Building a startup is a challenge. Speak to any entrepreneur - even the most successful ones (in fact, especially the successful ones) - and they will recount tales of long hours, uncertainty, and stress. But the other thing you will hear consistently is that to have an idea, to build something and see it through to fruition is one of the most rewarding experiences it is possible to have.
It is a big, fast-changing world out there, with huge numbers of smart people doing all sorts of clever things; so what are the key things that you need to know to maximise your chances of success? Well, the first thing to understand – and be reassured by - is that in some ways you are better positioned for success than anyone else in the market because you can go in any direction you want. Big firms by definition are established businesses – they have a client base, a technology stack, prioritised objectives, and budgets that may look ahead several years. These are of course their lifeblood but they are also in some ways constraints; established firms may not have the ability to quickly change direction to meet new demand in the market. By contrast, if you see an opportunity and can pursue it, your nimble little startup can make enormous progress very quickly.
Identifying An Opportunity
Of course, you need an idea – for a startup to succeed you need to identify a need or an opportunity in a market and develop a product that meets that need. It goes without saying that having experience in that market helps – with domain expertise comes an appreciation of the nuances of how a specific market operates, and it is this understanding which often allows people to identify an opportunity, even ones that have been “hiding in plain sight.” If you have spent significant time in a particular part of the market you are also likely to have established relationships with potential clients, partners, and vendors, as well as a reasonably deep understanding of the “big fish” – your competitors. It is of course possible to break into completely new markets about which you have little understanding (and this is especially true of more embryonic markets which are too new for anyone to have much experience in), but on balance, if you do not have the expertise yourself it is advisable to find individuals who can make up that experience gap to either join the business or act as strategic advisors. You will not regret the additional perspectives they can bring, not to mention all the benefits described above.
To have the greatest chance of success against the large incumbents your idea must not just be something that fits a need today. You might have some limited short term success but this approach is problematic for two reasons: firstly, if the need is obvious it will attract a larger number of firms trying to solve it, increasing your competition; and secondly, the market never stops evolving, and you may find your product rapidly becomes dated and ceases to be relevant as a result. You need to try to think about how the market is likely to develop over a series of timescales – 1, 5, even 10 or 20 years. Some evolving technologies – Artificial Intelligence being the prime example – will have profound impacts on how we live and work in the future. Matching your medium and long term product strategy to how you think the market is likely to evolve over these longer timeframes not only makes it more likely that your business will be able to adapt to these changes and stay relevant, but is also very appealing to firms with whom you may want to do business, and who are often looking for thought leadership and guidance on precisely these more forward-looking issues. This need to be able to think strategically about how a market will evolve again underlines the need for experience, either your own or from people you can bring in to your startup. Equally importantly is that while you need to be ready for the future, the market also needs to be ready for what you plan to do now – timing is critical and history is littered with startups who were too early with a great idea.
Executing Your Idea
Once you have your idea, of course you need to execute it. You need to build a product that meets the need you have identified and then get out and sell it to customers. I would advise you to give as much attention to this as you possibly can – your product is the physical manifestation of your idea, and ideally, it needs to meet the need you have identified better than any other product on the market. One of the single most important pieces of advice I can offer (and this is particularly the case for technology businesses solving complex data problems) is that you need to design something that your clients can use without you sitting next to them holding their hand. Ultimately there is only one of you – if your clients need you in their offices to get value out of your product you will rapidly hit a limit of how many clients you can support, and you won’t be able to scale.
To build your product you need a team, and it won’t surprise you to hear that the demand for good staff is high, particularly in newer roles such as Data Scientist and DevOps Engineer. That can be a daunting prospect, but don’t let it intimidate you. There are plenty of ways to find staff – the traditional recruitment channels of agencies and headhunters, social media such as LinkedIn, and many events such as MeetUps where like-minded people get together to discuss a certain topic or industry. These are usually free to attend and are a superb way to find out more about the market you are interested in, not to mention an excellent way to build your network (more on which later).
Another way to build your team is to hire people you know. It is common for people to hire individuals with whom they have worked in previous organisations, and this can work for a variety of reasons: there is already an established relationship of trust and they are likely to already have domain expertise and/or relationships in the target market. Hiring from bigger competitors is also a popular route that some firms take to accelerate their progress. However these approaches are not without risk – there may be non-compete and non-solicitation restrictions in place, and unfortunately, some people don’t always respect their previous employer’s rights around intellectual property and so on. Always ensure that any potential employee abides by all of their contractual obligations to their previous employer before (and indeed after) they join your firm. Not only is this self-evidently the right thing to do, if they don’t it could land both them and your firm in a very uncomfortable place. You are also the leader of your new business and are responsible for setting the culture – demonstrating a commitment to integrity in the hiring process will not only protect both your employees and your firm as they join but also of course when the time comes for them to move on. You don’t want them walking out the door with code or client lists because they think that is somehow acceptable behaviour.
Early Stage Advantages
I mentioned previously that starting with a blank slate positions you well in comparison to your larger competitors, and this is particularly true in the case of the technology stack you use to deliver your product. Starting today means you have no legacy tech stack to maintain; you can choose the very best, most advanced technology solutions available on the market. Do not underestimate the importance of this – the bigger incumbents are already committed to a certain architecture that may restrict their room for manoeuver, and they will have a lot of legacy technology to maintain which is time-consuming and expensive. This also has some positive implications for your hiring process – technical staff such as developers often prefer to “play with the shiny new stuff” and may prefer to work in your exciting new startup than spend their days maintaining or rewriting old code on legacy systems. Of course, the flip side of this is that once you choose a given technology solution you are then subject to some of the same constraints as your competitors, so it’s very important to design your infrastructure in a way that allows it to evolve, so you can swap out components as better solutions come on to the market and it makes sense to do so.
Don’t Do Everything Yourself
For me, one of the most decisive factors in building a successful startup is establishing a network of relationships with firms and individuals who can help you on your path to success. You cannot – and should not try to – do everything on your own. You will be astounded at how much goodwill there is out there from people who want to see startups succeed and are willing to lend a hand in some way, even if it is just an introduction to someone else. This is particularly true of fellow entrepreneurs – people who, like you, understand how hard it is to build a business from nothing and respect you for committing to that journey. Your early clients will be similarly influential. At FairXchange we have been exceedingly lucky in that regard – our first client was and continues to be a huge supporter in helping us to establish and evolve our business.
It might make sense to identify other firms that you can perhaps partner with to increase your traction. That may be a firm that does something related to but not immediately overlapping with what you do – by combining your approach you can deliver something more easily to mutual clients which provide more value than either firm could provide individually. You may benefit from distribution arrangements where you can get access to an existing client base more easily.
You may also find that you receive encouragement and support from some unexpected quarters. In many markets there is a natural resistance to any firm attaining what might start to resemble a monopoly; certain large players in the market in which you operate may actively encourage newer entrants to promote competition and keep costs down. Of course, while this might help you in the early days you must resign yourself to the fact that you have very little chance of achieving total dominance in the market yourself.
Seize the Opportunity
So now you have an idea, the timing is right, you have a team to turn that idea into a product and then into revenue, and you have relationships to help you on your way. Ultimately whether you succeed or not will come down to you. As an entrepreneur you will be tested in ways you wouldn’t think possible. If you have only ever worked in a salaried role before there is an enormous amount of information you will need to learn about how a company actually operates – accounting, legal and so on. As the leader of the business this will fall to you, it may be a long time before you have the resources to hire staff to handle these functions.
Above all, you will need patience and resilience. Many give up, particularly when it gets hard, as it inevitably will. But for those who commit to the journey and can navigate these early hurdles, the rewards, not to mention to the sense of achievement, can be immense.
Author: Guy Hopkins, Founder and CEO of FairXchange