I recently had someone message me and ask me to connect them to “VCs” to fund their “idea”. About a year and half since I started conceptualizing my startup, I was struck by the naïveté of such a question – almost beginning to laugh. Then a visit up memory lane made me realize that, very early in my startup journey, I had been just as confused, as first-time entrepreneurs often are.
As final-year students in university with an idea that we thought could change the world, all we wanted to do was work on our startup after we graduated. But how could we make those decisions without any money at all? Was it prudent to reject job offers when we didn’t have money or stability to run a startup? Should we talk to investors first or should we build our product? What on earth do you do once you have your moment of epiphany?! One and half years later, here are my two cents worth.
Stage 1: Validate Your Idea
1. Build a website and not a business plan. Honestly, instead of writing out a 20 page business plan, try making a website. There is probably no better way to put your thoughts together. What I love about websites is that, instead of the theoretical business plan, you immediately need to become a salesman. You need to sell your vision to a customer in layman terms. So cut the jargon you use in your “operation plan” section (any B-school students out there?) and try selling your “idea” by conceptualizing it first.
2. Talk to everybody you know about your idea. In Asia, we sometimes tend to guard our ideas. Don’t. Talk to people. Hear feedback. It helps build your vision. It will open your eyes to things you were not aware of. Just walk up to people and ask them for feedback. It always helps.
3. Talk to potential customers. Understand them. Customers are people whose problem you are solving. Talk to them. Understand them. Just approach them for a focus group. It always helps.
4. Do NOT talk to investors. Sorry to break the truth, but no one will fund an “idea”.. Well, unless you happen to be Steve jobs or Jack Dorsey. Or unless your dad just happens to be a rich industrialist. So if the above doesn’t ring a bell, wait in line with the rest of us mortals, guys!
Stage 2: Transition Your Idea to a Business
1. Find an anchor client or your first set of users. Notice that I didn’t say build your product here. Don’t. Now after you’ve finished talking to your potential customers, go back to the drawing board and figure out how to solve their problem. Pick up a piece of paper and draw out an ideal solution. Use Photoshop and build out some mockups or, better still, a prototype that takes a day. Now go back to your users and ask them what they think. Would your product solve their problem?
Further questions depend on what kind of business you’re building. If you are building a user-intensive business (for example, PayPal and LinkedIn needed users to use their product and grow to love it before they could charge for premium features), ask the users if they will they use your product? How often? How fast? What features are most important to them? What don’t they care about?
If you are building something that people would pay for right from the start, ask them to pay for building your product. Keep doing this until you find someone who would pay for your product. (Even if they don’t pay a lot, get them to be invested in you!) Now, once you know who you are building your product for, build it!
2. Build. Deploy. Rebuild. Test your product. Get your initial users and customers to give you feedback. Crowdsource feedback. Rebuild your product. Test more. Reading the Lean Startup is highly recommended.
3. Develop your scaling strategy. Now that you’re in a decent place with some good results from your pilot, figure out how you’re going to scale. Get some more customers. As you sell to more people, you’ll be able to develop your vision for your company.
4. Talk to investors. Just don’t ask them for money. Always talk to investors. Tell them what you’re doing. Tell them what you’re building. Keep them updated on your progress. It’s always all right to say “We’re not raising money right now, but we will be sometime soon. We’d love your feedback on what we’re building.”
Stage 3: Start Scaling
1. Search for the right hires. You and your co-founders have done a great job if you have reached this stage. Now who is going to join you in changing the world? An important thing that investors look for is whether you have it in you to attract awesome talent to your company.
2. Figure out where you want to be in 2 years. 2 years later, I want to have 100 clients, 4 crores in revenue, be the market leader in my sector, etc. Break this into quarterly goals. To get to these quarterly goals, how many people will you need to hire each quarter? (This is mostly going to be wrong, and everyone knows that. But it’s always good to have a plan!)
3. Figure out how much money you need. Yes. This is where your B-school financial excel sheets help. If you never went to business school, just sit down and think rationally about what you might need to get where you want to get in 2 years time.
4. Talk to investors, and ask them for money. I’m not an expert at this yet, but these are my favorite reads for when you get to this stage. Paul Graham has some great essays — How to Raise Money, A Fundraising Survival Guide, and How to Convince Investors. Read. Understand. Repeat. Some other good presentations are by Alok Kejriwal, Founder of Rodinhoods (Basic Funding Concepts for Entrepreneurs) and Anoj Viswanathan, Co-founder of Milaap (Fundraising 101 for Early Stage Entrepreneurs).
In your entire journey, never ever forget to build a network of awesome people who support you! Your startup is just a manifestation of you and your dreams for the world. Passion always finds a way!
Good luck with your billion dollar startup idea as I get back to working on mine! ☺