Before a startup ever launches, you should have a checklist of critical items in place. These items have nothing to do with writing a business plan or forming the articles of incorporation. In line with the old saying “well begun is half done,” without these basic requirements, the venture won’t get off to a successful start. Even worse, ignoring this checklist can lead to your investing a lot of capital, time, and energy – only to find out that you’re doing the wrong thing, with the wrong team, at the wrong time.
The Real Difference Between Startup and Pre-startup
I’m going to define the core difference between startup and pre-startup using a single word: commitment. Commitment means that the entrepreneur and founding team have taken a real risk to make the business happen. They are clearly and unequivocally in. It’s Dodge City or Bust. Without commitment, the venture will remain stuck in pre-startup mode – as an idea that will never be actualized.
For example, I recently had coffee with an old colleague who wanted to talk about his new “startup.” He had written a business plan, registered a domain name, and was seeking advice on raising capital and building the technology. He was still working at his day job, where he planned to stay while building on the idea in his spare time. As we talked, I could tell that what he really wanted was someone with whom he could discuss the idea – to explore it further and get another perspective. He was still just trying it on and not yet fully committed.
You can always tell if someone is committed to a new venture by his or her actions. Have they taken a significant risk such as quitting their day job or putting their own money into it? Are they excitedly and constantly talking about the opportunity? Are people rallying around their cause and vision? These are all great signs of commitment – and that’s when you know you’re in startup mode. With them, a new business can be born and has a chance of success. Without them, you’re still in pre-startup or it’s a non-starter.
Alignment of Vision and Values
Don’t overlook this. It’s a real deal-breaker. The bottom line is that every element in the venture needs to align with the founding team’s vision and values. This goes hand in hand with commitment because it’s impossible to be truly committed to something that’s not aligned with your vision and values. Imagine an entrepreneur who has a strong desire to make money. He or she starts a business in a cut-throat market where the money is good but most competitors engage in shady practices. In order to compete, this entrepreneur must sacrifice honesty and integrity and rationalize this inauthentic choice (“I’ll suck it up, do this for a few years, and come out with a boatload of cash. Then I can do some good in the world”). This entrepreneur is delusional. It costs a tremendous amount of energy and effort to go against your vision and values, even in the short run. The result is great stress, inner turmoil, and conflict. Even if the entrepreneur does hit a big financial payoff in the future, the resulting internal entropy is extreme. In most cases, these ventures end in a broken sense of self, destroyed relationships, and toxic addictions. Deep passion, commitment, and alignment are all essential to a healthy, successful business.
Getting the Right People on the Bus
In addition to having aligned vision and values, it’s obviously critical that the venture have, or be able to get, the resources it needs to execute. These resources include people, technology, customers, and capital, as well as the expertise required to start and grow the business. While capital can feel like the scarcest or most important resource, it’s really not. The truth is that all resources and expertise flow from the people involved. If you have the right people, you can uncover the right opportunity, build the right technology, attract the right customers, and get the capital you need to scale. Without the right people, none of this will occur. In his book Good to Great, management consultant Jim Collins makes this very clear. Jim talks about “Who’s on the bus?” as a metaphor for recognizing that what you do isn’t nearly as important as who is involved. In short, the greatest strategy in the world doesn’t amount to a hill of beans unless you have the right set of people who can execute.
Knowing your Customer’s Pain
In pre-startup mode, it’s also critical that the founding team understand the pain or problems of the target market. Too many ventures launch without a clear understanding of the customer pain or need that they are trying to solve. In my opinion, if there is no customer pain, there is no business gain. For example, I was invited to lunch last month with a funded startup. They had built a mobile application for consumers to record and share their drink purchases when out at restaurants and bars. They had spent about $150K of investor money building the app. Their problem was that consumers weren’t adopting it and they wanted to know how to pivot the strategy. I asked them to describe the pain or need of their target audience and they couldn’t do it. “Pain? There is no pain here,” they said, “it’s just a fun app to have.” I pointed out that even the most fun or frivolous app, if successful, has solved some underlying pain or need. In this company’s case, the real target audience was probably the bars and restaurants that had the pain of not having enough customers, or revenue per customer, and needed a solution. If they had spent time investigating their target audience needs more closely and identifying the real pain and spending priorities up front, they would have saved a lot of time, energy, and capital.
Your pre-startup venture doesn’t need a formal 40-page business plan. It does, however, need to be able to answer some basic questions about who the target customers are, what their pain or need is, how the product will solve it (and how this will be measured), why the venture is truly important, and why you are unique or different from the practical alternatives. You’ll also want to have a good understanding of the likely customer acquisition costs, product pricing, major cost centers, lifetime value of the customer, how customers want to buy the product or service, and who they prefer to buy it from.
All of this information takes focused energy and effort to gather up front. Having gathered this information early on shows that the entrepreneur is serious about the venture, has thought things through clearly, knows what to look for and measure, and can better adapt along the way. When researching the opportunity, you should of course assess the product and market lifecycles as well. If the business is too late to market, the market isn’t ready yet, the market is too hard to service effectively, and so on, the business should not launch rather than embark in a strategic folly. The alternative is blindly forging ahead only to waste $150K of your friends’ and family’s money. As a wise man once said, the plan is useless but the planning is priceless.
Don’t Wear Cement Shoes
There’s another critical process you should engage in before launching a business – and that’s doing an internal entropy scan. As you’re talking, planning, and researching the business, how are the internal friction or energy drains within you and the team? Are people getting more excited as you investigate the business idea further? Is commitment building? Do you trust and respect your potential co-founders and team members? Do they trust and respect you? Can you complement each other without causing a lot of unnecessary, energy-draining friction? Are these the people with whom you want to go into battle? If the answer is “no,” you’ve got an unhealthy sign of entropy and you should not underestimate its impact. My advice: pull yourself out or cull out the friction-causing team members before the venture gets started.
As you perform an entropy scan within the team, don’t forget to include personal issues that can either help or hinder the success of the venture. For example, if mission-critical founding members have a high level of friction and discord in their personal lives, this will have a magnified negative impact on the venture. Maybe they are suffering through a health issue, dealing with a toxic divorce, or in conflict with an unsupportive spouse. In all these situations, personal friction and entropy will rise, making it much harder to maintain the all-consuming focus required for a new business venture. On the other hand, a founding team member with the right style, skills, vision, dedication, and passion and who has a supportive family can be worth their weight in gold, even if they’ve never done a startup venture before.
So be mindful of the sources of friction surrounding the founding team’s lives and families, just as you would be mindful of them within the business itself. A larger company can compensate for contingencies and personal issues but a new venture is tied directly to the available energy and mental and emotional capabilities of the founding team. It’s a long journey ahead and you can’t possibly plan for every contingency but if you notice high entropy at the start, save yourself the time, capital, headache, and failure in advance. There will be enough to deal with after the business has launched and you don’t want to start out wearing cement shoes.
Permission to Proceed
To summarize the pre-startup checklist, an entrepreneur or founding team need to prove real commitment; feel alignment between the venture and their vision and values; find the right people on the bus; have a strong sense of the underlying problem that the market wants solved; and sense that they can solve it profitably. If these elements are not all in place, the founders need to go back to the drawing board and find a venture that does meet those requirements. If they do and take the risk, they’ll have a real shot at success.
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