Wednesday, September 19, 2012

Lesson #122: Setting Key Milestones for Your Startup

Don't launch your startup trying to build a "Rolls Royce" with all the bells and whistles out of the gate.  Why not??  Firstly, the key with startups is speed to market, so you don't want to wait for building out "Rolls Royce" functionality, when you could have launched a "Toyota" much faster without materially impacting the core user experience.  Secondly, a "Rolls Royce" costs a lot more than a "Toyota", and when you are on a limited budget, as most startups are, every penny matters.  And, thirdly, it is best to iterate your product in small bite-size chunks, to see how users engage with the product and what features and functionalities they most use and desire.  For example, you may think they want a "Rolls Royce", but they may really want a "Porsche" at the end of the day.  So, before you get too far into your development, constant testing and surveying of your users can save a lot of wasted re-building expense down the road.

To help you bucket your startup development, break your startup into three phases: (i) piece of paper business plan through minimum viable product (MVP); (ii) MVP through full production site; and (iii) full production site through proof of concept.  From there, hopefully, you will be in a position to raise venture capital to scale up your business for the following growth phase of your business.  Below are a few pointers for setting acheivable milestones, for each of these three phases:

PIECE OF PAPER BUSINESS PLAN THROUGH MVP (roughly months 0 to 6)

Product: A bare-bones site with basic functionality that you won't be embarrassed by.  Build the site in a lean startup, agile process in bite size iterations every couple weeks until MVP complete.
Team:  You and your co-founder, preferably one of you a technical person building out the site.  Outsource for additional developers or designers needed.
Business:  Start laying the ground work to identify and budget for key partnerships you will pursue, and key sales or marketing channels you will test.
Users:  None yet, other then the development team testing the iterations of the product.

MVP THROUGH FULL PRODUCTION (roughly months 6-12)

Product:  Use this time to test with users to see what they like and don't like about the product, and then build out additional features and functionality of your beta site.
Team:  Start to recruit the rest of your senior team or any additional technologists required.  You don't necessarily need to hire them yet, but have candidates identified in the wings.
Business:  Start to reach out to business partners and start testing key sales and marketing channels identified in phase one.  No material revenues yet.
Users:  A minimum base of customers that is large enough to test with, and start to establish trends for monthly growth.  No material traffic yet.

FULL PRODUCTION THROUGH PROOF OF CONCEPT (roughly months 12-18)

Product:  You will no longer be in beta testing, with a full production website.  Continue to add in additional features and functionality over time.
Team:  You should have your full management team hired and in place, even if working for equity without cash salary.  This will be required to get the full attention of the venture capitalists.
Business:  You will have signed a few key partnerships (with a good pipeline in discussions) and proven an affordable cost of customer acquisition.  So, new monies invested in marketing will be used to accelerate proven tactics.  You should be showing preliminary revenues at this point, materially growing month over month.  The closer you can get to $1MM in revenues, the easier your fund raising efforts will be.  Start identifying and laying the ground work with venture investors, relationship building, but not yet asking for any money.
Users:  A material base of traffic, growing month over month, that helps venture investors acknowledge there is a real and growing appetite for your product in a sizeable market.

By this point, you should be ready for prime time and be in a good position to begin asking venture investors for your growth capital from here.  So, said another way, you will have to creatively figure out how to fund the first 12-18 months of your business on a shoe string or with angel investors until then.  So, plan far enough ahead of time what your capital requirements will be to get you from a piece of paper business plan, all the way through proof of concept, which will be required by the venture investors.  And, as always, include a big cushion, as things never go perfectly to plan.

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