Caught in a startup Catch-22? How entrepreneurs can overcome common dilemmas2013-05-02 1
Envisioning success is key when it comes to establishing a startup. After all, if you’re an entrepreneur and you don’t think big, chances of ever seeing your idea materialise are close to nil. But often times – especially in a startup’s first year – entrepreneurs find themselves in Catch-22 situations and don’t quite know how to escape them.
What better way to learn then to learn from the experience of others? Here, Bootcamp Ventures cofounder Ed Frank pinpoints some of the most common problems that startups are confronted with, along with a solution and example for each of these challenges…
1. No money, no honey
In order for startups to finalise their product and establish a proof-of-concept, they need funding – and lots of it. The Catch-22 is that you need money to finish the product, but it is difficult to obtain funding without that finished product.
How can entrepreneurs get their hands on some cash so they can start operations and launch their product?
Three words: Minimum Viable Product (MVP). This is one of the most important principles of “The Lean Startup”. MVP is a version of a new product that allows a team to collect and gather the greatest amount of knowledge about customers with the minimum amount of effort or resources involved. By employing this technique, startups with limited resources can carry out a strategic plan and focus on the creation and selling of their product to customers.
For example, Woojer has created a consumer electronics device that enables users to “feel sound” and has created a working prototype that has generated interest among some of the largest players in the industry – to enable them to obtain the financing needed to manufacture and launch.
2. You get what you pay for
It has been reported that when investors evaluate a startup’s proposal, around 25 per cent of their final decision is based on the team alone. In fact, most investors believe the success or failure of a startup rests in the assembly and quality of the team.
Most of the high-tech products built today are very complex and require a handful of experts to take part in the creation and launch of the product. Having the right mix of people with diverse backgrounds and skill-sets is necessary for the operation of the startup and will be the key to success.
However, the problem is that it is rare for startups to offer a substantial salary to attract Grade-A employees when building their team.
Build a strong team using equity. Be generous to the team – few investors will look at a one-person company. If the team members won’t join until the money comes in, sign a letter of intent that will allow you to include them in your team and secure funds.
Alternatively, you can hire junior members or interns that don’t demand high wages for ancillary positions. However, you will definitely need to have enough funds to hire experienced and highly qualified people for specialised positions, such as programmers.
It’s challenging but it’s possible. Take Bukit, a debt settlement platform that bypasses collection agencies by directly connecting creditors and people in debt. By leveraging its unique value proposition, the startup was able to secure key team members from President Obama’s tech team, who identified with Bukit’s vision.
3. A partner in need is a friend indeed
Many startups hope for the opportunity to work with a large Fortune 500 company, but do they stand a chance? Would these large, recognised companies even be remotely interested in partnering up with a new, relatively unknown startup?
The answer usually boils down to a no, because large companies aren’t normally willing to risk doing business with a small company that could be here one day, and potentially gone the next.
Let’s take a look at how one startup sealed the deal with one of the leading credit card issuers…
Verdata, which enables bricks and mortar businesses to use mobile location-based advertising, connected successfully with a leading credit card issuer that helped the startup realise its mobile commerce potential for their customer base. Eventually, the large corporation became a channel for Verdata to reach more clients and within two months, 40,000 businesses and two million customers were using its solution.
Now, Verdata is leveraging the partnership to expand and scale.
The takeaway for startups? Show a large company how they can benefit from working with you, demonstrate your added-value and build a relationship. One way to get this partnership going is by offering your service to potential partners at a low or no cost while gaining a reference client in return.
4. To be conspicuous or not to be conspicuous? That is the question
It may seem obvious that a startup should seek publicity for their ideas and solutions in order to attract investors, yet there is always the fear that someone will take your idea – or build a close copy of it – and run with it. After all, most of us have seen The Social Network.
On the other hand, if your startup isn’t the first to go take the step and expose your product to the market, then it runs the risk of being considered a copycat and unoriginal.
Publicity seems to be necessity if a startup wants to attract investors. So, how can a startup do this while remaining in stealth mode and staying under the radar in terms of competitors?
Startups need to pitch to investors in a way where they aren’t providing too much information about their product. Describe the secret sauce, but not the recipe. One way of achieving this would be to use a non-disclosure agreement – a legal contract that protects confidential information and intellectual property rights of the entrepreneurs. However, it is rare for investors to agree to sign this, especially when they know little or nothing about your company.
Instead, provide enough details about how the startup works without revealing key elements of your business plan or product. GTC Sound Innovations has created a new technology that will change the electric guitar by providing players with access to new sounds, original effects and a vast range of new musical options. While GTC has received tremendous feedback from leading professional guitar players – it is being very cautious in protecting its innovation until the next round of funding has been secured. By obtaining endorsements on a case-by-case basis GTC has secured positive opinions without having to seek publicity on a grand scale… and before the company is ready.
Reaching global success as a startup begins when you first become established in one market and then rapidly expand globally. The Catch-22 is that one must be both successful locally and globally – to show potential partners of the global viability of your business.
Yet how can one go global before succeeding at home? This can be quite challenging since there are several language and cultural barriers, along with different business strategies for each market.
Zeynap Sener, CEO of Mobilexpress – a Turkish tech company that converts mobile devices into shopping instruments – has simplified the shopping experience. After penetrating her native Turkey, she was confronted with these exact obstacles back in 2011 when she wanted to drive the website’s global growth. She decided to take on the challenge of providing the website’s services to users in their native languages, similar to internet success story, SurveyMonkey.
Today, SurveyMonkey enables users to choose from 15 different languages because it understood that acquiring global success meant that you need to establish a local language user experience. Now, the company is the world’s leading provider of web-based survey solutions, used by millions of people and a valuation over $1bn.
It is important to consider the markets in which your product or service would be most successful. This is where the importance of leveraging locally based partners comes into play. By collaborating with on-site experts that are located in your target markets, you are expanding your startup’s services while ensuring the integrity and quality of your product in each market.
One of the main strengths of successful startups is the ability to pivot. It’s possible that the product or service isn’t groundbreaking, but the company succeeds because it was able to adapt and overcome the challenges they were confronted with. Think Microsoft versus Apple.
Entrepreneurs see a list of problems in front of them and can quickly grow discouraged. In these cases it is imperative for entrepreneurs to acknowledge the problems they are faced with, seek valuable advice and understand that there are always solutions that could help them put this ongoing Catch-22 cycle to an end – once and for all.
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