, A/B testing and how to make sense of it all:
5) Funding – most “wantapreneurs” think they are in business just because they bought a domain for $10 and paid for GoDaddy hosting. While it’s wise to bootstrap the earliest stages of the prototype, to build a scalable, sustainable product, you’ll need money and expertise, and money can buy you expertise (it’s called hiring). Accelerator programs offer early stage funding and mentorship, which could be extremely valuable for first-time entrepreneurs. Tools like AngelList, Gust and Funders Club have fundamentally democratized the access to capital and angel investment. In the UK, equity crowdfunding is regulated, enabling anyone (not just accredited investors like in the US) to invest as little as £10 and own equity in a startup in platforms like Seedrs, CrowdCube, CrwdBnk and others. For certain startups, platforms like Kickstarter or Viagogo can be hugely successful in attracting investment in the form of ‘pre-sales’, as the startups don’t give up equity for the funding (especially in fashion, gaming or hardware where physical products are changing hands).
I’ve detailed a lot of information sources for funding in my new year’s resolution post, here’s a recap:
- Learn how to raise money for your startup the most popular course on Udemy, gathering advice from 7 founder CEOs including Naval (founder of AngelList), Dave McLure (founder of 500 startups) and others
- Khan Academy offers a series of videos explaining startup fundraising. For example how to raise Series A funding from a VC
- THE text book on the topic of funding is Deal Terms: The Finer Points of Venture Capital Deal Structures, Valuations, Term Sheets, Stock Options and Getting Deals Done: The Finer Points of Deal … and Getting Deals Done
- Brad Feld wrote a much friendlier book for founders that gets into the nitty gritty terms you should know when dealing with investors. It’s called: Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
- Noam Wasserman completed the largest empirical work on understanding the problems entrepreneurs run into, mainly in the early stages. You’d be surprised how many have to do with funding, equity splits, terms etc. Read: The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (The Kauffman Foundation Series on Innovation and Entrepreneurship)
This is just a partial list, but it captures the gist: there’s a lot to learn before launching a startup. Dave McLure says he invests in startups that can demonstrate an ‘unfair advantage’, proving they have a way to tap into the market or execute the idea like no-one else. So whether you are a current entrepreneur or thinking about jumping into the water, focus on learning to swim and getting that extra edge before you are fully submerged.