Most of what you do to make your company successful happens at the very beginning, when you aren’t thinking about it. You’re thinking about your product or idea; neither one of those is truly relevant. Very successful companies have been made with mundane ideas like coupons (Groupon) or common products (search) that don’t seem to be groundbreaking at the time. And yet these products and ideas capture the market. Why? Because they took the right initial steps.
1) Know your customers. It wasn’t hard for Groupon or Google to know their customers. The country was in a recession, people had no money, and businesses had no customers. Sending customers to businesses was a natural, and the customers were ready to save money. In better times, Groupon may well have been less successful, but it was the right idea for the customers at the time.
2) Get the legalities right at the start. The last thing startups want to do is hire an attorney. Yet without the right documents, your company can be a mess. Mark Zuckerberg has paid out millions to former co-founders and erstwhile partners who challenged his legal status as founder of Facebook. Facebook isn’t the first company to have divergent interests among the founders and it won’t be the last. Whatever you invest in forming a corporate entity and spelling out who owns what in the beginning will be very worth it in the end.
3) Get to market fast. You really don’t know if there’s a market willing to pay for your product until you get it out there. This is the famous “lean startup” philosophy of Eric Ries. Once you get to market, you will probably have to pivot. But you can’t know that until the market tells it to you, and the market can’t speak if you aren’t in on the conversation.
4) Put a fair price on your product. Not every company is Twitter, smack in the middle of San Francisco with VCs climbing all over themselves to invest money and no need to monetize for years. The average great company has to begin selling right away. When you begin to sell, you should price your product at what the market will bear, and not below to get customers. The race to the bottom can be very fast, and you don’t want to win it.
5) Know your numbers. You have two co-founders? Each needs $3000/month to live? You need to travel a bit, take a few people to lunch, speak at a conference? How many widgets do you need to sell to make that kind of money every month? Aim there: that’s break even. Then dream big. If you have a day job that takes care of your overhead, keep it for a while until you find a product/market fit.
6) Incur no overhead before its time. Don’t be misled into thinking that you have to hire people. The new models of company growth involve collaboration, partnership, and independence. Employees cost at least a third more than their salaries in taxes and benefits. Don’t be so anxious to have more employees than the company next door. More heads don’t necessary product more revenue. And don’t sign an office lease one minute before you have to. Avoid fixed expenses.
7) Know your vision, mission and strategy. Where do you want to go, and how are you planning to get there. As the founder, you will have to communicate these to the rest of the company. Real talent doesn’t join your company for money; it joins for the chance to be part of something meaningful. Your corporate culture either attracts or repels people.
8)Don’t waste time chasing money. It’s rare that ideas attract money. An except is when the founder has a track record of success. Those are the stories you hear about in Silicon Valley, where the founder suddenly raises $41 million out of the blue. Don’t bother trying to replicate that, or beating yourself up over not being able to do it.
9) Understand cash flow. Small companies are always thrilled when they land a big customer. They don’t realize that big companies have complex cash management companies, which often include taking 60 days to pay. They finance themselves on the backs of their smaller vendors and suppliers. Don’t fall into the trap of financing your big customers. Collect money up front when you can, or at the point of sale.
10) Don’t underestimate entrepreneurship’s toll on marriage, family, and friends. I lost a marriage when I started my first business, because my spouse thought I had fallen in love with someone else. That “other” was the business. Expect problems in the non-business arena, and try to warn those around you. This may not work, but it’s better than nothing.