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15 Golden Rules for the new startup

1. Look for Genuine Problems

Above all else high-growth companies must solve painful problems. These are problems so pressing that a customer is compelled to spend money on your product to solve them. And the greater the pain the customer feels, the more they’re willing to pay.

Translating the pain of the problem into the solution involves two steps. The first step is to define the problem well by understanding the size of the problem, the severity of the problem, and the likely alternatives. Once you’ve determined the problem is real, the second step is to translate the size of the problem into the monetary value of the solution.

2. Size up the market

Illustrating the severity of the problem only illuminates part of the picture – the fact that a potential customer would be interested in our solution. You still need to demonstrate that the problem is bigger than just one person. Look for the larger application of the problem. If it’s severe and affects a huge audience, you’re on the right track. If it looks like the problem only affects a select group of people, you may not have much opportunity to grow the business in the future.

3. Scale Quickly

Look for some aspect of your business that can be created once and sold many times. It could be a piece of intellectual property (like a market report), a method (like the formula for how you solved a client’s problem), or the solution itself (you can resell the e-commerce software you built for a client).

Identify the aspects of your business that increase in value to your customer as more customers are added or the service gets larger. What can a customer contribute by using your service that will add more value to the next customer behind them? That’s where you find your market leverage.

4. Address Big Markets

It’s impossible to become a billion-dollar company if your vision is for a product that can only service a $10 million market. Addressing big markets is all about going after the biggest pie but start off only taking small bites you can swallow. Look for big markets that can be addressed incrementally. Put yourself in the position to address those markets by tackling smaller problems extremely well and using that momentum to become a bigger player.

5. Grow Profitably

Analyze your growth projections. Does scaling really make you more profitable or just bigger? If your business doesn’t need size to be profitable, why aren’t you profitable right now? Make sure you understand when profit requires scale and when the two are independent.

Startup companies can therefore grow very quickly at the cost of profitability and that’s a huge problem. Companies must go to market with business models that put profitability and sustainability at the forefront and use “give it away for free” tactics as a means to an end – not the end.

6. Compress Time

It doesn’t take much time to get a company into the market anymore. For some ideas it doesn’t take much more than the creation of a website to get your company ready to start serving customers. A company as big as Yahoo! can get started by two guys in a room with a collection of Web links.

Startups these days need to learn how to “compress time” in their formative stages so that they can get to market as fast as humanly possible. Many of the oldschool rules don’t apply anymore.

7. Build Backwards

Starting with the end in mind encourages focus on what we are setting out to accomplish. This in turn makes it easier to eliminate any tasks that won’t bring us closer to our goal. Organic growth is interesting, but it’s fundamentally unfocused. Chasing random opportunities and figuring it all out as you go can be disastrously slow.

Most companies never look past the next year in real, quantifiable terms of growth. Building backwards forces you to lay out the milestones of exactly where you want to be in the future so you can figure out the shortest path to that destination.

8. Cut Out the Fat

Startup companies simply cannot afford to waste time, especially in today’s business climate when a year can mean the difference between being the next Google and being one of the dozen companies who tried to follow them. To stay lean and mean you need to remain intensely focused on the few aspects of your business that matter – getting customers and proving the business model.

9. Squeeze out the air

Squeezing the air out of your business is critical to get to market faster. Big companies live by the motto “anything that can be done faster, should be done faster!”

It’s all about taking as many shortcuts as possible. And you have to, because if you can’t find a faster way to get your company up and running quickly, your competitors will. Once you are established and growing you can begin to fill in the holes you created along the way. The goal right now is to be around long enough to worry about those holes.

10. Identify Growth Factors

Having big visions and big dreams means nothing without a strategy to make it happen. I can tell you first hand that what I’ve found to work best is to set a course for big growth and to keep making adjustments along the way. No one plans for “Google growth” on paper and just executes from the same playbook they devised on day one. You need to keep testing your assumptions and making changes with an eye on fast growth the entire time.

11. Act like Number one

What you’ll find is that these Number One positions have very little to do with the actual size or growth of the company (at least initially). They are about the intelligent positioning of a company to be perceived as a leader, or said differently as the winner before the race has begun.

It probably goes without saying, but thinking like Number One is a mind set that starts with the leadership of the organization and is ingrained in the culture of the company. It’s not enough to simply say “we should think like Number One.” You need to live it and breathe it every day in everything that you do.

If you can find a meaningful niche to dominate, especially if you are just getting started, you will have created a very powerful weapon to use against your competitors large and small. The trick is knowing where to place your bets.

12. Create Capital

While we ultimately want to race to get to profitability and big riches, it’s important to understand how being broke shapes the character and focus of a company for the better. Growing a great company isn’t just about the executive corner office and the perks of ownership.

It’s about creating a living, breathing enterprise that can compete and sustain effectively over the long term. Knowing where you are going to spend the money is easy. Knowing exactly how that money is going to translate into a big profit is what investors really care about. That’s the part of the model that you are really trying to prove. If you haven’t demonstrated that you have found a pattern for success that simply needs more capital to get more success, you’re not ready to move forward.

14. Raise Capital Last

So when the time comes that you’ve proven you’ve located the silver bullet in your business, you’ve validated the model with some real paying customers, and you’ve found yourself at a point where the only thing that can force you to grow faster is to add more capital, it’s time to talk about raising money.

15. Small is the new BIG

Big companies have more weaknesses than ever before, particularly in markets that are evolving quickly. Look at what happened to the music industry just a few years after the first copy of Napster hit the Internet and downloading an MP3 song for free became a lot easier than buying one.

However you decide to position your company in the long term, the one asset you cannot afford to lose is your speed and responsiveness. These days the best way to Go BIG is to stay small!

(I am a little superstitious so you will not find a point number 13 on this post )

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This entry was posted on Monday, June 18th, 2007 at 2:29 pm and is filed under Technical Learnings, Entrepreneur Journey. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “15 Golden Rules for the new startup”

Anujk Says:
August 14th, 2007 at 7:02 pm
must say I really liked the 11 point. Act like Number one… very well said… you might also want to check out my Work@Startup post at http://anujk.wordpress.com/2007/08/14/workstartup/

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15 Golden Rules for the new startup

One Response to “15 Golden Rules for the new startup”

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