SECRETS OF SUCCESSFUL STARTUPS

Presentation of a paper prepared for the international summer school in innovation and entrepreneurship, the university of California, San Diego (July 10.-28. 2000)

Antti Aarnio & Soile Oikkonen

Contents

Driving principles of the new economyBusiness models for the internetFundingThings to consider with possible venture opportunitiesBusiness plansBest practises and pitfalls

10 Principles of the new economy

MatterSpaceTimePeopleGrowth

ValueEfficiencyMarketsTransitionsImpulse

- Recognize new business opportunities!

To remember when starting a business (1/2)

Pain is a continuum from minor inconvenience to life threatening.One person’s pain can be another person’s pleasure.There is a difference between buying a cool product and the one that gets rid of some pain.Pain depends on the circumstances.

To remember when starting a business (2/2)

Great idea eliminates pain.A new product lessens pain.People need to relieve more pain than they cause.Products need to be developed according to the demand of pain.

– (“What a Pain in the Ass!” by Chris O’Leary)

Understand your customer

What will the business be about?What will its competitive advantage be?What will it be especially good at?How will this match its capabilities?What will make the business successful?

Economics of running the business

Will people pay enough so the business will make a profit?What will it offer that competitors don’t?What will it offer that customers can’t get elsewhere?Who do you want your customers to be?What are their buying habits?What do they want and need?

Eight business models for the Internet

1. “Merchandise Sales”2. “Per Use”3. “Timed Usage”4. “Subscription”5. “Advertising”6. “Sponsorship”7. “Public Support”8. “Information Site”

Product design guidelines

Design from outside in.Create an intuitive product.Get physical fast.Design for manufacturability.Surprise the user.Avoid product delays.

The key issues for investors

How will revenue be generated?Is the business idea sustainable long enaugh to generate a significant return on investment?Is the management team up to challenge?

Finding funding (1/2)

“FFF money” = Family, Friends, FoolsStages of funding

Concept stage: • business plan and a model• from personal savings, FFF, Angels

Early stage:• Beta (product, customers); market defined• Angels, some VCs

Finding funding (2/2)

First pro round:• product and referenceable customers• VCs and some Angels

Later stage rounds:• first pro round + market validation• VCs

NEVER RUN OUT OF MONEY!• Always ask for more than you think

you are going to need

Differences between Angels and VCsAngels VCs

Reasons more personal and financial

financial, ROI

Sophistication varied, no staff high

Funds usually shallow usually deep, check fund age

Follow-on low $, low sophistication

yes, set-aside $ available

Use of $ discretionary mandatory

Stage usually earlier, but varied

focused

Patience higher lower, interested in ROI

Decisions quicker/poorer slower/more rational, but act like penguins

Help uneven, but some mentors, general business focus

opinionated, don’t always have time, have contacts, strategic relations, more $

Valuation higher lower, ROI

Angel investor Charlie Gaylord

Things he looks for:• A defined market of at least $50M• A real business, not just a product• A potentially rewarding exit – X10 return in

3-5 yrs• A team that can execute well

Questions he asks about:• The business model and the market• The operating plan• Management• Funding and its source

Finding VCsThe marketIt’s a team game.FocusHave a great storyWill the dogs eat the dog food?ReferralsTime is moneyRealistic financial projectionsValuationExit strategySales tool or operating plan

Things to consider with possible venture opportunities

“venture concept”Market opportunityTechnologyProtectionManufacturingMarketingManagementResourceExpected pay-off

Preparing a business plan -by Ken Olsson

Plan outlinePrepare a summaryEdit the summaryAdd an appendixDefine the market opportunityDescribe the teamHow far along is the product?Marketing strategyDevelopment and operation plansSpending and resultsCapitalization plan

Common problems with business plans

Too long• Should be under 30 pages, the shorter the

better

Unclear conceptCustomer input missingWeak competition sectionToo brief team description

Great venture team

Really smart peoplePeople who can make a concept live and breathePeople who are likely to wear well over timeKnow the compelling interests of the membersNot too much emphasis on credentialsAnticipate a leave from a member

Getting organizedVenture teams should come with a label that says “some assembly required”Never assume things are obviousClear goals known by everybodyEach team member should have a formal accountability/performance agreementTerry Morse’s rules for success

• Make the decision that makes the most money• Don’t give your customer any excuse to say “no”• If you’re very smart and work hard, you can do one

thing well (focus on your core competence)

Niel Senturia’s ten commandmentsThe golden rule is that the guy with the gold rules.Be aggressive but don’t take unnecessary chances.Answer all threats. Improve your position and pose a counter threat.Play for initiative. If you have it, maintain it.Cut your losses but lose as little as possible.Rely on your own powers. If you can’t see the power of your opponents move, there probably isn’t any.Outhustle the other guy.Try to develop with threats, but don’t threaten pointlessly.When you can’t decide, accept.Choose a plan and stay with it.To gain time, usually you have to sacrifice.Remember Einstein – time slows down as speed increases.

Branding the productA promise to the customerBrand equityBrand loyaltyHave a marketing strategy

Tie the product to a single conceptEstablish brand relevanceHave a brand esteemHave a brand knowledge

Appropriate name for business helpsLogo that has a clear meaning

“9 ways to kill a startup through bad PR” -by Tom Gable

Pandora’s PositioningBabel Branding Budget 22Egomaniac ExpectationsCreative QuagmiresMissing MetricsHysteria MarketingDullnessOld Economy Thinking

Marketing the product

Have a market that is wide enough but not too bigRight time to enterGetting customer attentionCollecting customer informationPlanning the futurePackaging products

10 ways to attract new business (1/2)

Be an exampleBe a solution providerHave a good product knowledge and presentation techniquesCollect your best storiesImprove your communication skills

10 ways to attract new business (2/2)

Add value to your customersGet feedback from your customersGet letters of recommendation from your best customersAct confidentiallyMaster the six-step selling process

• 1) Establish rapport, 2) ask questions to understand customers real need, 3) determine where real value is, 4) link customers need to the value to your product/service, 5) assume the sale and conditionally close – if green light, close 6) if there are any objections, handle them by cycling back to previous steps

When starting up a new business watch out for:

Product development delaysPeople problemsSales below projectionsNew competitorsInvestor agendas

An entrepreneurial leader

Strong physically, mentally, emotionally, spirituallyGet personal needs metTolerate nothingOriented exclusively around their valuesDeliver twice what they promiseAffect others profoundlyBuild a super-reserve in every area

Growing the business fast (1/2)

-by Leo SpeigelHire great people fast and executive management early.Be well funded.Purposefully create a company culture that values empowerment, delegation and self-direction.Make each employee a star.Have great advisors.

Growing the business fast (2/2)

Buzz is king.Know your target market and watch all your competitorsFind the boulders.Work hard, have a “can do” attitude and be passionate.Focus on keeping a balance between personal and private life.

Finding partners

NetworkingPartnershipsAlliance with richer, smarter, larger and the one that also benefits from it.Marketing arrangementsKey objectives:

Good financial transactionsA value-adding partner

Win-win relationship

Learning from failurePatterns of failure -by Geoffrey Moore in “Red Herring”

The slow failFailure on transition into the mainstream market.Managers and investors dive right in without niche marketEnd up in the dead zone

Examples of services available for companies in different countries

Help with issues “over Atlantic”France, Finland, Ireland, Sweden, UK, Germany