As with everything in life, there’s no secret recipe in developing a successful startup. Then again, there are some tricks of the trade to help you get there. Developing an original business model is no easy task. But, given a certain structure and methodology, one can surely have better chances of steering clear of any “distasteful” practices. That is to say, practices that would get the entire operation into a spiral of death. First, we need to see what helps define success.
What is a successful startup?
To find out, we need to consider what makes for one. Emma McGowan, uses a pragmatic, yet sentimental approach to define it. And we agree, success can be measurable if you make a positive impact on the world, doing what you love and helping others. It can be measurable if you can still spend time with your family and be free to do what you need, through stability. And it can also be measurable if you’re happy doing what you do, especially if it doesn’t feel like work. Constant growth and evolution, disruption and “comfortably” getting out of your comfort zone can play a major part in this.
But if you add the Agile Manifest and some creative thinking into the equation, things can be greatly simplified. And even though one might think this is an over-simplified approach, it is still a pragmatic one; and it works. Here’s the deal:
From “dream” to “mission”
When you once set out to establish your new startup company, you started with a dream. The dream became a vision and slowly transformed into a mission statement. You tend to your mission, reaching small goals every day. And you do so, abiding by certain core values. Your own, personal values in life. That’s how you interact with your team, your stakeholders and your customers, don’t you?
In our book, all the reasons you need to succeed should be in the dream you started with. All emotionally driven considerations are already in there. Thus, one thing still remains; achieving your goals, reaching your objectives. Ah, and what a day that will be. Right? The day you and your team will have made a successful startup.
Getting there won’t be easy. The path to success is full of hardships. But, in all of its ebbs and flows, you’ll find joy beyond belief. You’ll find new freedoms and strength you never knew was there. But, before we get all mushy, there are some circumstances you need to meet, before you’ll be on your way to a successful startup. Now, there are a lot of different ways to solve a problem, but let’s go through our take on it.
Why is “SaaS” so popular these days?
Software as a Service (SaaS) has become extremely popular these days. Most SaaS platforms are cloud-based, making for more redundant infrastructures. This attribute makes them more robust, more secure and more trustworthy than any solutions we might have had available before. Especially since the ability to improve upon them and update them with new technologies and security measures is easier than ever before. And it can be done remotely. Our customers will never need to install and troubleshoot new versions again. Not to mention the downtime that comes with the entire process. SaaS platforms are so much better in so many different levels. They are:
1. Internationally available
Yes, indeed! Any customer with access to an internet connection can go online, get a subscription to any such service and start using it within minutes — or hours, at most. There is no longer the need for the customer to maintain complex infrastructures, on premise. This requirement is now included with their subscription plan. Why not let the experts do it? It’s all that more efficient! And it serves well towards a successful startup.
A SaaS is so much more difficult to make than a piece of software that comes with a custom SLA. And the difficulty lies within the effort to successfully and efficiently address the problems and needs of a wider range of users. Having said that, that type of abstraction comes with several benefits. Flexibility, easier maintenance, even affordability. And in building a successful startup, you’re sure to need those!
Revenues from a single, generalized platform need not be based on overcharging a few customer for a single project. All customers get the same product and the same user experience, through the same subscription plans. That’s the basis for the “democratization of the enterprise”. And that’s why we all enjoy so much more affordable pricing with all these complex platforms than we would get in the past.
3. Universal and compatible
Since Bob Bemer’s ASCII, cross-platform compatibility has continued to evolve, constantly bringing us new ways to make things work over different technologies. Today, a SaaS platform has the ability to function on browsers of all “makes and models”. It will work well on mobile devices, desktop computers, tablets and whatnot. It is, for all intents and purposes, a universal and generally compatible solution. Especially since web browsers went evergreen.
4. Automated for self-service
Since a SaaS platform is abstract enough to be generalized over all the different market segments, the product is horizontal enough to support relatively straightforward SOPs. The benefit of this generalization is that most pre-sales, sales and after-sales procedures can be made valid throughout the customer base. And that fact raises the opportunity for automation at many different levels. Prospective customers can learn more about a platform, buy a subscription plan and solve basic issues on their own, without picking up the phone even once.
In sales, this is a hugely time-saving “feature”; in customer service, as well. Less people are needed to do the job, as well. That’s how SaaS platforms can afford to charge so little for their subscription plans. A product that’s automated for self-service is much more readily available to customers than one that needs an account manager and a few representatives to get the job done asynchronously. How’s that for a successful startup?
5. Designed for business continuity
Even though this is mostly a pleasant coincidence, SaaS leverages business continuity. And, despite the fact that business continuity also needs some robust infrastructure in monitoring, backups and recovery options, a SaaS platform will successfully detach the geographical or local factor from the equation. All you’ll need is a laptop and a browser and, whatever happens, you’ll be able to be up and running in a matter of minutes.
What types of markets seem to be working for a startup?
A startup, any startup, needs a differentiation factor. One that will make it stand out from competition. Typically, there are a few “safe bets” of a market type that most startups will turn to, to improve their chances of success.
1. Disruptive markets
Disruption has always been a way to gain customer attention and popularity. It has also been a means of evolution, at many different levels. Startups, nowadays, try to be disruptive in as many ways as possible. Innovative solutions to new or older problems is the most prominent one. And, while there’s the risk of having to educate users what it is you’re doing, how and why, if done carefully, it can yield maximum results in the least time possible. It may prove a useful tool if you want to build yourself a successful startup.
Disruption varies from startup to startup, depending on their production capacity, funding, positioning and their time window, before competition catches up. A “less” disruptive approach, still inducing disruption, may be a more affordable pricing model. This approach has been known to be implemented, especially when the company is able to use established methods to achieve their goals, not having to reinvent them.
2. Large markets
It is a well known fact that a new player in any market will — most of the time — not be able to manage to get a large fraction of the market for themselves. Looking at this problem in absolute numbers, one would far more benefit from 1% of a $5B market, than from 1% of a $5M market. That is, they would be able to get an annual income closer to $50M in revenues, as opposed to a mere $50K. That’s why large markets help attain the desired cash flow much faster than any other type of market. And, wouldn’t that be a treat for better morale throughout the team? Not to mention, what successful startup would settle for a mere $50K annual revenue?
3. Niche and long-tail markets
A niche market can be used for extremely specialized products. A long-tail market can be used for generalized, abstract products that can help different types of customers. The problems and needs of niche customers are much more easier to define and clarify than those of long-tail customers.
The difference lies in the pricing policy. A niche customer will typically pay a lot more for a specialized solution than a long-tail customer would pay for a generic solution to their problems. A niche-oriented company will meet revenues through less customers that have a greater lifetime value. Whereas, a long-tail-oriented company will offer their product “en masse”, and will meet revenues with a much greater user base of lower lifetime value.
The latter approach, tends to take care of a single point of failure predicament. And, it does that by avoiding marginal circumstances; such as a make-or-break situation, where a (niche) company may become non-viable by failing to retain only a handful of customers.
Now, opting for a successful startup yourselves, you should, at least, consider your most high-speed market. Right?
4. Unified markets
Unified markets tend to share one or more common feature. It can be partial or total resemblance in currency, legal frameworks, cultural traits, customer needs, common objectives. But, it seems the most efficient common denominator would be a common language. Markets that share the same language are easier to approach all at once. There needs much less of an effort to be made in providing them with different content, different user experiences, in different context, in multiple languages. It also eliminates the need for a translation program or more sophisticated QA procedures; and it minimizes the time needed between releases.
All things considered, a unified market is exactly what a startup needs before hitting the “cash-flow positive” point. The less effort they need to put into their MVP, the less fund they will be needing. And that’s a runway extender, in and by itself. It may help increase the odds of you achieving your objective of a successful startup.
Who are the stakeholders in a successful startup?
The stakeholders in a startup may differ depending on its stage and status. A pre-seed startup may only enjoy the company of its co-founders, the CEO and the rest of the team. As it grows into the seed stage investors will come into the picture. There may also arise a need to develop some kind of advisory board, typically inviting some of the best customers to take part in it. And, as soon as the company hits the point of Series-A investment, a VC, and a board of different market experts, advisors and partners will take form to assist in educating difficult business decisions. That said, a company may elect to shape such a board at an earlier stage, depending on how business-savvy are the CEO and co-founders, on their own.
1. CEO and Co-Founders
The way we’ve seen it work, especially in building a SaaS platform, a successful startup will need 2-3 co-founders with strong business ethics. Their fields of expertise should include the following:
- Business and management
- Marketing and growth
- Information technology
Whether one of them will be the CEO or not, largely depends on their ability to manage people. They may even elect to assign a different CEO if the product or service suffers from severe cases of regulation red tape. A CEO that knows their way around laws and regulations will be more capable to steer the ship clear of any menacing reefs.
2. Team and Supporting staff
A startup should be built on some kind of structure. Even a loose one will help. Each of the co-founders needs to manage an aspect of the company. To do that, they need people that know the job and can work towards the same direction. Let’s take a SaaS platform as an example.
For instance, a co-founder with a technical background will be in charge of the development teams, guiding their efforts and solving difficult technical problems, opening the way for them to do their job as seamlessly as possible. each development team should be assigned a different component or module of the platform. And they should have a senior engineer or architect to guide them through it. If working with Agile methods, each team uses a Scrum-master to help resolve daily issues and guide the process, constantly improving it. All teams may share one Scrum-master, depending on her capacity to accommodate their needs.
All remaining aspects of the company need to be build on the same premise, under the same philosophy. What’s important here is, all this structure aims at leveraging collaboration. Team members should be urged to learn; admit ignorance and ask questions, when necessary. A startup team that blunders blindly forward will get nowhere, fast. It’s, simply, the wrong mindset to be in. And that’s no way to build your self a successful startup!
3. Investors, VCs and Boards of “directors”
Whether your funding comes from a VC, an Angel investor or a Limited partner, you need to keep them in the loop with any advancements at the business level. Sooner or later, a board of different market experts, advisors and partners will need to take form. They have the knowledge and experience to assist in making difficult business decisions.
And, as it’s probably apparent by now, they are not so much “directors”, as much as they are experts, advisors and partners. However, an investor with a vested interest in the company, does actually have a say, depending on their shares and the expertise they bring on the table.
4. Customer advisory board
These are mostly advisors regarding the product and the direction it should take in development efforts. The best — and probably — quickest way to shape a customer advisory board is to invite a few customers that you have a great relationship with, to help guide the validation process over customer needs and customer development. While not mandatory, you may need to consider this option, especially if you’re having difficulty getting the necessary signals from your market, in determining what problems are really worth solving. That’s a successful startup waiting to happen!
Ingredients to success
If you ask us, these are, more or less, what every type of business needs on the road to success. But, let’s have a look at it from a startup’s perspective. Here’s what you need:
1. A viable business model
Of course, your business model is all but viable. At least during the first few stages. It takes long a series of validation plans and experiments to figure out how everything works and how to get there. A business model canvas, or a Lean canvas, as we prefer to use, incorporates nine different components. You need to troubleshoot each one of them until everything works. You should treat them as links on a chain. Deal with the weakest one first, to keep the chain from breaking.
2. A proven methodology
Any endeavor that will take longer than a day and will need more than two people, needs to be carefully thought out, designed and planned for productivity, efficiency and results. Maybe for being future-proof, even. A methodology that is popular with startups is the Lean Startup methodology. You can also work with a delivery system based on Agile practices to bring results in the most optimal way. In software development, at least, these are proven methodologies. And, that’s despite the fact that the Lean Startup methodology came from the production line at Toyota.
3. A culture of collaboration and information dissemination
A startup doesn’t have unlimited time — or resources — to get things done. Funds run out; people get disheartened and may abandon the effort, altogether. A culture of direct collaboration is much needed, if you want to keep things moving. But you also need them moving in a timely manner.
Now, startups are curious beasts. They start out with a type of currency that is entirely different than money. That currency is knowledge. They constantly learn more about their market, their customers, their product, their options; even about themselves, as a team. Eric Ries calls this “innovation accounting”, in his book “Lean Startup”. And, without it, the ship will soon be running on fumes. So, you also need a culture of information dissemination. This is essential to your survival through these few difficult stages of “adolescence”.
4. Transparency and honesty
It’s an adventure, a startup’s journey. It’s full of dips and spikes, so diverse, that you oftentimes will have a hard time making heads or tails of. You need some serious brainpower to get through some of these crossroads. And you can only do that if you share what’s happened with the entire team, at full transparency and honesty. If nothing else, they are the most qualified advisors to help you get through these moments of hardship.
Most importantly, common hardship is probably the best way to bond people and bring them together towards a common goal. You should give it a try! You’ll find that people are usually eager to help.
5. The extra mile mindset
This one speaks for itself. Anyone who works with a startup will tell you they’re not in for the money. They’re in for their ideals. They want to help better the world, leave their mark, even a small one. They want to belong to a cause that is bigger than themselves.
A team like that will probably go the extra mile without you asking them. They know what the extra value will bring. This whole thing may sound a bit “romantic”, but it is really how it works.
If your team doesn’t think like that, you probably have the wrong team on board. Give this some thought before it’s too late.
Who leads the game?
We have yet to discuss the driving force that leads an idea from aspiration, through the intricacies of a vision, a mission, a set of values and intimate collaboration, into verifying viability and growing — perhaps even scaling — up to success. What is, really, that obscure driving force? Where does it hide, in all the reasoning behind a good market, the perfect stakeholders and the ingredients to get some gears spinning? What is the key to get the engine really started?
Well, what makes you tick? Let’s look at a metaphor.
The human body
Our body incorporates all sorts of organs and mechanisms, primary and redundant to keep us going, no matter what. But, there are a couple of them that we definitely can’t do without:
1. The heart
It keeps our blood moving throughout the entire body. All organs are provided with the necessary nutrients and oxygen to keep us in good health.
2. The lungs
We can only get our oxygen using our lungs. As we breathe, the lungs bring in oxygen and distribute it to all tissues, through our blood.
3. The air we breathe
As it is, we can only find usable oxygen in the air we breathe. That’s how our respiratory and circulatory systems work. In lack of it, we can no longer “tick”.
Successful startup or not, much like the human body, a startup is a living breathing organism. And in order to keep its gears spinning, we need the equivalent of a heart, lungs and breathable air. To complete the analogy, here’s what we need:
1. The team
As the heard does, the team is what keeps all the efforts going. Perhaps even fruitful. It’s the power-train of the company.
2. The network
Without customers, there is no viable startup. It’s through customers that a startup can breathe. Customers come through a startup’s network. Investors, partners, experts, associates, influencers, reviewers are part of this network. And if the time comes for a viral growth engine to move its gears, customers can also be a good part of this network. As the lungs do, a startup’s network is the way for it to breathe.
3. The investment fund
Bootstrapping, crowdfunding or regular equity investments revenues is what a startup breathes. But, until the time comes for it to spread its own wings and fly, it must use other means of sustenance. As the air we breathe, the investment fund is the means of sustenance for a startup, during its first steps and, for years to come.
What’s it going to be, then?
Surely, you must be able to see the analogy between key functions of the human body and key functions of a startup. A startup is, in essence, a living organism. It changes, it mutates, it adapts; and by means of its people, it breathes.
A way to ensure success is to mitigate the risk of failure; eliminate it, even. Use your team. Use your network of associates, partners, experts and infuencers. And use your budget wisely. Extend you runway through good management. Not through another series investments. Your startup is your toddler. Don’t dilute it without consideration. And certainly, don’t mindlessly give it away.
So, the team, the network and the investment fund. These are, in essence, what we think are the three things your startup can’t do without. We hope you do, too!