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Startup. Through hardship to …?

Thursday, July 4, 2019

Part 1. Message to startup founders.

Startup Jedi

We talk to startups and investors, you get the value.

Nice to meet you, a valiant startup CEO who is definitely striving to change this world.


Not everyone can save the world

Let me start with some bad news (you are ok with critics, aren’t you?). In accordance with the fresh statistics the chance that your project won’t die in the recent 5 years equals to nearly 50%. Sounds good, right? It’s also likely that your idea is so, you know, pure and correct and relevant (add any positive adjective). The problem you are solving is the one nobody else in the world can work out, or if they somehow do, they do it badly for sure. So you, armed with the newest technologies and development approaches, will aggravate all of them.

But it’s a normal practice when you start developing a new product, hurry up wishing to finish it as fast as possible. But *hmm* later it turns out that there are tens and hundreds of teams all around the globe developing similar solutions for similar “user problems”. Or worse. You don’t think there is any need in looking around and analyzing the market. You want to finish the product, that’s all, what will be next — who knows, will see later. But the harsh truth is that you will feel indispensable pain as soon as you know that such projects have already been created (and no matter if they are still working or not), others haven’t managed to find the solution, why do you think that you will?

One of the biggest problems you will have to solve implies validation of your business model. It’s easy to explain. The point is that very often it turns out that nobody actually needs your product at all. Or with the passing time you will find out that your market is super small and growth slowly (as slowly as only possible), what also may be detrimental for your project.


Get ready for the worst

So! What is the plan? Developing MVP, going to the Valley where a well-known business angel will write you a 200 thousand dollars cheque on a napkin? Cmon, wake up. It’s a nice plan of course, but please leave these stories for movie series and gossips arising around conferences, deal? You will argue that Elon Mask and Steve Jobs did it, consequently it all is real. Cmon [2]. Apart from these famous guys there are thousands of entrepreneurs all around the world, but you bothered to read only trending stories which you probably bought in the nearest booking store.

The main problem you will run into concerns the fact that you will have to:

  1. Keep developing a valuable worthy product, which will be in high demand among your target audience

  2. At the same time with all possible and impossible forces attract investments; though it is not applied to the cases when you have money at the beginning, this case is even worse, to be honest.


The most interesting part

Okey, let’s suppose that your cofounders are ready dedicate themselves to developing a product, so you can spend more time on fundraising, how are you going to do it?

Here are the steps which almost any project has gone through:

1. I will go to all startup networking parties, i will distribute my business cards and write infinitely many follow-up messages in Facebook.

- Well perhaps if you are a local influencer in a specific niche, at this step you will have some more or less valuable results.

2. I will give an interview for a local (or even international) media.

- If the readers of this media are not your target audience, then it won’t work out. Be careful at choosing resources and the style/format of your publication. Each media has its own level of understanding and explaining technologies, venture terminology and so on.

3. I won’t tell anybody about my project unless (read — in 5 years) it is launched, fuh, they will be surprised.

- This approach doesn’t work either. Don’t be afraid to show your prototypes to the world, don’t sign any NDA — just unnecessary points to get worried about. What you really should do is to spread a word about your project, ask for feedback and advice all the time.

4. I will send ‘cold’ emails on Facebook and LinkedIn with the story of my project.

- The probability that your messages will be ignored is amazingly high. Perhaps some of the recipients will delete your contact. Quite a dubious strategy.

5. We are pivoting. One respectful mentor advised us to change the essence of the project.

- Developing the product you will head hundreds of pieces of advice on what and how to change in the concept of the startups so that it became truly scalable and profitable. Take all of the as another opinion, not like a guidance for further actions. No one else but you really knows what your project needs. So every idea/though/opinion should be filtered with your inner analizator.

6. I will find a huge database with funds’ emails and will start mass-mailing them.

(After the 100th attempt to get at least one response) Uph, it’s such a pity nobody answers, well, restructuring the pitch deck will change the situation, will change some details and start emailing again.

- Sure, it’s all about the deck, not in the ability to explain the essence of the project in 1–2 sentences and line up what you need from a concrete investor (I really hope you write personalized messages only).

7. Why not develop two projects simultaneously?

- Wait wait wait, don’t you quite realize the truth — the more projects the problems and risks.

8. We should focus on the market of our wonderful country N.

- It’s a mistake. Develop a globally scalable product from the very beginning otherwise, you will not succeed in tuning your startup to the new markets later and to some extent will be stuck in your current location.

9. Seems like I simply can’t ‘wrap’ my project properly. Guess I should ask specialists to do it for me. They will take only $10k and will help me find the proper positioning of the startup, will show my project to a great number of investors. But I will owe them some % from the deal. Sounds rational.

- I am sorry to tell you the truth but these 10 thousand is the only and purely commercial goal of these ‘specialists’. Wrapping of the project will be conducted using typical templates (just like on the conveyor). Your project will be shown to some handy zombie-funds (read not actually working ones). Such ‘wrappers’ strive to one thing: to lower the startup to the bottom, and then offer their services, which will definitely help to you to survive on this rough startup market.

10. Accelerators! How could I forget about them? (After filling in several applications) Hm, YC, 500Startups, Techstars don’t want to work with my project, it’s strange, isn’t it? Well, it doesn’t matter, I will try to join some smaller accelerators, they will teach me how to develop promising products and will even introduce me to investors on the demo day. Amazing, I have found an accelerator which gives $120k and takes only 8% of our equity!

- You should also bear in mind that you will have to live somewhere for those 8 weeks of acceleration at your own expense. Organizator will give you only $30k in cash, the rest will be provided in equivalent for different services (which actually cost not more than $20k). On the demo day you won’t meet any investors, only some people interested in the IT sector and startup ecosystem. There is one more thing for you to consider. Unfortunately, in most cases the people who work in accelerators have never had any own projects, they are more likely to teach you using classic widely known business literature. Summing up: non-professionals teach non-professionals. Are you sure you like this idea? Of course there are many great accelerators, but an chance to join them is very small.

11. We have no money left, but enthusiasm is still very high. What we gonna do? Hm, we can we do? Let’s put the whole team on a dry ration, give them options, let them enjoy and get motivated in the future millions.

- Unfortunately, options work only when they meet the following conditions: salary lower than the average on the market + share (not zero). Otherwise the team will run away in a couple of months.

12. Great! We have a potential investor. Okey, he has some question to our team, most probably he will invest in us next week, high time to hire cool professionals!

- Let’s see what we will have in the end. You hire high-rated specialists, investor vanishes saying he was satisfied with the conditions of the deal. He wanted to get a blocking stock share for pennies (worst scenario is that he probably didn’t have money at all).

13. Our product tries to solve too many problems at a time. We should focus on a on one particular problem to bring real value to the customers.

- Well, this is your very first correct idea.

14. Why not integrate blockchain/AR/AI (add any other trendy word in the list)? We will hype! — (Several months later). Hm, we won’t hype.

15. I have a feeling that we should demonstrate that we have first paying clients.

- Traction — right! The second correct idea!

16. Statistics, business modeling, excel files — such a bore! Is it what I really joined the fast-growing startup and IT market for? To spend all nights with documents?

- You should admit that investors are business people, they don’t spend their money randomly, they know how to count their expenses and plan the budget. If you really want to get money — you should show how exactly you are going to earn them and multiply investor’s earnings. Prove that you have the market, conduct analysis, explain your arguments, demonstrate that the market you have chosen has high potential for growth.

- Prepare a business plan, be ready to play with the numbers and analyze how some metrics and indicators may change. For example, if any of the product metrics decreases two times will your business still be growing?

17. Start a company in the right jurisdiction and take smart money from right persons — that is my main obligation!

- And finally this is the third correct idea!


Instead of a conclusion

I didn’t plan to give any life hack on how to create a new unicorn and fundraise. It’s easier. I just wanted to stir up your consciousness, to show the utopianism of many actions and decisions you might be thinking of, to force you to seek answers to new questions. But this is only the beginning. Hardships, startups always have to go through hardships. You know where they are leading, don’t you?

4 Jul 2019


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Medallion Finance's picture
Wed, 12/06/2023 - 08:55
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