This week I had the chance to be a mentor for some CEMS startups (you definitely will hear again from the great winning team) and jury member of the Global CEMS (International Management Master across the globe) startup challenge. I met amazing talent that are striving to become entrepreneurs or are already entrepreneurs. But I realised one thing during these two days that I want to share with every business student out there, who is thinking about founding a startup. And there are quite a lot! What is more this number will even further increase in the next years, as you can see that universities, especially Business Schools focus more and more on Entrepreneurship in their curriculums and global trends that are reshaping the way people work (for more infos download this interesting report) will lead to a lot more entrepreneurs. Which is great, as a lot of traditional work environments are killing creativity!
But back to the topic and story I wanted to share. Ok so let’s assume you cannot code and have no product experience, which is true for most business students. It will then basically be hard for you to build up a tech startup on your own (or for your team of founders with a business background). To make it easier let’s further assume you can attract tech talent and you have found your perfect CTO. Everything is set up to rock the startup world. What’s your task now?
Get the fundamentals right!
Many of you will ask yourself now what does this mean? And what does it mean for my business or idea? And for my founder role? There are 5 bullet points (which are for me the fundamentals for a business founder) I quickly want to map out and I hope after reading them this all makes a bit more sense for you:
First and foremost — do your research and be prepared! Market size, pricing strategies, competitive landscape…numbers, numbers, numbers. All those things have to be business as usual for you. Be prepared, read blogs, articles, literature focussing on your business. Study competitors or companies offering similar services. Know market trends and how they could affect your business in the next 1, 2 or 5 years. All this (and a lot more) has to be natural for you. Because if you don’t have answers to obvious questions this means you are not prepared enough. And if you have answers to detailed questions your audience, clients, potential investors will appreciate that.
And competition does not necessarily mean that you can’t do it. It also means on the other hand that there is a market and somebody already invested in this market and therefore it is a proof of concept for other potential investors. But the question is: How can you be better and faster than the other companies out there? Or if you really found something that is unique how do you educate the market (which is in most cases even more difficult)?
2. Sales & Marketing
This leads us to Sales & Marketing. As business students this has to be your home stadium.
What’s your target group? Every investor will ask you that. Be prepared to know exactly how your ideal customer would look like. And how many of them are out there in your city, country, Europe, etc. (which is part of research)? What’s your market entry strategy? Do you go B2C or B2B or do you do both? How does your distribution strategy looks like? Who is in charge of Sales? How do your expansion plans look like? …
So if you decided which sales approach you are going for (and it will change over time anyway) another VERY important thing is your marketing strategy. Because your communication will look a lot different when going B2C or when going the B2B path. Decide on your customer acquisition channels. Either it is Digital marketing (Adwords, FB, Instagram, etc.), Content (Blogs, etc.), PR, Partnerships, Offline Sales, etc. Or it is a combination of all of them. Test your channels and staff your team according to your strategy. And then track which channels work best for your business. This gets us the next point, one of the most relevant ones.
3. KPIs & Unit Economics
So you know how to do sales and who is in charge. You have a marketing strategy, a target group and you know how you gain market share. You did your research and know the numbers. What’s next?
Now it comes down to execution and execution only and to become data driven as well as KPI driven. No matter if you are a marketplace or offering a SaaS service. If there is a first product version on the market you have to track your acquisition / sales funnel by defining clear KPIs along the way. This will help you to know exactly where you lose potential customers and where you have to work on your processes. Without knowing this you will spend a lot of money for zero or marginal growth.
Two interesting links on how to track funnels and become a more data driven company:
- How To Track Customer Acquisitions : Customer Lifecycle, Sales Funnel, and Content Strategy
- Data-driven startups: How to design and build smart funnels within your product
And there a looooot more out there around mysterious growthhacking and digital marketing!
The second thing that is important are your unit economics. Know your ratio between CLTV and CAC (and know what this means!!). Know what are comparable numbers out there on the market. Know how you monetise future products or product features and focus on those with the best unit economics. Do a proper financial plan (but more than 3 years is just random number guessing). Etc.
Again three links out of many:
A huge success factor that you cannot overestimate is your pitch. THIS IS CRUCIAL! If you cannot sell your vision (or if you don’t have one) few people will believe that you actually can deliver it! Decide within the team who is best on stage. This does not mean the person is the CEO. It is just a matter of fact that for some people speaking in front of an audience and rocking a stage feels more natural than for others. Work on your English if you are not a native english speaker and practice the pitch and storyline as often as possible. Here are some tipps from 500startups on your pitch.
So everything is up and running and you have the feeling this can be a huge business. What’s lagging? In most cases it is money and therefore you need to go fundraising (which is an art itself).
If you go fundraising don’t strive for dumb money. I know lot of you will say hey why not taking 200.000 from wealthy people for a high valuation? At first it seems alright but as your business grows and you want to take on VC money it will be a problem (for sure!). As a lot of investors miss the understanding for startup business models (or business models producing a big loss ;)), tech or the digital world in general. And a lot of Angels and VCs won’t pay the valuation, as they are much more aware of comparable market valuations. So go for professional Angels!
If you decided you want to fundraise with Angels or VCs if you are already further ahead know what they are investing in. Know their portfolio and know the partners to talk to. Chances are way higher to get money if you talk to someone who should finance your food delivery company if he or she has experience with marketplaces. Or if you are SaaS company there are VCs out there focusing on this topics (and for nearly every other verticals as well). Know the Investor scene as well as you know the market side. This will increase your chances to get the funds you want to raise. And don’t kill deals because you are too cocky on your valuation. 10% of a company worth 200 M is still more than 100% of a company worth nothing.
That was a short summary. In the upcoming weeks I will go into a bit more detail on some of this points. I hope it helps a bit and feel free to comment.
So if you do your research, know sales and marketing fundamentals, define KPIs, know how to structure and do a pitch and how to fundraise chances are way higher that you will be a successful entrepreneur!
PS: One last thing I wanted to mention: Hire the right people that will be at the same time ambassadors for your company and that share the same spirit! Especially in the first 1,2 years this is key. (Here you can find a nice overview of Google interview questions for your hiring process)