What is the Best Way to Actually Launch a New Startup?
I've got what I think is a great idea for an app, but frankly, I'm struggling to figure out exactly what to do next and how to actually get launch traction. I've gotten bogged down trying to write a business plan and I'm wondering if I should raise capital next, etc. Any tips?
I wouldn’t waste any time on a narrative-style business plan. Yes, you want to craft your business model with rigor, and yes you will need to nail down the details of the unit economics for each unit of offering, each customer, etc. But at your stage of trying to get traction, the key is for you to gain a very clear view of the problem you are solving, the market and competitor dynamics, your business model dynamics, and your customer dynamics.
I am stunned at how many entrepreneurs try to plan or raise capital without having actually interacted with customers. They write a plan, build a solution, and then wonder how to acquire customers. Not good.
My advice is to stop trying to write a plan or code an app and go mix it up with customers!
Have you interacted, with, consulted with, and solved the target problems for some target customers on a limited scale with a beta or custom solution? The key is that you cannot be just guessing at what the solution needs to be, but you need to be living in the middle of it. And you need to have framed out exactly what the app needs to do. And you need to have customers eager to move from your customized, built-by-hand solution and pounce on the final offering/solution with all of its additional features once you go “live”.
Hint: entrepreneurs need to lead with lots and lots of customer interaction rather than lots and lots of business planning. Think of it as “fire, adjust, fire, adjust”, instead of “aim, aim, aim, aim…”
Real Customer Market Research Example: I launched a SaaS company in 1999 that was focused on customer analytics for Global 2000 companies. I only came up with the overall value proposition after about 18 months of consulting with Global 2000 companies on their marketing and customer data issues. I had no idea about what app to build, but I was discovering lots of issues. I billed myself out by the hour and I solved sale rep hiring issues, I solved customer lifetime value issues, and I helped clients select CRM software. I delivered strategy and analytics consulting around customer and data issues while constantly looking for something that I could create a recurring service or SaaS app around (it was called Application Service Provider, or ASP at the time). We started with any sales or marketing-related issue these big, early consulting clients had and then we started to narrow our focus. We built out several rough solutions by hand, came up with analytic models, pushed Excel to its limits, etc., but we knew we were onto something. We then met with - and kicked the tires on - many types of software platforms that would allow us to assemble a SaaS solution for the very problems our early customers were paying us to solve via one-off consulting engagements. And, importantly, we were doing this early consulting work with Global 2000 customers, the very customer set we wanted to focus on once we had developed our solution.
Ready for Startup Launch and Raise Venture Capital: Once we had clearly defined the solutions we wanted to focus on (increase customer acquisition, improve customer retention, and increase customer upsell), once we had been paid to painfully solve these problems by hand, and once we had identified the combination of software and services that would enable us to deliver that value over and over again with more customers with more scalability and repeatability – only then were we ready to raise capital and really launch.
We did launch and we had over $6m in Revenue in our first year and over $16m in Revenue in our second year. But I learned a very painful, lesson. As the founder and CEO, I didn't fully understand the financial model and the cash implications of what we were doing.
The part of your business planning (whether it is a SaaS startup or any other startup) that is critical, that you absolutely need to get right, is the financial model that accurately produces reliable financial statements and ratios. Ideally, your financial model enables the entrepreneur/startup team to do the following:
All offerings are easily modeled on a unit economic basis with all revenue and costs associated with each assumption easily input and easily changed to see various outcomes
Offerings can be linked, such as a Freemium offering linked to a Paid offering to quickly model expected upgrades, cost, and timing
All types of revenue and sales models are easily entered and changed: from recurring to one-time, from billing in advance (monthly in advance, quarterly in advance, and annually in advance), to billing in arrears, and from to cash collections to deferred revenue
All expenses are easily entered and changed: from lead generation to revenue sharing and from adding employees to occupancy expenses to R&D expenses to hosting expenses
All cash requirements and the timing of required capital raises is easy to see and change as needed
All assumptions are clear, can easily be changed or tested, and their impact flows completely through a fully-integrated model from the Income Statement to the Balance Sheet to the Cash Flow statement to the Cap Table and to the Investor Return Summary (yes, it is nice to have a built-in, fully-integrated Cap Table and Investor Return Summary so you can see if it’s going to make sense for the venture capital investors)
Every aspect of the model can quickly and easily be fine-tuned to test every scenario and to arrive at reasonable assumptions and rates of growth and expected earnings (you don’t want to look foolish in front of potential investors with a 50% EBITDA or a model that runs out of cash in month 27)
And ideally, you can track all of the typical KPIs associated with any business model. A real “must have” is that your model needs to calculate the customer lifetime value (CLTV) separately for each offering, which you can do if your model gives you the ability to enter and track all cost assumptions by individual offering (#1 in this list)
So, as an entrepreneur having learned some painful lessons, I built that ideal model for my own use for all of my subsequent startups and angel investments and I continue to improve it. And it is a killer model. I eventually commercialized my model as the Startup Financial Model.
Once you have customers and an excellent, flexible, living and breathing financial model, then you can put together your 15-page pitch deck and go launch your company.
At the end of the day, once you know you are onto something with your pilot customers as mentioned above, you will absolutely need a thorough understanding of the key market, financial, operational, offering, and customer characteristics of your business model that will determine success or failure (which led to my development of the Opportunity IQ business plan scoring software), but you will likely not need to present any of that in a written out business plan. Therefore, as you work on your business plan materials, my advice is to pull together all of the data, but focus on creating your pitch deck and financial model. That way you can give investors what they want to see: real customers, real revenue traction, a clear focus on your value proposition, a detailed understanding of your business model, and a clear analysis of how much capital you need to build out your vision, while avoiding what they don’t want to see: too much narrative and too much fluff.