Its an exciting time to be involved in startups, especially with so much practical advice easily at hand. People are eager to share their knowledge on new product development, venture capital funding and the startup mindset.
But I notice there is relatively little written about management. This is important, because as Statistic Brain notes, 55 percent of all startups fail within five years. And why? The website's reason is pure poetry: "Incompetence."
Want to be more competent? Here are the three fundamentals I estimate you will need to stay afloat by, say, your first anniversary.
You need a budget. Yes, a budget. Not because you are getting all accountant-y while you are starting up, but because the budget is the thinking-space where you determine in advance what is important for success.
- Food startup? So how many stores will you be in?
- Software? When is development done, and what is the cost of distribution?
- Restaurant? How many covers will you be serving?
You see, you need to think about these major goals ahead of time because then you can track the activities--the daily work--required to meet them. It will be also an important tool for determining funding needs and cash flow. This is information you'll use to confidently step into the future.
Remember, you are not keeping a budget in order to keep a promise to an accountant. You're making a promise you must keep to yourself.
There are only three questions a startup must answer: Are you marketing (or selling) to core customers? Are you promoting your core products? And are you measuring the results?
Don't answer these first two questions too fast: I snuck a trick in here.
"Core products" and "core customers" are strategic concepts. They indicate areas were you have real economic advantages--like pricing power and return-buyer loyalty.
It takes a lot of thought to determine your core, and the pressures to divert your efforts into non-core--but fashionable--areas can be huge.
As for the third question, are you measuring the results of your marketing efforts? Quite frankly, many established companies do not do this effectively. Advertising, promotion, trade shows, sales calls--they all go into a big bucket, with no real effort taken to distinguish which among them are working. Let's be better than this, people.
On-line businesses--if that's your poison--have it easier in many ways. Adwords, click-throughs and easily set-up campaigns do the measuring automatically. I especially admire the margin, sales and marketing channel reports that selling sites like Shopify provide.
I left the most important part for last. I know, many people scoff at organization as a discipline because it feels squishy, as if organization is not part of business.
But if you think about it, we as managers, by definition, work through the efforts of others. Why wouldn't we spend time thinking about how to make that more effective?
So, how about an Org chart?
Hmm, you say.
Some emerging companies do not want to specialize the staff's activities too much. So everyone goes to the VC pitch, the packaging designer meet-up and the trade shows.
But think about the budget and marketing plans described above--they will require specialized knowledge and sustained effort. Working on multiple priorities, updating each other, developing trust and understanding--that's the beginning of startup gold.
Otherwise known as a vibrant culture...
So, let's say you're sti-i-i-ll not convinced. Three stinking areas--finance, marketing and organization--will keep your startup from the dung-heap?
Here's another data point:
If you have a VC investor, these practices will be demanded of you.
If you don't yet have a VC, you will be infinitely more valuable to a prospective funder when they see you have had the foresight to manage your enterprise as if it is already a success.
See you in a year, at your startup's birthday party!