Tech Startup Growth
24th July 2019
James Brayshaw, Winshaw
We cover the eight essential areas you absolutely need to consider before turning your business idea into the next tech unicorn.
Starting a business is so simple nowadays that it does not really require a textbook. You can get a logo and website up and running in a few hours.
If you are really serious, you could set up a proper email address and register your business for less than the cost of a decent lunch within the week.
A stream of administrative tasks can start to take a life of its own as you configure invoicing systems, write about your imaginary team, hire some flexible office space, attend a few trades shows and so the list goes on.
You presumably already have an idea even though the product doesn’t technically exist just yet.
You probably have a deep-seated conviction that your product will make a difference. The concept of failure at this point is only theoretical.
You are now the proud owner of a startup with big dreams. Great. The fact that you have no money and quite possibly, no customers will surely sort itself out?
Fast forward a few months.
At this point, when you’ve spent all of your own money and loaded up the credit card, you may ask yourself why you did this. Reality is very different from the image you had of being a Tech Founder.
Less unicorn, more corn on the cob.
Now is not a bad time to quit, and many do. In fact, many ideas don’t even get to this stage. But chances are the reasons for starting your own business still exist and won’t disappear back in the “real world”.
So what can you do to avoid these five major causes of business failure:
You can work on your value proposition and business plan before getting started. In fact, it would be negligent not to, considering what you might be putting at stake. Work on building a cash pile, developing a growth system and winning some early customers can partly be done in advance but at this stage its probably time to think about making the leap to full-time founder.
We have worked with founders from different backgrounds, ages, nationalities and across multiple industries. Whether in full-time employment, a student, semi-retirement or on parental leave, if the mind starts to wander, thinking "what if?", maybe its time to start sounding out a few people you know who have made the jump.
Founders share many common traits; a desire for control, a creative mind, stubbornness, belief.
Quite a few would party on a superyacht given the chance.
You may think that is true of a lot of people. It is. The difference with founders though is that they are getting out of bed early, very early, each morning, not to earn a wage, but to build a business. This purpose often appears as single-mindedness, borderline crazy in some cases!
Founders are builders.
Founders are wealth creators.
You don’t tend to make a billion dollars working 9-5, however lucrative your job is.
However, getting paid is not the main reason why founders trade safe and secure jobs for stressful, often nerve-racking, occasionally upsetting experiences.
Founders are thoughtful gamblers who want a crack at changing the world.
So, before creating some cheap website, take a step back and think about who you are and why you’re doing this. The “why” may lurk deep, but the signs you should start your own business have probably been there all along!
Once you have decided that your destiny involves starting, growing and selling your own tech business, you will most likely become impatient and frustrated with the mundane tasks on your current to-do list.
Those tasks don’t tend to disappear when you start your own business. But as soon as you take that step, you will stop being paid to tick them off!
If you are asking yourself "Can I start my own business while employed", the answer is usually yes…
If you build a system.
Get ready to work evenings, weekends and holidays. With the right approach, you could get a business plan, brand, website and product design ready in your spare time within 3-6 months.
You can continue down this route but there comes a point when you have to go all in. It is probably tempting but there are two more important steps you might want to navigate before making the leap.
Addressing the demand question (i.e. will anyone actually pay for this product?!) and securing a funding runway (both for product development and your own personal spend) before leaving the security of full-time employment will significantly mitigate the major causes of stress in first time founder; imposter syndrome and cashflow.
In the early days, you are the business.
Once you have taken care of the fundamentals of starting a company, it is time to hit the phone book and hit the road. Meet former colleagues, make new connections, pitch to possible investors, cold call a couple of potential customers.
Be authentic and honest in these early conversations. Listen to the market as much as possible and start to engage in online conversations about your industry. Thought leadership is an overused term, but with good reason.
It describes a state of mind you need to reach.
Your ability to put your head above the parapet and start making some noise in your industry may sound daunting. Imposter syndrome may override your desire to start participating in or leading debates about your field of work. Whether that is online or as a panellist or keynote speaker, overcoming this barrier can open up the most powerful (and free) marketing resource;
With that in mind, we've created this checklist to help you build-up to the ultimate goal of thought leadership:
Remember you are trying to build credibility and a position of authority at these events.
Don’t be tempted to try selling your idea as it will only lessen the impact of your opinion as listeners and readers will sense an undertone of bias in your comments.
All of that is great, but while you’ve been conquering your fear of public speaking, that bank balance has been edging worrying downwards.
You need startup capital.
Bootstrapping is one thing, but this stress can be a massive distraction and starving your business of your A-game is not helping anyone. You may need to beg, steal and borrow but do it as soon as you can.
And as soon as you’ve done that, start raising your next round even if you don’t need it right now. That seed capital will disappear faster than you think and there could be a lag of up to a year for new funding once you’ve exhausted your personal network.
New business ideas are the lifeblood of the startup economy. Whether inspired by your own personal frustration at poor service, an irritating problem you think you could fix, or some brilliant new idea that comes to you on the commute, school run, sun lounger or sat in the pub. Draw it on a napkin. Come up with a brand name.
Pitch it to a friend.
Your rudest friend, preferably.
Still sound like a good idea? Then make some time to write a business plan. There are some great free templates available, and increasingly sophisticated online business planning software for a more professional approach.
Writing a business plan is a great discipline. But it is ultimately a piece of fiction, usually written by the most optimistic part of your brain.
Hockey stick revenue curves, faultless recruitment campaigns, customers queuing at the door and a successful IPO in seven years all raise the spirit but ultimately miss out one key question: How do you know if there is a market for your business idea?
You probably have a hunch.
You may even have some data to back up that hunch.
But predicting whether someone will exchange their hard-earned cash for your product needs careful validation before you sink a load of money into your idea.
If you are starting a tech company, chances are you will have to validate your idea without building the product. How can you get validation that there is a market for your product without being able to ship it?
The answer is you never really know, but if you are looking to scale in the future, you need a watertight methodology for researching and presenting information about likely future demand to an investor.
We recommend a multi-tiered approach that starts with you, the founder.
What is your story, what is your vision? That passion then needs to be complemented by accurate market data from trusted public and private sources. And then the hard part; customer validation.
Survey data, market research and industry forums all help but what you really need is an order, or at the very least a pre-order list.
An actual order with a monetary value suddenly changes the game though.
This requires finding an advocate (often an early adopter with an entrepreneurial spirit of their own) and is enhanced by actively collaborating with them to develop a working prototype.
Chart: Idea to MVP Pathway
It does not need to be perfect, but this proof of concept is a major milestone en route to a minimum viable product. This proof of concept is the gateway to your future success.
Top tip: Start a pre-order list so that you can capture contact information for people who show an interest before your product is market-ready.
If you are wondering how you will fund your startup, and pay your rent or mortgage at the same time, you are not alone!
Setting up a tech business is far more challenging than a services business, especially in those pre-revenue days.
Unless you go for a hybrid model, you usually must build a minimum viable product before you can start generating sales, or least booking revenue to your P&L.
On top of the systemic cash flow challenges, the barrier to entry is also becoming increasingly high as the obligations on technology companies grow. In regulated markets, this becomes even more of a challenge.
It is therefore imperative that you consider your long-term funding strategy as early as possible or else risk hitting a funding wall just when things start to get interesting.
The old adage, cash is king, remains a fundamental principle of succeeding in what is often referred to as The Valley of Death (that place where tech startups go to die!).
In terms of how much you need, £100k last some tech startups a year, with others spending that in a week.
Be realistic about how much you will need over 18 months and equate that to a monthly burn rate. Disregard sales revenue for the time being. You need a plan for several funding rounds with money coming from multiple sources with sales revenue often the least reliable (and most over-estimated).
For the purpose of this exercise, we have outlined a typical approach to funding a tech startup and the major milestones associated with each round.
Monthly Burn Rate
Savings, Commercial Loan, Family and Friends
Proof of Concept
Grant awarding body or Accelerator
Minimum Viable Product
Market Ready Product
£2– 10 million
Venture Capital (VC) Fund, Private Investors
To learn more about developing a funding strategy and getting your business off to a flying start, check out our article How can I start a tech company with no money?
Fast forward a few months and with the application of your own secret wizardry, your product now exists.
The transition from idea through MVP to market-ready product is an emotional rollercoaster. Even the purest vision and product design rarely survive first contact with the enemy. Embrace feedback, listen to the market and collaborate with those early adopters.
They can be your harshest critics and biggest fans.
Often at the same time.
Once you get beyond an MVP, the term Beta is often used to describe the test version of a product (prior to full launch) and provides a get out of jail card for those expecting perfection.
In a Beta environment, you have licence to test and adapt the product prior to full release.
The culture of a tech business and the relationship team members have with the CEO comes under greatest scrutiny at this product testing phase.
The transition from idea through MVP to market-ready product is an emotional rollercoaster. Even the purest vision and product design rarely survive first contact with the enemy.
James Brayshaw, CEO & Founder, Winshaw
Often the Founder’s baby, putting the product into the hands of customers is like releasing your offspring into the wild.
Be prepared to lose some control over how it is used, how it is perceived, and how it is talked about.
Getting product testing right can be the difference between success and failure. Setting structures around product releases, feature requests and user surveys is a critical part of developing a market-ready product. Getting this wrong can lead to lengthy and expensive delays.
That burn rate doesn’t go down as easily as it goes up.
CEOs that can build trust and encourage conflict get increased buy-in from the team and tend to get their product to market faster. This leads to a competitive advantage gained by capturing increased market share as demand grows
There are ways to bootstrap product testing (see How to test your product without spending a fortune?) but this tends to be an area where it makes sense to hire an expert.
Employing a Product Manager to sit between the Product and Commercial teams can work very well by establishing a culture of collaboration without disrupting each team’s rhythm. This role also helps translate customer pains into key insights for the marketing team.
Although product testing sounds like a chore compared to more exciting parts of the business, it is in fact the key interface between the customer, product and commercial teams.
Before deciding who to hire, we need to talk about governance.
It may seem like an unnecessary distraction and overhead but securing funding almost always relies on having robust governance allied to a simple organisational structure.
A Board of Directors can add value through their oversight of your decision making, investor relations and are usually more than willing to introduce you into their extensive personal networks.
Maybe. Maybe not. Introducing a cofounder does provide a sounding board, allows you to share responsibility and can help accelerate certain blockages where you are at capacity.
On the downside, cofounders can complicate organisational structures, delay decision making and introduce an unnecessary complication into the internal politics of an organisation.
An integrating Chief Operating Officer may be a better compromise although this could be more expensive in the short term. Apart from the investor drive towards a clear governance structure, we have found that startups with clear lines of reporting and accountability outperform those with a confused hierarchy.
Consider the following key functions and who is accountable for them, even if it is your name in more than one box in the early days:
Getting key roles and responsibilities defined at the outset is the best way to avoid unnecessary misunderstandings later.
Top tip: It is easier to give someone a more junior job title and promote rather than have to take someone’s title away when you scale and need someone more experienced
Considering your exit strategy is a natural and productive way of visualising success.
Attaching a monetary value to this is a common starting point. But the bigger question is what would you do with this money, and presumably free time?
Think about it.
Your investors certainly will.
There is a big difference between a lifestyle business, and growth focussed tech startup.
Decisions will be framed by very different evaluation criteria. Early-stage investors accept the risk associated with startups but beyond family and friends, they are making an investment decision based on anticipated returns.
And then think even bigger.
Slow organic growth does not appeal to most early-stage investors. Angel investors will have a mature investment portfolio and may well be looking for fun alongside absolute returns.
VC funds will be less concerned about the fun and more about the 5x – 10x investment returns. Define success and talk openly about what you want in five to ten years and beyond.
Considering an ultimate exit strategy can act as a guiding light but there is a good argument that a post-seed continuation/survival strategy is more important.
Providing some liquidity to early-stage investors, inviting conversations about follow-on investments and constantly engaging in dialogue with investors will pay off in the long run.
Series A sounds like a scary prospect when starting out but it will be a critical point in your company’s growth and may well mark the difference between success and failure. Preparing for the scrutiny it will entail from the start could speed up that process considerably.
Of course, there are other continuation and exit strategies such as a trade sale, merger, acquisition, or management buy-out and if these are likely outcomes then some of your decision making (for instance on target sectors or regions) may differ.
Becoming a full-time founder is not quite the binary choice you may have thought.
Personal circumstances have historically dictated the extent to which someone can commit to a business. Remote working, online collaborative tools, freelancing and accelerator programmes (often designed for a particular cohort) have all contributed to an increasingly favourable environment to start a business.
Major life changes such as starting a family, retiring or redundancy can all trigger a desire to go it alone.
When you have the space of not having a job (in the traditional sense of the word), founding a business can fill that void and act as a catalyst for a new way of life. Of course, starting a business is a balancing act so you can take on other employment to supplement your income and still call yourself a full-time founder.
Nonetheless, you cross a significant threshold when you change your LinkedIn job title to CEO.
For now, though, let’s assume you are in full-time employment.
Do you find yourself asking the question: Should I leave my day job to focus on my side hustle? If you have followed the steps above, you probably already know the answer to that question.
If you have validated that there is a market for your idea and have a funding runway you can live with, the logical answer is yes. Making the leap and handing in your notice is not always a question of logic though.
The upsides are significant but making this decision with your eyes wide open is an important part of the journey.
Consider this your final pre-flight check before taking off. So before you hit send on that email, here is one last list of things to consider before taxiing to the runway!
If the answer is yes, then there will never be a better time. Pen that resignation letter and start filling your calendar with appointments.
Time to hit the dance floor!