How do you start a startup? No one plans to devote months and years to a company that will go bust and not creates a successful product. And still, 90% of startups fail.
Many people do not risk opening their own business, still playing 3 patti play online. But you can have more if you take the risk. So today, we will tell you how to minimize the risks.
What is a startup
A startup is a business project usually at the idea stage or the development of an MWP – a minimally workable product that can meet market needs. The founder may not even have a sole proprietorship or legal entity at the earliest stages.
As a rule, this is a high-tech project. For example, a business project in the sphere of dating, which is at the stage of developing the first version of a mobile application, can be called a startup.
A startup doesn’t necessarily work for the big market and can also work for the B2B market. The main difference between a startup and another type of business is that it is a startup project with significant risks and unclear prospects. Nevertheless, it aims to create innovation, attract investment, and increase.
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Startups are often created based on people’s needs that no one has yet had time to meet, while small businesses replicate current consumption patterns. For example, in floristry, there might be a startup that creates a platform for flower suppliers and buyers across the country or a small business – a kiosk that sells bouquets.
Startups can be opened in a variety of industries. Many people have heard of IT startups because now you can learn programming from anywhere in the world, sometimes even for free, and then create your own startup. However, some industries have their peculiarities. For example, it is much more challenging in finance and medicine to open a startup regarding the same legislation and the need for expertise in these fields.
The benefits of starting a startup
Unlike small businesses, startup founders usually have ambitious plans to capture market share and hope for a significant income and the company’s rapid growth. And that is why a startup has a better chance of attracting substantial investments than a small business. For venture capital investors, getting a multiple of profit with higher risks is more attractive than a stable but barely growing profit.
Large companies, though more stable, are often bureaucratic, and decisions take months to be approved. On the other hand, a startup is more flexible and can quickly adapt to market changes, respond to consumer demands, and make decisions autonomously.
That is why large companies that want to be flexible launch startups. For example, a bank creates a subsidiary – a particular startup develops an application that will solve the problem of fraudsters calling. This startup lives by its rules; it deals only with a specific product. This approach makes it possible to avoid the spread of corporate culture to the new project, which may hinder it.
How to manage a team on a project
Of other advantages: in a startup, you can quickly test a hypothesis and find a market and need without involving significant resources. A startup can make an MWP, try the product, start sales, and refocus the activity if it doesn’t go.
A startup also has the advantage of attracting valuable specialists who are not interested in just working for hire. Such employees can be attracted to a startup with an option – the right to receive a share in the company. If the company gets a great valuation, you can make good money. Also, the employee with the option thinks more about business development, as he essentially becomes a co-owner of the business.
How to determine if a startup is ready to launch
Launch readiness for a startup is a very conventional concept. If you have an idea to solve a market problem, there’s your startup. Typically, the formal stage of a startup is the preparation of the MVP – the creation of an essential product to evaluate whether it satisfies demand.
You don’t have to start a company or register a sole proprietorship to test the product and market, except in heavily regulated markets like finance and healthcare. But, for example, if a startup plans to provide telemedicine services, it needs to obtain a license; otherwise, legal liability may ensue, including criminal liability.
As a rule, everything depends on the idea for the startup as well as the market analysis.
- Searching for an idea. There are several techniques for finding a startup idea: finding a specific consumer pain, improving or accelerating an existing business, or making expensive products available. You can often find startups that arose out of a founder’s specific expertise. For example, a lawyer sees a problem – the routine and lengthy process of preparing a contract – making legal services expensive. He creates a startup to automate contract work.
- Market analysis and niche selection. Before launching a new project, an analysis of competitors, and consumer preferences, determine the volume of the market – that is, how many products or services are sold and for how much, as well as market capacity – how many products, can potentially be sold.
- The analysis can be done independently with the help of industry publications and resources, search engine statistics, official resources with financial information, and so on. For example, the Federal Tax Service has created a site where you can look at the accounting statements of legal entities and assess the revenue, profit, and profitability of businesses in the same niche.
- Another option is ordering a particular study from consulting companies or buying ready-made ones.
- Another point for analysis is to study the requirements for a specific type of business in terms of legislation.
Key documents of a startup
Any business can have many documents: personnel, intellectual property, corporate, accounting, financial, and technical. But a startup as a company that wants to attract investment and partners has a few key documents.
It contains basic financial information about the project, the industry, the product, and the amount of financing to be raised. In addition, the business plan has a sales plan, marketing, revenue forecast, sales volume, expenses, and profitability forecast for several years.
There are different approaches to filling a business plan, which largely depend on the company’s specifics. For example, if the startup is related to production, the business plan separately reflects production and capital costs.
If the startup needs a lot of money, the business plan is most likely developed first, then the MWP. However, sometimes it is the other way around – instead, they test the hypothesis and the market and then count the market volume, costs, and other things.
A term Sheet is also called a memorandum of understanding. At the beginning of the activity, the founders and investors, if any, conclude an agreement that has no legal force and binds them to anything. The point of such an agreement is to structure the arrangements so as not to leave out essential details.
It is often essential for a startup to get not just money from an investor, but expertise, support, and a like-minded person.
One of the best options is to choose an investor from the same startup industry who has experience in the field and is willing to help with scaling.
For example, a fintech startup may benefit from finding investors from the banking industry with international contacts. Such a partnership will enable a fintech startup to anticipate unobvious mistakes, more easily enter the global market with investor contacts, get its first foreign clients or attract a new round of investment from significant foreign funds.