Do you also have a brilliant idea or just a smart solution for a daily problem? Do you think there is good money to be made with that? You’re not the only one. About half a million Dutch people think the same. Most ideas don’t get much further than one’s own braincase. But even the ideas that are realized through a start-up usually end in failure.
Is that a recommendation not to get started with a new idea? Absolutely not. But you have to realize that a new idea does not immediately lead to a fortune. The dream image to become the new FonQ, WeTransfer, bunq, YoungCapital or Zivver is of course a good motivator, but a reality check is in place. Take a look at this list of experience facts:
- Your income is often relatively low.
- Your number of hours worked is often high.
- Collecting money is much more difficult than expected.
- Product development is going slower than expected.
- Finding good employees is extremely difficult.
- Customers are dissatisfied with your (first) product.
- Suddenly there are competitors with much more money.
- Legislation suddenly changes, so you have to adjust everything.
If you keep those things in mind, your start-up can still be a success. The key condition here is that you are not only good at coming up with a concept, but you are also able to execute it well. You must also have executive power, so to speak, otherwise it remains just a nice idea…
You won’t get there with a nice idea for a start-up; you need serious execution power. -Jeroen Bertrams
From idea to exit
Jeroen Bertrams previously set up four companies and is now active as an investor in start-ups. As a result, he now has interests in more than 200 companies and therefore knows where Abraham gets the mustard. He summarized his knowledge and experience in his new book ‘Start-up: from idea to exit‘ (aff.), in which he describes step by step how to make a success of a start-up.
It is interesting to read that he describes the cycle completely. From the first idea up to and including the sale (the ‘exit’) of the company that has become successful. But let’s start at the beginning. The step-by-step plan consists of the following 10 parts:
- The base
- The team
- The product
- Incubators en Accelerators
- The pick up at angels
- Achieving product-market fit
- Business model
- Raising money from venture capitalists
- Sell and start again
1. The basics
It is of course essential that you describe exactly what your start-up will offer. Which product or service will you conquer the world with? It is useful to your ideal customer well in sight. The more specifically you define it, the more targeted you can make your offer. You can always expand later.
What you also need to make very clear is the reason why someone would purchase the product or service. What problem will it solve for the customer?
Finally, you determine whether the plan is feasible. What are the expected costs and benefits in the short and long term. Maybe your start-up is brilliant, but realistically not profitable. That should be a good reason to end it at an early stage.
2. The start-up team
The composition of a team is for a start-up for a lifetime. It is important to bring the right mix together. Three marketers forming a company together is a bit unbalanced. More is needed, such as someone in the field of technology, but also finance and administration.
Hiring the right people also remains a challenge. Always trying to find people from whom you as founder can learn something is the art. If you have not brought in the right person, do not hesitate to say goodbye quickly. That is why those first months are called probation.
You have to bind and captivate the employees who are crucial. You do the latter by providing challenges. The former is often successful with share packages, which can only be cashed in after a few years of performance.
The adage for every start-up: Think big, act small!
3. The product
Yes, that’s what it was all about. You came up with something… By quickly developing a prototype in the form of a Minimum Viable Product (MVP), you can test how ‘the market’ reacts to it. Don’t make the mistake of considering your family, friends and acquaintances as ‘the customer’. Their friendly feedback is usually of no use.
You need to test the MVP with a specified target audience. There you can investigate whether there is a problem-solution fit. In other words: does your product solve a problem for the customer. Your solution may not be the right one. But you may also discover that the problem does not actually exist at all. Then it’s time for a pivot. A radical turnaround to work out something else with the collected intellect (and capital).
4. Incubators en Accelerators
In order to be able to take big steps with your company, outside help is always useful. Mentors, access to tools and networks can help accelerate development. An incubator is mainly about perfecting the product or service. An accelerator will be discussed a little later. This can help give a huge boost to the growth of the start-up. So that the team can then continue to grow on its own.
To get (temporary) support from an incubator or accelerator, you have to know how to sell yourself. The selection is strict and you have to make a serious pitch for that. Similar to arranging financing. Out of every 100 applicants, only a few are accepted. But if you succeed, you will get a lot in return.
Most start-ups fail simply because there appears to be no need at all for the devised ‘solution’.
5. Collect money from angels
Financing is necessary if you want to get something off the ground. But the biggest risk is to raise more money than necessary. That leads to:
- you will spend more if there is more in your account.
- loss of focus;
- you are going to do unnecessary activities if money is available anyway.
- more involvement in your business;
- investors who have invested larger amounts want to have more influence.
- problems with the next collection round;
- it is inconvenient if many percentages of the share capital have already been distributed.
Although it sounds cool if you can say that a (large) amount has been raised from investment companies, it is often convenient and sensible to do this at a bank in the first instance. Then you keep the shares in your portfolio.
6. Achieving product-market fit
When your company takes a step towards maturity, it is called a scale-up instead of a start-up. You can look at criteria such as the number of employees, customers or the amount of capital raised. The most important thing, however, is that the product-market fit has been achieved.
That means you’ve proven that people are willing to pay money for your solution. More money than you originally asked for. And that people indicate that they would be very disappointed if the product disappeared.
In addition, it is important that the product is profitable. Finally, you must be able to show that you are able to acquire customers at a reasonable cost. If those three parts succeed, your company is called a scale-up.
7. Business Model
In a business model (canvas) you indicate how you create value and earn money. During the first year of existence you adjust that regularly. Based on customer feedback, you can determine which parts of your product or service have value for the customer. This can lead to you perhaps giving things for free and pricing other components, for example with graduated scales, in a differentiated manner.
8. Raising Money From Venture Capitalists
If you want to grow (fast) it is often necessary to find additional investors. As with step 5, excess is harmful. Again, you need to make sure you have a catchy pitch and use the right terminology that is important. That is why the book gives a nice overview of the English terms and associated abbreviations:
- Monthly Recurring Revenue (MRR): The monthly recurring (subscription) revenue.
- Annual Recurring Revenue (ARR): The last MRR multiplied by 12.
- Customer Lifetime Value (CLV): The average expected value of the customer during the relationship life.
- Customer Acquisition Cost (CAC): The costs that (must) be incurred to acquire a customer.
- CLV/CAC ratio: You can guess the meaning; but the result is preferably greater than 3.
- Payback Period: The (short) time it takes to earn back the CAC.
- Total Addressable Market (TAM): The size of the market in which the start-up will be active.
- Churn: The percentage of customers who leave annually (the inverse of retention.
9. Scaling your start-up
If all the aforementioned phases have been completed and your company is still standing, you already belong to a select group. Most start-ups don’t get that far. If you have succeeded, you can start scaling your business.
By scaling you will build a complete organization with all the departments that go with it. You will roll out the strategies and introduce processes, as happens in ‘real’ companies. Then the ‘playtime’ is over, all freedoms and the adventure you had as a start-up will slowly disappear.
10. Sell and start again
From the outset, you should think about the possibility of selling your start-up. What do you do when someone is at your doorstep who wants to take over your great initiative? If as a scale-up you get homesick for the adventure, you can get rid of the expanded organization and throw yourself into a new start-up with part of the capital obtained.
Handy for any start-up!
The book ‘Start-up: from idea to exit‘ (aff.), is definitely recommended for anyone who wants to innovate, launch and scale. It is especially valuable because the tips were recorded by serial entrepreneurs and investor Jeroen Bertrams.
Bertrams knows better than anyone what can go wrong at a start-up. After all, he has experience with it himself. Readers can learn a lot from his experiences.
What is also a nice addition are the interviews he has conducted with a series of successful entrepreneurs about their experiences with starting a business. For example, in the book Bertrams passes on not only his own opinion, but also the lessons learned from a number of other starters. For anyone who thinks they have a brilliant idea, this book is the smallest, but most useful, investment.
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