10 important questions that startup founders must answer.
Over the last 2.5 years I had an opportunity to engage with multiple startups, across Marketplaces, EdTech, O2O & D2C brands. My role primarily has been of an advisor/mentor/investor and at times helping these startups make their pitch decks, cash flows & help define product positioning. I also had opportunities, to help pitch their stories to prospective seed investors & VC’s. Most of the learnings I have captured below are basis these engagements. Below is my quick summary of top 10 learnings:
BUSINESS & PRODUCT: “Customer is King!”
1. “Product” vs. the “Customer”: Need to be clear about the “product” and the “customer problem” that you are solving for. Only thing that matters is an unmet consumer need… and that you have a superior, unique proposition that delights the consumer better than anyone else can… something that it is difficult to replicate. If you are a software/SaaS company it is very easy to get carried away with the “product”. The question you need to ask yourself — will it make the customer part away with his $$ to buy your product/service? While, the technology stack is important- what is the customer journey that you envisage for your offering?
2. Execute & Fail fast — Learn & scale faster. Be open to “Pivots”.
To scale fast you need to experiment — your MVP doesn’t necessarily have to be an iOS/Android App. You could probably start with a simple web experience, to see how your core TG reacts to your offering. Also, “Jugaad” is not an experiment. It works to solve a point problem, but, generally not scalable. Be prepared to do multiple experiments at the same time — and be aware that a big chunk of your experiments might fail. More importantly- be open to feedbacks from all stakeholders- customers, investors, partners & internal teams.
3. Success Metrics: Defining success metrics is key, knowing well not all metrics will be met in the initial stages. For a startup knowing the numbers is key and it is important to track at a daily, weekly, monthly level vs. quarterly/yearly model. This will ensure that you stay nimble and incorporate customer feedback in your core product. Key metrics to track would MRR, ARR, Burn Rate, CAC, LTV, Retention Rates, Billings/Revenues, ARPU, Gross Profits, EBIDTA. Be sure you understand your cash flows, so that you have a good grasp of how much steam you have to execute in the market. Also, you should have a good understanding of how other startups in that segment stack up against you or if enterprise players exist in that space, how do they perform against those metrics. Most of these metrics change at scale, so you should be cautious when you build your cash flows to account for these changes. A good example, would be your marketing costs, which increase as you try and scale up- which will effectively impact your CAC.
FOUNDERS & FUNDING: “Cash is King!”
4. Startups thrive on scarcity (resources, manpower, cash, etc.). Most startups have that one compelling idea that fulfills a significant customer need. But, as you get into execution prioritisation of limited resources becomes key. The question is what you will let go this month, to meet some of your core metrics?
5. The buck stops with you- there is nobody you can pass the baton on to: As founders you are answerable for your action and sometimes you need to trust your “instincts”. Always good to build a community of mentors/advisors, who come in handy as bouncing boards to some of your great ideas. At times it is important to hire trusted leaders to work closely with you- people who understand scale and are able to help prioritise things out of a clutter.
6. Small Business ≠ Startups: The very fact that you are a startup is because, you are trying to find the right business model that is scalable. Small Businesses have a defined business model e.g. look at someone who wants to start a grocery store. They know the input costs, margins and the operating costs. So, very easy to understand the profitability for this small business. As a startup, you will experiment with multiple revenue streams and try to reach an optimal point of customer monetisation. This takes time and you might not have a perfect answer in the first iteration itself.
7. Funding Source: Bootstrap vs. Internal Accruals vs. Debt vs. VC’s/PE’s- Always good to bootstrap (self funding) as much as possible till the MVP. This leads to lower dilution in the initial stages which can leave a better shareholding for the founders by the time series B,C,D funding happens with VC’s. If opportunities exist, it might make sense to fund some of your working capital requirements via. Debt. There are lot of examples, where people diluted early and left with <5% or negligible shareholding by the time the startup went into late-stage funding. At that stage you would be no more than an employee and at the mercy of your investors- to continue in your role.
PEOPLE: “Culture is King!”
8. Treat every person as a resource- multiple skills: Your team is your most valuable resource. As $$ are limited and if you are hiring talent, you should be ready to step aside and give that space to the new talent. As founders it is easy to get carried away trying to be a “Jack of all trades”. The talent you have hired is for a reason- to fill the gaps vs. skills that exist in the startup. Let those leaders take over, some of your burden.
9. Attracting and retaining talent is not easy in startups: Remember, money is not the only factor- it’s the vision, work culture, learning, future opportunities & maybe a better monetisation in the future via stocks/options. Be transparent will your teams, on the risks as well as rewards- especially vs. the way the business is performing. At times employees will put in their extra bit, when they know that their work/inputs are valued and feel themselves as “shareholders” vs. “employees”.
10. Work Hard- Party Harder: There is nothing called as work timings- as most startups need to align resources to external factors. It’s a 24x7x365 job till you get the right pivot and funding. Celebrate small successes- don’t wait for the big one to happen-very easy to get carried away and burn out. This will ensure that doing the startup remains a journey & not the destination.
Enjoy the journey & plan the breaks, hoping to reach your destination someday.
Pankaj Ukey
About the author: The author is an online marketplaces, retail and omni-channel consultant. He is a former Chief Business Officer at Cub McPaws a kids clothing D2C startup. He was also the Chief Operating Officer at Fawaz Alhokair Group, Saudi Arabia and helped build their Omni-channel Fashion Marketplace. He has 26+ years of experience across FMCG, IT/ITES, Ecommerce & Startups like Nestle, Microsoft, eBay & Flipkart. You can follow him on LinkedIn.
