By Gurps Rai
So you just came up with a great idea. Now what?
Just like the ABCs are the most basic first step in learning to read, these are some of the most fundamental first steps in building a startup. They can serve as a springboard upon which you can launch your own entrepreneurial journey, and hopefully achieve enough growth that you begin to wonder whether you are even a startup anymore.
A – Ask yourself the right questions
Before you begin any startup activity, you have to ask the right questions, and the very first one should be “why has no one done this before?” Tap into your inner skeptic rather than assume that you are the one genius who has managed to come up with a solution to a problem. Take the time to do the research: has anybody implemented the same idea before? If you find the answer is no, then ask yourself “why not?”
The idea for my company, droppTV, came when I was watching a music video and wanted to buy a jacket I saw on the artist. I couldn’t find it anywhere and I wondered why with today’s technology nobody had created a way to simply tap on a product in a video and buy it directly from the screen. Rather than dive in headfirst I decided to research, and found out that in fact, many many people before me had attempted my “brilliant idea.”
This is the reason asking yourself the important questions is the number one step in building a startup. Take an ego check and remember that there are millions of creative people just like you who are also dreaming about launching a startup at this very moment, and some of them may have already acted on your idea ahead of you.
A quick search will be able to tell you whether your idea has been attempted, but don’t pop the champagne just yet if you don’t find anything like your idea in your research, or if the companies that did attempt it failed. This could indicate there isn’t sufficient market demand. In fact, the number one reason why startups fail is due to misreading market demand.
Fortunately, you don’t need to hire marketing specialists to conduct market research at this stage; most answers can be found by simply thinking things through. As an exercise, get a pen and paper and list out the problems your idea solves. Once you have your list, go through each and try to estimate how many people have those problems. Try to be as descriptive as possible when doing so, paying attention to common demographics such as age, gender, location, and income level.
Next, take a look at the hypothetical target audience groups and try to place yourself in each of their shoes. How serious is the problem you have listed as solving for them? Would you realistically pay money to solve it? If the answer is no, your idea may not have the demand needed to sustain it as a viable business.
B – Develop your business plan
In the simplest of terms, a business plan is the written description of your company’s future (the roadmap to success). It is meant to reflect your philosophy, market research results, goals and milestones, general development timelines and a detailed budget. If your startup is an app (as many are these days), it would also include its monetization model, project team structure, and promotional plan.
Let’s be honest here: building a business plan is a time-consuming and often tedious process. I think very few people would call it the “fun” part of being an entrepreneur. However, it is an essential tool to holistically approaching your business, and can also mean the difference between obtaining capital (foreshadowing for the “C”) from potential investors. While business plans can contain much more than the following, below are some of the key blocks that can get you started.
Executive summary: When you’re writing your business plan, your goal is to get your foot in the door and face time with the investor, and a strong executive summary can mean the difference between being invited in for a meeting and being left standing in the cold. While some people may like to get flashy, it is best to keep things as straightforward as possible, starting with your mission and then listing your key business objectives and goals. You can also use this section to describe your idea and the way you see the social impact of your startup, and while it should include the major details of your report you can save the nitty-gritty things such as analysis and numbers for the plan itself.
Company description and legal structure: Here, you should provide information on the team you have assembled, its structure and the style with which it will operate. You can go into details about what resources you already have, as well as the extra resources that would be required before the business launches. Finally, include the strengths of your team (it will likely be small, so it’s important to show how each person will contribute) and provide arguments to support why your startup will be the best one to implement your idea successfully.
Market research: At this point, you should have put together facts and data to back up your assertion that there is a market for your startup. To show you clearly understand the industry, provide a brief description of it, as well as an analysis of your potential competitors using data from the current market situation to back it up. Talk about your target groups and measure your changes to obtain your niche.
Product description: Maybe a no-brainer, but you will need to explain exactly how your product works and how it creates value for your target groups. This section could also include describing the potential need for patents, as well as the lifecycle of it and how you are going to offer it to your future customers.
Promotional and marketing plan: Provide an overview of your strategy for marketing. How are you going to attract and retain users? Do you have a plan for upselling or when you will have sales? All of these factors need to be thought of ahead of time and clearly listed in your business plan, as well as PR plans and projections, as well as your sales strategies
Funding: An investor friend of mine once told me that in response to him asking what a company’s needs were, the founder responded “how much can you give me?” Safe to say he did not receive the funds because investors want to see that you have a plan in place for how you will use their money that will bring them an eventual return on it.
Outline your funding requirements, and clarify how much money you will need in six months, one year, and several years. By presenting your strategic financial plans – financial projections, a balance sheet, sales forecasts, and a break-even analysis – you have a much better chance of convincing an investor to entrust their money with you.
C – Find startup capital
Don’t be ashamed if you don’t start out with fantastic capital – almost 70 percent of entrepreneurs in the United States launch their startups from their homes. However, in order for your business to achieve growth, you will need cash. Our CFO Christopher Kelly has deliberately sought to maintain as small overhead as possible for us, and he was instrumental in attracting investors in our series A round we completed last year. Money can get you access to additional resources such as professional expertise, help you reach potential users quicker through marketing campaigns, and even rent an office.
The number one reason why startups fail may be due to misreading market demand, but the second-most common reason is that they run out of cash. It is imperative to plan your startup budget wisely, and if you followed my advice in the previous section you should have already done so within your business plan. But how does one raise capital? What is the best solution for me? These are some of the most popular funding sources as well as some of their benefits and drawbacks.
Whoop! There it is. 77 percent of small businesses rely on the personal savings of their founders for initial capital needs. That means that with all of the talk about raising capital through external sources, more than three-quarters of new businesses will end up requiring financial “skin in the game” from founders. This doesn’t mean that those who use their personal funds will never get any other source of funding, but it is important to remember that in all likelihood you will need to put some of your own cash toward your startup endeavor. There is an upside to this though: personal funds do allow for the most independence within your business.
Besides personal funds, this is perhaps the fastest and easiest way to garner the necessary capital to get your business off the ground. Thanks to modern day banking procedures, you have the benefit of near-instantaneous access to capital as soon as you are approved, and it also means you may not have to dip into your nest egg to get your startup off the ground. However, there are also some disadvantages to this funding strategy. Clearly, you will eventually need to pay the bank back, and having a loan payment on your books can impede your growth by diverting capital that could otherwise be invested back into the business.
Family and friends:
It’s nice to be able to lean on those nearest to you for support in following a dream, and the biggest advantage of borrowing money from friends and family versus a bank is there are usually less strong terms for paying the money back. However, we are all well aware that this can also lead to some sticky situations, so if going down this route it is best to still sit down and put everything in writing. It may feel uncomfortable in the moment but could save the relationship in the long run.
Ah, the elusive and desirable angel investor. These investors provide 90 percent of outside funding for startups, and are often a source of ongoing support by taking on a mentorship role and preventing you from making costly mistakes. However, as desirable as this form of investor can be, do remember that they usually take a relatively large chunk – between 20 and 50 percent – of the company in exchange for their finances and aid.
About the Author
Gurps Rai is the CEO of droppTV, a digital media platform that uses smart technology to create shoppable video content. Before founding droppTV Rai worked in financial services, building a successful career within the global carbon market and becoming an early investor in cryptocurrency. During his time in the global carbon market Rai became the first person in the world to successfully facilitate a commodity trade using virtual currency, orchestrating an international offset deal between Nike, WinRock, and the American Carbon Registry.