How to build a “grownup” startup
There’s a growing hype in mainstream media around startups, and most of it centers on big business-to-consumer stories. It’s nearly impossible to read an article on startups without a mention of Airbnb, Pinterest, Instagram and the new kids like Uber or Rdio. There are sites like VentureBeat that talk of little else.
Enormous investments and incredible valuations make for good reading, and those startups are larger-than-life and hugely inspiring. If you want to build one those, start by reading this article by Steve Blanc, the startup guru. But also read this post on Quora about the financial outcomes of such startups.
Then there are these other startups. The quietly effective ones. The ones mainstream media only mention when they are acquired for hundreds of millions of euros or go for an IPO. Startups for grown-ups, if you wish. Without further ado, here are three tips on starting a grown-up startup:
1. Start with B2B, start with what you know
It’s tempting to start a project around your personal annoyance or a hobby. “Wouldn’t it be cool to…” are very dangerous words. Here’s why.
A purchasing specialist at a Brussels-based multinational quit his job and opened a coffee bar in Brussels a few years ago. He really liked making coffee, and he (correctly!) spotted a gap in the market. He made outstanding coffee (arguably the best in town) and sold it at a fair price – surely a recipe for success, right?
Not quite. The bar was profitable for exactly one month out of about 18 during which he ran the place. Eventually he sold it and moved on.
He built a competent product, but he didn’t know enough about the industry (HORECA) – his location didn’t have enough through traffic, he never did enough marketing to build up a core of loyal customers, and his pricing didn’t leave him enough margins. Building a business while trying to learn a new industry was too much.
So, start with the industry you understand, and work in the field you already know – focus on the problems you come across in your professional life. Talk to your competitors’ employees about the professional annoyances over a beer at the next industry conference or fair. Think about how the big changes in the world apply to your today’s job.
Two Belgian examples: CVWarehouse is now an established business (almost 7 years old), and provides services to enterprises. Woorank has recently turned 3, and supports advertising agencies and SEO consultants. Both are deeply rooted in profound knowledge of their respective fields by the founders (Inge Geerdens and Jean Derely respectively).
Aside from the near-impossible learning curve, there’s another compelling reason to go for B2B: once you’re ready to grow, investors are more keen on to support you. Sequoia Capital over in the US lament shortage of B2B startups; Internet Attitude and Hummingbird Ventures right here in Belgium and Newion Investmentsover in the Netherlands will be glad to meet you.
2. Start with what you already have
Let’s say you’ve found an annoying problem or a huge gap in your industry – and you think you know how to solve it. The first things that likely come to your mind are writing a business plan, raising funds, etc…
Wrong! Today’s best academic thinking on the subject of starting up (derived from observations of successful entrepreneurs, not from ideal models) is that you should start a business with what you have (not look for extra resources first), build it with an eye to the affordable loss (not the maximal gain), and handle difficulties as they come (instead of planning for contingencies).
Head on over to http://effectuation.org/ (thanks Miguel Meuleman at Vlerick for the tip!) for a bit of theory and quite a few practical examples. A practical implication of the effectuation theory is that you can likely start with what you have today. All you need is a few thousand Euros to hold you over through the first six months or so, hard work and a good helping of ingenuity.
Want to sell to SMEs? You’ll need time to acquire enough customers to have sufficient revenue, so start by selling to larger companies instead.
Don’t have money to build a product? Start with services and create a product over time (after all, a day of work at a reasonable consultant’s rate buys a week of a decent developer’s time over in the Philippines, India or Ukraine).
3. Read up on the science behind startups – and follow the recipe
A curious by-product of the “web startup movement” is a wave of literature created in the past few years. It has added a degree of science to the art of starting a business – that is to say, there are some reasonably proven recipes out there for creating a startup that works.
One of the key terms is “lean startup” – you’ve probably already seen it somewhere if you’re at all curious about the startup scene. You’ve probably also heard other related words: Minimal Viable Product (MVP), pivot, customer development…
If you haven’t, here’s a very short and jargon-free version: a blog post by Joel Gascoigne, founder of Buffer explains how his company went from idea to paying customers in 7 weeks. If you’d like a more involved explanation, I absolutely recommend the book by Ash Maurya, Running Lean. It’s a manual that explains how to “Iterate from Plan A to the plan that works”. Zero fluff, very practical, very concrete – an absolute must read if you’re considering building your own startup. Best USD 16 you’ll ever spend (and no, I don’t receive commission on the sales).
Of course the best theory and the newest recipes for startup success are not enough – it’s still down to you. But at least with this knowledge you’re more likely to make the right choices at the earliest, critical stages of building your startup.
Good luck, and don’t hesitate to ask questions![photo: Heisenberg Media, Flickr]
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