The Founder of Polar Ventures, a private investment and consulting firm and speaker at the Institute’s business start-up series on what startup founders need to keep in mind to expand their business.
It has never been easier, or harder, to succeed as a start-up. Technology has significantly reduced the cost of starting and marketing a product or service. But these low barriers to entry also create an abundance of start-ups in the market that has made competition, for both customers and investors, more challenging than ever. By considering the following factors, entrepreneurs may stand a better chance in taking their start-up to the next level.
It is the people that make a company, but it is also important to know how to attract and retain key talent. People join because of great vision but will leave due to poor leadership. Most people leave their jobs not because of money, but because of the work environment.
Not all people are created equal for the task at hand, so it is good practice to hire those who are better at the job than you are so you can more effectively scale your critical time. It may cost more for the right employee or partner, but your return in productivity will be returned many times over. Furthermore, facilitating alignment of interests will make sure your team works towards common goals for the business. This can be done through means such as equity incentives (e.g. stock incentive and purchase programmes), or bonus structures driven by measurable and appropriate or key performance indicators (KPIs) and even creating a collaborative or positive work environment.
But don’t expect it all work out the first time. Since start-ups hire and pivot at rapid rates, staffing changes should also occur quickly. Some hires won’t work out (often through no fault of either side) and in these instances, one also has to make fast decisions for the sake of both sides. On the flip side, retaining good talent is just as important. In these cases, consider that most people leave their jobs not because of money, but because of the work environment, and this is something a founder or manager can influence that is not dependent on money.
Leverage social media
Building an online presence should be part of every start-up’s business plan. Consumer behaviour and engagement is changing. In the world of selfies and engagement with one’s phone more than other people, effective digital marketing can be a much more cost effective way to convert potential clients into customers. Previously, companies had to spend a lot of money on newspaper advertisements and television commercials. But today, with social media marketing, businesses are able to efficiently keep customers well-informed about their products and services, boost presence, and generate sales at a low cost. Entrepreneurs should consider engaging someone experienced in social media marketing either as a member of staff or a collaborative partner.
Setting balanced set of targets
As the start-up grows, typically what worked before won’t work as well. Having a clear business plan, that can be adapted as time goes on, will provide direction and ensure stability for the road ahead. Goals or KPIs should not just be financial in nature, as these tend to be backward-looking, kind of like driving a car by watching the rearview mirror. Instead, you should focus on a portfolio of broader goals to expand your customer base through loyalty programmes, developing staff, and improving operational efficiencies in addition to financial goals. Assign a timeline for your aims, so you know exactly what you need to achieve after certain time periods such as a quarter, a year and so on. Your plan should highlight how much funding is needed, and how the money will be used to achieve those objectives. And of course, things never go according to plan, so while rolling with the punches, don’t forget to focus on the “80/20,” i.e., the 20 percent of things that will yield 80 percent of the benefits and keep herding those cats!
To summarize, there are two important themes around finding money: (1) people want to give you money when you don’t need it, and (2) everyone wants to be the first to be second to give you money (i.e., the first investor is the hardest). So be prepared that start-up money takes longer than you think to come in – and (unhelpfully) money going out happens faster than you think.
So when pitching to investors, be longterm greedy and find ways not to spend money – and there are creative ways to achieve this. Even large businesses are learning this. For example, asset light businesses (such as virtual manufacturers) are more efficient ways to manufacture products because it is easier to scale and you only pay when you need to use the resources versus needing to build your own factory first.
When dealing with investors, early stage “angel” investors tend to be driven by the vision and the founder (and can sometimes make fast emotional decisions). Later stage investors meanwhile value just as much the team and the execution capability (and often take more time to come to an investment decision). Regardless of the stage your start-up is at, treat all investors as a long-term relationship and not a short-term goal of getting their money. The time many investors take before committing is part of their analysis, as they observe how you behave during their due diligence period. A good experience for an earlier stage investor sets the stage for more successful future, so while preserving your founder’s share from over-dilution, try to share the love and make sure each round of investors make good returns all the way to initial public offering.
And once you get money, don’t forget that it is OPM (other people’s money). Remember that you have to use it carefully as if it were your own and achieve a successful outcome for all.
In conclusion, taking businesses beyond the start-up stage is always challenging. However, your odds of making it are significantly improved when looking after the needs of investors, customers and your team are well aligned and prepared for the ups and downs.
This article was originally published in the October 2018 issue of A Plus. You can read the digital edition here.