Starting Your Startup – Assessing Options

Building a business is hard. Ideas are a dime a dozen. Having an idea doesn’t mean much. Executing an idea and getting people to use a product you’ve built is a good first step. Actually having a paying customer is better. But that’s not the definition of success…it’s a foundation for success. You’ve got to continue to iterate and market a product to have any chance of eventually not joining the dead pool.

With the old adage that 9 out of 10 businesses fail within their first year, you’ve got to be smart with starting your startup. You need to have a realistic understanding of the size of your marketplace and fully grasp the risks associated with pursuing your idea. The decision to pursue your idea is not a simple “potential money > risks.” The goal in outlining your risks is not always to defeat them but instead to understand what you need to mitigate in order to have a better chance at winning the market.

Spending all your cash, as well as losing out on potential earnings are some of the biggest concerns for an entrepreneur starting any startup. A founder, if indeed a relatively competent one, can easily garner a comfortable salary at most companies. So, the cost of building a startup is not just any personal money that is invested into the company. It also needs to include the wages not earned.

There’s generally been two camps on how to deal with these types of issues. The 37signals perspective is that quitting a job to build a startup doesn’t deserve applause. They propose an organic, start small, and do it on the side approach. Others like Ryan Carson believe that entrepreneurs should launch a business and not a side project. Carson nicely outlines the go to market plans of most of today’s product companies:

1. Identifity a niche need that you have that’s currently under-served
2. Bang out somewireframes (or better yet, just start HTML’ing)
3. Ask a designer or developer to help out, in return for a bit of equity.
4. Tweet about an invite-only beta
5. Listen to beta feedback and make tweaks
6. Launch
7. Get TechCrunched
8. Build recurring revenue till you can quit your day job
9. Live the good life

While he fairly (and perhaps scarily) identifies the thinking of most entrepreneurs doing a side project, his outline equally applies to many who are working full-time on building a startup. In fact, even though many “building a business not a side project” startups have some sort of funding, their strategy and marketing plans often look the same as someone building a “side project.” Thus, this particular point does not support his argument.

For those that have compelling reasons to quit their day jobs or who require large amounts of capital to execute their idea, unless independently wealthy, raising money is a smart approach. Even though the present circumstances may allow entrepreneurs to choose whether or not they need VC investment, having money in the bank empowers entrepreneurs to focus more on building a business and less on how to pay their mortgages.

This leads back to both 37signals and Carson’s concluding point. The 37signals’ approach of not quitting a day job correlates to the security of VC investment – runway. By keeping a day job, there’s less, “oh no, how are my paying for my bills next month” moments. Critics would counter by saying that founders are less serious about their startups when those startups are not responsible for paying the bills. But if an entrepreneur doesn’t take his startup seriously as a side project with money in his pocket, why would he take it more seriously as a full-time endeavor with nothing in the bank?

As Carson writes in his concluding thoughts, and this point is important in linking these camps together, it may actually take more time post-launch than it did pre-launch to make a startup successful. The 37signals team spent a year on Basecamp as a side project before they could work on it full-time.

Provided that you are committed to your idea and particularly the post-launch activities, including product iteration, marketing, and advertising, it is hard to argue with the start small approach of 37signals. Today, there are also other frameworks like the lean startup and customer development, that all play to organic means of growing products and startups. Of course, this assumes that you aren’t starting off on the wrong foot by trying to build a dumb idea.