Do less, spend less - prove more
I have achieved more in the first 6 months of my current startup than I did in the first 3 years of any of my previous ones. That’s not an exaggeration or wishful thinking, it is quantifiable fact. So when I was asked to speak to the entrepreneurs at Codebase in Stirling this week on what I've learned about growth over multiple startups, I took the opportunity for a little self-analysis and have tried to map out how and why of that progress in a little more detail.
Startup number five - Vistalworks - is now officially one month old (though technically at the 6 month anniversary of us co-founders first starting work on it). In that time and without any external investment we have achieved sufficiently robust consumer, customer, commercial and technical validation for us three co-founders to commit the next chunk of our lives to the company that will take our solution to market.
Prior to that decision to commit, which only came after 4 months solid work, we had an idea, not a startup. All our work up to that point went into validating (or invalidating) our assumptions - including whether this was a business worth doing. Every action has been deliberate (though of course, some moves were decidedly more reactive than others!) Just as important are the things we have deliberately chosen not to do in our first 6 months.
I credit the efficient progress we have made to three particular things:
Being deliberate in what we do and do not do, and the order in which we prioritise our efforts
Using what we do to take us measurably forward with our plan, or eliminate assumptions
Relentless co-founder communication, collaboration and transparency
It’s worth noting what is not on the list - including pitching, seeking investment, general networking/events, or all night coding sessions.
Of course there are many ways to do this early stage startup process and only time will tell if this approach is any more valid than my previous ones. But I have learned an awful lot about what I got right and wrong in my previous startups - and my co-founders have done the same with their different, but complementary experiences.
We’re no longer making it all up as we go along - and that is really liberating. By having an effective process for the generics of early stage business building, and a systematic approach to the specifics of validation and creating culture for this particular startup, we’ve been far more focused, efficient and true to why we’re doing this. That means we’ve got a lot more of the right things done and in pretty much the right order as required for us.
Here’s a broad overview of the startup process we’ve followed, with the rough timings based on 3 co-founders working full-time:
Right idea, right time (weeks 1 to 2)
It’s easy to fall in love with your idea and to try to will it into existence by believing in it at all costs. Personally, I think success comes from the execution, not the idea - nevertheless, the idea is the foundation that everything else rests on and is hardly unimportant (this one took me a year to find). But I refuse to get emotionally attached to ideas I haven’t validated - I have far too many of them for that to be practical - so the first 2 weeks were spent on my basic idea acceptance process, which establishes:
Is it a really big problem with clearly identifiable pain?
Who else cares, and are there sufficient groups of people both willing and able to pay to make the problem/pain a little less bad? Is the market big enough to support a business of serious scale?
What else is in the wider competitive landscape and is there enough space left for a sufficiently different solution to enter and survive long enough to reach maturity?
Do I really care enough & find it interesting enough to commit 5+ years to work on this problem, with these stakeholders?
Are we the right people, with at least the possibility of accessing the right skills/resources to solve the problem?
None of this is about finding a technical or business solution. This step is about focusing on the problem space, with the outline of an idea and figuring out if there is a hope in hell that it could mature to a commercially compelling solution if backed with time, money and deep customer insight. And it is so important to ask yourself or selves if you are the right founders for this one - I have plenty of ideas that I’d like to work on, very few of them overlap sufficiently with my knowledge, contacts and skillset to make it worthwhile doing so.
Only when this idea acceptance process was complete did I allow myself a slight flutter of butterflies in my stomach - before that I refused to indulge myself in thinking this was the one!
Validate the big things that matter (months 1 to 4)
The biggest learning I have brought into this startup is do less, spend less and prove more.
We didn’t build something complex and costly, then throw sales resources at it in an attempt at validation. Instead we looked for the simplest but most impactful way to prove to our potential customers that we could solve their specific problem and deliver them meaningful value on their terms.
Instead of thinking about raising money, or building a showy MVP to be able to raise money, we spent virtually nothing (therefore didn’t need to raise) and focused all our energy on achieving proof of:
existential validation (the problem is real, solvable and our proposed solution possible & ethical)
commercial validation (there are sufficient reachable market segments both willing and able to pay)
financial validation (building, marketing and servicing our proposed solution can be done so in a way that could be highly profitable and scalable, using resources likely to be available to us)
basic technical validation (even in a crude form our proposed technology is capable of doing what we claim, and in doing so can deliver appropriate value to those able to pay for it)
Behind these individual proof points, the ultimate question for us was “does this idea deserve to live and become a business”? As a co-founding team, we were completely agreed that unless the answer was a resounding yes, we weren’t interested - we’d rather walk away rather than invest our efforts in a business of only limited potential.
It was a really significant and deliberate decision to keep our expenditure as low as possible through this validation phase. The three of us did all the sales meetings, user & market research, business planning and even built the initial technical proof of solution between us. We accepted technical debt and the fact that the solution’s relative crudeness meant we’d need to hire specialist expertise in the very near future - because doing everything ourselves right up to achieving our proof points increased our flexibility, kept us really focused, reduced our risk and really limited the downside if it turned out to not be worth pursuing.
We consciously thought about, then executed, the smallest possible outputs to have the biggest possible impact. And because we didn’t have the distraction of pitching for investment - or demoing or presenting to anyone outside our core target markets - we didn’t find ourselves developing eye candy, or building ourselves into a deadend for someone else’s gain. We were laser focused on our potential customers.
By keeping our financial exposure very limited, we kept the option of walking away on the table - right up to the point we all actively agreed that the business was high potential and that we would commit and go all in. Only then did we register as a new company, formalise our shareholdings, sign written rules of engagement and really let the butterflies lose to flutter in our stomachs at full speed! Prior to that decision there was no startup - everything was being carried by my existing company Get Market Fit - and we were all absolutely OK with that (with a written agreement saying as much).
People and culture (months 4 to 6+)
The co-founding team was in place before the actual idea, but when we got together on day one we didn’t all know each other that well and so we had to really invest in learning to work effectively and openly with each other. Constant three-way and one to one communication has been key, as has been making the implicit very, very explicit. This includes our financial circumstances, our risk tolerance, what drives us nuts about each other, how we’re feeling, what we want and why we’re doing what we’re doing. We talk very directly about all these things and more - and we formalise what we need to in writing. The fact that our moral compasses are closely aligned is for us, essential, as it means the trust and shared core values are there.
We had already started to map out our hiring priorities and people costs by month 2 and 3, but as soon as we committed ourselves to delivering the business to market, we had to make very fast, deliberate decisions about people and culture, and formalise these in writing (for example by defining example role specs and 2 year financially modelling).
Our first hire started on the first day of our new company. This meant we went into the new business with formal contracts, values documents and people management processes in place - and we’d already made very conscious decisions about everything from holiday allowances to mentoring schemes and team personal development time.
This may sound premature, but I regard it as essential. The purpose of taking the necessary time to achieve solid validation is to then go very fast - in the right direction - upon achieving it. Attracting and enabling the right talent is critical to upping your pace, and process is required to manage that and to ensure your team to develop at the same velocity as the business.
If you only think about people once you have them, it will slow you down, distract you and become a major barrier to progress. Plan before you hire - and if in doubt, don’t hire. As I’ve written many times before on this blog, a hole is way better than an a***hole and you can’t afford to carry passengers that you don’t have a need for yet, however much you want to work with them.
Money (months 5 to 6+)
From the outset, we focused on an opportunity that offered a realistic likelihood of achieving short term sales revenue. That, like everything else, was a deliberate decision. The rationale being that a purchase order is the best form of customer interest, and aligning our build and validation efforts as closely as possible to the customer would maximise traction, momentum and efficiency.
And while it hasn’t been entirely smooth sailing - not least because a contract opportunity and money in the bank are very different things, and startups and large organisations work at very different speeds - I still think this approach has been a wise, if unfashionable one.
We’ve essentially gone all in on trying to land strategically significant sales to fund us through our first 9 months or so, rather than going all in on chasing investment (and repeat after me, raising money IS a fulltime job).
Funding a startup with revenue requires having a solid, early understanding of our costs, unit economics and short to mid term cash requirements, because we can’t just make sales at any cost - we have to also be able to support the delivery of the sale through the revenue. This makes planning when we get our cash, and how we structure the payment terms of deals very important too. Because the amount in the bank determines what we can do and who we can commit to hiring, this means (for example) a two year contract with up-front cash is way more helpful than a monthly recurring revenue deal of higher overall value.
If you are trying to fund your startup business with revenue, you can’t just built it and hope a business model will appear - being very deliberate about the business model early on (heck, just having a business model!) is a very sustainable, defensive tactic. It doesn’t mean you can’t still have a multistage revenue model that evolves as you do - but it does mean you can’t just stick a £1million raise in your financial plans and park worrying about how you make money until next year!
So months 5 and 6 have included more of the operational side of handling money - eg banking, accountants, VAT, sales contracts negotiations - than you would handle in a pre-revenue startup, but I am definitely not complaining. If this strategy works - as I believe it will - sales will fund operations. Investment, or whatever funding we choose to take, will fund growth. That will leave us in a far stronger position as founders when it comes to determining the future strategies, values and behaviours of our company.
The key thing to take away about money is that we’re not having to wait until we’ve raised money before we can really start working on our plan, nor are we sinking significant personal time or money into technical development, without evidence of validation or a solid sales pipeline. And as a consequence we don’t spend our whole time pitching and seeing investors and other startups, when we should be meeting potential customers and stakeholders.
These are simply my “lived” tips for an efficient first 6 months of your startup - and I appreciate there are aspects to this that contradict a lot of the local “entrepreneurial ecosystem” advice that early stage founders receive. There are also critical aspects to this - two other co-founders, solid process, well structured sales - that simply weren’t on my radar for previous startups in the way they probably should have been. But this is all based directly on what I have learned and what I am doing now, and I hope that makes it a useful founder's perspective.
So to conclude…. Be deliberate. Don’t do the pitch/fundraising/competition circuit in the first 6 months unless you really know why you’re doing it and what proof points it will deliver you. Certainly don’t think of raising money as your first step - it simply won’t happen without some kind of validation or a historic track record, so it’s a waste of your precious time. Do less (as in don’t build before you think), spend less (as in don’t spend on consultants or developers before you’ve validated the basics yourself) and prove more - well structured sales contracts (accompanied by a purchase order) are the best validation of all.
Remember that your company will have a culture and values whether you set them or not - in the absence of anything else, they can quickly become the worst behaviour that you are willing to accept. So make conscious choices about what you do and don’t stand for, and what you’re really prepared to compromise away in exchange for investment or progress. It is never too early for you and your co-founders to deliberately define who you are, what you want and why you do what you do. Keeping true to that every step of the way will help you play your own game and ultimately means that when you succeed, you will do so on your own terms.