Originally published in Right Startups. In the world of business there is nothing more…
Startup Game Changers: What to Focus On in Your Startup’s Early Days
Our Startup Game Changers panel in New York sparked such great discussion and good advice that I thought I’d share some of the highlights here.
Frank Rimalovski, Executive Director of the NYU Entrepreneurial Institute, moderated. On the panel were: Lucas Nelson, Principal at Gotham Ventures; Steve Davis, Partner at Goodwin Procter; John Pennett, Partner at Eisner Amper; Josh Reinhold, Regional Sales Consultant for TriNet; Kate Shillo, Director at Galvanize Ventures; and EGFS CEO David Ehrenberg.
Discussion kicked off with what to focus on in the early days of your startup when so many things need attention. Panelists advised founders to concentrate on communication, equity, and creating first, with Steve Davis pointing out that it’s also critically important to “document stuff.” What kind of stuff? Put your co-founder agreement, including what happens when one of you leaves, in writing.
You should also set up your accounting, HR, and legal support systems very early on.
- Lining up quality legal advice is critically important in the documentation stage as well as at the financing stage. Sure, there are plenty of sites offering free or cheap downloadable standardized forms, but subtle differences in language can mean the difference between a good deal and a very bad one for founders. Many law firms will work with you on payment options. Just make sure to pick a firm with expertise in early-stage companies.
- When it comes to startup banks, choose an institution that is used to working with early-stage technology businesses. It’ll have experience offering creative and flexible lending solutions and can be a source of useful referrals when you’re ready to raise.
Outsourcing HR and accounting is of big benefit because it allows startups to focus on their core competencies: things like developing technology, building key partnerships, and selling stuff.
- You’ll want to outsource HR initially. Make sure that whatever solution you choose covers payroll taxes, employee benefits, and workers’ compensation.
- When should you bring in outsourced accounting support? Wait to hire service providers like us to handle your taxes, valuation, and bookkeeping until after you’ve either raised a round of funding or are generating revenue.
Be very clear on what problem you are trying to solve. Know that seed round funding, not your A round, is for building your prototype. Then talk to potential customers early on to learn:
- What they want
- What they are looking for
- If they are willing to pay for it
- What they are willing to pay
How do you know when things are worth taking further? Talk to sounding boards. Remember that you’re not building technology; you’re building a business! Kate made the really great point to not be so in love with your idea that you can’t be flexible, accept useful advice, or pivot when necessary.
Talking to VCs
It’s never too early to talk to VCs. Don’t wait until you need money to start connecting with potential investors. A VC’s job is to find potential. And VCs often know your industry and business sector far better than you do. But as Lucas warned: VCs invest in “traction” when they don’t understand the market.
How do you convince them to invest in you, especially if you don’t have a proven track record yet? Show them that you have the ability to get things done. Accelerators can help here. They also perform an important vetting function and act as a source of deal flow for VCs.
While you’re working on building your startup, take as much advantage of all the sources of support for founders as you can. Network and participate in community events and meet-ups.
Before you commit to an accelerator program, look at what percentage of graduating startups get funding. Use that as your most important criteria in choosing one. Kellogg provides an annual ranking of top programs.
If you’re choosing among programs, think through how much value a program will add and how much it will help you if you already have a good mentor network. And check how committed and involved the mentors are.
Should you take on formal advisors?
In the early days, the best approach is to keep it informal. Be proactive in looking for introductions. If you do choose advisors, be warned that there’s no free lunch. Everyone’s getting in on the equity game. For the right partner, parting with equity makes sense. But be cautious. Choose advisors who fit well with your company. Try to keep the arrangement informal if you can; and make sure you know what you’re getting in return.
When it gets to the stage where you’re putting together an advisory board, remember that vesting is a better approach than the common early mistake of giving away 2% of your equity. Find out how much the potential advisor can help you, in what areas, and whether it will be useful help before you part with any equity.
One thing that’s usually overlooked is a customer advisory board. Create one so that you understand how big a pain point the problem your startup is in business to address is for customers.
How long does it take to line up funding?
Unfortunately, there are no concrete timelines or simple answers. The process could take 6-9 months; but it could be longer or shorter. You should plan to always have 18 months of runway. And not to put a damper on things, but it’s also worth remembering that the vast majority of startups are not funded by VCs — so don’t put all your eggs in one basket.
All in all, a great panel! Check our Events page for more events like this one and stay tuned for our upcoming conference in New York City in December.
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Deborah Adeyanju is Content Strategist & Social Media Manager at Early Growth Financial Services, an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Deborah is a Chartered Financial Analyst (CFA) charterholder with more than a decade of experience as an investment analyst and portfolio manager in New York, London, and Paris.