“How do I start a startup?” you ask.
The odds are stacked against you, and the critics are right about one thing: It is an incredibly difficult way to earn a living. But if you know the odds and still have the drive, there are few things you should know before you start.
Every startup success story got to where they are today through the same three stages:
- They started with an idea
- They launched a product or service
- They grew
Stage 1: Think and Build
A great idea isn’t a lightbulb over your head. It’s a seedling that will grow if you take care of it.
Think Using First Principles
Tesla and SpaceX founder Elon Musk credits his extraordinary success to “first principles thinking.” This problem-solving philosophy dates back to Ancient Greece and has helped emperors, business tycoons, and physicists solve history's most complex problems.
Musk explained first principles thinking in an interview in which he gave an example from the early days of Tesla: Back then everyone believed batteries were expensive. They always had been and always would be. Therefore, it would never be possible to build an affordable electric car.
Using first principles thinking, Musk attacked this problem. The result? The people at Tesla built a battery that reduced the cost of energy from $600 per kilowatt-hour to just $80. This was made possible by questioning the basics and asking, “What is a battery?”
Other companies have also found success with this method, including Mattermark, which sources “startup data for venture capital companies to quantify signals of growing and potentially lucrative start-ups.” BuzzFeed, founded on November 1, 2006, shed its reputation of not being “real news” by leveraging data to “become one of the most visited websites in the world and a billion dollar company.”
To start your own brainstorming, Jayme Hoffman, author of “First Principles and the Art of Thinking like Elon Musk”, cheekily advises that a common idea to apply first principles thinking to is: “All the good start-up ideas are taken.”
Try to Catch the Big Fish
Funders and Founders compares coming up with ideas to fishing. To catch the big ones, you have to go deep. There are two kinds of “hard to catch” ideas.
- The obvious and hard, such as curing cancer or eliminating pollution in the ocean.
- The non-obvious and hard, such as creating cheaper batteries or organising the internet (search engines).
Your startup can find success — and change the world — if you solve, or partially solve, a hard problem.
The alternative is to tackle the more obvious and easier ideas. As a founder, you want to avoid unpromising ten-a-penny ideas.
The more common ideas are harder to transform into a successful business, since the more obvious the idea, the harder it is for your solution to stand out. You don’t have to cure cancer or solve life-changing issues to have a successful startup, but you don’t want to sell yourself short in the thinking stage.
Iterate
Any idea needs editing, proofreading, and multiple drafts to reach its full potential. Once you think you have one good idea (or several), it’s time to improve and expand your thinking.
When you first start thinking about creating a startup, it’s fine to speculate about your big, outside-the-box ideas, but what makes iteration different from thinking is action. Now it’s time to turn those ideas into something you can sell.
Margaret Tung, co-founder of Vesper, recommends that would-be founders test their ideas by asking:
- How acute (or big) is the problem you want to solve?
- What are people doing to solve that problem today?
- Is their solution working well enough that the opportunity cost of switching to a new solution is too high?
That last question is important. It holds the key to making it in a competitive market.
At this point you want to get a variety of opinions and critiques. Run your ideas by trusted advisors, friends, and everyone whose opinion you value. This is a tactic used often by micro-businesses, which have 9 or fewer employees: See what the smartest people you know have to say, and ask some people with no knowledge of the industry.
For 43% of UK business owners, “advice from friends and family is the most valuable.” You also want to consult experts, which a quarter of UK entrepreneurs do to ensure your business concept is “financially sound and legally verified.” Then find your ideal customers, create personas, and figure out what they need.
One way to simplify your own understanding of your product is to come up with a tagline. Write a single sentence that explains what your product is, what it does, or what it promises the customer.
Assemble Your Team
As a founder, your job is to put together a team that’s more than the sum of its parts. Find people who share your passion for the project. In a talk to the Harvard Computer Society, programmer, writer, and investor Paul Graham advised entrepreneurs to find people who are “animals” at what they do.
“A salesperson who just won't take no for an answer; a hacker who will stay up rather than go to bed leaving code with a bug in it; a PR person who will cold-call New York Times reporters on their cell phones; a graphic designer who feels physical pain when something is two millimeters out of place. Almost everyone who worked for us was an animal at what they did.”
People like this will bring out the animal in you. They will get you through slumps in motivation and they will be the best people to celebrate with when success comes your way. Passion for the project should be the number one criteria for most of your hires.
Take Care of Business
Further your startup plans by officially registering your business. Gov.UK has resources that help you navigate legal issues, VAT, and registering your business.
It’s never too early to talk to lawyers and financial advisers. These are people you need to consult as your idea materialises. Noah built his ark before the flood; get to know a lawyer before you need their advice.
Make the Most of Scale
Startups and SMEs have one key advantage over larger organisations: The good ones know how to capitalise on scale. By keeping costs low, you give yourself more time, flexibility, and room to outmaneuver the competition. Cloud and CRM tools can multiply the effectiveness of your team and give you an edge over the bigger players.
Prototype and Test
Take your idea and build something. Once you’ve built it, test it. A smart test can demonstrate the value of your design in even a very small market. Testing saves you money in this stage and when launch time arrives.
Use feedback to make changes, and don’t stop asking iteration questions. You may already have people telling you the idea is sound, but actually testing a product will let people vote with their wallets. A strong early test is crucial for your funding and valuation.
Stage 2: Launch
Coming up with a great business idea is a rewarding exercise in and of itself. Part scientific, part artistic, part thrill seeking — there’s nothing quite like entrepreneurship. But you didn’t do all this work just for a little excitement. You want wealth, freedom, and to make a difference.
In fact, research shows that, in the UK, “self-reliance forms the core of many entrepreneurs’ desires to start a new venture.” Many do it because they want “empowerment and freedom” (37%), others because they need to provide an income (34%). For another 30%, it’s because they want to work for themselves. The least popular reason entrepreneurs start their own business in the UK, at 10%, is because of misfortune, such as losing a job or being unable to find employment.
Entrepreneurs in the UK largely build a company because they want to. However, to get there, it’s not enough to have a great idea. You need to officially launch.
Launch Before You’re Ready
So when should I launch? According to Funders & Founders, “By the time there is even an iota of usefulness in your product, launch it. Extra features, better interface, faster load time, and other optimizations probably won’t save it, if the core features have no use.”
Your product may still have glitches to sort out, but launching is not the end of the testing and development process. Smart founders know the real work comes after the initial launch.
Get Feedback, Improve Concept, and Repeat
When it comes to creative projects, like starting a startup, there is no one-size-fits-all formula for success. Get the best feedback you can and use it to improve your product. You need to do this quickly, since the clock is ticking. Tung explains, “Failure to respond to customers’ needs quickly, efficiently, or readily enough ends up sending a lot of companies to the grave. The timeline you usually work against is the amount of resources you have or have raised.”
Fail Forward
For those with the right attitude to be successful in the startup game, every failure presents a learning opportunity. It’s not how many times you fall down that matters, it’s how many times you get back up and what you learn in the process.
Launch Again
Airbnb founder Brian Chesky tweeted about the struggle facing entrepreneurs: “If you launch and no one notices, launch again. We launched 3 times.” This goes back to the power of small enterprises.
The bad news when you’re starting out is that few people are paying attention — but that’s also the good news. A conservative approach to funding in the early stages means you’ll have fewer people to answer to, and therefore greater flexibility, while you’re making adjustments.
Stage 3: Grow
Part of what defines a startup, and what sets them apart from other SMEs, is growth and potential for growth. According to research, over the next 2 to 3 years, 64% of UK businesses plan to grow their sales, with 38% intending to grow steadily or significantly. These figures are consistent with those from France, Germany, and the Netherlands.
A restaurant may have a lot in common with a startup, but restaurants can’t go viral. They’re limited by their number of tables and by geography. Spotify can deliver music to millions of users all over the world simultaneously; therefore, it plays by a very different set of rules than a vintage record store does. Understanding growth is as important as anything else a founder can learn.
Stay Open for Business, Stay Open to Changes
Google started as just a search engine. Facebook was once no more than a platform for networking and gossip. Now these two startups share 68% of the U.S.’s $200 billion-a-year digital marketing industry. That’s a lot of money that would have been left on the table if the leaders of these enterprises failed to keep open minds about what their products could do.
Tell Your Story
Not long ago, advertising came with immense costs in terms of money, time, and personnel. Even the heavies in a given industry could only afford to broadcast seconds of filmed content. Now, anyone with an email address and a mobile camera can reach millions for free on YouTube.
Facebook, Instagram, and a number of blogging platforms have transformed customer engagement, and previously inaccessible insights into customer behaviour are now at advertisers’ fingertips.
Customers expect your marketing and content to be good. People want to be educated; they watch bipartisan war journalism and TED talks on artificial intelligence for entertainment. It’s harder than ever to interrupt people, especially if you’re trying to sell them something.
Use Growth as a Compass
Facebook and Google got into advertising because that was the move that would allow them to continue their rapid growth. This rule applies at all levels, not just at the lofty heights of Google. Paul Graham urges all startups to use growth as a “compass.”
“We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is ‘just.’ If they decide to grow at 7% a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed.”
Using this methodology, a startup that consistently hits a target of 4% growth will have 25 million fans after four years. Graham believes that keeping the focus on growth simplifies decision making at all levels of your organisation.
Understand Exponential Growth
If you take 30 linear steps, assuming each step is one metre, you walk 30 metres. Now take 30 exponential steps, and you’ll travel one billion metres. This is the concept of exponential thinking.
The digital world is an exponential world. Moore’s Law states that the processing power per square inch of computer circuitry will double every year. The implications of that in terms of what we can do with technology are exponentially vast.
Startups have the power to grow exponentially, which is why Graham emphasises growth as the key metric for success. A company that grows 1% weekly will grow by a factor of 1.7 annually, and if you get to 10% weekly, your company grows by a factor of 142 every year.
These rates can be drastically affected by minor changes in performance, and things move fast in the startup world. Tung isn’t exaggerating when she says slowness will put your company in a difficult position. Keep up by outfitting your businesses with technology that promotes growth, such as a customer relationship management (CRM) system. In the UK, just a quarter of small businesses are aware of this software, and only 1 in 33 businesses use it. However, 2 in 3 users claim it is key to their business growth.
Begin with the End in Mind
Like forming a rock band or writing a great novel, starting a startup can seem like a bad idea — until it isn’t. For founders with great ideas and execution, the path may be an easy one. Fortunately the skills, process, and even the attitude required to turn your ideas into a business can all be learned. Online tools and resources have never been more abundant. Learn as much as you can as you ideate, launch, and refine your startup. Your idea may bring you great success. It may also change the world.
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