It is now pretty easy to start a business; all you need is an idea, a laptop and an Internet connection. But it is still very tough to run a business. Early this year we wrote a blog post entitled ‘The Big Things A Little Startup Learned in 2011’, we were one of the most recent class of Excelerate and had just closed on our seed round of funding. We were on our ‘way’ by all startup standards (funded and with a clear business model).
The real story, which serves as Part II of our startup learnings post, is that there are very different skills required to build a company when you’re no longer a fresh-faced startup. It’s a stage that does not get much ink because it’s not that glamorous. But it is critical. All the advice out there is geared towards developing your MVP, finding your early team, raising some seed funding etc. Very little is shared about the next ‘stage’.
In the spirit of openness that underlies our business values at P2S, I’ll share some things that we’re learning as we grow. Interestingly we weren’t even a fresh-faced startup this time last year; Phil and I had been working on Power2Switch for just shy of 2 years when we got into Excelerate. It’s also great to see the work Raman Chadha is working on with the Junto Institute.
1. Hiring and building a culture are freaking difficult: Hiring the best team you can and building a culture will make/break your dream of building the next Google. Your business is a living and breathing version of the things that matter to you as a human being, be very aware of this, as your business values will mirror your personal values. But don’t hire people that are the same as you. At P2S we use the Kolbe Index (working with Clearspace) to ensure that the ‘Quick Start’ mentality that Phil and I have, which means we can generate ideas at a frenetic space, does not become the Achilles heel of the business if we do not bring on a team with the necessary ‘Follow Through’ energy, which ensures that the ideas are executed to completion.
2. Put some systems in place or your startup will die! You know that ‘get it done’ immediately and clean up later attitude in startups? It gets to be an inconvenience when you’re becoming a real business: monthly reports to investors, government and tax filings, contract reviews for partnerships. Yes, these things have to be done and done well or you’ll put your business in a bad shape. You know those metrics you haven’t set up because you are trying to get customers? Not vanity metrics like pages viewed or downloads for a free app, we’re talking real metrics (customer acquisition costs, conversion rates etc.) that indicate that health of your business. Set these up now and start to learn what’s actually going on with your business.
3. The best marketing? It comes from having a great product: You actually work for some people when you run your startup or you raise money; no it’s not your investors, it’s your customers. Build them a great product, as they are the ones that determine whether your business will succeed. Build them a great product that provides value and they will tell everyone they know. You cannot use marketing to sell a bad product.
We’ve had a conversion rate of ~6% for the last year and a half and a customer referral rate of ~21% for the last few months. We pay ridiculous attention to the quality of our product and the only people who can confirm this to you as a business are the customers. Pay maniacal attention to your customers and your business will thank you.
4. If you raise venture funding once, you’ll have to keep doing it: If you take money from venture capitalists you will have to continue getting their money to fuel further success or (if you cannot raise money again) you won’t survive. When your business succeeds greatly you either get acquired (a liquidity event for your investors) or IPO (a liquidity event for your investors and another fundraising event for the business).
Raising funding after your seed round is a WHOLE NEW and crazily different ball game. Google search ‘seed or Series A funding’ and you get loads of tips, tricks and tactics from everyone and their mother. Google Search ‘Series B funding’ and all you get is news reports of companies that have managed to raise Series B. Not lessons, listings. Learn as much as possible from your current investors and advisors because you’re not getting the learnings from anywhere else.
5. Keep your vision handy, you’ll need to refer to it once in a while: You will need to continue to believe in your vision because it will be tested by everything that can possibly test you. Your idea will be tested by your investors, customers and even you in your moments of self-doubt. In our case the biggest test has come from government/some municipalities in Illinois deciding to buy electricity for their citizens. Our vision of using data, design and technology to help consumers make responsible decisions about their energy has not changed; with a clear vision you continue to innovate based on a deep understanding of the market and we’ve done that with Kilowatts of Kindness and our customer engagement platform for utilities through the Power2Switch bill.
Note that I did not say that you will doubt your vision; I said you will doubt your idea. A well thought out vision that is your true north will keep you fighting through the fog of business model questions and market circumstances.
Most importantly never forget that it’s a journey. Never stop enjoying it.