Setup your startup for success by surrounding yourself with the right people, money and protections.
As any founder or employee of a startup can tell you, running startups is rewarding but extremely difficult and risky work. Some of this pain can be alleviated by having the right people, financing and protections that can help you avoid many of the Top 20 Reasons Startups Fail.
Let’s take a closer look at these components of launching a startup on solid footing:
NOTE: This post assumes you have done some initial legwork by validating your idea, using one or more of these techniques:
- Working with potential customers/users (e.g. using Lean Startup, Design Thinking)
- Have something you can show (e.g. prototype, mockups, deck)
- Researched the industry (e.g. market size, competitors)
- Have industry domain knowledge and/or are passionate about it
Read 5 Steps To Validating Your Awesome Idea Before Launching A Startup to understand the importance of doing your homework before launching a startup, which you may be in for several years.
One of the first things you need to decide is whether you’ll have cofounders. If your idea is a result of a group effort, you might already know who your cofounders are.
Having cofounders with complementary skills can be a huge help. For example, if you’re a coder, you might want to find a cofounder with sales or finance/business background.
I’m a former coder and was the sole founder in both my startups, so did a half-ass job at being a CEO but somehow stumbled along to two successful exits. I hope your journey is smoother than mine.
If you don’t have a cofounder, you have complete autonomy in decision making but it can also make your startup life a bit harder, since everything rests on your shoulder. You have no one to share the hard and good times with and it’s not quite the same as sharing with your employees. Like they say, “it’s lonely at the top.” Also, investors prefer startups with cofounders.
However, this doesn’t mean you have to have a cofounder. In fact, it’s more than fine to go it alone; I did it successfully, twice. According to this 2016 TechCrunch article, Breaking a myth: Data shows you don’t actually need a co-founder, startups with a sole founder, have a pretty good success rate.
One thing to keep in mind: it’s not advisable to hire a cofounder later because they might not have the same passion or drive for the startup.
One of the most important things you can do for your startup is establish a mission that describes why your company exists. This can be your North Star during trying times (e.g. pivots) but also for normal operations such as annual strategy & OKRs, product features, and so on.
At my former startup, Big Universe (an eBook platform for schools), our mission was to make the world a better place through education. This quote by Nelson Mandela was literally my email signature for most of our 10-year journey: “Education is the most powerful weapon which you can use to change the world.”
In this company, Startup Sidekick, our mission is to reduce the startup failure rate (as many as 9 out of 10 startups fail). My personal goal is to make an impact beyond just one startup of my own by helping thousands of startups succeed!
While your mission is everlasting relative to a startup’s lifetime, vision is more like a 1-5 year goal for where your startup wants to be (e.g. grow to X users by Y, own X% of market, dominate the world).
At Big Universe, I envisioned a global community of K-12 students and teachers engaged in reading & sharing eBooks on our platform. In Startup Sidekick, I see it becoming a global community of startups, helping each other succeed.
Values are another important aspect of establishing a solid foundation for your company, since it impacts your biggest asset: your employees. One of my favorite startups, HUNGRY, has 9 Core Values. I love how they use positivity, one of their values, in their daily operations (listen to my interview with their Chairman & CEO).
Company name, logo and websites are probably one of the more exciting parts of launching a startup.
This is also a personal decision for founders, since it is a long-term, if not permanent, decision for a company. Apple’s logo is a prime example — it has changed colors over the years but it’s still the original apple with a bite.
Our company name came from the idea of sidekicks in superhero comics, since they are trusted partners to the main character, the superhero (as in CxO/executives of startups).
For our logo, we ran a contest on 99designs.com and couldn’t be happier with the results. Our winning artist was able to use the two Ss from our name, Startup Sidekick, to come up with the mask.
We went with red for our logo color based on the psychology of colors — looking at the psychology of colors (plenty of options online) is something I recommend each startup do.
Website is also a personal preference but it should be functional and have a modern and amazing user experience.
In general, you want to spend a decent amount of time thinking about the company name and logo but when it comes to the website, you can incrementally improve it over time, so get it out to users as soon as possible, to begin your validated learning process.
Now, for the boring but absolutely vital things: protecting yourself legally and financially, while complying with local, state and federal government requirements (ugh!).
One of the first things you’ll want to do is formally incorporate your startup, so your personal assets are protected, in case of a lawsuit or bankruptcy.
In the US, there are four basic types of organizations: C-corporation, S-corporation, Limited Liability Companies (LLCs), and nonprofit organizations. If you’re a for-profit startup, you can get started with a LLC or S but if you plan to raise money in the future, start with a C-corporation since investors will likely want a C-corp, which is incorporated in Delaware (given its business friendly laws).
If you have intellectual property (IP), then you may wish to file for patents, trademarks (e.g. logo), service mark, and/or copyrights.
In addition to legal matters, you’ll want to focus very early on accounting and banking.
Having the right accounting firm, staff and system as soon as possible is important because you need to keep a close eye on the finances. QuickBooks and Xero are a couple of popular online accounting systems; we used QuickBooks in my previous startup for almost 10 years, from our launch to successful exit.
Banking goes hand-in-hand with accounting since that’s where your money is kept. Pick a bank that you think you would enjoy working with (e.g. talk to a local manager and/or online staff, research their software, are they startup friendly). Having the right bank can help you later, with things like line of credit (e.g. for payroll) and loans.
Accounting systems can connect to banks and automatically download transactions for reconciliations, which can in turn show up in financial reports, so ensure the bank supports your accounting system.
Lastly, don’t skimp on legal and accounting; realize these are a necessity. However, watch your expenses in these areas closely (especially legal) and let the firms know you run a tight ship and expect them to help keep the costs down by focusing on the essentials.
Managing your finances is perhaps one of the most important aspects of running a startup. See Manage Finances Like Your Startup Depends On It for basics of managing finances.
Finances really come down to money inflow and outflow, with the simple goal of making more money than you’re spending.
To get your startup going, you’ll need some seed money to get to your next milestone before looking to raise more money, presumably because you have discovered a business model. The most common sources of seed money include: personal savings/credit (bootstrapping), friends & family, angel investors, banks (e.g. loans), and crowdfunding.
Venture capital typically comes at a later stage but VCs have been known to break that rule, often when they have a relationship with a founder. Investors invest in people more than ideas because they know the right people will figure out a path to building a sustainable business.
Try to raise money for the right reasons and at the right time. It is often recommended to “dream big and start small” and it’s great advice. Waiting as long as possible to raise money, in most cases, gives you more leverage with the investors.
In my interview with Robb Doub, cofounder and General Partner at New Markets Venture Partners, Doub recommends raising money to scale your startup after you’ve already nailed your business model but not to raise money to help you figure our your model.
Fundraising naturally leads to deciding what percentage goes to whom. For example, Christian Reber, cofounder of Wunderlist wrote back in 2014 that they allocated 15–20% equity for first investors, 10–20% for employees, 60–70% for founders. Another founder I know, reserved 33% for the four founders, 33% for investors and 33% for employees.
Of course, throughout your startup, remember to spend the money wisely, regardless of the source of funding — treat it like it’s your personal money. Avoid the startup death valley syndrome, if you can.
If you’re planning on growing your startup beyond just you and/or your cofounders, you’ll want to begin surrounding yourself with other people such as potential employees, advisors, investors, and partners.
When it comes to hiring employees, hire only when it hurts. Remember, cash is king and just because you might have raised a round, doesn’t mean you have to burn through it.
Advisors/mentors can be particularly important. According to TechCrunch, founders with mentors did three times as well as ones without. Well-known figures such as Bill Gates, Mark Zuckerburg, founders of Dropbox, Etsy, and many others have been known to have mentors.
Having employees means you’ll have some sort of a culture, either by default or through intentional effort by the founder(s). Culture is something to take seriously, since it’ll define how your startup operates once you begin hiring people.
In my interview with Jeff Grass of HUNGRY, Grass mentions how he’s more deliberate now about establishing culture out of the gates versus in his first startup, where it evolved organically. According to him, culture is something that should be based on what’s important to the business and to the founders.
Also, network with other people in your industry (e.g. fellow entrepreneurs, investors, customers) through events and groups. It’s amazing how much you can learn from others; although you do want to try to be selective on how many and what types of networking events to attend, since they can also be a time-suck.
Many startups get started in their homes, some eventually move into physical office buildings but most typically have a hybrid model (i.e. onsite and remote works). Depending on your preference for having the team co-located or 100% remote, will determine what your workplace looks like: physical, virtual or hybrid.
In my previous startup, Big Universe, we started out with physical offices for the first year or so but quickly realized, 100% remote work was our thing.
Our systems were optimized for extreme efficiency and we often received compliments from large companies that we punched way above our weight. And, our results proved it: We built a global community of paid customers that included millions of student and teacher users, across 30 countries…and, we were successfully acquired by a public company.
Launching and running startups is hard work and a lot can go wrong. However, if you start on a solid footing, you improve your chances of success. I often use this analogy of constructing a tall building: Would you build your second and higher floors on a weak foundation? Probably not.
One last advice: be prepared to pivot from your original idea if you’re not getting traction. Keep an open mind, since it’s better to have a product market fit by solving real customer pain points, than sticking to your ego. Lack of market need is the number one reason why startups fail. Read more about pivots in this post: Ease Your Pivot Using Lean Startup, Design Thinking, MVPs, and OKRs.
Best of luck!