While the word startup (start up, start-up) being used to describe a business isn’t a new one, it suddenly became a part of the pop culture conversation fairly recently. Companies like Facebook, Twitter, Instagram and Uber have made the world of startups and tech companies look very sexy. The overall concept seems quite simple: have a great idea that involves technology and innovation. pitch that idea like crazy. get investors to give you money. get rich.
And that’s what a lot of people are striving for. Having a startup has become almost like a get rich quick scheme. It’s not quite as quick as say, a pyramid marketing program, but the possibility of raising a multi-million dollar round of investments or being bought by a tech giant in less than two years like the very publicized purchase of Instagram by Facebook for $1 billion ($300 million in cash and the rest in Facebook stock) makes having a startup look really lucrative.
But before you take your brilliant tech idea and start applying for pitch contests, incubators and accelerators, it’s important to take a moment and consider whether raising a large round of investment dollars constitutes a success when it comes to that idea.
Let’s start by looking at the general process of launching a startup.
1. Idea formulation
You first need an idea that is innovative, scale-able and sustainable. No one is going to invest in an idea that won’t make them any money. But the interesting thing about this is that many ideas can be sustain-ably scaled if there is a strong enough market for it and that market will buy it. So your idea needs to fit this bill.
2. Company creation
In order to show that you’re serious about your idea, you should turn it into a business. This really just means choosing a name, registering it with the Secretary of State where you live and getting a Tax ID for it. Now depending on your idea there may be additional steps in this process, but this is the most basic explanation.
3. Business plan/model creation
Once you have your idea, you need to figure out how that idea will make money. Some people will tell you to develop a business plan around the idea, but in the world of startups, a business plan is sometimes replaced by a business model. The overall goal of this step is for you to sit down and figure out your target market, growth process and long term vision for the idea.
Once you’ve figured out how your idea will make money right now and in the future, you can start pitching it to potential investors. Sometimes the potential investors will be venture capitalists or angel investors and other times it will be business development programs like incubators and accelerators. You may also find yourself in need of a business partner or partners. You will have to pitch people to find those relationships as well.
This often happens at the same time as the pitching because you will need to network to find the people to pitch. Yes there are websites and other online resources that will list different investors and business programs you can apply to work with, but you will quickly discover that person to person networking is most effective here. Even if your idea is brilliant, people want to know the mind behind the idea.
Once you’ve landed a meeting (or several meetings) with a potential investor (or investors), you will have to negotiate their level of investment and involvement when it comes to your idea as it relates to the amount of support they are providing. Some investors will be there for solely financial support while others will provide a network and industry knowledge. This also applies to the aforementioned business partner acquisition.
7. Get an investment or sell your idea
Congrats! You’ve raised a round of investment or successfully sold your idea.
So this is a VERY simplified breakdown of the process many people go through when launching a startup and finding funding. But this simplified explanation leaves out a lot that isn’t often discussed when people talk about having a startup. Because when you are in the process of launching, pitching and building a startup there are so many different challenges you will have to overcome. The initial step of formulating your idea can be quite challenging because it requires you to do market research and feasibility research on that idea. This applies for each step of the process. There’s a level of research, reworking and tweaking that will take place as you fine tune your idea. Oh and don’t forget about the element of rejection. There will be people who won’t like your idea so you have to get used to being told that you’re wrong and you won’t succeed.
And then once you’ve fine tuned your idea and gotten past the naysayers, you have to pound the pavement to find someone willing to give you money for that idea. This is another layered process that involves research, reworking, tweaking and rejection which explains why all investment announcements come with much fanfare and back patting.
But then consider that once you’ve gotten the money, what do you do next? So the steps that I’ve outlined above aren’t really the entire process. They’re actually more like the beginning of the process because once you’ve gotten your startup up and running, you will have to make it profitable. Because you now have investors to pay back or a contract to honor.
So let’s get back to the initial question. What makes a startup a success? Is it the part where you land an investment deal or sell your idea? Is it the process you go through to get to that point? Or is your startup a success when it’s no longer considered a startup?
I’d love to hear your thoughts. Whether you’re a startup owner, entrepreneur or employee at a company owned by someone else, I’d love to know what you think. How would you define success when it comes to having a startup?