LEAD WITH YOUR COMPETITIVE ADVANTAGE
ARIANNA HUFFINGTON co-founder, HuffPost, and founder and CEO, Thrive Global
For both HuffPost and Thrive Global, the first question was “What problem are you solving and what are you bringing to the market that’s not already there?” For HuffPost, the answer was a destination website where both wellknown and lesser-known people could share their views on the news of the day or on culture, entertainment, and every aspect of life. Blogs were around, but they were not yet widely respected as a way to express views and communicate. Before we launched, I emailed every person of note I knew and said, “If you have a thought and you can interrupt your day for 10 minutes to share it, send it to us— we’ll post it and make it incredibly easy.” Within the first week, we had Larry David, Ellen DeGeneres, Walter Cronkite, John Cusack, and many more. A lot of these people could’ve written an op-ed for The New York Times, but the difference was with us, it didn’t have to be a heavy lift. We wanted their real and unvarnished voices.
We made a commitment from the beginning to be both a platform and a journalistic enterprise in a way that no one else was at the time. We also created a dashboard for our editors where they could see how a story was performing and do A/B testing with headlines. People talk about content platforms all the time now, but when we started, that was a new proposition. —As told to Sheila Marikar
parts of their descriptions.
You should still do this even if you think you already know how you will solve the problem. Go in with an open mind. Don’t be a hammer on a nail hunt.
Line up your mentors
New founders seek copious feedback on their products or services. But getting the business itself right is just as critical. To do that, you should develop relationships with veteran entrepreneurs. Although it’s too early to be thinking about a board of advisers, setting up a kind of proto-board comprising folks who’ve been there and done that will help you head off mistakes. Nathaniel Ru is co-CEO of Sweetgreen, a healthy, fast-casual chain with 83 restaurants and 4,000 employees.
IN THE FIRST DAYS of being an entrepreneur, you need guidance and advice from other entrepreneurs. They’ll tell you if you’re on the right track. And they’ll compel you to think beyond your immediate survival to the company you want to have two years from now.
At the very least, you’ll want an experienced eye to look over your business plan, if you decide to do one. At Sweetgreen, our mentors (the three of us each had three to five) asked a lot of tough, helpful questions–about our financial model, our brand positioning, our restaurant design, and more.
But they also urged us to look up from the frenetic day-to-day activity and think more long term about our mission and the language we’d use to communicate it. They started us thinking early about the kinds of people we’d want to bring on board one day, so we’d be able to spot great talent even if we weren’t ready to hire.
University faculty often make good advisers (many business
school professors have previous entrepreneurial experience), and you can meet people through entrepreneurship organizations and conferences. You can also just email someone you admire. Save up your questions and ask them all in a weekly or monthly conversation, so you don’t pester anyone. And when you do talk, don’t just talk about the business. This isn’t a transaction. It’s a relationship.
Stress-test your assumptions
Numbers are beguilingly concrete. It’s natural to want stats on markets, pricing, and competitors from the start. But market data would not have explained why Red Bull charged while the “lava lamp” soda Orbitz succumbed to gravity, or why Instapot commands twice as much as Crock Pots at retail. More important, in the very beginning, are insights about your own proposed business that you achieve by stress-testing your assumptions. The emphasis is on what you can learn not about your industry, but rather about your idea. Randy Komisar is a partner at venture firm Kleiner Perkins Caufield & Byers, and co-author of Getting to Plan B: Breaking Through to a Better Business Model.
START WITH THE history. No matter how disruptive your idea, precedent exists for it. So once you’ve identified your value proposition, go back and look at real companies that have done something at least roughly similar. You’ll want to find examples that have been successful. (If none have been successful, you should seriously question whether this is something anyone wants.) Study them and draw lessons about what worked. Then, research companies that tried something similar and failed. What did they do wrong? How do you avoid those mistakes?
Next, identify your leaps of faith: what you don’t know but assume about the market. These are things that, if they are wrong, mean you don’t have a business. Devise quick, cheap ways to test those assumptions. Run a Facebook ad and see how many responses you get. Go stand in an aisle at Whole Foods next to a competitor’s product and question shoppers about it. What do you like and not like about this product? What would you do to improve it? If I offered you an improved version for $1 more, would you buy it?
You will do market research, but that comes later. Before trying to figure out how big your market is, you need to know that people have accepted and will continue to accept the gist of your value proposition. Otherwise, you’ll be piling assumption on top of assumption.
Cautiously harvest low-hanging money
For most founders, banks and professional investors are later-ifever capital sources. In the beginning, it’s you, your family, and friends. Self- and personal-circle funding requires you to jump through fewer hoops than other sources. But it is almost always more fraught, and in some ways the risks are much greater. Meg Cadoux Hirshberg is the author of For Better or for Work: A Survival Guide for Entrepreneurs and Their Families. Her husband is Gary Hirshberg, co-founder of Stonyfield Organic.
IN ALL THE EUPHORIA of a startup, it’s easy to discount that you’re putting your family’s financial well-being in jeopardy. People talk about entrepreneurs starting their businesses with “personal savings.” But
those savings are often held in common with a spouse, who may have wanted them for vacation or to draw on while he returned to school. The spouse is also affected if the founder leaves her job and a chunk of the family’s income disappears. Even if the founder is nonworking, she may have been responsible for child care.
You and your spouse must determine on day one (if not before) how much you can afford to invest and how you’ll make up lost income and maybe benefits. Schedule regular business meetings between the two of you. And when the business needs more money than expected, you should resist pushing too far beyond your spouse’s comfort level. Another $25,000? OK. A second mortgage? No.
When pitching friends and family, be confident but also lay out the worst-case scenario: “I don’t know when you are going to get this back. You may lose it all. I may need you to up the ante in order to prevent dilution.” Insist on drawing up shareholder agreements. Explain that you’re doing so because you care about the relationship. There should be no ambiguity, no cause for recriminations. Don’t take advantage of their eagerness to help. They may offer to dip into college or retirement funds. Don’t let them.
Your investors’ hope is that this launch will be an exciting and profitable ride. Your role is to be the sober designated driver and bring everyone home safely.
Forge a functional founding team
The hang-together-or-hangseparately adage applies to startups, only one in six of which is a purely solo venture, according to Reynolds. There can be just one page. You and your co-founders must all be on it. Though equity stakes are on everyone’s mind, at 90 days that discussion is premature. But you must clarify roles, expectations, and responsibilities, and then revisit those repeatedly. Phillip H. Kim is an associate professor of entrepreneurship at Babson College.
IT’S RARE THAT all founding partners are equally committed. How much time each will invest, what opportunity costs each will accept, and the level of ambition each has may differ. That’s especially true if one founder had the original idea and brought on the others, or if one founder devotes himself to the business full time while his co-founders hang onto their day jobs. You should all acknowledge disparities up front and address them to avoid disappointment.
You also need to hash out how you will work together during the first 90 days. Over the long haul, Bill will handle sales and marketing while Marla does tech and Kathy handles finance. But a startup’s first days are chaotic. Everyone does everything and may switch roles on a dime. In particular, people coming in from senior
positions who are accustomed to structure may struggle in this volatile milieu. Establishing temporary—possibly shared—roles for the first few months is wise.
Finally, you will need to decide how to decide. Even if you have known one another for years, it is unlikely you’ll have made these kinds of high-stakes decisions together. What will be the decision-making model? Consensus? Democracy? Is there a third party to break a stalemate? It’s best to designate a single arbiter for each type of decision. For entrepreneurs, this may be the greatest shock: Within 90 days, you should be pursuing sales. It’s not about the money, although money is nice. Rather, selling is the best possible indicator of whether someone wants what you’re making. The challenge is getting creative about what, so early in the process, you are able to sell. Craig Wortmann is founder and executive director of the Kellogg Sales Institute at Northwestern University.
ON THE FIRST DAY of your company, your only product is you. You can sell that. You can sell your time, and you can sell the knowledge or insight that will eventually power your product or service.
I know the founders of a company that, years ago, was developing an app to help high school athletes optimize their choice of college. They did what most founders do: went into their cave and worked on the product. And when they finished, people looked at it and said, huh. Instead, the founders should have offered to sit down with students and their parents and, for a price, build spreadsheets with all the variables
they meant to include in the app.
Doing so would have helped the founders hone their sales message, focus their value proposition, and develop sales discipline. It would have also earned them candid, reliable feedback. Just because somebody is willing to take something rudimentary from you for free is not proof you have a customer. But when someone commits financially—even at a major discount—that person is serious. And he or she is going to evaluate your product or service much more critically. That’s the kind of feedback you need.
You can also try to get upfront sales, though that’s a risk if you can’t deliver. Still, people are getting more comfortable with that model, thanks to Kickstarter and Amazon. Offer a deep discount because they’re willing to sign on early.
Selling is the best indication that you have a viable business. A yes is great. No is fine too. That tells you to move along.
Don’t pull the plug on learning too soon
There are things you should do in the first 90 days. Other things you should postpone, like trying to raise money for your product on Kickstarter or another crowdfunding platform. The money is tempting, but why ask people to fund something you don’t know is the right thing to make? Steve Blank is a Silicon Valley serial entrepreneur and Stanford professor whose customer-development methodology launched the Lean Startup movement.
KICKSTARTER AND Indiegogo are world-class inventions that changed the nature of funding for startups. But don’t use such platforms prematurely. If you’re trying to crowdfund your initial idea, that almost guarantees you are working on the wrong thing.
New entrepreneurs misunderstand what Kickstarter is for. They think it’s a way to do customer discovery, to test their product’s appeal. In fact, going on Kickstarter freezes customer discovery in its tracks. The minute you commit to Kickstarter, if you get funded, you are entering two years of indentured servitude until you deliver that product. The money isn’t worth the sacrifice. Instead, do the hard work of customer discovery, which will likely take more than 90 days. Potential customers should be grabbing your minimum viable product out of your hands and writing a check on the spot. Once you have a product you know solves a real customer problem, then Kickstarter can help you scale demand.
Kickstarter before customer discovery is the lazy entrepreneur’s approach to starting up. Don’t be a lazy entrepreneur.