Even though startups have become so widespread by now, there are still many people who simply do not believe in them. Why? Because not only beginning something literally from scratch is damn risky, but this also requires extremely hard work. Not all talented specialists make good entrepreneurs, just like not many experienced businessmen are bright enough to create a new product without external help and check if their idea can work at all. That is why, it is always worth a try – on your own or with a good team! We decided to give you a small inspirational update on what startups can actually bring in your life and share some useful tips on how to make it cool.
First of all, remember: whatever future expects your project, the experience you will derive from contributing to a startup is priceless and will definitely boost your career. Nevertheless, be also prepared to work in an unpredictably changing environment with an under-market-value salary. Plus, the weight of responsibility you take will considerably exceed the impact and responsibility you would have working in a big company. At the same time, the smaller the team is, the more totally different tasks are assigned to each person: in the end, you get quite an impressive resume, containing a huge list of acquired/upgraded skills. And the most precious benefit you get from joining a startup: you are granted a wonderful opportunity to do something that has always been truly interesting to you, something that will capture all your spirit and creativity.
So let’s assume you are already there, spending days and nights on transforming a business idea into a real product to bring it on the market.
As you can see, startup development is a long way to go, and each stage will bring new challenges and push you to make a number of vital decisions. For sure, there are many inner and outer factors that will influence the project’s success. What we would like to focus on here, are such “hot” issues as: seeking for investment, incubator/accelerator activity and growth perspectives – acquisition or further independent development.
Seeking for investment: financial model is a must
“Money” problem has always been one of the loudest topics for discussion in the startup world and one scientific research is not enough to give a clear answer to the question “how to raise investment fast”.
Undoubtedly, to make money, your project needs to be attractive to everyone – potential customers, investors and even competitors. Project “attractiveness” is based on clear vision statement and proper business planning. As soon as you know exactly what to create and how it can be turned into a working product, it is time to come up with facts to support the “idea” stage. Numbers are facts!
According to an angel investor and serial entrepreneur Wade Myers, a great financial model is critically important along the whole startup development. Every entrepreneur has to take full responsibility for upcoming cash cycles and corresponding fine-tuning of the startup business model: it’s fundamental when raising capital, during the launch phase and when planning growth. And most importantly: investors may ask about your financial model sooner than they will want to know about the product itself.
An ideal financial model enables the startup stakeholders to do the following:
• model all offerings on a unit economic basis with associated revenue and costs
• easily submit and change all types of sales models
• see the cash requirements and the timing of required capital raises.
Building an ideal startup financial model is unbelievably complex for many reasons: due expertise, time and money. Furthermore, it is very unlikely that your first version will be the perfect one: financial model creation may take from two weeks to one year, you will rework and update it as your project develops and sales grow.
For a start, you can consider one of the following scenarios in your financial model genesis:
• simply draw a few numbers in a clear and logical manner on a spreadsheet and then gradually evolve them during the project flow (some self-education in finance needed)
• find a co-founder/team member with certain background in finance (who most likely will also lack expertise particularly in startup financial modeling). Together, you have way more chances to win
• hire a professional to build the financial model for you, but spend ages on knowledge transfer and demonstrating your startup core (quite efficient, but at the same time very time-consuming and expensive).
Whatever scenario you choose, the financial model will have to be improved with the time, so that your project does not turn into an out-of-control startup.
Case study: FriendlyData (Belarus)
Real success stories tend to be the best examples of theoretic guidelines.
In short, after Mikhail Rumyantsev came up with a startup idea, Alexey Zenovich and Aleksandr Zaitsev joined the team, and all together they continued hard tech work on FriendlyData. While developing the product prototype, guys were also generating the project business model (important!): studying customer profiles, reaching potential clients.
In June 2016 they met Alexey Girin, a representative of a venture fund known as Starta Capital and located in New York, and submitted an application. Worth noticing, the venture fund is focused on Eastern European startups and possesses great experience in assisting CEE teams with adaptation in the US.
In August 2016 FriendlyData became one of the top 10 projects selected for a three-month acceleration program in Starta Capital. The fund invested $130 thousand in each project, although a big part of this money went on payment for the program itself. In addition, Starta provided each participant with an office space in New York.
Participation in NY acceleration program became a real trigger for Belarusian team in their migration to the US. There, FriendlyData developers realized one important thing: it is necessary to plan and initiate sales before the product is actually ready. Working in close contact with the customer is truly essential.
According to Mikhail Rumyantsev, business vision must be generated from the very beginning, and a working business model is critical for participation in an acceleration program.
Starta accelerator then provided FriendlyData with opportunities to test a number of their business hypotheses related to a price model in the open markets. Initially, Starta Capital helped FriendlyData to develop the sales strategy, work out the product positioning and shared their experience in business communication, which is still a serious challenge for many immigrants from CEE.
What Mikhail strongly recommends to CEE colleagues is to participate in as many international startup events as possible: joining such meetups always spurs startup teams, provides useful feedback and numerous networking possibilities.
Discussing the startup growth perspectives, FriendlyData team expresses a clear intention to build an independent company, in contrast to the latest business trends, when most startups choose acquisition by one of the market giants. Guys are one hundred percent convinced that R&D works shouldn’t be outsourced, since they require huge responsibility and devotion from all team members. Which is why, FriendlyData will open their “production HQ” in Minsk, where they search for new teammates already, and promote sales in New York.
Don’t be afraid of failures
That’s official: 70-80% of all startups fail to bring a return on investment, while 50-90% startups abrupt their activity in a few years. (ref: Harvard Business School research).
Obviously, startup failure is a kind of normal thing: in most cases, it’s a consequence of the wrong business plan assumption. So take your time to consider all possible scenarios and gain experience of startup management. In return, you will be granted with a privilege to learn and make a difference doing something enjoyable.
Stay hungry, stay foolish. ©
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