A start-up is a small company with limited resources and short history. Frequently, start-ups live or die by the expectations of investors. Start-ups may develop and sell products or services, or produce goods and services to order; they may also “bootstrap” by developing new products, invention processes, service delivery models, etc. with little external funding for research and development (compared to larger established firms). These business activities are often assisted by venture capital (VC) investment in the form of equity financing that provides necessary funding for start up expenses. They are often established in high technology industries where the risk is high and the capital requirements are great. Start-ups can also be simply defined as small business, new business, or young business. A start-up company is usually one that is newly organized or recently established. Many technological innovations have been started by start-ups.
Funding Start-Ups
Start-ups require financial capital to get their business idea or proposal off the ground. They accomplish this in a variety of ways: by self-funding, finding angel investors, seeking seed money from specialized organizations such as the SBA, or even from venture capitalists. Funding for start-up companies can come from either outside investors or from the founders themselves. Some start-ups will stay private and never sell shares to outside investors, while others will eventually go public and offer shares of ownership. Normally, a company is made public when its shares are sold to the general public in an IPO (Initial Public Offering). The shares are sold in an auction-like setting where the price rises until the supply is exhausted. Once public, the company has many of its shares owned by outsiders and inside investors can no longer control which direction and strategy the company will pursue.
The aim of a start-up is to find product/market fit where a product or service generates revenue and gains market traction. Start-ups operate in high risk environments and failure rates are high. The objective is to get to cash flow positive as fast as possible, then continue to develop the business model into a sustainable business that generates profits for its owners or shareholders. Getting a start-up off the ground is only the first step. Once the company is functioning and generating cash, then it must continue to grow and add value to its customers’ businesses. This means managing customer relationships and maintaining product quality, while continually refining the marketing and sales strategies for its products/services.
Founders of new businesses or start-ups need to understand that they will likely be working long hours on their own with little or no revenue or profits in hand whatsoever. The founders are often making personal sacrifices working 80 to 100 hour weeks, away from family life, only to risk failure by overextending their resources with unlimited resources available from outside investors who may take over the company. The founders need to know when to raise money and how much. The task of managing the capital/investments is one of the most difficult challenges for early stage companies.
Early Stage Funding – Start-ups are often funded by venture capitalists (VCs) who provide the early stage funding needed for product development. Venture capitalists invest in high potential start-ups that have high risk/reward potentials. Start-ups may also obtain seed money (seed capital) from specialized organizations like SBA (Small Business Administration), CDC (Community Development Corporation), SBIC (Small Business Investment Company), or non-profit organization like local economic development agencies etc. The investors can also be family, friends, other people in the start-ups’ networks. Sometimes the incorporation of the business will involve them as equity or partnership holders.
Private Equity – The term private equity is used to describe financing provided by funds that are managed by professional portfolio managers who are familiar with high tech companies. Private equity funds are offered to entrepreneurs who have a proven record of success in growing high tech businesses. Private equity is often used by early stage companies because it usually provides early stage capital at below investment levels. This makes it more affordable for small businesses, but removes some control from the company founders over how their business is run and managed financially.
Seed Capital – Start-up companies are often funded by specialized private equity, venture capital funds, or angel investors who are experienced in supporting high growth businesses. Private equity firms typically invest in early stage companies that have the potential to become very successful. If they are to be successful, then it is important that the entrepreneur keep control over the company’s direction and manage its capital well. Venture capital funds are often used by early stage firms to develop additional business plans and generate more revenue streams.
Understanding The Competition – Most small business founders realize there is no escaping competition, so they must focus on the best techniques for competing successfully; instead of trying to avoid or eliminate their competition.
Assessing The Competition – Establishing a competitive advantage can be as simple as understanding what your competitors are doing and what they are not doing, as well as their strengths and weaknesses. For example, if you have a product that is very good it may be that the competition has a product that is mediocre, but they have a more attractive sales force or highly superior sales and marketing techniques. Your competitors too often do things differently from you and this becomes an important point for evaluating your business. Many new startups make the mistake of focusing exclusively on what they think they should be doing, instead of understanding what others are doing to bring them to market.
Finding Your Target Market – A new business needs to understand exactly what its market wants from it and that this will differ from one market segment to another. Each market will have a different mix of competitors. Some markets need to be carefully assessed before a company enters because they may be too crowded with competition, while others may have a low customer base, which makes it very difficult for a new company to compete in them. A new company can either go after its own niche or take the fight directly to the front of the pack in a competitive marketplace. The idea is not necessarily to avoid competition, but rather find ways of competing where you have an advantage over your competitors.
Marketing Strategy – To attract customers, a business needs to have a sound marketing strategy. A good marketing strategy will determine the type of customer base that a company targets. If it is aimed at young people, then the company must recognize that they are very fickle in their buying decisions and change their preferences regularly. On the other hand, mature customers are less susceptible to changing directions frequently so they are likely to be more loyal customers for your business. The type of product or services being offered is another factor in determining your target market. For example, the product has to fit in with what most people consider is cool or stylish at any given time. Companies must keep in mind that they need to be able to maintain a consistent level of quality over their product lines.
Competition – As a start-up company, you will be aware of your competitors and you will have a good idea of their tactics and how well they are doing. In the case of a new product, your competitors will often have a better understanding of the product than you do. That is why it is important to work out what competition in the marketplace is doing and how well they are doing it before you start developing your own product or service. The majority of companies in any industry have been successful by emulating successful competitors rather than trying to build something from scratch from scratch when there are established successful products already in existence. Researching what your competition is doing should give you an indication of what works best in the marketplace. Your research will also highlight why other companies are successful or not, so that you can follow their lead.
Competitor Analysis – It is important to conduct a competitor analysis so that you can assess market share, competitive strengths, weaknesses and strengths of your competitors. For example, company A may have 70% market share but have a very poor brand name while company B has 30% market share but whose brand name is much better than that of company A. Another factor is to understand their marketing strategies by reading the companies’ annual reports and latest financial results to get an understanding of how well their business model works for them.
Technical Analysis – A technical analysis is an evaluation of past performance of a company in order to determine whether its share price represents an opportunity for investment. Observing this data in the short term will help you assess whether there is a gap between the current market price and its intrinsic value. Understanding how the company makes money, its performance over time, financial statements, cash flow statements are all areas that are considered when conducting a technical analysis.
Research – In order to research your competition, you may need the help of a business advisor. Researching market share can be done by using a database of information from trade journals, industry associations and competitor analysis. The detailed analysis of the market also allows you to understand market trends, which can be used to define your target markets more precisely.
Eliciting Information From Customer Feedback – Customers are an important aspect in a company’s business plan because they tell a company exactly what is going on in the marketplace and where their needs are. For example, if a customer feels that he or she is not being offered value for money then customers will tell the company how they feel about this before they buy anything else.
Positioning Your Business – There are many ways of positioning your business. You can either target the most attractive part of the market, or you can position yourself to fill a specific need in the market. You can also put yourself at the heart of a new category by offering something that has not been available before. There are several ways in which businesses position themselves including:
Differentiation – Differentiating yourself from your competitors can help you capture a larger share of the consumer’s attention. Competitors will try to copy you, but your initial offer will set you apart from them and it will be easier for customers to choose you over another competitor.
Cost Advantage – Smaller companies often lack the resources to compete, but a lower cost structure often gives a small company an advantage over larger establishments.
Good Management – You must be able to manage your business well and make good decisions to build a successful company. This means keeping costs down and understanding how to make your product or service stand out from the rest. Customers will then recognize that your company is unique and they will be more likely to support you.
Customer Service – In addition to good marketing, you need good customer service. How you handle customer complaints can tell customers whether they can trust you with their money or not, which can have a big impact on how successful your business becomes. It is important to build up a good reputation for customer service.
Customer Retention – Companies that offer good service to their customers will keep them as loyal customers. If you build your business on customer retention then you will be less likely to lose your existing customers. Loyalty is considered to be one of the best business tools because it helps you reach the first percentile of repeat buyers.
Resources – You will need enough resources available to start your business. Resources can include cash, equipment, time and staff. Resources are important because they help make your business more successful and they decrease the amount of time it takes for you to achieve some kind of return on investment (ROI).
Starting Your Business – You need to be able to plan your business before you can start it, so you should develop a business plan. A business plan is a document which outlines the outline of how you will run your business with an objective in mind, and also with targets for how much money you want to make. Once you have planned your business it is important that you start doing some marketing now.
Target Markets – The most important thing in starting any kind of business is identifying the right markets with the right customers. You need to assess what people are looking for and then provide them something that they want. It is important to realize that most companies will fail and it is always better to be over-prepared than under-prepared. Contacting a business advisor and writing a business plan can help you manage your company more effectively, even if you are an experienced entrepreneur. Prior planning will minimize the risk of starting a business, which should make your life easier in the long run.
Copyright Issues – Copyrights are legal rights which cover any original work of authorship including literary, dramatic, musical or artistic work, sound recording or film work. This means that if someone wanted to copy any part of your company’s work then they would need permission to do so from the owner of the copyright for that piece of work. Copyright does not protect ideas, procedures, processes or methods of operation, but it does protect the specific way that your idea is expressed. Copyright law is broad and it covers a range of different areas, including sound recordings and literary works. The owner of a copyright can prevent others from copying their work as well as from doing anything with it so long as there is no permission from the copyright owner.
Start-ups require a variety of human resources and capabilities that can be managed by trained startup founders or entrepreneurs who may lack experience in specific areas of management including accounting, marketing, finance, human resources, information technology, production management etc. Therefore they are frequently advised to seek help from professionals with proven credentials in their respective areas of expertise. Fintalent provides a platform for business managers to hire all of their Start-Up Consultants be it in the area of Marketing, Business Strategy, Capital Structuring etc.
