Well, first and foremost, I have to say building a great internet business is a lot easier said than done. I got my tail end handed to me on a number of occasions trying to build my previous companies, but it was all a great learning experience. Unfortunately, it was a learning experience at the cost of not just my own time and money, but also of the additional investors who were backing the company. Granted the new owners of my last company are the ones that brought it down, but it was ultimately my decision to sell controlling interest that became the downfall of the company.
As an novice entrepreneur, you really focus on competitors and technology malfunctions being the major risks to your companies success or failure, but in all reality, there are several more factors that can be just as detrimental. So right from the very beginning of a new company, you need to lay a solid plan for every aspect of the business, especially if you are planning to raise capital. Investors wont touch a company whose books are terrible and whose stock ownership structure is less than adequate. That is in addition to all of the primary factors investors typically are looking to acquire.
Below I have assembled my personal rule book to building a successful company and I hope it works well for you.
1) Be innovative, but not too innovative
Creating great unique ideas is usually a natural trait, but your startup can acquire it by bringing on innovative team members. Building a "me too" business is fine as long as there are at least two major elements that make you better than your competition. Don't be so out of the box with your ideas until you can fund it yourself, because nobody else will.
2) Build a GREAT TEAM!
This one I cannot stress enough, no one man can tackle the world themselves, therefore requiring a team that works together well and efficiently is essential. Find talented people who you can trust, if you are starting fresh, be diligent about your new hires. Get references and check backgrounds and work closely with each one for their first month. If all goes well, be humble and offer them a piece of the pie. You will be surprised how much this enforces hard work and dedication within your founding team. Find each member of your teams strong suit and passion, and truly try to help them improve that part of their life throughout their entire relationship with the company. Your team is what will make or break your company the fastest, so spend a lot of time here cultivating relationships. Lastly, communicate, don't dictate. You are hiring people for a reason and that is for their experience. If they are truly passionate about what they do, then they will strive to do their best because its their reputation on the line and potentially their retirement if you give them a piece of the pie. If they are consistently dropping the ball, get rid of them fast. It's best to hire slow and fire fast.
3) Mange your risks with great planning
In every facet of a business there is risk and those risks become problems when there is a gap in your planning. Creating a great plan will prevent problems and therefore reducing your potential risk of failure. As a great example, in my last company I decided to use authorize.net as our credit card gateway and choose to let them manage reoccurring transactions for subscription sales so we didn't have to be PCI compliant. When I sold the company, the new owners wanted to switch gateways, but it required cancelling out all reoccurring subscriptions charges, making the users repurchase them. Something I would never have done, but they did it and they lost over 95% of all sales overnight, which drove the company to its death because no one thought, "hey what happens if people don't repurchase?". This is just one example of how a single bad decision can destroy your company. However, from hearing that experience, I decided to make my new company PCI compliant, so we are not dependent to any gateway. It also allows for easier up-sells and future purchases, making it worth the investment.
Here is a general list I have complied of "need to do's" when launching a startup that are imperative to reducing risks and increasing your chances of success:
*Build your product story board! Building a story board does exactly what its name says, it tells a story. In the web world, your story board is your business plan, it's your best hiring and training tool and it's your best selling tool to investors. If your story board doesn't attract talent and investors, then your application is not going to attract visitors and customers. In addition, you never want to begin your coding until you have finalized your user interface design because your expenses can multiply quickly if design changes happen after coding begins.
*Plan for every potential single point of failure to happen. You may not be able to prevent every major issue, but you can try, and plan for an immediate action to manage your risks when they occur. Hosting and server architecture is half of your business, so make sure that doesn't go by the wayside. Address scaling, load balancing and security early on and plan for a course of action if issues arise. Use SaaS applications and other software tools to help you optimize your software throughout it's entire life cycle. Keep your legal and administrative departments in order at all times. It's easy in a software company to let those things fall behind, DONT! Proper legal agreements, corporate books, stock structures and accounting documents are ultimately what can stop an investment deal in its tracks if they are not completed correctly. Even worse is they can get you shut down and thrown in jail by the SEC if you are not following their guidelines for investment raising.
*Everything costs three times more than you think. Many early entrepreneurs make the mistake of budgeting, then fund raising, to find they are three times over budget and back looking for startup capital. I have found it much easier to budget for 90 day periods at a time and let investors know that we will be looking for capital again over the upcoming three months to cover the funds required at the next stage of business development. This way they know that there is, one; another opportunity to invest when the risks have decreased, and two; a risk of not finding that round of funding, in turn potentially causing setbacks in your projections. If you can, get an investor to cover multiple rounds of funding that payout when you reach your benchmarks. That works for all parties, it lets the company focus on development while giving up less of the company at each stage. It also allows investors to disperse their funds over time while the risks at each stage are reduced. In addition, it gives the investor confidence that you can pull off the things you said. This can also backfire on you if you don't plan correctly, so pad each investment raising with at least 25%-50% reserve capital. Always remember that investment money does not belong to you, it belongs to the investor and the company is just borrowing it even if it's equity and not debt. Treat it as if you were pulling it out of your savings and putting it into the company. No one wants to see their money wasted, and if it is, you can bet your tail you will be spending the next decade in court. I was fortunate enough to inherit that knowledge early watching others make that mistake and learning from it.
4) Never give up or stop learning
When you hear of a familiar company name, I don't care what you think, the founding members of that company busted their butts and never gave up to make their company a household name. Persistence is what creates a success in addition to adaptation. If those company heads stayed with their original business models, they would be out of business today no matter how hard they worked. Don't be married to a model because the industry is ever changing and if you don't adapt, you will die. Listen, listen, and then listen some more. Allow your customers to make feedback, and rank it by popularity. Address the most popular feedback items first, because ultimately you are building your application for your customers, not for you.
5) Show me the money!
Know exactly how your company is going to make money and target that customer audience quickly. Show your proof of concept as fast as you can before you dump too much time and money into a bad business model or an application that has a sub-par user experience. If you are going after eyeballs to generate ad revenue, then just know you will have to raise tens of millions of dollars within your first year to sustain and promote growth. This is simply because the ad model only pays off when you have a critical mass of users, which now requires at least 50 million unique monthly visitors. However, you will never raise that kind of capital if you don't build a great mouse trap that engages the users for long periods of time and encourages daily use. Find your niche and grow from there, because you can always scale up later to reach a broader audience. The only time this doesn't apply is if you are trying to compete straight up with the big boys. In this case, their consumer base is accustomed to a certain standard of features making the barrier to entry much higher because they have set the bar higher. If this is something you want to in today's internet era, make sure you have at least $500K to $1MM in startup capital before you begin development, or have a team that can afford to work for ownership over the course of a year while you develop the application, or two years if they are working part time.
Hopefully this collection of my rules will help you build your next startup. Until next time, good luck and thanks for reading.
RJ Garbowicz
Co-Founder / Chief Talker
Webtalk Corporation
www.Webtalk.org
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