What makes a startup idea worth building?

Six rules for a successful business start-up

Six rules for a successful business start-up

 

Rule 1: The right business idea

At the beginning of every company formation there is the business idea. A good business idea must first and foremost solve an existing problem. This problem must be relevant, it must affect a sufficiently large number of individuals or companies and they must be willing to pay money to solve this problem. It is only a good business idea if these requirements are met. Many founders make the mistake of only wanting to solve a “First World problem” for a market that is too small and then fail or never get beyond the status of a small company.

Rule 2: Pay attention to the timing

The right timing for the business idea is also important. Many founders underestimate this aspect. Most innovative business ideas have a time window of a few years, within which one is not “too early” and not “already too late” to build a successful company in this segment. So it was certainly a good idea ten years ago to set up a social network (e.g. Facebook, Instagram, XING) but this market is now distributed. On the other hand, with a ride-sharing app for flight taxis, you will certainly be on the market a few years too early.

Rule 3: Never walk alone

Building a company as a lone warrior? Not impossible, but most successful companies are built by founding teams, because hardly anyone combines all the necessary experience and skills in one person. And almost no startup investor invests in a single founder. A good founding team is characterized by complementary skills, strengths and experience. The negative example is a team made up of three business administrators who all studied at the same university. Of course, a founding team that only consists of technicians does not work either. Ideally, the team has already worked together successfully and each team member knows the strengths and weaknesses of the others. And most startup investors know from experience: the idea is only worth one percent, the execution is 99 percent. This means that a very good founding team will lead even a mediocre business idea to success. It never works the other way around!

Rule 4: Find suitable investors

Most business models require a certain amount of capital at the start, often in the high seven-digit range for companies in the technology sector. For every industry and company phase there are now investors who provide money - mostly in the form of equity. Starting with small amounts from the family-and-friends environment of the founders, through private business angels, venture capital funds and other institutional investors to government grants and subsidies. The challenge for every entrepreneur is to find the right investor who can support the young company not only with money but also with know-how, industry experience and network contacts (“smart money”). For their part, investors, in addition to the quality of the team and the size of the market, pay particular attention to the so-called scalability of the business model: In general, this means that as the number of units increases, costs remain constant or grow less than sales. Example: A hairdressing salon is a non-scalable business model, whereas scheduling software for hairdressing salons is.

Rule 5: The product doesn't sell itself

Company founders are often very product-focused and believe that a good product sells itself. But the best product is of no use if the potential customers don't know about it. A well-founded marketing and sales plan is therefore part of the tools of the trade for every entrepreneur right from the start. And if you don't have sales skills yourself, you should get a suitably experienced co-founder by your side who can take on this part and concentrate on building the marketing and sales channels right from the start.

Rule 6: marathon instead of sprint

Building a company is more like a marathon run than a 100-meter sprint. Or a little less metaphorically: A successful company does not come about overnight, but is the result of hard and long work and associated with high risks for the founders, because in the end there is no guarantee of success. On the contrary: Most start-ups fail or never get beyond the micro-enterprise phase. And so it is not uncommon that the founders are literally left empty-handed after years of work (usually combined with a waiver of salary). Therefore, not everyone has what it takes to be an entrepreneur! And those who insist on their free weekend and the strict separation between private and professional life (“work-life balance”) will not be happy as a founder and entrepreneur either. It is true that as an entrepreneur you are your own boss. But no successful entrepreneur will put off his best customer, who reports an acute problem on Friday afternoon, to Monday morning. As an entrepreneur you no longer have an annoying boss over you, but your own customers can be more strenuous and demanding than any superior!

 

 (This article was published on 09/11/2018 in the supplement "Mittelstand" of the WELT).

 

 

 

 

Nov 04, 2018 by Florian Huber