4 early stage startup principles
Photo: The storyteller & boys. Franz Von Defregger
I have been on both sides of the table. I'm a founder who has built and is building a startup. I also have investor shoes and have met thousands of startups. Over time, I have observed some principles used by successful early-stage companies.
There is no "spoon."
If I had to pick one principle to stick with, it would be this.
Most first-time founders start with an idea about a solution that should be build. But it is not "The solution" you will end up with. It is your first hypothesis that will be proven wrong. Your actual customer will be different from what you thought at the beginning. The product will have other features than you envisioned. And something you will figure out eventually - there is no "spoon". There is no solution you will build, and you will be done. It is an eternal process of delivering an updated product to your customer. Over and over again. It is the process.
There is one thing that might stay around, though. It is a problem side of the equation. And even that might appear not to be big enough for a customer. People complain a lot about a lot of things. But when they have to "vote with the wallet," it appears that the pain, the problem is not that big or important.
This journey is reflected in the Dunning Kruger effect:
The Dunning–Kruger effect is a cognitive bias whereby people with low ability, expertise, or experience regarding a particular type of task or area of knowledge tend to overestimate their ability or knowledge.
In other words, everything looks simple when you don't know much about it. But when you dig deeper, you see that reality is much more complex. Eventually, you understand how it all works and become an expert, but you never reach the initial confidence level because you know how complicated this field can become.
Investors know this. That's why they will ask those "where do you see this in 5 years time" questions. They want to see if you think beyond current hypothesis. If you look at my article about VC No's, you will see that only one is related to an actual solution.
Keep it simple stupid (KISS)
Once you have "figured" out "The solution" (aka. you got an idea), you will start improving it immediately, even if this happens in your mind. "We should have this feature I have seen at that site," "We need this database because it is the best for this type of data," "We should use this framework," "Build user management," and "Have this integration," etc. The shopping list is endless.
But as you don't know much about the product and your market, you should avoid building anything before confirming an actual need. Simplest way? Talk to your customer to figure out what to build first. Try to prove yourself wrong to test how strong your hypothesis is.
Talk to many potential customers and develop your understanding from their feedback. No one want's to talk with you? Well, that also is feedback. Maybe the problem is not as big as you thought.
I have made this mistake, and I regularly hear this notion when startups pitch. No customers, no product, but a very long list of stuff to be built.
There is an actual law that describes this very, very well - Gall's law:
"A complex system that works is invariably found to have evolved from a simple system that worked. The inverse proposition also appears true: A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a simple working system."
In other words - keep it simple stupid, gather feedback at every step and start small. Don't overthink, over-engineer.
Investor perspective. Early-stage investors invest in stories. You should have a big vision and concrete plan for the next 18 months. Everything after those 18 months is a mystery. Will you pivot? How many customers will be ready to pay? For what will they pay? If you are after something big, there isn't an industry standard you could benchmark yourself against. Excel matters less. Your vision matters, though.
- Follow KISS (Keep it Simple, Stupid) Principle
- Apply Lean startup methodology.
- Have joint team exercise around Value proposition canvas.
Action creates information
As a startup, you have nothing and the freedom to do anything. It is a blessing and a curse at the same time. On the one hand, you have no restrictions, no legacy, no history which could hold you back. On the other hand, you have to clearly understand what you do and what you are not doing.
As we discussed, your idea about the product is just a hypothesis, and you have to learn. And you have to do it fast.
And again, a law perfectly describes this:
Two scenarios. In one case, you would have a plan for five months before showing something to an end customer. Nicely done product but it took five month.
In another case, you would launch every month whatever you have built.
The final result would be better with those shorter iterations. Why? Because you get user feedback at every step. You will have one feedback loop if your "step" is five months long. You will have five opportunities to get customer feedback if it is five.
Action creates information.
This approach also has been used by successful companies.Facebook used to have a motto:
"Move fast and break things."
Yes, I know, they have got into trouble with this approach. Can't deny that. But trust me, most likely you - as a startup - will only gain insight about your market and customer. Except if you are building next generation nuclear reactors. Then you should not follow this advice.
Reid Hoffman - founder of Linkedin - has a quote in same direction:
"If you're not embarrassed by the first version of your product, you've launched too late."
Don't wait to long!
Side note! I'm experimenting with this very blog and push out articles just to gather feedback. Are they perfect? Far from it. But I get some feedback which helps me figure out direction.
Long-term games with long-term people
The startup is a marathon of sprints. You will have those small sprints or iterations, but it will take quite some time to get to success. It's a long term game.
The startup is a team sport; thus, you have to have the right people to get to the finish. You need long-term people. Sometimes I hear from founders that they need to raise an X amount of money to hire some key people - CTO, CMO, etc.
Hiring people for a startup is not easy. It is easier when you have money. On the flip side, it is harder to distinguish between long-term and short-term people. If someone joins you because of money, most likely, they will leave because of the money. There is always someone with deeper pockets than you are.
Your core team should be motivated not only by the money. They should be there for the long term. It is a good sign if they join when you have no money.
Building something from scratch is hard. A lot of advice is equivalent to sharing lottery ticket numbers. They worked for me and thus should work for you. But every story is different.
I have found these four principles to be more or less universal and applicable to most of the startups. More or less.