Entrepreneurs who say they know what works for a startup business are overestimating their own abilities to predict, says Jim Brasunas, recently retired executive director of the IT Entrepreneur Network (ITEN).
“If you are a very successful venture capitalist or someone who is just coming into entrepreneurship, and you think you know every time who is going to be successful and who is not, you are mistaken,” he says. “We see companies that we think, ‘How are those guys ever going to make it?’ And lo and behold, they find a way.
“Then there are other companies that look like they really have it together, something goes wrong and the whole thing tanks.”
ITEN bills itself as a catalyst of the regional St. Louis IT ecosystem, providing programs, events and access to resources that accelerate venture development.
Brasunas has been with ITEN since it was founded in 2008. Since then, ITEN has connected with 600 tech startups.
After working with those hundreds of companies, Brasunas has collected five tips for would-be entrepreneurs:
Identify the problem
The first concern for entrepreneurs is to make sure they are trying to solve a real problem. Unless it is really going to solve someone’s big problem, it’s not going to be successful. Make sure you are solving a problem that people are willing to pay to have solved.
A corollary to that is you need to talk to prospective customers right from the start to ensure you’re solving the problem in the best way.
The second thing is the team has to have credibility in terms of domain expertise. An investor, a large customer or even a savvy potential employee is going to want to know that the company’s core team knows the market that it’s going into and has some kind of credibility in executing a plan.
In addition, make sure that everybody in the company has an equity stake. In a startup, you want everybody incented to go the extra mile to make the new venture happen.
Create goodwill that you are not cashing in on. If you have a chance for 5 percent additional revenue or goodwill in the community, go for the second one.
If people are really delighted with interfacing with you through your product or just doing business with you, they are going to want to do it more. That’s the basis of business — building up trust and doing what you say you’re going to do.
Take outside money only when you have to
There are so many reasons for going as far as you can before you take outside money. You increase your equity stake in the company rather than giving it away too early, and you keep being able to make decisions about the company the way you feel best.
This is not to say anything negative about investors. They have a lot of insight and expertise. But the longer you can go without bringing in that outside money, the better.
Sometimes we see companies that get outside money and they don’t have sustainable revenue to maintain the overreach they have created. They are under pressure to grow fast. At the same time, you also need to have an exit strategy. Your company is probably going to get bought. Who are the likely people to buy it? What kind of companies do those people buy? What market share is needed to get on their radar screen?
You’ve got to scale in order to do your exit but if you scale too fast, you outdistance your supply lines. If you don’t scale enough, the market is going to pass you by. It’s really more of an art than a science.
How to reach: IT Entrepreneur Network, www.itenstl.org