It always makes me smile when I speak to people about to start a business, or have started, and instantly label themselves as a “start-up”.
Yes, that overused word that every aspiring new start business founder, or indeed business journo, uses to describe what is essentially a new start business, or in some cases, simply still an idea. I think it’s time for some realism in the “start-up” world.
To survive as a real start-up, you have to appreciate that an idea is just that
I spent last week in London interviewing and working with a whole range of new start businesses. Some had what I would call a good idea. Let’s say it was a drawing or an explainer video for a product that they wished to bring to market. But, that is all it was.
To bring this to market, it still needed some pretty serious validation, work on pricing, a whole bucketload of work on the costs of patenting and protection, tooling costs and shipping costs, retail margins and insurance. In short, probably six months of work just to make it investible.
But, in the product guy’s head, he was a start-up. Er – no you ain’t. And I told him that. And he went in a huff. Others had brochures, nice websites and some trademarks, but again no real business or revenue model that made it even remotely attractive to any investors.
So, how do you take your idea from idea to a proper “start-up”? Well, the key is to understand what a true start-up is. Firstly, it has a founder or ideally co-founders, who immerse themselves in startupland and startupland is a minefield. They know they have an idea and understand that idea, but – and it’s a big but – they are happy and flexible enough to pivot it as it becomes better validated. Ah – validation! This is so important.
Let’s consider it like this. Theresa May’s poor election result and the potential bloody aftermath of a potential coup, makes her start-up pretty uninvestible. There is doubt there is fear and huge uncertainty surrounding her value proposition as PM. In startupland this means she has poor validation. Mind you, she did go to the electorate and test it, so she gets points for that. If she had a Commons majority of say 40-50 seats, then investors would be much happier and her validated government would get the nod. So, proper validation that strongly suggests you have a big customer bank is vital for a start-up.
What’s next? Well, it has to be realistic ambition. I meet so many new “entrepreneurs” who simply lack this ambition. A true start-up in startupland lives on a knife-edge. As I’ve said in my book – Create Special – it’s a land filled with chaos, uncertainty, ambiguity and volatility. This means that the start-up founders need to have big cojones!
To be honest, it’s go big or go home. Why? Well a true start-up needs to attract investment to further validate, grow and scale. And investors want a return on their money and quite right too.
This translates into a return on their investment and some form of exit or sale of the start-up at some point. So, if the founders do not put their heads into the mindset of the investors, then they will not appreciate what big ambition truly means. And it ain’t selling cupcakes at local markets.
I could write screeds on this as I am elbow deep working with so many start-ups just now, many raising significant five- and six-figure sums. I’m living it with them. To survive as a real start-up, you have to appreciate that an idea is just that. This can then move to a spreadsheet, which paints a lovely picture of positive cashflows, but has never seen the true light of day in startupland.
However, when it then moves to a validated revenue model that has a customer and dare I say it – sales – then you are onto something that has legs.
In London right now, you will get laughed at if you have no validation and have not been courageous enough to get from spreadsheet to sales. In short, you will not have dipped your toe into startupland for real. So, get real quick… or die meek.
• Agitator and disruptor Jim Duffy is head of #GoDo at Entrepreneurial Spark