I recently had the great experience of attending SxSW Interactive, where I spent time listening to and talking with entrepreneurs and members of the broader startup community. Through our investor ff Venture Capital, I was also able to participate as a panel member at their annual ffMassive event (and had a great time to boot).
Along with Joe Ferino of McCarter English, Steve Kreit of EisnerAmper, and Christine Alemany of Trailblaze Growth Advisors, I discussed “Startups 101”, or what the panel thought was most important for entrepreneurs when founding a company. Due to tremendous leaps in technology, we are currently in a “golden age” for startup companies. With the right idea, today more than ever, those who put in the effort have the chance to see their dreams comes to fruition. Without the right knowledge and foresight, however, those dreams will stagnate and transform into an unsettling financial nightmare.
Having started my career auditing venture backed companies and having now worked as a CFO and CEO at two tech startups, I have a somewhat unique view on some of the common mistakes I’ve seen companies make as they are just getting started. Here are some highlights I shared during my presentation that are going to benefit anyone interested in taking their idea to market:
1. From day 1, act like you are going to succeed.
You are going to have long nights. You are going to focus on a build that can get out as quickly as possible. You and your company are going to pivot, and then you are going to pivot again as you seek to optimize your place in the market. Certain items, however, never pivot. Incorporation paperwork, employee confidentiality agreements, stock purchases and 83(b) elections, and trademark and potentially patent applications - these standard items should be done once and done right, and only become a bigger issue as you grow the company and face greater and greater demands of your time in other areas.
Always remember - the startup ecosystem has seen this all before. There are resources all over the place to help you get off the ground - utilize these! Beyond protecting yourself and your company when it comes to governmental and potentially regulatory issues, doing the little things right allows for more focus on your customers, no delays while raising funds, and a strong foundation as you move from day one to week one to month one.
2. Follow the (right) data.
Alright - you’ve got your paperwork done, you have a beta product or service, and have started to gain traction in a few different areas. Your core offering is bringing in customers from different sales channels, and maybe you are up-selling some while others are asking you to expand to fit their needs. Now, here comes two important connected questions:
How do you gather data to know whether your customer acquisition efforts are paying back?
How do you make the choice to double down in one area or build in another?
This is where the value of your underlying financial and operating results becomes so important to guide your management team into making the right decisions. I’ve seen so many instances where businesses make the absolute correct decision on where to focus their efforts because that’s what the data is telling them. But what if the data is wrong? A number of founders think that proper accounting is only for public or later stage companies, or that it can wait until you get an accountant in the door. Take a hard, hard look at that assumption though - do you really trust the data you are receiving to make your decisions? Resources including CRM systems and outsourced accounting firms can ensure that the KPI data your management team is focusing on is reliable and can be counted on. Finding signal through the noise - that’s still your job. Speaking of outsourcing…
3. Great service providers pay themselves back in spades.
The phrase “penny wise and pound foolish” is never more applicable than in reference to startups and their use of business service providers. As previously stated, a lot of paperwork is simply process work, and isn’t going to make your business great, but could potentially be a huge headache (or worse) if you don’t do it the right way.
Form a network of people you trust, utilize them when needed, and maintain your focus on the business, knowing you have a network of subject matter experts waiting to guide you on your path. These relationships will last far longer than this company or even the next. Remember that your success is also their success, so they have a vested interest in ensuring you succeed. Law firms like Cooley and DLA provide standard documents and free or discounted legal advice as you set up and grow your company. Also, don’t discount utilizing fellow startup products while you grow. I’ve found that the headaches of growing with a startup are more than offset by the personal touch from a customer service perspective, and in many cases the ability to help influence product design to better serve my needs.
4. Build out a plan to grow the company and deploy cash.
You’re properly incorporated, you’ve filed your paperwork, you’ve got company counsel you can trust, and you’ve built out a reporting system that allows you to test and retest your efforts reliably. You’ve also been able to raise capital to take your business to the next level. Between growth in revenues and the new infusion of capital, you need to ask “what is the proper mixture of future growth vs. cash in hand” when thinking about what you can (and can’t) spend on growing your company.
I’ve told my investors many times: “I have a revenue projection, and an expense projection. I can guarantee you that I can hit or exceed one of those numbers with 100% certainty - my expenses.”
While one of the best pieces of advice I’ve ever received was that a company never saves its way to success, I’ve also kept one item top of mind: DROOM (Don’t Run Out Of Money). By focusing on really understanding the expense base and using unit economics to build up revenues, management teams will have a much better handle on what they are spending, and can react much faster if unit revenues are larger or smaller than expected to adjust spend in different areas of their business.
5. Identify what is the real differentiator of your offering.
Finally, understand what makes your product or service unique, and be hyper-vigilant on devoting your greatest asset - your people - on making this better everyday. You may think that cash is your most valuable asset, but that’s not the case. It’s the efforts of your team, no matter the size, that will have the most impact on taking your product successfully to the market.
Utilize the thousands of platforms, applications, and programs that have already been built that will enhance the efforts of your team and pull everything together. Building an accounting, checkout, HR, or reporting platform - unless that’s what makes you unique - isn’t your core business, so marry these services to your offering and ensure that your true core competency is improved on a daily, weekly, and monthly basis.
Being at SxSW was a truly great experience, because I was able to see in person the excitement and camaraderie of our tech community. As I mentioned, now is the “golden age” for startup companies. If you are a young company just starting out, I wish you all the best - there is nothing more fun than turning your idea into a (properly incorporated) reality.
If you too were at SxSW, comment below and share your experience, and look for me there in 2017!
Brian Rainey is the CEO of Gooten. You can follow him on Twitter @thebrianrainey.