26 Tips for Startup Entrepreneurs from an Experienced Businessman
For the past 10 years, I have been doing internet business and during that time I managed to create and bring to profitability 5 own startups. Moreover, one of my main businesses is made-to-order web development. Here I often receive orders from clients who want to develop their own internet startup. I have faced different projects every day for 10 years. Many of these projects are startups in the full sense of the word. One of my first skills even in LinkedIn is startups. Somehow all this startup romance attracts me. I like to build new companies or individual independent branches of business in existing companies.
While I have been creating my own startups and startups for my clients, I concluded that 95% of all startups have a fundamentally wrong approach to making new companies and therefore are a failure. In this article, I want to talk about my rather extensive experience in this difficult case and save beginners from fatal mistakes.
First of all, let’s look at what I mean by «startup»? Primarily for me, it is a business. It is a new project with an untested idea, which we want to turn into a profitable business. Therefore, I always consider any startup as an entrepreneur-manager and I advise everyone to have such a position against startups. So my thoughts will be built from the point of view of the entrepreneur-manager.
Top 5 mistakes of the beginning entrepreneurs
The main thing — it’s an idea. The basic problem of many beginning entrepreneurs is that they incorrectly start even to think about startups. Most people think that the main thing in a startup is an idea, but they are wrong. The idea — it’s not a business and even doesn’t a startup. This is an intangible thought in your head, which may be erroneous. Till then, while this idea does not start to bring you money — from an economic point of view, it does not cost anything. Certainly, you will be very upset if you tell someone your idea and this idea will be stolen. What if it can bring a billion? What if I am behind half a step to great success? All these thoughts often appear in the minds of beginning entrepreneurs, but the idea — this is still very small.
Investments. A quite large percent of beginner entrepreneurs think that the most important thing — it’s an investment. This is also wrong. Most internet startups could be started without any investments even with the pocket money that you have. If you don’t have even some pocket money it is early to make your own startup. You need to learn at least how to earn something as a hired employee. If you have a work and earn something, this will be enough for the beginning. In any case, the investment — it is actually other people’s money, which you get underneath commitment. If you previously were not the director of the company and did not earn/spend money on business, then you will spend useless any amount of investment. Investments can only harm and de-motivate you at this stage of your personal growth.
Syndrome of a teenager. You can observe that many beginner entrepreneurs have a «syndrome of a teenager». It is when beginner entrepreneurs think that they know everything about the business and accurately see how to be successful. Even if the idea of a startup is right, the way to success will be changed 1000 times during its achievements and as planned at the beginning — definitely won’t be.
The main thing is the product. Almost all people begin their startup with the development of a product (often website can be as the product). The website is focused on all the resources, including finances. There are 2 mistakes. Firstly, probably, you will have a product created in isolation from the buyers and they may not want to buy it. Secondly, there may not be enough money for marketing and sales and this is more important than the product.
The Soviet type of management. This mistake generally permits managers, which are older than 40 years. People with established approaches to business, who studied «doing business» in 90-s, try to apply the same approach to IT projects. This can be expressed in project management methodology when they try to use in the best case Waterfall, but more often they do not use any methodologies. Also, it can be expressed in hard budget constraints on development and in blocking the actions of employees, when they are not perceived as the partners, but as the slaves. And there could be other interesting things.
In my opinion, it is the most serious mistake, but not a complete list. Any of the mentioned mistakes probably will destroy your startup, but if there is more than one mistake – failure is 100%.
How to achieve success?
I have briefly told you about mistakes. Now I want to highlight several rules that will help you to achieve success and get into that 5% of successful projects.
- Test the niche.
You should test the niche before a serious launching of the product. This can be done through verbal agreement and the first test of sales. We can use a single site that usually containing only basic information of commercial or non-profit organizations or a serious landing with the main information and check the reaction of the users. In some cases, you can even make a prototype or take a standard site. In any case, you should not be based on guesses, but on real people’s reactions to your product.
- Start with the sales.
Sales managers have a saying: «Good sales manager can sell even the air!» Indeed it is: sales must be before the release of your product. Startups should begin with an understanding of how you will sell your product. When you will understand how to sell, ideally you need to check this: find potential clients, tell them about your product, and take payment in advance. Maybe you will not have a product, but you must be required to establish contact with a client and get at least a preliminary agreement. The most ideal case is to sell a lot at once. The received money allows you to create a product and you would not feel the necessity in the investments. Moreover, one of the first departments that you will need to build in a startup is the sales department.
The most important thing in IT is people. They will be the engine of your product. Find a top-notch team that will be able to create, promote and manage your project. It is necessary to highlight the skills that are primarily needed for your project, part of the duties take on yourself (only that what you can do really well), take part of assistants for yourself, and the majority give to outsource for professionals. It is particularly important to give on outsource single or small permanent work, so you will not pay to a specialist who will work 2 hours instead 8 working hours per day. Start with people who will be able to sell or help you in this in a variety of other ways. Don’t forget that complete the project with pure enthusiasm is unlikely to succeed, and good experts are expensive.
It should be a project management methodology. I advise you Agile for the development of large sites internet startups. This is only a part of management, but it touches one of the most important parts of the internet business — the website. The bottom line is that you can flexibly manage the requirements and progress of the project. Internet project — it is always a very unpredictable thing. Even the most experienced specialist will never say exactly how it should be done and how much time it will take. Due to the specific of our branch, it will be better to choose a flexible management methodology for the project. Still, there are other parts of the company’s management, but about them, I will tell you later.
- Start with small.
Very often beginners in startups trying to build a «spaceship» and therefore they are bankrupt. Divide the project into beta versions and other parts. The Beta version should contain the most basic functions with which you can come into the market. After that, it will be possible to update this product monthly. The task of a startup — quickly and inexpensively bring a product to a market. Herewith the first cut-down by functions version must still be of high quality. However, it is not worth it to do a great cut. The beta should carry a value and be able to compete in the market. And in general: simplicity — it’s good!
Think about marketing from the outset. It must be taken into consideration when you create a product, website, and in the future. Marketing should provide a good flow of customers and must be fully considered and monitored. The budget for marketing should be in several times larger than the budget for the creation of a product. Don’t think that a good product will sell by itself — it is a myth.
- External consultants.
For some reason, it was decided do not to apply to external consultants on the expanse of RuNet. This is a huge mistake. Any startup has plenty of important tasks and for this solutions are needed, top-notch professionals. It is not necessary to hire on bet the best expert in the market. It is possible to attract him on 2 hours, for example, using the consultation. During these 2 hours he decides or says how to solve some important issue and will take payment even 1000 $ for this 2 hours, but it will be better than you will try by yourself to solve the same issue without having the necessary experience and as a result, it will cause much more damage to your project. If you have the budget you can hire even entire companies in the same format. This is a foreign approach: to engage consultants or give something to outsourcing, which really works.
Just start without investments. You don’t need them at the beginning. An investor is a commitment and extra weight. If you can’t do pre-sales — this means that your idea is probably not as good as you think and if you take on board the investor, you can stay without panties at the end. The investor can be engaged when the idea has been already tested and you need money to accelerate growth, but not before.
- Start young.
You can start to do your business at any age despite you are 20 or 60 years old. One day I stumbled upon research that showed interesting results: up to 30 years only 3% of entrepreneurs started the business. It was American research. I think that this figure will be a little bit more in post-soviet countries. I began my own startup at an earlier age and I advise you to try your first business in 20-25 years, while you still have time, have parents who provide you and you haven’t your own family. The startup will take a lot of time and most likely will bring a little money or even generate a loss during the first 3 years. If you start young, next to perfect time, when you can start is 30-40 years old. It is a time when you will get a lot of experience and accumulate a starting capital. In any case, in the length of time business chances will begin to fall for various reasons.
- Do not give up.
Probably, I would say 99%, will come the moment, when there will be so hard and you will feel that it is the end of your startup. If you look at the history of well-known entrepreneurs, you’ll find that many of them were on the brink of bankruptcy or even bankrupt. For example, PepsiCo was 2 times bankrupt and this is a multibillion business! Honestly, my business for 9 years was 3 times on the verge of bankruptcy, but, thank God, I didn’t become bankrupt.
- The paradox of growth.
Faster growth drags more money to sustain it. In other words: a successful project — the less money. As long as your startup is just a growing small business, it is highly likely to be unprofitable. Try to prepare yourself for this truth.
- Personal income is scanty.
Many people leave the job and begin their own startup in search of a better life, but everyone doesn’t understand that the personal income of startups will be scanty the next few years after the start. It is not necessary to believe in beautiful stories of the good life. It will be better to prepare yourself that your personal income will fall in several times and more often to the loss until your startup doesn’t turn into a stable business.
- All must be documented.
Do you want it or not, but all agreements with partners, investors, and customers are needed to be documented and you should treat this very seriously. This is a business and it’s best to be ready that sooner or later someone will try to throw you. Immediately divide share with the partners and secure it in the agreements. At once prescribe all conditions with investors even before receiving the money. In B2B sector make contracts with clients, and if you have any site service, like a SaaS, — make a contract offer.
- Strategy and tactics.
You must have a development plan for the next 3 years, which includes strategic and tactical ideas. Don’t be confused with the business plan. There is an elementary, but very useful thing – a tree of goals. The meaning of this method is that there is one big goal (the trunk) and a lot of small, which you need to reach before the main goal is reached (branches). In other words, you can want to build a billion company, but on the way from the desire to one billion, you will need to reach many small goals.
- The strategy of lean startup.
You are lucky and you have the money? It’s great, but no matter how much money you have, it won’t be enough. Begin to spend money carefully from the beginning and don’t waste your money down the drain. Think ten times before you will buy something and is this thing really necessary. Remember the principle of «Occam’s Razor», it can be used in everything.
- The site — it’s still important.
We’re talking about internet startups, so a website is very important. It will be the basis for big sales. It is important to achieve a good conversion, but before you need actually understand what the goals should be set in front of the site and what we mean by this «conversion.» To create an effective website, you must begin with its professional design. Think about marketing, make professional selling texts, adaptive layout, etc. In many ways, the site for a startup is also a tool of PR. A good website is expensive, but this is a website and an internet startup is worth investing money there. Make a cool website and you will be taken seriously. Margaret Thatcher said: «The first impression can be made only once.»
- Trust your team.
If you began to do a startup and are attracted to its creation professional performers, you should trust them within their competencies. It is very common to observe when the founder of a startup tries to think for all and starts to horn in those spheres about which he doesn’t know anything. The most frequent problem is when the founder says to the designer how to do design. If you have already attracted specialists, it will be better to listen to their opinions and sometimes even blindly trust them.
It can be a problem for beginner entrepreneurs. You must be able to delegate your duties to subordinates with responsibility, otherwise, you will be overloaded and performers will sit idle. You need to charge maximum work to performers but constantly control it. Otherwise, it won’t be done or will be done in a way that you don’t need at all.
Before you are going to begin a startup, think about key performance indicators (KPI). You need to measure literally everything, especially at the start of the project that in case to correct its development. Think about what thing and at what stage is the most important for a startup? Often attendance could be the most important thing during the first year. The second year could bring you a good turnover and third-year — net profit. Or maybe vice versa. It depends on the goals. You need to accumulate statistics and analysis, periodically do retrospectives and as a whole consider the experience of the industry. Ask yourself a question: «What can be considered as a success and what as a failure?»
- Legal person, offshores, etc.
At the beginning of a startup legal person is not required. First of all, try to make a major deal verbally and under this deal make a legal person. It is a very quick operation if you have a desire. Fortiori you don’t need to go into offshores — it’s for big business. When you are going to attract investors it is the only time it should be done. Don’t make a legal person too late. During the product development, as well as after its completion, will be the ideal option to do registration of the domain, copyright, and trademark on a legal person.
- Lack of time.
Almost immediately after the start, you will have problems with lack of time. This is an eternal problem that can’t be solved completely, but you can improve the situation. Firstly, you need to plan your work: for a day, week, month, year, for 3 and 5 years. Secondly, divide all your work into groups according to the urgency and importance. Thirdly, try to delegate.
- Keep your word.
Trivially, but not everyone can fulfill these obligations. Make promises very gently and carefully at the beginning. They can be given to customers, partners, or employees and it does not matter. The most important thing always to this promises.
- Don’t work with your friends and family.
If you break this rule, it is very likely to destroy your relationships with people whom you love. It happens almost always.
- You will be changed.
Business changes people and you will be changed too. First of all, it will be changed your perception of the world. You will better understand it. The changes will take place in several stages: immediately after the start, after hiring the first employees, and after conversion startup into a successful business. You should not be afraid. These changes are good.
- Do not allow «burnout of manager».
If work a lot for wear, you may encounter «burnout of manager», when work becomes uninteresting and motivation drops almost to zero. It’s more psychological burnout, so this can be combated. Find a balance between work and rest, try to travel, try to increase positive emotions in your life, and reduce the negative.
- Start right now!
Most of the projects remain in the creator’s mind. Absolutely anything that doesn’t prevents you to start right now after reading this article! For the beginning find one hour and start, further it will be easier.