The Art of the StartSix lessons for startups
Allan Martinson, MTVPLatvian IT Cluster/RBS, Nov 26, 2010
Valley of Death
Startup: A vehicle to drive thru
Death Valley
The One Million Land
A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty
Eric Ries
My startup (and not so startup) life
Baltic
6 lessons on how to grow your stupid little startup
into SOMETHING
How does a startup start?
Lesson 1: It’s all about people
It does not start from a business idea
Incubation takes years
2 founder ruleLeader
Skeptic
Multi-skilled talentsTeam &
Values
It starts from people
Pick your friends wisely
• Your future income will be the average of 5 of your closest friends
Pick your friends wiselyYour future income = average of your
5 closest friends
Lesson 2: The origin of great business ideas
Povarskaya St, MoscowMarch 1990
My moment of epiphany?
This does not happen
Three origins of great startups
• Copycats: Copy existing business model to new markets
• Evolutionary: Seek better solution to existing problems
• Revolutionary: Seek unknown solution to unknown problemsThe best ideas come on cross-roads
of trends and disciplines
• The 30-seconds pitch: tell your granny– Who is your customer– What does your company
do for this customer– Why are you better than
competition• Do you pass the “Google
test”?
The What
Why I will never invest in IT services any more
1 2 3 4 5 6 7 80
5
10
15
20
25
30
SalesExpenses
1 2 3 4 5 6 7 80
5
10
15
20
25
30
SalesExpenses
Company 2: IT services
Company 1:Platform business
Lesson 3: The art of pivot
The life of any startup can be divided into two parts – before product/market fit and after product/market fit
Marc Andreessen
Why pivot?
Not a single great company follows its original business idea
Failure is not a problemSlow failure is a problem
The importance of milestones
• MVP (Minimum Viable Product): 48 hrs – 3 months• Initial customer validation: 1 week – 6 months• One million something (users, $$$, etc): 1-2 years
• You shall pivot if:– Your solution seeks a problem, not vice versa– Nobody wants to use your product – even you– You have ceased to believe into your company for >1
month
Lesson 4: The Need For Speed
Why speed?
• Startups, by very definition, are probabilistic
• Success seems intentional only in retrospective – impossible to compute
Works in startups, too
20% of more effort will result in many times better result after some time
In probabilistic environments, speed and focus
are the best boosters of success rate
And hunger is the best factor contributing to it
The ultimate example of being focused
“I was too busy, I didn’t do things like that… I just didn’t go and meet new people who were involved in investments.”
Bill Gates on initially refusing to meet Warren Buffet Interview with Financial Times, Oct 2010
Lesson 5: Importance of right signals
Importance of the right signals
• With whom do we compare ourselves?• What do our customers, investors, partners
really think?• Are we insiders or foreign?• Nothing replaces human interaction even in
internet era• Silicon Valley is the focal point of information,
emotions and ideas• It is the mental state
Being Latvian is a full-time job
Lesson 6: Where to find smart investors
Raising venture capital is the art of younger men seducing older men
- Anonymous
Idea
Prot
otyp
e
“Bet
a” Commercial la
unch
Market s
hare
Breakeven!9-
18 m
o
18-2
4 m
o
2-3
Y
3-7
Y
Users &
traction
Revenues
Profits
0
+
-
Paid CEO
Sales structures
Bureaucracy
2 10 50 200 500 employees
FFF$10-500K
A-round$1-10m
B-round$5-50m
IPO orexit
Typical lifecycle of a high-tech company
Typical life cycle in figures
Year 1 2 3 4 5 6
Phase Startup Early growth Growth Exit
Revenues ($m) 0 1 4 10 20 30
Growth % 300% 150% 100% 50%
Investment phase Angel A-round B-round
Pre-money / exit valuation ($m) 0,5 3 40 150Investment ($m) 0,4 2,5 25
Post-money valuation ($m) 0,9 5,5 65 150
Post-money ownership of founders 56% 30% 19% 19%
Value of founders’ stake ($m) 0,5 1,7 12,1 28,0
IRR to angel investors 124% Money-back, angel 56 times
IRR to A-round investors 102% Money-back, A-round 17 times
IRR to B-round investors 52% Money-back, B-round 2,3 times
What shall you know about VCs
• Venture capital (LPs) and venture capitalists (GPs) are not the same
• VCs are in the business of saying NO and then making money
• You can divorce your wife but you cannot divorce a VC
• You shall like, but not love each other• If in doubt, pick the smartest
Thank you!