Updated: Jul 21, 2020
To startup a business, you can start with an idea. Then you needs to follow it through with trials, buildings, validation. The genius part is not the idea but to realize that idea in real world.
Many companies out there has no business. Shopify store that sells one product in a year is common. The founders can pay employees but not himself. The company has no growth or scaling potential and will die the minute you take a vacation. Avoid this. To start a company is to start the business of the company. Things like registration, names, structures are relatively easy.
There are four approaches that are often encountered. The four approaches are:
Option 1: Build a product or offering on a haunch and then ask around (see this actual link for example)
Option 2: I want to change the world (see this link for example of a fake news detector)
Option 3: Let's make something and then improve it and try it slower (see this link for example)
Option 4: Strategy starting with the niche audience, what they want, and then offer them.
There are four important types of newbies that no one can work with - and good luck to them for their learning and possible struggle:
newbie assume if it is a good idea people would help to benefit the society and investors would chip in;
newbie assume if they provide a solution or a gadget then there will be a buyer;
newbie assume if they make something brand new they have won a lottery of some sort.
newbies don't think about how to make money for their venture, because they are above it and they are confident money would come into their pocket.
Startup is hard. Veterans fight. Newbies struggle.
IF YOU understand the four type of newbies assumptions or at least see the possibilities that they do not make sense, please feel free to read the following. Otherwise the steps won't sink in.
Startup takes eight steps, see below.
The right process for making a company is always option 4: to Strategy starting with a niche audience, and find what they care, and find what you can provide them, and identify the market.
For the rest of the analogy, we will use the example of fishing. The company makes the bait, and the customer is the fish. The market is the choice of water or lake, the market is "where do you fish".
Option 4 makes the least sense to the uninitiated. Here is the process of how it works in the fishing analogy. You have to find out what kind of fish you want to bait, in which lake there are the biggest concentration of such fish. And then you make an innovative bait. You buy the entrance fee for the lake and the fish permit, and you fish. Overtime you help the lake and fish population grow, you get rich, and the lake operator (market) gets a cut. Everyone is happy.
Step 1: Find your TARGET consumer audience and business buyer.
If your company is not targeting consumer, then the business might be the buyer and the audience. But all the business buyer of yours will still funnel from the consumers.
For example, Google is used by end consumers but it is really a 2B company that makes money through advertisement placement. If you start Google today, it is important to figure how both how you help consumers and how you help the business.
If a company just want to care for itself, then no one will care. The response is "who cares".
Step 2: Go to the market, understand the market and industry dynamics, and figure out the changing taste of the consumer and market dynamics.
A changing taste of customer will causes new products to be desired. Under this circumstance, you can both appeal to the customer or appeal to the business. For example, Levi Strauss build jeans for gold mine workers, who wants to make money for their family. The gold discovered will make the United States of America richer, helping the entire continent, and the salary the workers make will help their family. Levi Strauss is really an apparel company that started in the niche of mining uniforms and eventually becomes widely accepted.
Step 3: Propose a method to provide the buyer with value that will compel them to pay you.
Most people think value is just low price, but it is not always the case. Starbucks coffee is notoriously expensive. But for the audience, who wants to have a quiet place to rest and meet, the cost of the coffee is not really so much if you count the space, the rest room access, the wife access, and human connections with old friends.
Let's say you make a special vase that a lot of realtors use in homes on display. Then when the realtor bring a customer to the house for inspection, the customer sees that vase and liked it, and the chance they buy the house increased. But the vase is totally useless except as a decor. In this case, the product is largely 2B, but you need to make something that customers and consumers would like. (Of course they must also like the house itself)
Step 4: Test as quickly as possible if the purchase can be made (value proposition accepted).
Don't make it and wait for 6months, 2 years to launch a perfect product. Say you want to make a T shirt. Just print one and saw it yourself and wear it to the Mall yourself. If you get 10 people stopping you and ask "Excuse me where did you get the shirt", then you got the confirmation with 20 dollars of investment.
Step 5: Build the business case including operational cash flow, profit, and startup cost and feasibility.
In many "startup camps" and "startup theaters", people focus on the number, the company. People worry about what names to give to their company, what PE ratio they can give to investors, and so on. But this is all moot if the customers (Business customer or consumer) does not want to buy.
Step 6: Get investment (or not), build the offering, build the company and method (including service).
Making one thing is very different from commercial operation. If you make a product, then the quality needs to be consistent and controlled, the price and cost must be controllable. NO matter how great is tech, the finished product must ALWAYS WORK!
Step 7: Operate and grow the business. Operations including getting through the channel, get to the market, build customer funnel, and service the customer.
A company without growth potential is a dead business. It is just waiting to be replaced. it is not safe. Best employees won't come. When your work force gets old, you are counting days to being over taken, by the new hot shot next door.
Step 8: Look for opportunities for company metamorphosis, scaling, merger and acquisition, and perhaps even IPO.
Many companies do not fit the IPO. A founder can get rewarded financially in many different ways. IPO is not suitable for anyone.
We will provide detailed examples of operations for each steps in the example cases.
Here is a great success story, and a bunch of failure/struggling stories.
Why is Option 1 not recommended?
I call Option 1 the Lottery approach. You make some bait, and go to a random lake, and see if any fish bites. In your head, a giant shark is always a possibility.
Why is Option 2 not recommended?
I call Option 2 the Naive approach. You make a brand new bait, say combining Sushi and Beef mixture. Really something the world has never seen. They you ask fishing expert if it is good for anything.
Why is Option 3 not recommended?
Option 3 is the slow burner approach. it is actually part of the personal preparation, not startup. Just a hobby side hustle.
In startup, your plunge is destined to fail, but it is experience learning and the surest path to success! The Failure Is the Way.
In startup, you begin as a book smart person and generate an idea in vacuum. You enter the market, your knowledge becomes experience, your understanding of the world is no longer just broad, but DEEP!
When you startup, you build three things: the business, YOU, and the company.
Startup failures is due to founder bad preparation. The only preparation is the failure. Before side, try run side hustles to practice.
Failure is the initiation for all startup entrepreneurs. Everyone fails the first time - Jobs, Musk, Edison. Genius learn fro mistakes quick. Genius is wise and humble, not clever and arrogant.
Good luck entrepreneurs! you have at least made this far.