Startups are the new shiny toy these days. Groupon and Mint are among the constantly quoted examples of what can go right with a business startup, but what percentage of startups actually enjoy that kind of phenomenal success?
Before you jump right into a startup, consider these four reasons it might be worth thinking through.
1. Money Burns Like Kindling
Whether you’re bootstrapping your startup or actually get seed money or VC capital, I guarantee the money will disappear quicker than you planned. A VC in Silicon Valley wants you to meet in his office…tomorrow. Bam: $2,000 for travel expenses. Another mobile carrier said they’d consider hosting your app, if you make 20 hours’ worth of programming changes. Bam. Another $1,000 gone, with no guarantee of revenue as a result. Things break. Conferences come up. Money dwindles.
Even getting money can be problematic. VCs are the equivalent of journalists: they’re getting pitched from every angle, and being heard above the din isn’t always easy.
How to Circumvent the Money Drain: Having money, period, for your startup already puts you ahead of the crowd. Make a budget upfront and build in as many surprises as you can. Pad the budget for travel and discretionary funds, and make sure you always have enough to pay your staff.
2. The Learning Curve Is Tough
Unless you’ve done this before, I’m guessing you’re winging the whole startup thing as you go. Reading Hacker News and OnStartups; attending industry conferences; finding other startups in your area (or maybe you’re not doing these things?). There’s only so much you can glean about crafting a startup pitch to VCs from blog posts. You need inside advice, and what you lack may show when you’re pitching investors.
How to Get Your Startup Degree: Self-teaching and sticking with it is what helps the big startups get acquired or funded. Don’t give up. Find a local mentor or startup organization that will rally around you and give you inside tips on what investors (even specific firms) are looking for. Ask for advice in putting together your deck and business plan. You are not operating in a bubble; ask for help. Repay it on the other side.
3. You May Kill Your Co-Founder
You and your best bud came up with a fantastic idea for a startup…only now he’s dragging his feet at getting coding done, or disagrees with you on every point. How are you supposed to grow a business if you can’t even agree on a logo? Starting a business with a friend can be stressful and put a strain on a relationship. Do you have to choose between getting rich or having a friend?
How to Keep Your Friend and Make Money: At the outset of your startup, determine what each of you will do. What are each of your strengths? What will you each be responsible for? It’s a good idea if one of you takes the CEO role and can make executive business decisions. Make it clear who has what authority. Stay in constant contact, and don’t let aggression build up. Go out for beers together every once in a while.
4. The Competition Beats You to It
After months of development, you’re ready to release your app or service. The day before launch, you find out a formidable competitor has just launched the exact same product. Do you throw all your work down the toilet?
How to Keep on Truckin’: The thing about startups, especially tech ones, is that you can’t focus on a single product or solution. You have to be multifunctional and find different ways to reach your audience. If this was your only product, you must decide whether to go up against a competitor with deeper pockets. The smart thing to do is to start out working on multiple projects so you can shift your focus if need be.
If you’re still reading, congrats. If these reasons didn’t scare you away from creating a startup, I wish you the best. Ben Yoskovitz talks about why you should begin a startup. You’re passionate. You want to change the world. You’re a control freak. But you don’t need me to tell you that.
Startups are like babies. They require a lot of care, and many people start them on a whim. But they need constant nurturing or they’ll die (taking your $100,000 second mortgage with them). Be fully prepared for the responsibility a startup entails, and you’ll be fine. You can thank me after you’ve sold to Google.