Dear subscriber,
Very best wishes for 2012 and a warm welcome to this 7 Pennies newsletter. The newsletter is meant to share valuable tips with you in the areas of marketing, sales, and business in general. I hope you like the newsletter and I would certainly appreciate receiving your feedback. You can submit any comments by e-mailing me or by using the 7 Pennies blog. In case you prefer not to receive the newsletter, please use the unsubscribe link at the bottom of the newsletter.
Enjoy and I wish you the best!
Erik Pennings
www.7pennies.com |
Starting a company is one of the most important things in an economy. Startups are an important engine for innovation as well as the creation of the next wave of leading companies. Remember that many companies that are now big such as Apple, Google, Amazon, eBay, Intel, and Microsoft were all started not so long ago. For this reason, it is important to create an environment that fosters startups and allows them to grow.
Starting a company can be exciting and often brings feelings of adventure, charting the unknown, and making it big. At the same time, starting a company involves hard work, overcoming challenges, and in the end being successful, or in some cases not, and then starting all over.
The purpose of this newsletter is to share with you 10 tips and suggestions that will hopefully prove helpful when starting your next venture. |
Tip 1: Start With a Good Idea, but Leave Room for Trial and Error
A new company starts with a good idea for a new product or service that is different, that can address a large market, and where you can leverage a unique skill or asset that is hard to copy.
However, what is often overlooked is that this is not a linear deterministic process as sometimes suggested by business plan logic or when reading, in hindsight, about the stories of new companies. The actual process involves more trial and error than what one is led to believe (think for example of the discovery of penicillin). In the great book "Little bets" by Peter Sims, the author describes how HP decided to make a small bet by selling a few thousand pocket calculators despite all indications that there was no market for this. The calculators sold out in no time and HP had created a new market. So start with a good idea, but leave sufficient room for clever trial and error allowing you to take advantage of the unexpected. |
Tip 2: The Company Name Better be Right From the Start
Sometimes, in an effort to get up & running quickly, entrepreneurs register a company under a temporary name with the idea to change it later on if needed. However, changing the name later can prove much more cumbersome than wanted, since it involves the company filing, legal documents, bank accounts, website plus domain, etc. More importantly, a name change largely erases the valuable brand awareness that the startup built up so far. Since building up a reputation takes a long time and since reputation is critical in order to grow sales, think long and hard before deciding on a name and brand identity. |
Tip 3: Get Organized, but Do so Quickly
In the beginning, one is often daunted by requirements to legally file the company and to get a bank account, an office, computers, internet, insurance, a website, business cards, and so on. However, try to get these practical matters over with as quickly as possible, so that you can focus on the true purpose of your company, i.e. to find customers and introduce a product or service. If you have early lead customers, focus on securing and serving those customers first, while trying to get organized in the meanwhile. When setting up the company, it is important that everything looks professional and can scale over time, but other than this, try to do it quickly and cost effectively. |
Tip 4: Focus on Customers First
Customers and markets simply drive everything. For this reason, it is essential to build a customer and market driven company. Satisfied customers drive revenues and by being market focused, you develop a service or product that meets the right market needs. The risk of developing a product or service first and worrying about getting customers later, is that you build an internally focused organization that is getting used to spending money prior to generating revenues (and profits). Engage with lead customers first and then make the necessary investments in order to serve them. |
Tip 5: Use Business Plans for Guidance and/or to Raise Money
Whenever possible, try to grow organically, by getting customers, generating revenues, and reinvesting the net profits back into the company. In order to do so, you need a good sense of where you want to go and how you can wisely manage the company, for which a (brief) business plan provides an indispensable tool. In case you want to raise money from venture capitalists, banks, or angel investors, a much more detailed business plan is often required. While raising money can definitely help to accelerate the growth of the company, understand that raising money, including the preparation of detailed business plans and investor pitches, may require a substantial effort, which can go at the expense of finding customers and generating revenues. |
Tip 6: Cash is King
A company with a positive cash flow and adequate buffer of money is effectively a going concern independent of the size of the company. A company that has run out of cash is dead, independent of its size. And a startup that is spending too much relative to its runway essentially risks the company. Be very conscious of every dollar spent, invest money wisely, and let revenues drive any spending (i.e. invest only if there is a concrete opportunity). |
Tip 7: Make Things Happens no Matter What
While execution problems can occur for large as well as small companies, large companies may be able to weather the problems, whereas for startups, execution can prove to be life or death. If developing a product takes years rather than months or if it proves impossible to deliver products to your first customers, then it does not matter anymore how good the original idea was. While much can be read about how to execute, the most important thing is to have an attitude of making things happen no matter what. |
Tip 8: Timing is Everything
Market timing is absolutely critical, but at the same time it is impossible to control when the market takes off. What if your idea is perfect, but the market takes longer to develop than expected? Your company may not survive if you run out of cash while waiting for the market to arrive. Other than sheer luck to get the timing perfect, the best strategy is to create an immediate cash flow from short term revenue opportunities, while developing a solution for the longer term opportunity. When doing so, please ensure that you have the flexibility to accelerate or slow down at any point so you can get the timing just right. |
Tip 9: Build a Well-Functioning Organization
While organization matters to all companies, some organizational issues are especially relevant for startups. First of all, during the initial phase of the company, it is almost impossible to avoid that some key people work for the startup part-time. However, when doing so, ensure that these key people are truly dedicated and available when needed. Secondly, it is critical to ensure that the management of the company is clearly defined and that there is a well-functioning board, so that decisions can be made effectively. Lastly, when building the company, ensure that you hire truly good people and build a network of partners that you can be proud of. Hiring criteria should include that employees have an entrepreneurial attitude and want to go the extra mile in order to make a startup succeed. |
Tip 10: Be Prepared to Work Hard, but Have Time to Smell the Roses
While most people work hard in any job, startups can prove especially demanding. When starting a company, you have to do everything yourself such as setting up the company, marketing your wares, finding customers, serving those customers, managing the finances, etc. Also, with only a few employees, there are no backups in case you want to go on holiday and no additional resources to invoke in case of a demand spike. Point however is that you cannot afford to get a burnout either. So be prepared to work very hard, but in such a way that you can keep going on for a long time and that you can have fun and enjoy the process. |
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