0-1 to FFF @ 1-N: Formula to staying started-up
The initial phase of any entrepreneurial venture has various states of being that are key to its long-term existence and success. Namita Shibad gets the experts to unravel the secretsUpdated: Sep 02, 2017 11:15 IST
Though ideation is believed to be the first stage of a startup, Vishwas Mahajan, global trustee, TiE feels, “Before an idea hits you, you identify a problem. The idea starts with identifying a problem. A start up is born because it begins with a need. It is an entrepreneurial mindset that converts a need into an opportunity.
“Say for example college students get hungry at 3 am whilst studying and you see one of them will start a Maggi noodles stall to meet this need, or someone who will find a solution to the solid waste problem in the city. Ideation is never done in a vacuum. It always comes from a personal experience.”
Arjun Panchal, entrepreneur, professor at Indira College and author agrees. “Water without thirst is of no use. It was time-consuming to stand in the queue and buy the ticket, especially when you’re already late. BookMyShow found the need and addressed it.”
Once you identify a need and have an idea that helps solve that problem, then comes the stage of evaluation.
Says Prashant Girbane, angel investor and honorary director Pune International Centre, “Very rarely does your first concept work. At this stage you keep repeating versions of your idea, be it a product or service, till you get a minimum viable product. According to Peter Theil, this stage is called the 0 to 1 stage.”
According to Mahajan this is the most important stage in the life of an enterprise. “But you have some people who fall in love with their idea and do not to disclose their idea for fear of losing it to replicas. This can be a death knell. Your set of experiences limits you. So while you test your idea by involving others it is also important that you do so with diverse groups.”
Says Sucheta Dhere of the National Entrepreneurs Network, “It is important to prioritise, validate and evaluate an idea. There are well-established techniques that help an entrepreneur do this, such as, decision matrix, paired comparison, 5 questions framework, etc. The output of the ‘Idea Evaluation’ phase is the idea which a startup decides to pursue.”
At this 0 to 1 stage funds are generated through, as Vishwas puts it, “Through F, F and F. Which is family, friends and fools, when the venture risk is the highest.”
Once the need is identified and the problem is framed and idea evaluated, you define who your customers are.
Says Dhere, “Startups take conscious decisions to identify and target different customer segments and pick up niche areas where there is less or no competition. In this phase consumer behaviours are understood, studied and analysed. The idea is further refined by mapping the consumption chain and by thinking about all the customer touch points where further value add can be done in the product or the service. Will the customers be ready to buy your product? You need to know who your customers are.”
Simply identifying your target customers is not enough, says Mahajan. “A startup will have to determine the cost of customer acquisition and customer lifetime value. For example, Amazon knows that it is spending money to acquire customers by reducing the delivery charges or offering deals. But, they also calculate how much a customer will spend in his lifetime on this brand. How they will be nurtured. One must remember there is mortality at every stage.”
Which is why it is important to be flexible.
“To pivot if required,” says Dhere. If the customer feedback on the prototype is not very favourable then an entrepreneur has to change. Successful startups apply pivots several times and at several stages and continue to pursue their ideas. Mahajan says, “You rarely end up with what you started with. Pivot is very important though there are some entrepreneurs who go to the grave with their ideas.”
Team building is probably one of the most important elements of a successful startup, says Mahajan. “It is always important to have a good team, people with diverse talents. If an engineer comes up with a solution to a problem it would be important that he opt in a finance guy or a sales person as his cofounder. If you can’t get someone to leave his job and join your team, how are you going to convince people to buy your product? Also you need to build your team keeping in mind the requirements you’d have, say, two years down the line. ”
After you have found a need, validated it, found a team, tested it in a small market you need to have funds to take this to the next level.
Says Girbane, “This is the 1-N stage. After co-opting family and friends, the enterprise needs money to scale up. At this stage a startup may seek money from VCs, banks, etc”. Adds Mahajan, “I think finding money is highly overrated. If you ask 100 entrepreneurs what is their biggest problem most will say funding. What startups overlook is the value of a customer as an investor. And the beauty of customer money is that it does not require equity. People with low bandwidth go after investors rather than customers.”
After securing the funds , the startup has to look into a lot of operational aspects, such as legal, administrative and management issues.
Says Dhere, “Based on different funding types, the involvement of investors is different at different stages. The performance is tracked and monitored. The founders constantly work on implementing the ideas and refining them.”
At maturity stage, an entrepreneur has three options; either to sustain individually in a highly competitive environment or, to go for a merger, or sell out the company.
Says Panchal, “Serial entrepreneurs look for the last option. Small fish are either caught or eaten by the big fish. So, why not sell off at the best possible pricing before going off the market. For example, TinyOwl could not survive whereas WhatsApp created history.”