I have to admit that some weird part of me likes when I face problems because I day-dream about fixing them. Maybe you know what I'm talking about. If so, keep reading...
Here's the thing, in addition to call waiting, there are an endless number of things in the world that could be improved. So how do you actually make your ideas a reality? Aka how do you change the world? :) People often ask me what steps they need to take to start a company, so I've tried to consolidate my answer into this blog post.
Look at your problems with fresh eyes (and come up with a solution)
If you're having trouble coming up with an idea for you company, I think the best thing you can do is to look at your world with fresh eyes. When you experience problems (whether it's being stuck on call waiting, walking by homeless people on your commute and wishing you could help, or losing your keys for the hundredth time this week) think about how you could fix the problem.
Vet your idea
After you come up with an idea to fix a problem, be sure to ask yourself these questions:
- Is this a problem a lot of people face? You want to solve a big problem so that you can impact as many people as possible otherwise you won't be able to scale the business and make money for you and/or investors.
- Is this a problem you're insanely passionate about fixing? Companies take a long time to build and products take a long time to bring to market. It's freaking hard. If you can't see yourself being passionate about your idea (literally fighting for it) for at least five years, I highly suggest you find a different problem to fix!
- Be honest: can you make money off of your idea? Products cost money to build. Companies cost money to operate. Somehow you have to be able to generate money with your idea in order to carry it out to completion. While there are some companies that never actually make money (they operate off investment money until they are bought by another company) those are few and far between and probably one of the hardest paths to take, especially as a first-time entrepreneur. Stretch yourself to see if there is any way you can make money off your idea…
- Is it an easy sale? Is your idea a no-brainer or does it require a lot of education to explain to people why it's a good idea? It's so much easier to sell to people who already know they have a problem. What industry are you selling to? Is it one with a slow sale cycle (Education, Government, Healthcare)? Is it an industry full of regulations where you'll literally need to lobby congress to enact laws that allow your company to operate? I'm not saying you should avoid tackling big problems, but I am warning you to know what you're getting into.
- Is someone else already working on solving this problem? And can you build a product that is way better or way cheaper than the one that they provide. If you can't provide significant more value than they are already providing, it might be a good idea to tackle a different problem. Why invest so much time and money solving what someone else is already doing a pretty good job solving? But hey, if you can do better…go for it.
Bring other necessary people onboard your team
Think about your skill set. Are you a designer or will you have to hire one? Can you code or will you have to hire a computer programmer? Do you have a law degree or will you need an attorney? If you can bring people onboard your team as co-founders or as part-time contractors who will work for equity (a percentage of ownership in the company) you will save yourself a lot of money and a lot of frustration down the road. Being able to recruit other talented individuals to join you in your venture is a critical skill to have (and hone) as an entrepreneur and it's also the first test at whether your idea is actually a good one.
Make sure you're legal / Do things right
While it might be tempting to save money and jump head first into your company, throwing caution to the wind (you're an entrepreneur after all), I highly recommend that you do things right from the start. Seriously. you will thank yourself later.
Once you know that you are officially starting your company, you probably want to set up an official, legal structure. This will usually be an LLC or a Corporation. There are pros and cons of each structure (Avelist is a C-Corporation but we started out as an LLC before transitioning to a C-Corporation). While it's important to choose the right structure for you, the most important thing is to make sure you have something! This is for your protection - if someone sues you, they sue the company (and you won't lose everything). It also affects taxes, employee contracts, investor opportunities, etc.
If you plan to continue your current job (to make money) while you start your company, make sure you read over your current employer's employment policies and contracts to make sure they won't have legal rights to your product since you built it during the time you were employed by them.
Speaking of owning the rights to your company, you also want to make sure that anyone who contributes to your company (code, design, etc.) has signed a contract (usually called a Business Protection Agreement) that says they understand that their contribution is owned by the company, etc.
If you are bringing other people onto your team and offering them equity in the company, make sure that you structure your contracts so that they receive the equity on a vesting schedule (aka so that they don't quit after 2 months and walk away with a huge percentage of your company). A typical vesting schedule is four years with a one year cliff. This means that someone has to work for a full year and then they receive 1/4 of their equity. After that first year they receive 1/48 of their equity each month moving forward for the remaining three years at which point they have "vested" all of their equity and have rights to all of it.
Always be learning
Read books and blog posts about entrepreneurship. Follow entrepreneurs and investors on Twitter. Study how other companies that you admire do their branding and marketing. This kind of education is free and it's real and it's awesome. Take advantage of all the great resources out there!
Speaking of great resources, if you are lucky enough to find current/former entrepreneurs to serve as mentors and advisors to you, they will have a tremendous impact on you and your company. A word to the wise: try to find advisors who know your industry. Just because someone is "good at business" or has started a company, doesn't mean they're an expert in your niche. Internet consumer companies (B2C) are completely different than business-to-business (B2B) companies and the way you market and sell and raise money for each of those companies is totally different too. Someone might be a great business lawyer but if they don't know the world of startups, they might not have processes in place to keep your costs low. Keep this in mind and at least use it as a filter when you ask for advice.
Understand your financial situation
Let's talk about money. This should be a full blog post in itself, but I'll try to hit the highlights here and I'm going to be super blunt.
Raising money is freaking hard. Unless you have friends or family that can invest in your idea, you will rarely find an investor who invests in just an idea itself. They want to see proof that your idea will work and that you are the person to get the job done. This means that you will need to bootstrap (self-fund) for a while until you can prove yourself to investors. Here are a few ways you can self-fund:
- Work two jobs. I worked full-time at SAS to fund myself while I was building Avelist. It meant I worked 90 hour weeks for a very long time, but it ultimately allowed me to build a prototype and get feedback from the market without needing to raise money first.
- Bring team members on board who work for equity. If you can convince others to work with you (instead of you paying them in cash), you will save a ton of money and ultimately probably build a better product since everyone has "skin in the game". In order to do this you will need to convince them that the idea has potential. You will also need to learn what motivates them and offer them opportunities that are appealing to them - do they care about the job title, the learning opportunity, etc. Make sure you align expectations early (Does everyone plan on going full time? What salary do people need to live?) And also make sure that you use contracts so that all agreements are on paper.
- Lower your cost of living. Go through all of your living expenses and bills. What can you cut? Can you change your cell phone plan by cutting back on data or minutes? Can you give up cable? Netflix is super cheap. Can you run outside and lift weights at home instead of paying for a gym? Order water at a restaurant instead of a drink. Look for sale items at the grocery store. It's pretty amazing how frugal you can be if you try...
- Be creative. Can you share a room with another entrepreneur instead of paying for a whole room of your own? Can you live with your parents or with a close friend for a while (rent free or reduced rent)? Do you have any possessions you can sell? In order to fund Avelist, I sold my house and furniture. I also lived with my parents part of the time. You might not have the same options as I did and I might not have the same options as you do. Just be open-minded and creative…again, these are good qualities for an entrepreneur to be.
- Network with investors. Just because you can't raise money right away, doesn't mean you shouldn't talk to investors. Don't hesitate to introduce yourself to investors. Buy them coffee, take their advice, keep them updated on your progress. Investors are always looking for deal flow and if you can get to know them and show them you make progress and are teachable, your chances of receiving their investment in the future definitely increase.
Start small and don't over think things
This might be the first time you've heard me use the word "small". Hold your horses! I'm not advocating that you aim small, but rather that you start small. If you try to solve a huge problem all at once, you risk the likely chance that you are biting off way more than you can chew.
A lot of starting small has to do with being honest with the resources you have on hand and playing to your strengths. For example, if you're a business person with no design skills or programming skills, it's going to cost a ton of money for you to build a whole app or platform (aka hire others to do it). So try validating your concept and idea by an email newsletter (you could use Mailchimp) or a Wordpress website (plug and play). See if you can gather an audience and get people to sign up for your emails. See if you can figure out how to use social media to spread the word about your site. Is there some viral component you can tap into? Once you validate your concept (by gaining an audience and building a brand people are excited about) it will be easier to bring a programmer or designer onto your team. It will also be easier to raise money!
Phew! If you made it this far through the blog post you might just have the grit and determination that it takes to build a successful company. I hope these tips provide you with some useful, foundational knowledge as you consider starting a company of your own. Feel free to comment on this post if you have questions or if you're a seasoned entrepreneur who wants to add suggestions that could help other entrepreneurs.