Quick snippets from my morning read on Wednesday, 25th November 2020
Today’s morning read is taken from a very long but rich article by Abdo Riani. It highlights 46 lessons first time entrepreneurs must learn about startups. We share 10 lessons that standout.
For many, founding a startup is a dream come true and it should. It’s about controlling our own destiny, making an economic impact, solving problems, building wealth, and making a difference in the world we live in. It isn’t as easy as it sounds though. This one fact remains; entrepreneurship is not for everyone.
1- A Startup Is Not A Small Business
It is a phase and not a type of business. It is the phase during which founders aim at finding and validating a model that scales repeatedly, usually by leveraging technology. Startups are built for growth and it is for this main reason that most startups are tech startups; reaching more people through technology. Small businesses, in the other hand, execute proven models rather than search for one such as owning a restaurant, barber shop, grocery store or an e-commerce site. From a business and revenue model perspective, small businesses are ahead of the curve.
3- Failure Is Part Of The Startup Success Formula
This essentially applies to anything in life but we have numbers to back this statement when it comes to building startups. According to a research paper by Gompers and his colleagues in 2010, first time entrepreneurs have an 18% chance of succeeding (from idea to exit) with their ventures whereas those who failed once have a 20% chance of making it the second time. Furthermore, with a successful startup in the books, founders have a 30% chance to build another successful venture. That is, startup founders are more likely to build a successful company if they failed than if they’ve never tried. Don’t be afraid to fail; it’s all part of the startup success formula.
4- Startups Mainly Fail Because Of Lack Of Market Need
Remember the distinction between startups and small businesses above? CB Insights found that 42% of startups fail due to lack of market need for their products. Back to our examples, startups fail mostly because they find that people don’t really need a software that matches them with local CPAs, or the convenience of a software over social media managers, or an app to book rides. Most startups fail because they build products not enough people need. Entrepreneurs’ main responsibility and concern should thus be in validating the need for their solution before wasting time building great products that people won’t pay for or use at all.
5- Most Startups Are Self-Funded
A research by Fundable shows that less than one percent of startups are funded by angel and venture capital investors. 0.05% of startups receive venture capital funding while 0.91% are angel funded. Building or at least initiating a startup venture using personal savings, credits, family and friends has been the medium for most startup founders. 80% of startups are self-funded.
11- Team Is The Most Valuable Asset In Early Stage Startups
Every innovation is fueled by human capital so there is no doubt that a team is what drives every success story. However, at startups’ initial stages, with just an idea, vision and founders’ passion to build the next big thing, it is the team by which the startup is valued, that is, it is the team that investors fund, accelerators and incubators recruit, and key talents decide to join. Building a team with shared passion, vision ad with skills that complement each other should thus be one of the main priorities of startup founders while keeping in mind that, If you don’t have one, you don’t need a team to start
17- The Numbers Don’t Look Good. But That’s The Point!
Nine out of ten startups will fail. This means one thing: if you make it, you are unique. Better odds of success are not in entrepreneurs’ favor. That will simply mean that many can make it, many will thus attempt to make it, and the pie will thus be sliced too thin that hardly will anyone ever make it too big. There are other economic impacts to easier barriers to entry and success but the moral of the story is that entrepreneurs must embrace the challenge and fight to stand alone for the big prize.
23- Yes, You Can Make Money Before Building A Product
Using existing nonscalable resources is the answer to making money before building a product. In other words, it is about simulating the solution using existing ones that may have nothing to do with the product but can be of use to solve the intended problem in a non-scalable way. For instance, a simulation of an Uber concept can be as simple as a social media page with a phone number for riders to call. One of the team members picks up the phone, learns about the location of the rider, uses Find My Friend app to locate the other team members or contractors, calls the closest person, and confirms with riders. This is non-scalable and has a lot of limitation but can save founders a lot of time in development until validation (a lot of people call), generate revenue and possibly use it as a story to tell investors and future app users. Startup founders must consider alternative non-scalable resources to solve the problem before beginning code.
25- A Mentor Is An Asset
Research by MicroMentor shows that mentored founders increased their revenue by an average of 106% whereas those are not, experienced a 14% increase only. The same study shows that 49% of potential founders who received mentoring ended up starting their businesses and 82% survived for 1-2 years; 13% higher than the average new business survival rate. Furthermore, a study by techcrunch finds that 33% of founders who are mentored by successful entrepreneurs went to become top performers: 3 times more likely to reach an exit of $100 million or be in the top 10% in terms of the amount of equity raised, or in the top 10% in terms of number of employees. Good mentors clearly make tangible impact. Seeking and finding the best mentors is a similar process to finding the best co-founders and investors. It is about nurturing relationships.
35- Funding Doesn’t Guarantee Startup Success
Funding is an accelerator and not a success warranty. With funding, you would be able to do things a lot faster a lot sooner with a lot more people. Is this the startup success formula? Not always. Often times, funding is a sign of market potential. it also puts a valuation on the startup. Those are some of the little things that can help pave startup founders towards the right path for an exit. With funding comes responsibility such as investor expectation, limited decision making, tight deadlines, management responsibility and more. It’s a tradeoff. Striving to build the next disruptive startup, one may believe funding is the only way there. Although it can be an enabler, funding by no means guarantees success. The proof is in the numerous well-funded startups that never survived to see the light of the day.
39- You Can Start Part Time But Can Only Grow Full Time
Startup initiation is more of an attitude than effort. It’s the attitude that drives entrepreneurs to find answers and proof. Ideating, meeting with 100-200 potential users, building a testing version of the product, seeking user input, building again and validating can definitely be done part-time if resources are limited. It sure is a better decision than doing nothing. With traction, revenue and possibly an investment, entrepreneurs can commit to the venture full-time. Before starting up part time, know what it will take for you to dive in full-time such as 10 paying customers, 200 active users, $2,000 in monthly revenue, or a $100,000 investment, and finally grind smart by taking educated steps centered around user needs and not a mission to prove a product no matter what it takes.
The morning read doesn’t do the article justice, do read the full and very insightful article by Abdo Riani.
And as always, if you enjoyed this, check out the rest of our daily snippets, curated daily, right here on The Red Notebook.
