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BUYING A SMALL BUSINESS

6 Vital Decisions You Must Make to Succeed
 

What's the difference between those who succeed and those who fail? The answer lies in these six decisions.

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If you want to turn your great idea for a start-up into a real business, it won’t just happen because you want it to. In fact, the odds that you can succeed are stacked against you. And while you’re trying to beat those odds, you will be putting your reputation, the time of your co-founders, and possibly the cash of your friends and family at risk of loss.

Over the past two years, I have been interviewing start-up CEOs--about 180 at last count--in a quest to figure out what makes the difference between the few who succeed and the many who fail. You can read the result in my new book, Hungry Start-up Strategy: Creating New Ventures With Limited Resources and Unlimited Vision, coming out in November.

Here’s a hint for you: It all depends on how well you make six vital decisions.

1. Set goals

When you start your venture, you will probably have nothing to offer the people you will try to recruit. Yet I talked to many company founders who were able to recruit outstanding people and raise capital from some of the most prestigious of venture capitalists.

To do that, these founders set three kinds of goals. The first--for recruiting others--was a mission that gave the new venture so much meaning to those recruits that they could not resist.

The mission will only get you so far, though--you will also need a long-term goal for investors, something like going public in five years or finding a corporate acquirer. And you will need to set short-term goals that will help you learn what you need to do to grow without burning through your resources.

2. Pick markets

If you can set goals, you’re far from out of the woods. After all, you need to figure out who will use or buy your product. And to do that, you will need to pick the markets that you’re going to target.

Two hints for picking the right market--you have to have a personal passion for solving that market’s problem, and the customers in that market must see your product as a compelling answer to a problem that none of your competitors are solving.

3. Raise capital

It goes without saying that everyone has bills to pay. So if you are going to hire people or buy supplies, you will need money. But where can you get it?

The best place to look initially is probably your customers. If you can get them to pay you more for the product than it costs you to build it--and cover your fixed costs--you are going to be in a good position. You might also try to get your suppliers to extend you favorable payment terms. If neither of those suffices, you can try tapping your own bank account or your credit cards.

You can probably forget banks unless your start-up has some kind of collateral that the banks can seize or sell if you don’t repay.

And I’ve found that you may want to match your efforts to raise money from other people (friends and family, angel investors, venture capitalists) to the stage of your start-up’s development, moving up that ladder as you ramp your sales.

4. Build the team

You can’t do it all yourself, but resist the urge to hire friends unless those friends have skills in areas critical to your venture’s success that complement your own. I found that the most successful ventures do a great job of dividing up the work that must be done among the most talented people. And they create a culture that binds them all together to focus on shared goals.

5. Gain market share

To grow, you must get customers to use your product and eventually pay. But I found that many customers are afraid to get too dependent on a start-up that could go out of business and leave them in the lurch.

To overcome that, you have to offer the customer what I call a quantum value leap (QVL), a product that solves a problem that customers care about better than the competition, and to give that solution away. If that QVL actually delivers, those early customers will tell all their friends. And you can eventually upgrade the product and start charging customers to use it.

6. Adapt to change

You might think getting those five decisions right would be enough, but you would be wrong. That’s because customer needs, technology, and competitors all evolve, and the very success you achieve by making those first five decisions well could doom your venture to destruction.

Unless you can adapt to those changes--seizing new opportunities and guarding against evolving threats--your customers will flee and your venture will decline. I found that winning ventures follow three approaches to keep this from happening--one of these is to craft a vision of the skills at which the start-up must excel and to make acquisitions and strategic hires to close the capability gap.

If you want to beat the odds and win in the start-up game, you must make these six vital choices the right way. Otherwise, you’ll let down yourself as well as your co-founders, customers, investors, and employees.

 

IMAGE: Getty
Last updated: Sep 4, 2012

Strategy consultant, startup investor, teacher, corporate speaker, pundit, and author PETER COHAN has invested in six startups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael Porter.




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