Starting a business is a dream job for many people who have a great idea, are willing to tolerate some risk and are looking to be their own boss. While start-ups are often glorified in the news – as some reach extremely high valuations – starting a company is a big undertaking that typically requires grit, perseverance and a little bit of luck along the way.
Over the past few years, I’ve started two companies, sold one and raised over $4 million in venture capital from some of Silicon Valley’s top firms. These companies haven’t been without their challenges, so here are the top three things I wish I knew when I was starting out:
1. Talk To Prospective Customers Before Starting Your Business
The biggest time killer in a start-up is building a product you think a customer needs, only to find out, after you launch your product, that the customer actually needs something else. Before starting my second company, Forge, I recorded over 50 conversations with prospective buyers to learn about their top three problems, how they define success and how much they’d be willing to pay to have product or solution that successfully helps them navigate their problem. These conversations helped me narrow in on building a product I knew customers needed and gave me my first few customers.
2. Reference Check Investors Like You Reference Check Employees
Sometimes raising money is necessary to get a capital-intensive business off the ground or as a way to spur growth. But raising capital, as with anything, comes with a cost. The cost is giving up future value of your business in the form of equity. Who you give this equity and other rights to – such as a board seat, which is often paired with financing rounds – can have a massive impact on the long-term business outcome.
It might seem daunting to ask a lot of questions of someone who is willing to write a cheque for a few hundred thousand or million dollars (or rands), but it’s extremely necessary.
- Have they invested before?
- Who did they invest in?
- What value did they provide to those entrepreneurs?
- Do they understand that most start-ups fail and that they might not get their money back?
- Can they introduce you to a few people they’ve invested in previously – business founders who went through both good and tough times?
Since most successful businesses are around for more than 10 years, it’s important to know who you’re going to be working with.
3. Do Whatever It Takes To Make Sure Your First Three Projects Are Successful
If you decide to raise pre-seed or seed capital for your business, take the money and spend 100% of your time working with your first three clients. I often see entrepreneurs who accept capital and then worry about how they’re going to rapidly grow their company.
In reality, in the early days nothing matters more than making your first three clients extremely happy, so you can use their success stories as case studies. Their testimonials will help you sell to client numbers 4-10, which will in turn help you sell to clients 11-100. Focus on your first three customers and tweaking your product or solution experience. Your company will grow organically from there.
Bonus: Passion Doesn’t Help You Make Payroll
The first time I had to let go of someone from my team, very early on in my career, my dad said to me, “Passion Doesn’t Help You Make Payroll.” You can have an employee who is extremely passionate about the work you’re doing, but if they can’t contribute to making it a reality, it’s better to let them go and get back to building the business.
Whether it’s conducting customer research, pitching to investors or learning from your first clients, starting a business gives you unmatched flexibility and the ability to truly learn every day.
