For any startup, the first year is very crucial. It is the stepping stone of a successful entrepreneurial journey, which can make or break a startup. Having a baby and having a startup have much in common. Just like a baby needs nurturing and care, a startup also needs the same level of dedication and time from day one.
For a first-time entrepreneur, a host of things can go wrong while rolling out a startup. So, how do you ensure that your startup is able to survive the tough first year?
1. For validation, get out of your comfort zone
Entrepreneurs need validation for their startups. Validation or market research is one of the crucial parts when it is about laying the foundation of a startup. Interestingly, this is where a lot of entrepreneurs make their first and the most fatal error. They create circumstances where their validation exercise will inevitably succeed. For example, in a hyperlocal business they will test it in a place where they have lived for the last few years and thus know most of the people around. With that unfair advantage, their hyperlocal proposition such as restaurant or food ordering will work.
It is similar to a child asking his mother whether she is good looking. A mother will always answer in the affirmative. Using this positive reply, they go to the investor, pitch their idea and share their promising market research. The moment they get the money and apply it in a real situation, out of their comfort zone, they fail. It is one of the prime reasons for the downfall of food delivering startups. So, instead they should set up their experiments in a way where they get some initial paying customers or do some research in an area where they have no contacts.
2. People management is the key
A good team is the most important piece of the startup puzzle and one wrong hire can pave the way for downfall. When a startup is trying to ramp up quickly, it is easy to fall into the trap of hiring too many people.
In the first few months of a startup, only the founders and founding team work round the clock as they passionately build their company from scratch. When they start hiring, they wrongly assume that these people will also share the same vision. However, the employees that come to them only see it as a stepping stone in their career path and thus are not likely to produce results same as that of the owners. The founders assume that since work has increased, they need to hire more and more people, without realising that people management is an enormous task.
The budding entrepreneurs learn this the hard way. That’s when we hear about people getting fired. This is a huge challenge and most founders take people management for granted.
3. Do not run after the money
Another mistake that has become synonymous with startups has to do with money.
Entrepreneurship now has become more about raising money. Entrepreneurs start chasing money as if that is the sole objective of their business. Since they are more inclined to chase investors, the business suffers as they do not focus on making the startup more sustainable.
It is true that people who raise a lot of money in the early stages of a startup get a huge lead over rivals but it creates dependency on the investors. When the investor loses confidence or interest and if the entrepreneur has no solid economic model to sustain, the company comes crashing down.
4. Fundraising is no piece of cake
When it is about raising money from an angel or seed investor, the first-time founders fail to realise how cumbersome and time-consuming the process is. The entire team puts all its effort in raising money and thus the business suffers heavily.
This problem is so acute that it never goes away and is just pushed into the background but can turn lethal in the first year. Flipkart’s re-jig at the top with Sachin Bansal moving from the CEO’s position to the chairman’s is a perfect example. With the responsibility of IPO and other corporate actions, it was best that he did not have an operational role in Flipkart anymore. Thus, the solution is to give one of the founders the primary responsibility of reaching out to investors and that person can move away from the operational side. The rest of the founding team can focus on operations.
5. Do not get swayed by what others are saying
Getting influenced too much by their first contacts is a problem faced by first-time entrepreneurs. Many startups constantly change their direction of work based on the feedback they get from an investor, a startup event, etc.
When founders set up businesses primarily driven by the opportunity in the market they get lost in the never-ending web of change. However, if the founders set up the business based on where their passion lies, this problem would not occur.
6. Keep your house in order
People become entrepreneurs because they are good at something or have experience or belief in something. However, there is one thing which no entrepreneur is good at. It is related to compliance, regulation, paperwork, accounting, book-keeping, record keeping, et al.
Most entrepreneurs find this part of a business to be a big pain area and thus steer clear of it to focus on the bigger picture. They would love to write cheques, without having to fill up some forms. They might be under the impression that their company is moving very fast, but on the other hand these things might come back to haunt them in the future.
When investors are vetting your company, they ask for various pieces of information or evidence. However, if you haven’t kept any records and are not good with compliance, you might end up missing out on a lot of opportunities that may come knocking at your door. In the last one year I have come across two companies where everything was finalised from term sheet to shareholders agreement, but the founding team was not able to do all the compliances and the deal fell through.