Not sure what the writers of most start-up’s business plans have been smoking – but it blows common-sense out the window.
I’m an investor and practicing serial entrepreneur – currently with 8 businesses in 3 Countries. I regularly have start-ups pitch me for investment funds and I’m around lots of thriving and the odd techy start-up failure.
These are my experiences:
- The path of writing an elaborate business plan, pitching for funding rarely works. BOOTSTRAPPING IS HOW MOST BUSINESSES START.
- The vast majority (read all) of start-up pitches are going about developing their solution the wrong way. You should never contract out a need that will become “ongoing”. KEEP YOUR SECRET SAUCE and IP in-house.
- Most also have substandard marketing strategies. NO, YOU CAN NOT BUILD IT AND “THEY WILL COME”.
- Business partners should NEVER “only bring cash” to the game. They should also bring customers, expertise, contacts. All partnerships must also have an agreed exit process/goal.
- Understand – developing (coding) the solution is NOT a project, in that it will never have “an end”. Developing all software requires constant updating – that’s ongoing – forever. Changing Dev’s midstream can have crazy consequences. It makes NO SENSE to entrust development to a third party as if it’s all finished when its developed AND there needs to be ongoing cross communication between ALL your team to ensure useability.
- To develop your code, you MUST start with very competent advice/management and this is BETTER inside the business. Note this is NOT the “code writer” – I’m saying you need a competent MANAGER of coders who helps you build a Dev team.
- Most funding pitches focus on what the solution “does”. Rarely do I hear pitches excited about getting customers and taking money from them. YOU ARE BUILDING A BUSINESS NOT a piece of code.
- Testing before committing is always sensible. It’s rare that I see an idea that cannot, at least in some limited form be tested. The critical factor on ALL online business is “can you attract enough customers (in an affordable way) will they pay? If you test and prove this part first – then you have a far greater chance of success.
- I know certain ra ra people push the ease of homebased workers. When it comes to scaling, homebased is a BAD solution. You need a TEAM in common office space sharing, learning together developing TACIT knowledge. There’s a bloody good reason Google, Apple, Microsoft etc etc have built huge office buildings – sharing in a team environment is critical.
So that’s all the negative – these are my solutions. Over the past 5 years I have been across 100’s of start-up successes using the principles:
- Start small, cash flow fund, build an integrated team all lead by YOU, focussed on the ultimate goal PROFIT.
- Use the Philippines, highly educated, reasonable skills, with a great work ethic and really LOW wages.
- Use Co-managed space. This is a Philippine registered business (often expat owned) who supply (think like serviced offices) the office space, desk and computers all connected to the internet, the legal entity so your workers are happy, protected and well paid, payroll services (so you pay just one monthly amount) and assist with recruitment. Use your provider until you are big – then incorporate into a lower cost solution.
- Typically, your cost comprises of two components – the “seat” and “wages” which includes all on costs.
- To understand these are “all up costs” – so all wages, with on costs, office, computers, HR management etc – everything and they are ROUGH / Ballpark numbers.
- For Admin/Marketing workers Fulltime, budget $1700AUD a month, Higher end IT skills might get to $2200AUD a month.
- Cashflow wise budget 3 months up front (security deposits you get back if you do the right thing) then monthly thereafter.
- Contract terms vary from nothing (which is really 2 months) to 12 months.
- You can start with ONE worker and ramp up or down at will, making Co-Managed a reality low risk low cash flow solution.
- Most providers can start lower experienced workers in a week, like Australia the rarer the experience or skill level the longer it will take to find them – great workers are rarely unemployed you need the head hunt which equals time. Allow for this – think ahead.
- So, let’s build an online business. Most start-ups can be coded in 3-4 months (at least to proof of concept) by say 2-3 coders. So, let’s use this………………
- Day one you and your “manager” plan the look/feel and functions of the platform.
- You hire 3 competent Coders – say two medium experienced and another higher experience. Note this negates the “losing your one and only” risk.
- Say 2 @ $2000AUD a month and one (leader) $2400AUD a month. That $6400 a month for coding. 4 months in it has cost you $25,600 to get to the market your first version. Now don’t get me wrong, some of you will have easier platforms and some more difficult – my costing is ball park, purely to demonstrate how most Tech business actually get going.
- On the 3rd month you put on a “Marketer” – all sitting together learning from each other. This skillset develops the websites, social media platforms and all the support infrastructure to sell. Possibly that kicks off a Lead generation process. If this works you can then cost effectively ramp up the activity of finding potential clients, contacting and directing to sale. In one of my businesses we have a team of 4 generating +2500 leads A DAY. Another team contacting and closing the sale etc.
- Sales start. At month 4 you bring in a Customer support person, maybe move a spare coder to help-desk or reduce a coder – 1 or 2 can ongoing maintain and update your solution.
- If you have nailed it from this point cash coming in will be more than going out (that’s the goal) and you are on “ramp-up” with a great cost-effective team solution.
- Congratulations you now have a BUSINESS – and hopefully its 100% owned by YOU. If not, then WHY did you dilute your ownership?
Work the numbers – almost every pitch asks for outrageously high investment with no proof of viability, using a flawed development approach where a third party gets to make more than the business (in most case).
I know this is simplistic – bootstrapping always has been simple and effective when developing a business.
I live in the Philippines where I TEACH how to develop high productive, low cost, teams or solutions – to western business Owners. Happy to Skype and share what I’m witnessing first hand.