Monday, November 30, 2009

Before we Start...

One of the most important aspects of a start-up is its idea. The underlying idea may not need to be always brilliant but it should be always meaningful. According to Guy, a meaningful start-up should make the world a better place. It should increase the quality of life. A start-up can be also meaningful if it corrects a terrible wrong or prevents the end of something good. In essence, our idea should create some value for the world. The history tells us that many start-up ideas are also simple. For instance, Google’s idea was to create a clean and simple search interface having ranked search results. eBay wanted to create a system for a “perfect market”. However, a simple idea does not mean the implementation of it is also simple. Many complex and extremely innovative algorithms involve behind Google’s simple idea.

Having the most brilliant idea that even could save the entire human race does not necessarily mean your start-up will be a success.  It is said that good ideas cannot save by bad people while good people can even fix bad ideas. Most of the successful startups suggest us that there should be at least two but not too many ‘soul mates’. Having a single founder is boring while too many founders lead to too many disagreements in the beginning. Founders are not just ordinary people, but who believe in themselves and really wanted to make a meaningful change to the world. Ultimately, they want to make big money and to list their names on the Forbes lists.

Usually, there is a tendency that the soul mates are met around places like universities. For instance, William Hewlett and David Packard (attended Stanford University) founded HP, Larry Page and Sergey Brin (attended Stanford University) founded Google. Bill Gates and Paul Allen (attended same private school in Seattle) founded Microsoft, Steve Jobs and Stephen Wozniak founded Apple.

Now we have the right idea and right people. What is next? Guy proposes that we should start building a prototype rather than wasting so much time on planning. However, the prototype needs not be perfect but something conveys our idea. By this time, we should also come up with our business model. After all what is the use of best idea in the world if it cannot generate enough profits. Without an effective business model (with no money), our start-up will die and we will not be able to serve the world with a dead start-up. However, you may not need to spend lot of time on this as by now people have invented every possible business model. You can simply copy or adapt an existing business model. According to Guy, a business model provides answers for two questions.

  • Who has your money in their pockets?

  • How are you going to get it into your pocket?

For instance, eBay’s business model is “charge a listing fee and commission from the sellers”.

In many cases, we may need to get help from few venture capital firms. It may take few years to build your business to achieve breakeven. To make this faster and stabilize your start-up, Guy suggests building a MAT. MAT stands for Milestones, Assumptions and Tasks.

Any start-up should reach seven most important milestones among many millstones it may have. Failing to reach any of them could lead to the failure of the start-up. They are,

  • Prove your concept.

  • Complete design specifications.

  • Finish a prototype.

  • Raise capital.

  • Ship a testable version to customers.

  • Ship the final version to customers.

  • Achieve breakeven.

You might have made several assumptions when coming up with the expected outcomes of the start-up (e.g. milestones). These assumptions may include but not limited to the following.

  • Product or service performance metrics.

  • Market size and growth.

  • Gross margin.

  • Prices of parts and supplies.

  • Customer return on investment.

Time to time you have to test whatever assumptions you made. Usually it is a good idea to evaluate your assumptions at each milestone and react to them if you find they are no longer hold.

Finally, you should prepare a list of tasks, which covers every aspect of your organization – from design and manufacturing to selling and support. Your list may includes tasks such as renting office/manufacturing space, find vendors, filling legal documents, establishing delivery methods, etc...This comprehensive list enables you to understand the full picture of your business. It will help you to identify possible pitfalls and plan.

It seems starting up is not simple and requires little more effort that I thought. However, if you are lucky enough to meet your Soule mate(s) and come up with a reasonably brilliant idea, you are ready to earn your first million.

Works Cited

1. Kawasaki, Guy. The Art of the Start. 2004.

2. Graham, Paul. How To Start a Startup. [Online] March 2005.

No comments:

Post a Comment