We’ve heard some incredible success stories from tech startups in recent years. For example, just six years after launch Whatsapp was snapped up by Facebook for $19 billion and Snapchat is valued at $16 billion, just four years after launching. We would all like to replicate this success but without an unlimited start-up budget, how do we position ourselves to do so and how do we avoid burning all our cash in the first few months?
50% of zero is zero
Of all the things I’ve learned over the years, this one stands out to me as the most important. When you’re forming your company, don’t be afraid to give away some equity in return for something that would usually cost you a large proportion of your start-up capital. For example, to hire a software developer to build you a complex mobile app, you’d be looking in the region of $20,000 for a version one of your software.
You could go with that quote, sink money into the business and hope that the idea takes off, lifting you into the luxurious lifestyle that only those at the helm of the dot com boom many years ago could imagine, but that is not the most sensible way to run a business that is entering a very crowded market.
A few months ago, I formulated an idea for a web-application and came to this exact juncture. I needed to make a choice between sinking thousands of dollars into the development of the application or bringing a developer on-board as part of the team to develop the application with us. I chose the latter and could not be happier with my decision. Not only has it freed up some start-up capital for marketing activities, it’s also given the developer a sense of ownership over the product – meaning he isn’t just going to cobble it together, he is taking his time and getting it right.
Always remember, your company is worth nothing until you’ve sold enough product to make a profit. Giving away equity in the business reduces your risk and loses you nothing, unless your product hits the big time like Whatsapp.
Spending & minimal products
Before you start spending away in the pursuit of your perfect product, it’s important to identify the minimal viable specification for your business (i.e. the bare minimum features that would be required to make this useful to the users). Once you’ve identified this, ascertain the costs and timeframes to build the minimal and the full product (and everywhere in between). Once you’ve got all the numbers down on a piece of paper, I’d suggest carrying out some market research to understand if people want the kind of tool you’re looking to build and also the value that they place on the features you omitted from your minimal specification. From this, you can decide whether it’s worth implementing those additional features.
You’ll also need a spending forecast for your business – it may seem like a strange idea, but having a strategy of what you’re going to spend, when and why is absolutely vital because it forces you to think about each expense and to justify why it is absolutely required & what benefit it’s going to bring your business.
For example, if you’re launching a mobile app, spending $200 on business cards is not likely to yield the results you’re looking for, after all, most of your marketing will be done online, right? When are you going to meet people to give them those cards? Sure, it’s a nice to have, but let’s make some money before we think about luxuries.
Taking risks and being ‘brave’ is a must
The mobile and web market is so competitive that you’ll need to take risks and step into the unknown if you’re going to make a meaningful impact. Risks can feature in many areas of your strategy – it could be a funky, cool and fresh marketing campaign idea that’ll set you apart from the competition or it could be a crazy new kind of interface for the application. When done well, this can be enough to set you apart from all the bog-standard, vanilla competitors in the market.
So these are my top tips. Whatever you decide to do with your business, just make sure that every payment you make has a business justification and you’ll do just fine.