Experts observe that founders make two mistakes in the initial phase. They are putting a lot of money into scaling even though the company is not yet ready for growth, or they are saving on spending when it’s definitely time to scale up.
Both have of course fatal consequences.
The decision as to when and whether money is invested, ie when the engine is to be started, is ultimately up to the management. Therefore, the CEO must be able to judge whether the issue makes sense or whether one should keep the consumption of the startup for a while on the back burner.
Unfortunately, the founder often has no experience with the lifecycle of startups and therefore can not judge well when which investments are really necessary. Excessive optimism leads to unnecessary spending because you want to see the business grow. If other partners support this attitude, because they hope to iron out mistakes in production or in marketing, this aggravates the situation.
To make the right decision at the right time, founders need to know what phases a startup is going through and what to do in each of them. First, it’s about finding the optimal fit of product and market, ie Product Market Fit. Then the business model has to be optimized to be repeatable, because only then can it grow later. Only when this is done, you can grow the business!
For the entrepreneur in each of the three phases a very own and completely different behavior is announced. This can also lead to the fact that different staff / management may be required for the different phases.
In the beginning, the most important thing an entrepreneur can do is to optimally tailor his product to the market. The own offer must fit the target group. You know that this is the case when customers find the product or service exciting enough to pay for it.
If that’s the case, you notice it immediately. Customers buy the product as fast as it is produced. On the other hand, one immediately realizes if the product does not fit the market. Then the demand is limited, the sales cycle takes too long and is too tedious, customer reviews and press votes are somehow so-so … I went through both phases with my own Startup Gymhopper – nobody wanted to buy our first product variant, with the second we became relative fast money offered to become a member of our network.
As long as a startup does not yet produce in line with the market, the founder should concentrate on solving this problem. In order to get the necessary time, the expenses must be kept as low as possible, because: it can take!
To do this, every step of customization and development has to be tested again and again on the customer, without bias. Here it is important to listen objectively – the dissatisfied customer is a valuable employee.
It is also helpful to ask yourself the following two questions:
Does the own offer solve the customer an important problem? Too often, the solution offered is too trivial for customers to spend money on. If that’s the case, you should start working on another product!$
Is the product really a solution? Or is it just a nice-to-have? What priority do customers actually give to the product? No matter how cool an offer looks in development, if it is not really useful, it will not be successful in the long run, even if it starts well. The goal is to be a must have and not a nice to have.
Validating one’s own work steps while simultaneously reducing expenses helps to endure this phase and in the end to keep a successful product in one’s hands.
Nobody can really tell at the beginning how long it will take for the product to reach marketable shape. For the greatest possible prospects of success, one should adjust to a longer period of time. That in turn needs money – as long as possible. So you have to cut spending.
An ideal team for a startup should include the founders, the developers and later two sellers – nothing more. The founders are assigned the task of communicating with the customers, because only then can the adjustments of the product to the market and to the needs of the buyers be verified. This is the main strategic task of an entrepreneur, who can not easily be delegated.
Of course, the initial temptation is to pump money into development and work with a large team, just to get started as fast as possible. That is unrealistic. It’s better to be prepared for a marathon, not for a sprint. Only in exceptional cases can this phase be catapulted through a cash injection, for example by the hiring of a special expert. In the majority of cases, debugging simply takes its time. Only when you have optimally tailored your own offer to the requirements of the market can you take the next step: the repeatability of the business model. Therefore, it is worthwhile, as long as possible, to refrain from external financing and to retrieve them first for scaling and for starting.