Early-Stage Startups: Mapping the First Steps
Whether your idea came to you in lightbulb moment or you’ve been actively chasing themes to build a business around, you’ve identified a problem to be solved or a market gap that needs filling. Great, but what do you do now? How do you get from initial idea to launching, getting funded, and ultimately growing your startup?
Initial idea — First gather feedback. The idea may seem utterly brilliant to your audience of one, but nothing shows flaws or gaps in logic like the bright light of day. Start talking to people whose opinions you trust as well as running it by those in your network who might be part of your target market. And don’t worry about someone stealing it. Ideas usually aren’t completely original anyway, and even the best mean nothing without the ability to execute. Research your potential market and your competition.
Identify end goal — Once you’ve batted around your idea a bit, start thinking about your end goal. Is it a nice lifestyle business that will allow you to have plenty of downtime? VC funding on the way to an IPO? An exit through a sale so that you can move on to your next business? The scale of your ambitions will help you clarify next steps and weigh the tradeoffs between seeking a co-founder or going it alone.
Proof of concept — Conduct a “strawman” analysis. The goal is to identify and probe all the weak points. How substantial are they? Can they be mitigated? If your idea still seems robust, and you can articulate a unique competitive advantage, then start identifying early users, create an initial budget and plan for market testing, and start to develop your business plan including bottom-up financial projections.
Action plan — The process of analysis will provide a crucial test of your assumptions. As you gauge the size of your potential market and estimate prices and costs, you’ll be forced to translate your vision into an action plan: in other words, a business plan. Think of this as your startup roadmap. It should be a living document and should include an executive summary, plus detailed financial projections. For more details, take a look at my earlier post: How do You Create A Startup Business Plan.
Development — As you enter this stage, you’ll start to make some critical decisions such as whether to bootstrap, take out personal loans, or find some other source of seed funds. Your options will depend on how quickly you want to grow and how large the revenue potential is. A this stage, you should also be actively reaching out to advisors. One way to do this and build your network is to join an incubator or an accelerator if you can. An informal advisory board can help with setting up key infrastructure pieces (legal, financial, HR) as well as with bigger picture issues like strategy and financial guidance. The support you get from peers can be invaluable. And you’ll be able to begin forging ties with potential funders.
Hiring — You’ll also likely need to hire key team members like engineers and programmers. It’s a tough market out there, so be sure to take the time to come up with a thoughtful hiring strategy. Don’t hire people too quickly before you have a real sense of what they can offer and how they’ll fit into your vision and goals. Stretch your limited resources by outsourcing all the non-core functions you can, including: HR, payroll, cash management, and marketing. When the time is right, make sure someone skilled in developing leads and driving sales is one of your first strategic hires.
Launch — As you get close to officially launching, get as much customer feedback as you can from early/potential adopters as well as from your advisors. Research your target market and keep testing your product and use the early feedback to refine your offering. Beyond focus groups, rewards-based crowdfunding can be a great way to get early feedback about your product.
Gain traction — Now’s the time to come up with a targeted sales and marketing plan. Everyone hopes for the company that somehow goes viral through some luck of social media, but you can’t count on it. Social media is definitely an important piece of the puzzle, but it’s just one piece. Take advantage of as many opportunities as you can to meet potential customers face-to-face, whether it’s trade shows, conferences, or other local events. Basically, try anything that’ll help you build a customer base and start generating revenue.
Gear up for funding — Hopefully by now you’re seeing some positive momentum: you’ve got a good story, you’re happy with your product, and customers are starting to show up. Have you gotten as far as you can get without additional funding? If you’re ready to accelerate your growth, does that mean you’re ready to start pitching? Not necessarily. How much do you know about your customer base? Are you measuring your business’ key operational metrics? Do you know what they are? Where are the skill gaps in your team and how will you fill them? Unless you can answer those questions, you’re not ready to start the fundraising process.
Target investors — Given your company and development stage, figure out the best funding source (angels, VCs, loans, something else?) and amount of funding you need to hit your next milestone. Come up with a detailed game plan: How many potential funders do you need to approach? How many are in your extended network? How many warm introductions can you come up with? Prepare in advance for due diligence questions and start now to gather documents such as business and financial plans, IP records, and licenses. Keep in mind that getting funded will take longer than you expect and it is a full-time job!
Keep in mind this is an iterative process: there isn’t one definitive lifecycle model for every startup, and often these stages overlap, but thinking of it is this way can help frame your approach and focus your efforts as you set and execute on milestones.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of outsourced accounting, finance, tax, valuation, and corporate governance services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.
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