Tech startups are a personal passion of mine. I love the new. And I love to see fledgling businesses with an idea for something new going through the process of bringing that to market. For all the excitement that comes with discovering an new piece of kit or a new app and figuring out how to use it and what it does, it’s important at times to step back and become the pragmatist at times. Often, the tech startup founders have the same passion and excitement for their creation as I initially have. And just as often, they have got caught up in this excitement and haven’t given any consideration to the question of “how do we turn this product in to a business?”.
To that end, here’s my run down of the top 5 tips for getting your tech startup off the ground.
This is number one for a reason. In fact, it should be number 1, 2 and 3. An ever increasing number of tech startups build their business on the foundation of an intangible product – software, apps, services and know-how. The most early stage startups won’t even have this much. They will just have an idea. On the back of this idea, they’re hoping that some angel investor will come in and write a big cheque that will then let them go and build this idea. This very rarely happens, but where it does the problem often comes after the money has been spent. The business now has a killer app or piece of software or platform…. but no idea how to make money from it.
In today’s market, monetising software as a service or apps can be difficult. It’s an ultra crowded marketplace (especially if your app is a photo app with filters or a new P2P messaging app). So even if you do decide to go down the route of charging £0.99 per download, there’s no guarantee anyone is going to download your app.
As far as monetisation goes there are three things to remember:
- Having and idea does not equal have a business
- Having a product does not equal having a business
- Having a pricing structure around your product or idea does not equal having a business
You know what equals having a business? Having money coming in. That’s it. That’s all that counts.
So please, if you take one thing from this article it should be this – spend an enormous amount of time figuring out how you are going to get people to give your startup money in return for your product. And once you figure it out, ask yourself is it achievable. It’s ok to say we’re going to charge £10/month for people to use your graphic design tool or £99 for a Bluetooth coffee machine but will people actually pay for it?
This one should go without saying. When your starting out you need to scrutinise every penny. If all you have is £1,000 ask yourself – what is the best way to spend this £1,000? The answer probably isn’t on an executive leather chair with a heated seat. You don’t need it. What you do need is a web developer to build your website if that’s how you’re going to sell your product. What you do need is a digital marketing budget if social is where you think your first 100 customers are coming from. What you do need is more product development if customer feedback tells you it has flaws.
Startups need to be ruthless with their spending. Whatever amount of money you are going to spend on something, ask yourself – if I had to write a cheque for 100 x that amount, would I be comfortable doing it. If you wouldn’t be, it’s not essential to you getting your business where you need it to be.
I was always going to say this. Any accountant would, but for good reason. In fact, for a number of good reasons. The first goes back to the passion that startups have for their product. This passion, whilst pretty much a prerequisite, can also stop you from seeing the facts as they stand. You may love your product and it’s branding and may have grand ideas of changing the world. That’s great. I wouldn’t expect anything less from you. But if the model is broken, this passion and energy is being wasted. If you’re burning through money twice as quickly as your getting it in or if you’ve costed your product at a margin that only gets you to break-even after 10,000 unit sales, you’re going out of business, and soon.
Another reason for keeping your books in order is that, well, you have to. If you’re operating through a limited company in particular, you need to be keeping sufficient records. HMRC will also take a poor view if they decide to visit you and you haven’t got sufficient records of money in and out.
Finally, keeping up to date with your accounts also instills an much better business mindset in entrepreneurs. It grounds them in the fundamental principle of being in business – making money. Aside from keeping on top of profits, it’s also useful to keep on top of how your assets and liabilities are moving in relation to each other. If debtors and creditors are increasing exponentially, the good news is you product or service has a market. The bad news is your startup is at risk of over-trading if you don’t find a means of properly financing the business.
This might seem counter intuitive but I believe it is important to figure out as soon as possible how you intend to exit your startup. The fact is, you can’t run your business in to infinity. Whether the plan is to sell up to the highest bidder at the earliest opportunity, pass it on to the kids or make as much money in 3 years as possible then wind it down, understanding this goal from day one gives you the blueprint for how you intend to run your business. Once you have your end goal figured out, all your actions should then map to achieving this.
As with any business, for your startup to really succeed you need to be the expert. You need to know everything about the sector you’re in; how it works, what it tastes like, who matters in that sector and how your product or service fits in to that sector. This goes back to monetisation. If you know what does and does not work in that market, you’re much better placed to decide whether your business can be successful there.
You also need to be crystal clear about your customers. Who are they, why do they need what you’ve got and are they willing to pay to get it? You should also understand that jut because your product may be better and cheaper than a competitors, customers won’t automatically flock to you. This goes to brand. Brand matters.
You may have developed a pair of smart running shoes that link to a smart phone app to tell you if your running technique and posture is off and how to adjust and measures your heat rate, speed and distance. Great. I’d buy that. But I’m a geek and a focus group of one. The market? They’ll ignore you and continue to buy Nike, Adidas and Reebok. Because they have the brand clout. People buy these brands without even thinking about it. Without even knowing why they’re buying them. It doesn’t matter that your product is better, cheaper, smarter, more environmentally friendly, will make you live longer and grow taller and make you more attractive to the opposite sex. So understand that the best move here mightn’t be taking on the big boys but targeting the niche and adjusting.
That’s a crude and fictitious example but shows how understanding your market can totally redirect where your business will goes in comparison to where you thought it would go.