Many people and friends keep asking me how to start a startup. So this is an excellent opportunity for me to briefly explain you the different steps and processes.
Writing the perfect business plan won’t get your startup off the ground if you can’t take the action to make it happen.
You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.
First of all you come up with an idea that you probably shared with your close friends and family. You’ve got the idea and you’ve got a plan. But you can’t start a business without a little cold hard cash. If you have it, you can always invest your own funds, but if you’re like most, you’ll need a little help.
Having dedicated and passionate people on your team are the keys to success. For example my co-founder Ruben and I work 7 days a week like what you can call “crazy people”. We always have something to do or improve.
The perfect team should include a salesperson able to sell anything to anyone, a genius developer who will stay up till 4:00 AM rather than go to bed leaving code with a bug in it, a PR person ready to call New York Times reporters on their cell phones; a talented graphic designer capable of visually reproduce your ideas.
Ideally you want between two and four founders. It would be hard to start with just one. One person would find the moral weight of starting a company hard to bear. In a technology startup, which most startups are, the founders should include technical people.
Make a prototype (Minimum viable product (MVP))
Build fast and learn fast! It clearly means that you don’t have to wait for the perfect product to launch it (this is a big mistake) from most entrepreneurs. A minimum viable product has just those core features that allow the product to be deployed, and no more. The product is typically deployed to a subset of possible customers, such as early adopters that are thought to be more forgiving, more likely to give feedback, and able to grasp a product vision from an early prototype or marketing information. It’s with your first customers feedback that you will be able to improve your product.
The purposes is to be able to test a product hypothesis with minimal resources, accelerate learning, reduce wasted engineering hours and get the product to early customers as soon as possible.
To make all this happen, you’re going to need money. Some startups have been self-funding but most aren’t. The first thing you’ll need is a few tens of thousands of dollars to pay your expenses while you develop a prototype. This is called seed capital. Usually you get seed money from individual rich people called “angels.
Here are the two different ways of getting seed round capital:
1.) Accelerators/Incubators (20k-50k$ + a lot of benefits)
You can apply online through angelist to incubators or accelerators like Techstars, 500 startups, Y combinator or Founderfuel. An incubator is a program that provides (20-50k$) in seed funding, intensive mentorship and an amazing network of mentors and alumni for 7-10% equity in your company. It’s like a red-bull for startups! in 12 weeks you will learn what should normally take you 1-2 years of business. Big companies such as Dropbox, Reddit or Disqus started with an incubator.
Benefits of the program:
- The network you build
- Access to exclusive perks from hundreds of companies.
- Help you a lot with presentations skills
- Demo Day at the end of the program (You will pitch to an audience of more than 800, including investors, partners and community members.)
- Link you to strategic partners
- Give you access to bank loans, loan funds and guarantee programs
- Give you access to angel investors or venture capital
2.) Angels Investors (200k-1M$)
Some angels, especially those with technology backgrounds, may be satisfied with a demo and a verbal description of what you plan to do. But many will want a copy of your business plan, if only to remind themselves what they invested in. At this stage, all most investors expect is a brief description of what you plan to do and how you’re going to make money from it, and the resumes of the founders.
You will have to pitch your idea by making a pitch deck for investors. The pitch deck is the first communication tool to help you raise money with a potential investor. The content of the pitch deck, along with your presentation, can help the investor to determine whether or not to continue evaluating your business opportunity.
Here are characteristics that most of angels investors are looking for:
1) Team: the team is experienced, connected and has demonstrated an ability to execute and work effectively together. They focuses primarily on the team because they know that no company executes it plan as stated in the pitch and they look for the leadership, wisdom and experience to pivot and adjust to opportunities and threats that present themselves.
2) Disruptive or Innovative Product: They are looking for companies with a product or service that is unique and presents a clear value proposition for its customers. There should be sufficient barriers to entry either through trade secrets, patents or significant market adoption in order to gain and maintain their market.
3) Large or growing market: They need to be in a sufficiently large or dynamic market that this rate of growth can continue for several years and provide promise of future growth for potential acquirers.
4) Traction: Since the fund does not invest in ideas alone, the company will need to be able to demonstrate traction. They need to have overcome major obstacles that clearly demonstrates their ability to execute. Furthermore, you should have positive momentum that we can see throughout the process of working with them.
5) Profit Potential: Companies need to have a high profit margin and understand the costs of multi-tier distribution and all of the fully loaded costs. After all is said and done, for a company to really grow we want to see a solid bottom line.
6) Scalable: The products and markets need to be able to grow quickly and to have rapidly increasing margins as the company grows. This excludes most service businesses and many businesses that address the SMB market and require a high-touch sale.
7) Exit: Companies that understand the importance of the exit and the role it plays in returning capital to investors. They want to see an exit scenario with multiple bidding acquisition prospects, with high multiples of EBITDA or sales, and with a relatively short timeline, typically between three and five years.
By Anthony Omenya