Five tips for startup success

Five Killer IP Issues When Pitching to INvestors

5 tips for startup successSimon Rowell, Founder16 April 2015

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5 Tips for startup success

Presented by Simon Rowell, Founder of Innovation Liberation Front1

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Source: Shikhar Ghosh, Harvard Business school


I spent a weekend in late March as a mentor at Innes48, New Zealands largest startup competition. It was a fabulous experience, witnessing teams literally create businesses in the space of 48 hours. It got me to reflect on what it takes to launch a business, and what would make some more successful than others.Ive seen a lot of startups, am personally involved in a few, and have judged or mentored in various investment challenge type of competitions. And Ive now supplemented that with a little bit of research.One of the first things I came across a study from Harvard that found 75 percent of total startup ventures fail, and 25 percent go under in the first year alone. If you survive the first year, you have a 36 percent chance of failing in the second; 44 percent fail in year three and 50 percent of fourth-year startups go bust. Business gets harder as it goes along, not easier.

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Start with a BIG idea

Innovation Liberation Front

Start with a big idea3

4Whats your big idea? Is it a burning need?A cure or just a vitamin?Significant enough to overcome the inertia of status quoMore than a me too product or serviceBill Gross 42% of failures due to lack of market needBig idea also means chasing a huge marketLets you tell compelling stories to investors, customers and staffThis is the reason people will get out of bed to work for you


Youve got to pick a problem or pain that is truly significant a burning need, something that will change the way people live or work. I dont mean significant necessarily in an evangelical save the world sense I mean a product or service that really matters to the target customer. Is what you are peddling a cure or just a vitamin? Uber tackled the problem of over-priced terrible service taxi rides something that most adults easily relate to and are eager to fix. People are motivated to change their behaviours to avoid that problem.If your product or service doesnt hit a burning need or a problem of significance, it will struggle to overcome the inertia of the status quo. If its just a me too product or service, customers wont care enough about it, it will be harder to attract the best staff, and it will be harder for you to maintain the passion needed for it to be a success when the going gets tough.Bill Gross, founder of Idealab, founded 100 companies, raised 3.5B in capital, created 10,000 jobs, had 50 failures. Bill studied 130 companies and found that of those that failed, 42% failed because there was no market need. A solution without a problem.The other component of big idea is the actual potential size of the market. If you do not chase a huge market from the outset, one that can truly scale on a global level, then you will also struggle to raise capital. This will make it harder to sustain the business and grow it in the long term.When you are chasing a big idea, your stories start to get very compelling, which is great for raising funds, selling to customers and hiring great talent. Try to boil your idea down to the compelling story that is at its heart the purpose, the reason people will get out of bed to work for you. Were fighting for good ideas to prosper. The world could be a better place if we could ensure that good ideas were quickly and efficiently turned into products and services and get them into peoples hands.Is your idea big enough?

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Get ruthless focus


Get ruthless focus5

6Get focused!Sharpen your targetingBill Gates and Warren Buffet both credit their success to focusYou cant be all things to all people in startup modeGo hard at a narrow niche most in need of your product/serviceDesign business model canvas and MVP for that nicheGives clarity for channels, messaging, features for development, etcCustomer acquisition strategy clear and simplifiedDynamic focus not blind focusInvestable story develops


When Bill Gates first met Warren Buffett, their host at dinner, Gates mother, asked everyone around the table to identify what they believed was the single most important factor in their success through life. Gates and Buffett gave the same one-word answer: Focus.Do not try to be all things to all people from the get go.Pick one very narrow focus, a small slice of the market that you identify as most in need of your product or service and really go hard at that niche. Design your lean business canvas and minimum viable product only for that niche. You can forget about features that may matter to the wider market, but are not important to your focus group. Validate your assumptions about this niche rigourously to ensure you know them and their needs inside out.A very finely tuned focus will give you clarity on where and how to communicate to your target audience, and what messages will matter to them. Your customer acquisition strategy will become so much clearer the more narrowly you focus. This will drive down your cost of customer acquisition.This does not mean that you are abandoning other market segments. You are just postponing them, for now.Focus in this sense is an ongoing dynamic and interactive process.It does not mean picking the niche and then never waivering from it. Your focus is so sharp that you can see evidence that your niche is moving or not responding in the way required and therefore you are able to adjust your product, model or strategy.When you have a big idea and a relentless focus, you will more quickly get to the point of product/market fit.It also lets you develop an investable story. If you are able to gain swift traction in your niche (likely due to finding product market fit), and get very clear on the customer acquisition strategy and costs, then you can say to investors we gained one thousand customers in our first six months using these channels at a cost of $50,000 generating revenues of $200,000 per annum. Wed like an investment of $500,000 to enable us to use the same channels to get 10,000 customers inside six months generating revenues of $2,000,000 per annum. 6

Build a team who can execute plan


Build a team capable of executing the plan7

8Building your teamWhos on your side?Success = great product/service, great plan, great team capable of executing planCritical part of investors assessmentMIT research says each additional co-founder up to 4 increases probability of success. Why?Resilience, diversity of skills, diversity of thinking, plus inherent validationDo you have someone with experience in each of the key activities listed in your plan?Establish advisory board someone who has sold to your niche, someone with industry experience, a customer in the niche with business experience, someone who has scaled a startup, designer/developerVesting plans for founders and advisers with a vesting cliff


Building a successful startup is simple. You need a great product or service, you need a great plan or strategy, and you need a team capable of executing that plan.When you go to pitch to investors, one of the very first things they do is to look hard to see if you have put together the right team. They do this because they understand that the team is critical to startup success. Furthermore, research from the MITs Dr. Edward Roberts, indicated that each additional co-founder up to four increases a companys odds of success. Co-founders add resilience in hard times, and involve an implied level of validation because the founder is able to convince someone else to leave employment to join the vision. It also hopefully adds diversity of skills and thinking, and bandwidth to get things done faster.If there are key activities featuring on your business model canvas that no one on your team has any experience in doing, then you may have a problem. Most inventors I see have deep technical knowledge, but usually very little business experience or at least experience in running a startup. They need to get a co-founder or at least someone on their board with business experience and preferably in the industry concerned. Rather than immediately set up a large board of directors, or start employing people in specific roles, I would encourage them to establish an advisory board which is separate to the board of directors. It can comprise someone who has scaled a business before, someone else with experience from the particular sector, someone who has sold to the target customer group before, perhaps someone in business who actually forms part of the target customer group, and finally maybe someone from a design or product development perspective.The group might only meet once a month or once a quarter, but their role is to fill the experience gaps in the team and to provide high level strategic guidance. Having the right mix in an advisory capacity can add great value enhance the chances of success.When you do build a team, ensure that even founders are put onto an equity vesting program, rather than receiving all their equity on day one. Consider also a vesting cliff of say 12 months meaning founders have to be there for at least 12 months before any equity vests. It is particularly unattractive to have a co-founder leave for whatever reason after six months still holding a reasonable chunk of equity.

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Relentless execution towards customer revenues


Relentless execution to generate customer revenues9

10A great plan relentlessly executedWhat are you measuring?Articulate how you will generate revenues from customers. What activities will you conduct using what resources and allies to engage, close and retain customers?Use the business model canvas to visually describe your businessBuild the financial model from the ground up dont fall into the 1% of gigantic market phallacySet plan, execute on it, set and measure KPIs and then refocus and iterate


You have to be able to very quickly articulate how you will generate revenues from customers. That doesnt just mean whether you are running a subscription business model, a licensing business model, freemium model etc. It means what activities will you conduct using what resources and allies to engage, close and retain customers?The business model canvas is the best resource I have seen for articulating this in a visual way. Go and check it out if you havent seen it already.Ive seen too many business plans and pitches where the entrepreneur says the market is $1 billion. By year 3 even if we have only 1% penetration, this makes us a $10 million company. With nothing else in the plan to back that up. No description of how many customers $10 million represents, nor how many sales people are required to reach that many customers, etc.It is far better to build the plan from the bottom up. Paint a very clear picture of how you will get your first 1000 customers, and what that will cost and how long it will take.However, having the plan is not what makes the startup successful. Execution is critical. A great plan executed poorly will fail. Set a plan, execute on it, set KPIs and measure against them. This will give you the information to know which direction to take in the next iteration of the plan.

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Start talking to investors NOW!


12Building investor track recordYou dont have to go in coldYou need at least six months runway to raise capitalStart networking with investors, get on their radarEstablish a habit of monthly communications to your investor mailing listWhat youve done, whats next, wins and losses (and learnings)Relationship, rapport, communication, track recordMultiple funding options warmed up


You will need around six months of runway left to successfully raise new funds. So dont wait until you really need the money before you go to raise capital. Communicating to investors from day one starts to build up a track record for a first time entrepreneur. You get on the radar of investors. You give them monthly updates on what you have just done, and what step you will do next. And when youve done that next step you tell them. You fess up to mistakes, but tell them what you learned from it.Investors get an insight into what it is like to work with you. You build a relationship and rapport. They see your communication is great. They see that you deliver on what you say you will do, or that you have enough integrity to admit when you were wrong. Youve created a track record and now youre not going in cold. And youve done this with more than one, so that you have funding options and a competitive situation.

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75% failWhat can you do now to ensure youre in the other 25%?ILF investment ready assessmentILF execution campaigns


Given that 75% of all startups will fail, what will you do right now to ensure you are in the 25% that succeed?

Innovation Liberation Front has created an investment ready package, which involves an assessment of your investment readiness and a campaign to get you ready for investment.

We also have created a series of execution campaigns which give you additional bandwidth to deliver on your plans, which can be tailored to a monthly fee that is affordable for your business. This may let you postpone bringing on co-founders or investors until you have created greater value in your startup, without losing precious time.

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Small Business & Entrepreneurship

Five tips for startup success