Things every start up should know from a guy with the t-shirt
Like a lot of start up entrepreneurs, I kind of “fell in” to this.
After a very successful career in international mechanical engineering businesses, really enjoying myself and achieving a highly successful exit with my last Management Buy Out adventure, I was feeling pretty bulletproof in having achieved great results in pretty much everything I’d tried to do in my career. Good for you, I hear you say…
During the last few years, as well as my own product and business start up adventures, as CEO of “3rd Digital” delivering product solutions for other start ups, I have had the good fortune to advise many people on their projects. I’ve learned that “start up” is very different and in many ways much more difficult than taking over an existing business and turning it around, which is pretty much what I’d done before that point.
The main difference being that in an established business, even one that is going badly, you have customers and there is some kind of cash flow. Generally, an overhead structure can be arrived at that can deliver a break-even and from there you work out what you need to do better to get the topline up and deliver good results. Generally, that means just fixing stuff that is broken.
Start up is not the same and the main difference from my perspective is that with a clean piece of paper, there are a lot of unknowns and unknowns are things that no proper business person likes because they are unpredictable. They are the enemy of every business plan.
So my first piece of advice to every start up is…
Know your unknowns and get really creative to eliminate them as much as possible.
Like the warning that goes with most financial products, past performance is not a reliable indicator of future results. In my case, after years of manic travelling, at least 200 flights a year for almost 10 years, with all the consequences that such a lifestyle can have on one’s family, I wanted a change of pace. I was passionate about fitness, cooking and nutrition and saw a gap in the market for a truly health conscious eating out experience. Great!
I carried out my typical MBA market research about local market size, calculating how many people would be into such an offer, interviewing people about their preferences, with practically universal “this will be brilliant” responses and felt confident about starting up.
As I personally had no domain experience, I recruited an experienced manager & chef, went for a best of everything fit out to the premises, had great sales for a month and then just a slow death!
Even though I thought I’d done some proper research, I’d ignored what is now known to me as “ugly baby syndrome.” Nobody will tell you that your idea sucks. Especially not your friends and family. Whilst, yes, people would like to have a healthy eating out experience, locally in the small Northern Ireland town where I live with roughly 30,000 people, not enough of them have the disposable income to do that regularly or the actual inclination of wanting to be good when they eat out, when they try to do that all the time at home.
Whilst I’d done some research, I had not properly validated it or even looked for obvious local signs for validation.
Looking back on this, there were some really simple things that I could have done that would have given me some real information without even having to do a pop-up. For example, I have friends who have restaurants in the local area – ask them to put on a couple of truly different healthy options on the menu, with calorie counted, dairy and gluten free and see what kind of actual take up we get for that?
From what I now know, in our local market, a truly minority segment of the market and not enough to sustain a business at scale.
We are now getting really experienced at finding ways of reducing the uncertainty of unknowns.
Recently, we have helped several 3rd Digital potential customers discover that their ideas really suck. Simple questions like, “how many end users have you interviewed?”, “how much is it going to cost you to get a lead?” and “have you carried out any lead gen experiments?” help either to highlight an area of weakness or potentially kill a bad project. I’m really proud that we are different from a lot of Software Houses that are great at building software but don’t have the business experience to give advice outside of software architecture and user experience. Even without ill intentions, they end up simply taking badly prepared dreamers’ savings and build some perfectly functional piece of software that nobody will ever use or even see.
I know because I’ve been a dreamer baby & I’m not the only one…
Recently, we had a $40k potential project customer where we were 1 of 8 companies that he was talking to. We were the only outfit to tell him that the scope was way too wide to execute effectively for that budget and in the interview, it was painfully obvious that there was very limited domain experience in the areas at the periphery of the project with huge unknowns. It was a bit of a risk for us to tell him that his offspring wasn’t beautiful but now he is giving us $5k to help him scope out the project properly and then go out to market for the build. It’s not a big sum of money but it will be fun to help him come up with something serious!
I don’t want to mention names but one of our current clients for whom we are building a platform was able to demonstrate customer validation in the extreme. They posted on https://www.producthunt.com/ and got the top spot for a day with 350 beta test volunteers. Now that’s more like it….
Finally, what most people don’t realise is that start ups have one unique gift that established businesses, don’t have. “Everyone wants to help a start up,” so once you’ve identified those unknowns, get out and talk to people (potential customers) and as many as possible. Play the “I’m doing some research for my start up project” card and you may well be surprised about how receptive people are… be “structured but general” about your research around the problem you are trying to solve and only get specific about your product idea towards the end of the interview and get proper feedback on that. Get feedback on pricing potential and how likely they would be to commit to a purchase. One key indicator will be the question, “who else can you refer me to?” as generally, people won’t refer things that aren’t good to their friends and colleagues!
Hopefully, this advice helps someone…
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