From time to time, I provide coaching to startups as civic service. In those sessions, I still implicitly follow the structure we use during a formal FITNESS Score Session to be able to provide comprehensive feedback. This gives me the chance to gain an in-depth view of the opportunity areas of those new businesses as well as their founders and co-founders. Here, I wanted to note the most important and common ones of those, aiming to compile a list of watchouts going forward:
#0. Who is the customer, what is the pain? (And hopefully, what is your unique core value offer to address this pain?)
Even after so many repetitions to date, I still cannot emphasize more how fundamental it is to have a crystal-clear answer to this simple question triplet (Credit: Ken Morse (Kenneth P. Morse) / Martin Trust Center for MIT Entrepreneurship) It is somewhat like the zeroth law of thermodynamics. After so much investment, if there is no demand for your product or service, no return.
To be able to figure out that crystal-clear answer, you obviously have to develop a thorough understanding of the pain points of your target customers. If you believe your target customers do not solely consist of yourself, your co-founders, and your best friend, then you should stop relying purely on your intuitions and go beyond your inner circle. Spend sufficient time talking to your target customers, discuss with them, and ask for their input.
Then, ignore them for a while, take the next step and get hands-on with research (e.g., ethnographic research), observations, tests and so on to uncover the needs that are not yet explicitly mentioned (maybe because your target customers are not even aware of them – remember the case of Ford Model T - 1908 or Apple iPhone - 2007).
#1. What is your path to sustainable profitable growth and value creation?
If you are comfortable with your answer to the zeroth law above, then you also need to plot the trajectory you imagine for your business. Nowadays, it is much easier for startups to access investors and secure funding, and as the founders, you might even have an early exit plan in your mind in the onset. While exit is a legitimate strategy for the founding team, you will never be able to make that early exit if your business does not ensure sustainable profitable growth and value creation.
Having a startup is not a side hustle or spare time activity, but a serious endeavor. Therefore, you also have to be serious about it, put your effort, and have a vision for it with which you picture yourself in, as well.
#2. What is your pricing and (hopefully recurring) revenue model?
If you heard the question “what is your (startup’s) business model?”, it actually asks for your recurring revenue model. More simply said, it means how you will make money (and profit). Again, this is related to the zeroth law, as you are looking for customers who will be willing to pay for the value your business has to offer.
It is also tied to your overall pricing model, and pricing scheme in effect, whether it is a cost-based or value-based one. At the very least, make sure to do your homework with the science (and art) of pricing, without overlooking the cognitive and psychological aspects.
#3. What are your estimations about your business’s Essential Performance Metrics (EPMs)?
Some startups expect to achieve millions of dollars of sales revenue within the first year and reach unicorn status in the second. If this sounds too good to be true even to yourselves as the founding team members, then maybe you should give it a second thought.
Be careful about the assumptions you make underlying your calculations, and instead of overly optimistic guestimates, be realistic with your EPM estimations, starting with the income related ones.
#4. Do you have an end-to-end awareness about your business?
When I ask founders / co-founders their thinking about their business’s SWOT (Strengths - Weaknesses - Opportunities - Threats), what I hear back sometimes is total radio silence. I then ask for only one item, the most important one that they think for each category for instance, and I see a real-time brainstorm kicking off.
Unfortunately, this is a signal of a lack of awareness regarding their own business, and sooner or later during the course, they will have to be fully aware of that SWOT, only maybe not in a pleasant way. Make sure you start with a full awareness of your business’s SWOT (or an alternative framework of your choice), and update it en route.
#5. Who exactly will take part in your seed organization? And why?
Another one is the tendency to include as many people as possible in the founding / core team. No one – including potential investors – expect to see a crowd. Instead, they are looking for value.
Every partner should be there because they add value with their talent and / or expertise, and share a common vision and aspirations with each other regarding the business. Moreover, everyone should have a well-defined accountability within the team (you may also refer to the ORCHESTRA Model and T.E.A.M. attributes of the Slimf it Book).
#6. Does your core team know technical details cold?
This is an additional remark for tech-heavy startups, and indeed, it relates to more than being tech-savvy. Make sure you know what you are talking about, especially if your startup’s claim relies on cutting-edge technology. The core team needs to understand the technicalities of the main business process to a sufficient extent. The team also needs to include partners who know the technical details inside out.
Examples? You will offer the customers the best stock portfolio to invest in, using large language model based generative AI. Thanks, but how? You will solve a large-scale vehicle routing problem to optimality. How? Well, the chances are that we missed a recent scientific breakthrough. Yet, the point is, your business needs to deliver its core promise. Otherwise, you can make a few initial sales, but your business will not be able to achieve recurring revenue.
In this post, I tried to focus on the things to consider for startup success. However, several of the above items apply to large corporations, and their innovation and intrapreneurship efforts, as well.
Last but not the least, if you have more observations, recommendations or remarks that you believe to be fundamental for startup success, please contribute to this post and add your comments below. In this way, we can come up with a more complete list of things to consider together.