This article is the script of the Founders Club Maastricht session 22nd September 2015. Thank you to all Founders Club members to show up.
I cannot teach you how to start a startup. That is not the intention of today’s session. Last week we received the feedback that it would be cool to get an overview of how this actually works. There is no recipe. No truth. But I intend to give you a rough framework and an overview of topics that you should be aware of. On the other hand this also is intended to give you an overview of topics, that you should learn yourself and that we will try to cover throughout our sessions.
- You need an idea.
- You need a team.
- Then you need a product
- A company
Before we dive into these topics, I think it is important to get a common understanding of what we are actually talking about, when bringing up startups.
Who can we ask for advice on this? Steve Blank, also called the Godfather of startups and modern entrepreneurship defined a startup as following:
“ A startup is a temporary organization in search of a scalable, repeatable, profitable business model.”
Excerpt From: Blank, Steve. “The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company.”
Now that we know what a startup is the question is how to make it right, right? Therefore, I like to quote somebody else who is quite influential in the startup community. In the intro lecture for the Stanford course on “How to start a startup” organized by Y Combinator, Sam Altman stated the following:
“The outcome is something like idea x product x execution x team x luck, where luck is a random number between zero and ten thousand. Literally that much. But if you do really well in the four areas you can control, you have a good chance at least some amount of success.” – Sam Altman
I often think about this statement, and the more I do, the more I understand how beautiful this statement is. The four areas idea, product, execution and team are essential to master. Prioritizing these areas is useless. You need to be good at all of them. Ultimately, for being successful, randomness or luck gives a very interesting flavor to the whole equation. Think about it along this evening.
Okay. I think we are ready to go into the idea area. All starts with having an idea. Develop it and carefully formulate it. What makes an idea good? There exist different opinions. Most importantly you realize a problem or a need of a group of people. This problem or need should be big enough for them, to be willing to pay for a solution.
That seems clear and logic to everyone, who hears this. But in reality when being at a pitch competition you realize, that in action and reality a lot of startups try to solve a problem that does not really exist. Or it exists but the switching costs of trying out a new product is so high that nobody wants to use your solution. Even when it is for free. There is a difference between, what you think would be nice to have or a market that wants your product or not. In startups, the market is always right.
Therefore, after having an idea, you need to validate it. Go out, talk to customers, understand what they want. Validation is absolute crucial. In the beginning people fear to talk to people about their idea. Somebody might steal it right? I have some degree of understanding for that fear. But it is wrong in the most cases. When your idea is so easy copyable that a quick conversation somebody is able to rapidly copy a better version than yours, then it is not a great idea or your execution is too bad. Startup is so hard, that the chances for someone being successful by stealing idea is so low, that the benefits from exposing your ideas to somebody else’s judgement outweighs the risk by far.
With an excellent idea in your pocket you wonna gather a team around you to execute on that idea. Working alone is tough. There are one-man startups, but usually the founding teams comprise between 2 to 4 people. Do not found a company with people you barely know. Founding a company together is like marriage. You are contractually bound to be an economic unit. If one person in the team sucks, it is extremely hard to overcome this difficulty. Therefore, you guys need to be careful of who you want in the founding team. The other aspect of the team is that you sort of want “Jack of all trades” with one specific area of expertise in which they excel. With the founding team you want to be able to do magic. Have an incredible output. This form differentiates you from a normal company. Be quick, at low cost. The less people you have on board the least you need to manage. In the founding phase management is useless time. You want to be quick in output. Therefore, you want people that have a specific skill. Something concrete, at which they can generate output. If you do not have a specific skill, my biggest recommendation is: get one. Learn coding, design or marketing / sales. Become good at it with practice.
With a good idea, that is roughly validated and a team that is kickass, you need to build your product and ship it. That is now easier said than done. In my experience, this is the part where the majority of us have the least experience. In order to build a great product you need someone at least in the team that is experienced in building stuff. The product is also the key competency that you should build up in your company. Keep core competencies within the team. The product development skill is one of the most valuable assets within your company. There are also different forms or stages of the product. The golden word to start with is the Minimum Viable Product (MVP). This term comes from product development and was again popularized by Steve Blank. What you aim to achieve in the early stages of your startup is to build the version of your product with the minimum amount of work for customers to like your product. Find a way to solve the problem of your customers, with the smallest product possible. If you efficiently find a way to build it and early adopters use and love your product you are on good way. Achieving that is usually hard. Often you build a MVP and need to iterate on your product several times until you hit the spot where customers love you.
When you have a product that works and customer want it, a company is only a natural consequence of legally sorting out the organizational structure of your business. I personally don’t believe in company for the company sake. It is a legal person that is able to protect your IP and manage your capital. Do not overblow its importance. One important aspect to figure out as early as possible with your co-founders is equity split among the founders. Meaning how many shares will each of the founders own. The earlier you talk about it the clearer everything else is settled. Having a company is also the requirement to handle external finance. This financing part is another largely complex topic. Everyone finds a different model. A traditional model is that you start-off with your own saving plus friends and family that chip in. Once you got a running MVP with some traction you are more or less qualified for seed investment. That investment ranges from 100 to 500k and serves as capital to help move up your company to have a final product and opening up to a wider public. From then onwards you look for venture capital or serious investment to build up your company on a global scale.
Is now all clear how this works? It should not be. But understand the steps and key areas in which you need to be good at. Before we close here I want to give you a little more takeaways.
- Start realizing that nobody knows how it works. You need to find your own truth. There is no recipe. There are only people with a successful business and others that have not. The ones with a successful business usually found one way to get there. Humans have a bias to see and explain things in causation. Even the view of successful people is biased. Keep that in mind when you listen to successful entrepreneurs.
- In line with the previous statement: Try to read and learn as much as you can. But do not make that stop your action. Reading should complement your little experiments. The more opinions you hear the better you find your own version of the truth.
- Learn about Customer Development, Lean methodology and Business Model Canvas. That is the absolute minimum in order to talk “StartUp”. It is a great framework to guide you. There are great online sources as for example the Udacity Lean Startup course from Steve Blank himself. Another great reference in the “How to Start a Startup” lecture series by Y Combinator and Stanford. The lineup of speakers and the range of topics is one of a kind.
- Share information. In economics 101 you learn that free trade maximizes overall wealth. Join the startup mentality of free flow of information. Do not hold on to the little pieces you know. The previous advice of “Finding your own truth” does not rule out to share valuable information. If a community as Founders Club keeps free and open information flow, we pool much more information together and everyone is better off. Everything else would be pointless.
- Just love it. Enjoy every moment of it. Last year during my studies I got so bored of the ever repeating academic texts that were far from reality. I do not recommend quitting studies but see startup as a counterbalance. Use your time efficiently and useful. Understand the value of the time that is given to you and embrace every moment.
- Above all. And that is the very standard advice. Get started. Build stuff. Go out of the building to get feedback on what you built. Return and make it better. Action should be your biggest credo. It is mine.
Thank you for your time.
Author and speaker