Launching a startup company may be the hardest thing you ever do. This is a big question with many moving parts and hundreds of things to get right that comes from experience and art, not just black and white answers. However, there are many things that can be easily agreed on that will go a long way to getting you there. First, let's talk about the stages because it is clear that there are very different skill sets and modes of operation at different stages of the company's development. Let's call these stages Raw Startup, Early Revenue, and Established. Raw Startup is the idea development stage, working out of the home or "garage" without a significant burn rate. Generally, you are spending most of your time developing your plans, researching the market and customers, and defining the product. You may also develop the actual product, or need to raise funding to accomplish this. Early Revenue is when you have a product or service to sell. It might even not be the real product, or may be a service that gets cash flow going and builds the team and customer relationship that meet milestones to the real product. Established is a company that has customers and a revenue stream, maybe not any profit, but it is getting real close to REALLY understanding the market. You can only really understand the market by being in the market and having constant customer feedback on a real product. Until that happens, everything is theory and what people say they will do.
I recently heard that a company interviewed people going into a store about what they were planning on buying there, and then checked what they actually bought on the way out. In FACT, people did NOT buy what they said they would 70% of the time. A cold hard reality, and why investors want to see real customers that are paying cash, not just saying nice things about your company.
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First off let's start with the initial steps of a Raw Startup. All of these steps are while you are working out of your home and pulling the business plan together. You are avoiding expenses like the plague and trying to get up to speed on your business, product, and market. This is something the entrepreneur must understand fully themselves, and can not hire people to understand for them.
Step #1 - Idea - This is actually the easy part. Due to the constant march of technology new opportunities are always emerging. You must have an idea that will solve a painful problem and do it at an order of magnitude cheaper, or better, than anything else out there. This is the Better, faster, cheaper approach and in technology, products are generally the way to go. Alternatively, a paradigm shift product is much more expensive to launch, as change takes more time and money. So you need to leapfrog the competition by a wide margin, but in an evolutionary way, not a revolutionary way, which will require lots of capital probably. The margin must be so wide that companies have no choice but to listen to you and try your product or service. Sounds hard, and it is, but if you can't say this about your product, then it will be a difficult and slow process to get anyone to take the risk of working with a new company. They will simply wait for the next generation from their current vendors who will be happy to tell them it is coming soon.
Step #2 - Team - Begin to develop your team with the correct skill sets that hammers all the major risks, and there are many, with the right domain experience, the right level of experience (solution ideas, lead, manage, or do) AND working in the right stage company. A VP of Sales who worked at a $1 billion company does not likely have the skill set needed to be the VP of Sales at a startup. You probably will not be able to attract someone like that anyway as there are few that would take that kind of risk today. Even if you did, as many did in the bubble with easy funding of $10MM+, they still are not the right person. As a Raw Startup, this team needs to be virtual meaning you can get lots of expert help for short money or none at all. It is unlikely that one individual can do all that is needed to plan and design a business completely.
Step #3 - Market Research - Do tremendous amounts of market research and face-to-face and other interacting with lots of potential customers. When I say this I mean you the entrepreneur spending two, three, or even six months on this until you know you have it right. You can do this while you have no burn rate except your own personal expenses but as soon as you start hiring other people time has now become the enemy. The further you can get without hiring full-time employees the better. C-Level Enterprises is an example of that because we will actually have twenty different products around June 1st, but have only two employees and lots of virtual help. This is a Service product flip strategy that is great today because it requires very little capital and yet gets to the point of product leverage. Essentially service customers are covering your nut while you are developing your products(s) and you are also getting closer to your real customer market and learning, also on someone else's nickel. Your customers get great value too because they are getting the advantage of the product you are building directly or indirectly. This is likely to add value to your services for them too if your product and services are closely tied together. This should include developing a complete customer brochure and showing it to potential customers for feedback.
Step #4 - Develop Your Business Plan - At this stage, this should be an executive summary and/or a deck of PowerPoint slides that convey the Unique Selling Proposition and how you will get from here to break even. This is easier said than done and will require help from several people across all the major business disciplines. These people must have high-level management experience in sales, finance, operations, marketing, and product development, or whatever skills you can not say you have done full-time for five or more years.
Step #5 - Your Funding Plan - Today this is a different process and different plan than in the past due to the scarcity of early-stage funding. Develop a funding plan with options that do not require more money than absolutely necessary to get to breakeven. This is a simple financial model that you can understand completely and plug numbers into as new information becomes available. It is not time to hire a part-time CFO, controller, or accountant until you are very close to getting some revenue other than to review and comment on something you have developed. If you have no experience with financial projections you probably have no business starting a company and need to get that knowledge - It is not brain surgery, as I am talking about straight cash accounting here, not tax law, accrual accounting, or other gymnastics that will just isolate you from the reality of cash flow way too early. Even angel investors are insisting on breakeven cash flow 12 months out because they are avoiding the VC cram down that dilutes them to nothing. If institutional funding is required the market should be projected to be $1 billion or more in five years. However, remember 40% of the Fortune 500 companies were started with less than $25,000, so don't make the mistake of relying on VC money in this environment. I am recommending to most of my clients today to design a business plan that can get to breakeven on personal resources, then friends and family, and then $1 million in angel money alone. This is possible with many companies and gives you options. Because of the funding gap between $2 million and $5 million today many good companies are doomed to failure because their financing plan is all wrong from day one.
Step #6 - Prove you can sell it - At this point plans can diverge completely depending on the capital and time required to get to a first product. You need to develop something in startup mode, which means it is a focused 80% solution, not the end all be all you picture developing ultimately. You need a very targeted niche, which means an actual list of customers and a very tight profile with a good understanding of the "economic" buyer who signs the check, the user buyer who uses the product, and the influencers in the sales process. The ultimate proof is getting Pos or checks while being honest about the delivery time and risks if the product is not ready.
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At this point, you may be ready to jump into having a burn rate to get to the next level, depending on what your product development and funding need may be.
There are many ways to grow any company to this size. You can grow a product portfolio of small products, attack larger markets as you get bigger, or get there by acquisition doing a roll-up of other companies, merging for stock.
The fact of the matter is that there are hundreds of steps here and I am glossing over most of them. We have compiled over one thousand slides, 7,000 ideas, and over a dozen step-by-step systems to help entrepreneurs and CEOs go from raw ideas to $100 million in sales. This is all based on my experience as a serial entrepreneur since 1977 when I founded a business to sell antennas to ham radio operators with a friend. Since then I have ridden two companies from no revenue to over $100 million in sales, participated in eight startups and two multibillion-dollar corporations. I have learned lots of hard lessons in many industries and all-size companies and want to help you avoid some of the mistakes I have both made and seen.
The boot camp is three intensive days of lecture, exercises, training, and interaction with other CEOs. We call it "The Art and Science of Business Design". It is an event guaranteed to change and improve your business dramatically. We can't make you into a world-class CEO in one weekend, but we can open your eyes to an enormous number of problems that bite most entrepreneurs. Here are the tools you will learn to use that are guaranteed to increase your chances of success dramatically, maybe by 100%, 200%, or even more.
If at the end of the first day you don't agree this is the best investment you have ever made for your business or career, just let us know and return your materials and we will gladly refund your entire tuition.
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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
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