April 8, 2011
News & Opinion: 6 Secrets to Startup Success
We've been talking a lot about entrepreneurship lately here, and the discussion continues today around a recent book by John Bradberry, called, 6 Secrets to Startup Success: How to Turn Your Entrepreneurial Passion Into a Thriving Business. I first met author John Bradberry at the 2010 800-CEO-READ Author Pow Wow and was intrigued by his realistic view of business in an era where the popular message was to simply follow passion. As we discussed, and as John digs deep into within his book, is that passion is not nearly enough to create success. Now his book has launched, so I sent him some questions to give our readers a bit more insight into his idea (and I encourage you to pick up the book to get all 6 Secrets and the overall full story). What's the main difference between a good idea and good business? John Bradberry: One big difference is that good ideas are everywhere – they’re a dime a dozen – while good businesses are extremely rare. Building a great company is a lot harder than the motivational literature would have you believe, and certainly harder than most aspiring entrepreneurs want to believe. This doesn't mean it's not worth the risk and sweat. But, once a healthy business is up and running, the founder often looks back and finds his or her first idea to be somewhat laughable. With the benefit of hindsight, they realize how many inaccurate assumptions were baked into their idea, and find it amusing how easily and quickly they thought it would take off. I work hard to get my entrepreneurial clients to regard their first idea as a starting point, understanding that the idea will evolve and improve as the business iterates forward. Is 'passion' really necessary? JB: If, by passion, we mean “outward exuberance,” I don't think it’s necessary. What is necessary, or at least present in the highest-performing entrepreneurs I’ve known, is the powerful drive that comes from some internal source. It’s what Jim Collins called “fierce resolve” in his study of effective CEOs, and I find the same quality applies in spades to successful startup founders. The book's original working title was Founding Fire, and that title hints at an important distinction for entrepreneurs: the notion of “fire vs. weight.” The fire vs. weight question has to do with what gets you out of bed in the morning. Is it a fire-in-the-belly feeling – a burning desire to solve a big problem and do something great? Or is it a feeling of obligation and compliance, as if you are carrying a great weight on your shoulders? Most people start down the entrepreneurial path because of the first feeling but, unfortunately, too many of them fail to put the right fundamentals in place and eventually create a business that feels more like a weight around their necks. The reason I wrote the book is to help entrepreneurs nurture and direct their fire while ridding themselves of the weight. When is the right time to dedicate full time to a project? JB: That’s a great question, and a hard one, because there is no single right answer. In the book, I focus on the notion of founder readiness, and I follow the cases of entrepreneurs who took very different approaches to the question of when to make the leap. One founder nurtured and prepped his idea for several years. He developed a full business plan, courted investors, employees and clients before he left his job. He was able to quickly ramp up his idea, break even after eight months and sell for $100 million after three years. Another founder left a medical school faculty job with little more than a fledgling prototype. He needed a lot of money from family and friends to buy enough time to develop his first products, and he encountered great risk because the market for his product was highly uncertain. But he made it work, and sold his company to a major medical technology company a few years after launch. In both cases, the above founders figured out how to make the financial equation work in their favor, either by quickly generating revenue or by getting enough funding to successfully develop a business. For the person who’s wondering if they should make the leap to full-time entrepreneurship, I recommend looking at your situation through four basic lenses: - Founder: What are your personal motivations and needs? What minimal income do you need to make? What are the stakes should the venture not work out? How will you handle a less-than-best-case scenario? - Market: How well have you validated your idea in the marketplace? How close are you to having paying customers? What leads you to believe you have a reasonable shot at building a core customer base? - Math: Do your numbers make sense? Can you turn a profit? What is your path to profitability and how long will it take to get there? Can you access enough funding to make it to breakeven and beyond? - Execution: What is the degree of difficulty in executing on your idea? What talent, technology, and other resources do you need to bring together? How will you pull this off? What are some tips to sustain a startup? JB: I’m a big proponent of entrepreneurial stamina, and have devoted the last chapter of the book to the concept of staying power. Statistics and common sense both dictate that the longer you stay alive, the more likely it is that you will crack the code and find healthy growth. I help entrepreneurs think about staying power at two levels – that of the venture, and that of the founder. At the venture level, the two clearest areas of focus are managing risk and raising money. Every venture has a few whopper risks plus a bunch of smaller risk points. Get clear about your biggest risks and vulnerabilities (ask what could kill us?) and do what you can early on to reduce or manage those scenarios. Too many founders, for example, put a lot of precious capital into building a perfect product, without addressing the killer risk that sufficient market demand may not exist for the product. So, do what’s needed to validate customer demand before putting all your eggs in one product basket. Another tip is to arrange for money before you need it. That's a controversial statement within the bootstrapping school of thought, which asserts that too much money will ruin a startup by not forcing the team to find customers and generate revenue. This view has some validity, but it hinges on a questionable assumption, that having money equates to spending it. If you want to dramatically lengthen your runway, do both: Raise twice as much money as you think you’ll need, while still approaching your startup with a bootstrapper's mentality, micro-managing every penny. But don’t wait until your back’s against the wall to go seeking funds – nothing scares away investors or lenders like a desperate founder. At the founder level, stay flexible and take good care of yourself. Don’t get caught up in the myth of the swashbuckling entrepreneur who achieves startup success by pulling all-nighters. Most of those sleepless founders are performing far below their best. So, build adequate recovery into your schedule, whatever that looks like for you. --- Surprisingly (and awesomely), the book's forward is written by Pam Slim, who many of you might recognize from her revolutionary book, Escape From Cubicle Nation - a book that partially helped inspire people to follow their passions as opposed to playing it safe, but also advocated understanding what's involved in such an effort before making the leap. Books like John's, Pam's, and mentioned elsewhere on this blog - Carol Roth's, are excellent guides for those who are tired of "working for the man" and want to become independent and set their own rules (as much as they can).