Beckway Insights: What You Need To Grow A Successful Start-Up Business
Written By: Jacob Watson
Active contributors to incubators, accelerators, and angel investor groups will tell you that the five most important things you need when growing a successful start-up are an idea, a leader, a plan, time, and cash. Simple enough, right? Well, not so fast, as these five elements are quite complex and must come together at the right balance, only flexing when future requirements change. The idea must be strong enough to stand on its own; it does not have to be innovative or serve to radically change the world. It should offer a solution to a real-life problem; a solution people are willing to pay for. Leaders must be present, working daily in the business to push their agenda forward to both solve the known problem and commercialize (or exploit) these efforts. They must be honest with themselves and others, clearly articulating the why each day as well as sharing and celebrating the wins. They should be the bedrock to the business, systematic and in-control, willing to rise to the occasion, accept failure and drive through the challenges. They should not let the inexorable [daily] defeat claim their spirit to win. To win, they must have a plan because without one, they will not know how to apply their limited resources. These resources require cash, and it can come from traditional funding sources; however, founders may have to draw from their own coffers to sustain the business, especially in the early days. Often overlooked, leaders must give themselves time to conceive their vision and, equally, respect the time it takes to put action behind this vision. Leaders, no matter how great, cannot build a foundationally sound business overnight.
It all starts with an idea. Where do good ideas come from? This is a difficult question to answer and befuddles many inquisitive social psychologists. According to Steven Johnson, journalist, TED contributor, and author of Where Good Ideas Come From | The Natural History of Innovation, good ideas do not – for the most part – come from inside a person’s head. Instead, they come from external sources, specifically from human interactions and experiences. A study conducted by the Journal of Nature found that scientists rarely, if ever, had a flash of inspiration or Eureka moment alone in the lab. Instead, their ideas happened in conversations with colleagues, friends, and family members. Good ideas are cultivated by informal dialogues in environments where mistakes are tolerated, regularly expected, and critical thinking is encouraged. So, if you want a great idea and are willing to speak to a random stranger, then go to a coffee shop and talk with someone. Or, if you have the time, explore your ideas with subject matter experts (SME) to gain their insights, often they will give you their advice for free. For example, if you are interested in learning more about how to start a plumbing business, call a series of plumbers in your community and ask for their advice about starting a business. You can also employ the sage wisdom of my own father, go out and tell these SMEs (Subject Matter Experts) that you are willing to work for free to learn the craft, also known as apprenticeship. Often, you will find employment along the way and learn whether or not you want to start a business in that particular space.
To take a line from Sequoia Capital’s Ethos for Sequoia, 1972 and Beyond, entrepreneurial leaders are “The creative spirits. The underdogs. The resolute. The determined. The outsiders. The defiant. The independent thinkers. The fighters and the true believers.” They are courageous problem solvers with a deep desire to win. It should be noted that this “winner mentality” drives them to excel, but it does not mean they do not have self-doubt. Though there may be outward and inward struggles, they overcome these fears and move to action. They inspire others to do the same and ultimately push them to act on their behalf. The role can be a lonely one, especially in the early days of the start-up lifecycle. Leaders find healthy and honest outlets for fellowship and mentorship, and work to find community throughout the journey. This community tends to be made up of entrepreneurs as they can typically support one another and know how to overcome the challenges of building a new venture. For more information about entrepreneurial support groups, check out the Entrepreneurs’ Organization (EO) or the Kauffman Foundation. Whether from their own personal network or a community of entrepreneurs, leaders ask for advice and listen with purpose, filtering through what is needed to move the needle. Though they will receive plenty of advice and keep an open mind, they will find solace in their own convictions. These convictions are refined in their plan. Whether writing a simple business plan or a 5-year roadmap, leaders take the time to outline their plan on paper, and often go back to this plan to gut check their progress.
In a speech given November of 1957 on the mismanaged intel used in U.S. military training operations during World War I, a reminiscing Dwight D. Eisenhower said, “Plans are worthless, but planning is everything.” Although he was speaking about how an unexpected event will certainly throw plans out the door, it illustrates the significance of the process. The greatest of initiatives requires a detailed roadmap. One of the best outlines for a start-up is an actual business plan. It will help you steer your business as you start and grow. Out the gate, it is a helpful primer for what is to come, including the milestones you need to reach to make the business sustainable. Although there is no wrong way to write a business plan, the Small Business Administration (SBA) offers a free tool that gives you the complete framework from market analysis to financial projections. While the process of writing a business plan can be time consuming, it is well-invested time because without the plan you will put up more effort trying to “build (and rebuild) as you go” which could be compared to constructing a house without an architectural blueprint [best to have it]. An essential component of the business plan is the leader’s vision for the business; if there is ever a victory in the early days of the start-up it’s having defined the vision statement. This is an essential light in the darkness, your why, and the time spent refining the vision is critical. Do not rush this process. There is a 2-day visioning course offered by ZingTrain in Ann Arbor, MI; it is worth every penny, check out Zingerman’s ZingTrain website (www.zingtrain.com) to learn more. Entrepreneurial leaders must give themselves this time. Building an enterprise is a journey. Remember fruit does not grow on the vine overnight, it takes time and nurturing to flourish.
In Advice to a Young Tradesman, Benjamin Franklin writes “Remember that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle one half of that day, though he spends but sixpence during his diversion or idleness, it ought not to be reckoned the only expense; he hath really spent or thrown away five shillings besides.” To gain more time and resour ces, it requires capital. This capital can come from many sources: friends, family, crowdfunding, retail banks, investment banks, SBA, angel investors, venture capital firms, etc. Raising capital can be quite challenging, especially if you do not have a solid business plan or have an appropriate valuation on the business; however, it is possible. Though it may seem this way out the gate, know that entrepreneurs all around the world do it every single day and it is an expected part of the experience. When raising capital, my advice is to have a sound business plan, path to breakeven, firm grasp of your valuation, capital requirements and deployment schedule, and a realistic expectation of the actual amount of cash needed to sustain both you and the business for an extended period. Harvard Business Review, Pitchbook, SBA and others have many articles on ways to raise capital, please visit their sites and pour over the recommendations. No matter the approach, you will have to “pitch” your idea to someone. That means you will have to share it with people in-person or virtually. You will need to develop your investor pitch, and depending on the circumstances, a 2-minute elevator speech as well. Practice, practice, and practice some more with friends and colleagues [and in front of a mirror] to make sure it is succinct, clear, and persuasive enough for would-be investors to rally behind.
Whether it is an entrepreneurial or intrapreneurial venture, all successful start-ups require an idea, a leader, a plan, time, and cash. Ideas typically start with a problem which requires a person or set of people to champion the exploration process for solving this problem. To make sure it can be resolved in an efficient, repeatable fashion at a cost and margin attractive to its various stakeholders, an early-stage business must have a plan. While there is no perfect plan, there are many resources available to would-be entrepreneurs on how to build one. Try starting with a standard business plan as it will push you to think more critically about the business and your approach. Upon launching the business, utilize external sources, intuition, and conviction to drive results but lean on the plan to help gauge your progress. Cash will become one of the most essential elements for sustainment. Give your cash balance and the daily, weekly, and monthly debits and credits the necessary attention. Frequently start-ups fail because they simply do not manage their cash very well and run out of it too soon. I recommend you raise enough capital to sustain the business for a full year. If you need to raise capital while running the company, sobeit, but try to get through the first year without having to divide your attention. Building a new venture has its challenges and risks, but with a promising idea, committed leaders, ironclad business plan, and enough runway (time & cash), it can also be one of the most personally rewarding, and sometimes financially rewarding adventures you will ever go on.