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Roadmap for the Start-Up Company . Pete Higgins Partner Second Avenue Partners. GETTING STARTED. People Idea Plan $$ Turn idea into product Manage evolution. Building a Team. Smart, complementary skills Meeting around the kitchen table Domain expertise
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Roadmap for the Start-Up Company Pete Higgins Partner Second Avenue Partners
GETTING STARTED • People • Idea • Plan • $$ • Turn idea into product • Manage evolution
Building a Team • Smart, complementary skills • Meeting around the kitchen table • Domain expertise • Investors are wary of non-business types • Industry is different than University life • Product development very different than research
Hire in Context • Right person, wrong time • Right kind of skills and experience • Strategist vs. scrappy • Big company vs. little company • Personality or Culture Fit
PROCESS STUFF • Space • Legal • Getting organized
Legal Stuff • Referrals • Interview for personality fit • Plain vanilla is always better • Simple, simple, simple • IP important, but not panacea
Business Plan—Think Like an Investor • What’s the problem? • What is solution? • Will customers really care? • Who is competition? Narrow vs. Broad • Why win? • Why should I believe these guys? • Gross characteristics of financial forecast • What is dream?
Depth of Critical Thought • Basic rules of business • # of competitors • Depth of value-add • What are customer options? • Know relevant models • What are competitive models? • What are historical models? • Why have predecessor technologies failed? • Know your own model • What are you betting on? • How soon does it have to work? • What’s important to your success? • Business plan is test of the people
Realism “When a great executive meets up with a bad business, it is usually the business whose reputation remains intact.” - Warren Buffett
Realism • Hockey sticks are extremely rare outside the NHL • Even if market is hockey stick, why are you? • It always takes longer and costs more • Plan for reality; be prepared to react to the dream • Know what you are betting on
Raising Money • Angels, Friends, and Family • Govt grants of various kinds • Venture Capital • Many different flavors and tastes • Tradeoff between dilution and time • How much do you need to get to the next milestone?
Where Do Ideas Come From? • Lab--Modumetal • “There must be a better way”—Housevalues • Previous job-Azaleos • Enabling technology—Insitu • Enabling legislation • Enabling world events—Insitu
From R&D To Product • Different discipline; often different teams • Products evolve; but need to be “done” at different points in time • “Better is the enemy of Good Enough” • Completeness; providing real solution • Customer feedback loop is critical • V1, V2, V3
Get to Market Early • Get revenue, “traction”, start selling • Customer satisfaction more important that product and technology • Build customer relationships and customer feedback loop • Make mistakes early and cheaply
Low Hanging Fruit • Who can make a decision? • High value, low risk • Big budget, already approved • History of trying new stuff • Other hurdles—Regulation, compatibility, etc.
Build domain expertise • Focus on success of customer—every decision should be weighed against this • Listen to customers—Fine line between vision and passion, and being stubborn • All startups are in the service business • More things liable to change than stay constant • Everyone sells • Be the voice of the customer
Falling in Love with First Plan • Product is “done”; it’s just a sales/market problem • “Great technology” • Customer don’t care; problem doesn’t exist • Too complicated • Who’s the customer? • Agility is critical
Sell the Vision, Plan to Struggle • 2X Rule: Everything takes twice as long and costs twice as much • Sales learning curve • Be realistic about valuation milestones • Raise more money; relax about valuation
Focus • Rare to fail due to excessive focus • Companies pulled in many directions • Lots of unexplored potential • Lots of ideas; many of them bad • Well-meaning board members • Conventional wisdom is frequently inappropriate • Focus on core value-add to highest priority customers, then expand
Getting Ahead of Yourself • Do not confuse activity with revenue • Brother in law sales • Great meetings • Pipeline Value • Jerry Maguire • What would you do if you were the customer? • Invest FOLLOWING growth
Be Cheap • Good intentions…but it is a slippery slope • It isn’t supposed to be comfortable • What culture do you want to establish? • It is okay to be small for awhile • What do you really need? • Minimum now vs. cash crunch • Growth and progress are not linear
Memo from the Last Downturn • You don’t realize how fast things spin out of control. There are self-reinforcing negative affects in a downturn. • Don’t spend money until you have to • Don’t move out of your office until you are sitting on top of one another • Don’t hire any incremental employee until you just can’t stand it • Don’t get more capacity in your data center until your site is going down
Memo from the Last Downturn • Better to be “late to the party” than to be early and run out of money • Line item review of the budget every month (everything) • Not just a CEO mindset, but a company mindset • Everyone must buy into the process • But in a calm way—not run for the hills • Create 2 or 3 different burn scenarios—know at any point in time how many months of cash is left
Invest in Culture Early • Values are easier to establish than change • Frugality, integrity, customer orientation, accountability, focus • Invest in “team” values: balance, support, communication, shared values, collaborative, flexible job descriptions • Consistent values + clear priorities simplifies management
Manage the Company, Even When It is Small • Don’t assume everyone knows • Communicate goals and objectives • Share successes and failures • Enroll people; Encourage debate • Communicate often; clearly; think about it • Think about cultural icons
Don’t Treat Board Like IRS • Enroll them in your mission; engage them in reality • Arms length relationship leads to wariness • Communication is frequent and informal • Good news and bad news • If frequent, they can be trained to handle • Do the worrying for them • Thinking about right goals and problems? • Right process? People? • Right solution? • Can I be helpful?
Team Evolution • Overly Broad to specialist • Generalists may not have specialist skills • Not everyone is right for the next stage • V2.0 team vs. V1.0 Team
Knowing What You are Good AtOr, Why “Founder” Becomes a Dirty Word • Focus on your strengths • Aggressively complement yourself • Focus outward--make everyone else successful • Ongoing conversation about yourself
Knowing What You are Good AtOr, Why “Founder” Becomes a Dirty Word • Fixated on first vision • Personal agenda—it’s not your company • Over-rating your own capabilities • Failure to delegate and micromanage • Statistically, you’re eventually the wrong person • You don’t know if you even want the job
Leadership • Domain experience and customer advocacy • Recruits great people • Manageable ego • Thoughtful about the business • Thoughtful about company culture, and management
“It’s An Execution Play” • All businesses are execution plays • Not about patents and secret sauce • Not about being first • First strategy is probably wrong • Winners, especially today, are those who execute the best, and often changed strategy the best • Winners are never satisfied
Building Great Companies • Business is a journey of unknown duration and course • It takes a fundamentally strong business idea • More importantly, a talented team that has thought about and built what it takes to win