Whether you're starting a company, or launching a new venture within a larger company, you will need to assemble three critical startup components: i) funding, ii) capable management, and iii) a technology or business concept that works.
If you have only one of these, chances are you're sunk. But if you have any two of them, the chances are good you can get the third:
Here are five principles to guide you:
1. If you have a great idea, don't let lack of money deter you.
While much of what you can accomplish will be driven by funding, the quality of the people you attract to your team, and the entrepreneurial spirit you engender in them, are equally important in achieving success.
Entrepreneurs often approach investors saying, "I need $5 million to get my company off the ground and achieve the first milestones." I usually respond, "Don't let the lack of money hold you back, start working on it now."
In Silicon Valley, there is a great tradition of starting as a "virtual company," figuratively or literally in a "garage." And anyone who can do this and make progress toward achieving his or her goals will look very good to potential investors.
How do you assemble a team without being able to make a payroll? That, of course, starts with you. I don't advocate mortgaging your house or running up big credit card bills in starting a company, but there are many stories of those who did just that. A more prudent approach is to keep your "day job" and get as much accomplished on nights and weekends as you can until you are sure you can make the jump to pursuing your dream full time.
The Wright Brothers are a good example. They worked nights, weekends, and took the summer and fall months off to pursue their passion of being the first to fly. But they kept their bicycle shop running and paying the bills.
Experienced entrepreneurs know that better founding team members can often be recruited for "sweat equity" than by paying a competitive salary. In some cases, you couldn't afford to pay them a competitive salary even if you were funded – they would be too expensive. These people are typically either frustrated employees of large companies looking for a new challenge or retired or semi-retired executives. Both can be invaluable in the experience and enthusiasm they bring to a young startup. And they can be instrumental in helping to raise startup funding.
2. Be sure your technology or business concept is really valuable.
Inventors often overestimate the value of their innovation. Have you really designed a better corkscrew? And does the world actually need a better corkscrew? Even if the answers to these are "yes," you must be confident the world is not moving to screw-top wine bottles in the near future.
If you are going to start and build a company that can attract capital and grow to the point of an IPO or a buyout, you need to address a significant unmet need. The best ideas typically either anticipate a new market or address an existing problem that is well-known, but poorly addressed.
If your objective is to establish a family or "lifestyle" business, you can aim a lot lower on this dimension. You just need to be sure that you can be competitive in a smaller market. However, if this is your objective, either real or apparent, don't expect to be able to attract capital from sophisticated investors.
3. Build a competitive advantage.
For a new business to succeed, it must establish a competitive advantage, usually in a world of much larger competitors with greater resources. The most common approach for early-stage technology companies is through patents and trade secrets. For marketing companies, it is usually through establishing a brand or a unique approach to customers.
An issue early in the startup process is always how much to disclose of your concept in order to attract people and capital to your company. This is can be a tough trade-off. Confidentiality agreements can provide protection but are very hard to enforce. Filing patents before technology is fully reduced to practice is expensive and can put later patent protection at risk. Whenever possible, dealing with people you can trust is the best approach. Reference and background checks can help with this.
4. Manage your money like your company's survival depends on it – because it does.
Be realistic in evaluating your funding needs. Product development and testing will take time and money. Things don't always go as planned. Delays are common. Factor this in as you establish your funding needs. Too much wishful thinking can easily leave a startup short on cash at a crucial juncture. Raise enough money to take you from one key milestone to the next with a margin for error.
Focus spending on things that truly create value. Ruthlessly control administrative, overhead, and facilities costs. Negotiate with law and other service firms to defer fees or provide services for a low fixed cost. Save paper clips, share facilities, buy used furniture and equipment, use advisers compensated with equity instead of hiring employees.
I used to pride myself on locating companies in facilities without a waterfall in the parking lot, a common feature of business parks in California. Then, a neighbor built a waterfall in the parking lot we shared. I couldn't say that I didn't have a waterfall in the parking lot anymore, but I pointed out that my company did not pay for the waterfall.
5. Ask the right questions at the outset.
Anyone looking to start a new venture should first ask (and answer) these key questions:
While answering these questions, don't underestimate the value of optimism and enthusiasm. Use it to your advantage. Starting any innovative new venture takes a leap of faith, and your best team may well be the one that is willing to work for "sweat equity" to help get the enterprise off the ground. Everyone takes a risk. That's how fortunes are made.
Once it feels right, jump in and make it happen. Then, be fiercely tenacious. There will be many frustrations and pitfalls to be overcome. Expect a roller-coaster of highs and lows, successes and failures.