Tech Startup Guide – How to find idea, technology partner and funding in 2020?
Do you know why start-ups fail? Well, according to research by CBInsights, the most common reason for failure is ‘no market need’, responsible for as much as 42% failures. In 29% of cases founders run out of cash, in 23% the team was just not right, 19% start-ups got outcompeted, and 18% experienced pricing issues.
And although it’s important to believe in your great idea and to trust that you can turn it into reality in order to solve important problems with technology and make a positive contribution to human life – the idea and the attitude is often not enough.
That’s why we’ve prepared a piece covering the most important steps and issues you need to know before launching your new tech start-up.
It’s not a comprehensive book, rather a list of tips on insights on what to take into consideration, that is based on our experience and lessons learned. We’ll go through some steps from idea through business and investments, up to some insightful inspiration.
Curious? Let’s read! And here’s a short table of content:
- The idea. A quick look at tech trends.
- Do you really need a business plan?
- Create an MVP. Soon!
- Polish your pitch!
- Think like an investor.
- Plan your financial structure.
- Listen and find inspiration in more experienced entrepreneurs.
Step 1 – The Idea. A quick look at tech trends.
Ultimately, it all starts with a bright idea on how to apply technology for the benefit of users who will be willing to pay for the service. Of course, not only tech start-ups are successful as great ideas don’t fall within certain frames. Nevertheless, we are a tech company and tech evangelists who wholeheartedly believe technology is a brilliant tool to leverage in business, so we’ll focus on that bit in particular.
Looking at the tech scene of 2020, it’s easy to point out certain trends to follow. In our opinion, focusing on them and introducing innovation in these spaces increases significantly chances for market success:
Continuously gaining ground, sharing is one of the sexiest topics in the world of technology. Even more, it became a social phenomenon defined as ‘sharing economy’, based on acquiring, providing and short-term sharing access to goods and services facilitated by communities using online platforms. Cars, bikes, scooters – you name it. Experts predict its rapid growth will continue, so don’t miss it!
- Big Data
With an increasing number of devices, networks, sources, and connections, the flow of data is simply enormous. Every enterprise is in possession of billions of information but usually struggle to derive meaningful insights out of it. Analyzing and extracting knowledge from large and complex data sets is a service that businesses are willing to invest in, consider it.
The popularity of AI goes beyond the hype. Simulating human intelligence processes by computer systems is no longer a threat, it’s an opportunity to make use of. Machine vision, voice recognition, image processing, chatbots, personal assistance, AI as a Service platform, deep learning algorithms solving niche and complex problems – a range of functionality for the business is wide. Why not tap into it?
Property and Technology. We’ve got a match! Disrupting the real estate industry sounds exciting and promising, and this digital transformation of software, hardware, materials and transactions for buildings and even whole cities is a great concept. Tech innovation or new business models are always welcome, also within the property industry.
Step 2. Do you really need a business plan?
This is a tough nut to crack, and – as usual – there are two sides of the coin. Some founders would say that focusing on preparing a detailed business plan at the very beginning of start-ups life is crucial and it’s the base of everything that happens next. Others would argue that it’s a waste of time and that it’s better to allocate time, attention and resources into action. So what’s to do, hold horses or be an eager beaver?
Experience and market observation lead us to the conclusion that truth lies somewhere in the middle. Yes, business plans are time-consuming and not attention-grabbing, they quickly get outdated in a dynamic, tech start-up environment, and at the end of the day, it may turn out that nobody will ever read them. Not to mention you probably won’t be following it. True, but what to do instead? An MVP!
Step 3. Create an MVP. Soon!
Put stress on being as practical as possible, focus on the nuts-and-bolts and build a Minimum Viable Product as soon as possible. Why is that important? Challenging the market with a product with just enough features to satisfy early adopters is the best way to gather necessary feedback for future development. Examples? See Kickstarter. People are funding products (or even ideas) before they even exist! What a great test that is!
There’s no better proof of whether your idea is actually worth anything.
Use MVP as a tool to check if the demand is there and to test if your product solves actual problems and if people will be willing to pay for solving them. What’s more, it will let you build an understanding of the market’s needs – all that prior to any significant investments.
With MVP, it’s all about asking the right questions from the very beginning.
- What problem do I actually solve?
- Who needs it?
- What are their key pain points to address?
- Will it be scalable?
- How will I measure success?
Ask the questions and then build it, show it to the world, test it, ask for feedback and gather insights. That will surely increase your chances, and perhaps you’ll even make it to 13% of start-ups that survive until year 5! Promising, isn’t it?
Step 4. Polish your pitch!
Preparing a great, moving and engaging pitch is necessarily required, and for many, it’s the most important task of a start-up owner. Usually, a pitch deck would describe and present your idea and your company to investors and the market. It is a showcase, no longer than 10-15 slides, that should cover the following:
- A general overview of the company,
- Your mission and vision,
- The problem you are solving,
- The solution to that problem and how is it helpful and innovative,
- Target customers, their need and demand,
- The team behind the product,
- The technology applied,
- The business model,
- Market environment, opportunity, competition,
- The plan for the next steps and growth scenario.
Ugh, looks like a lot to focus on, huh? Don’t worry, at this point, it will all be very obvious and straightforward. You just have to create an interesting story that will wrap the fingers around the hearts of the listeners and won’t let go.
Step 5. Think like an investor.
From the very beginning, it’s crucial to understand what investors are looking for and how they prepare. This will allow you to steer your start-up in the correct direction from day one, and be ready for investment rounds if needed. Remember, investors are also people, and they are risking funds and reputations every time they pick a company to invest in. True, they are experienced, diligent and often skeptical when it comes to investing, but there are usually similar things they check and take into consideration.
If you are at the beginning of your career as an entrepreneur, first of all – listen and learn. Bill Gates is one of the people who understands the world of technology and is able to predict its development.
Don’t hesitate to take this reverse engineering approach and play the game. Just ask yourself the following questions. The sooner, the better:
- What is the market opportunity?
Best a dynamic one! Most investors will take it from there. How big is the actual market, what is the exact opportunity in numbers, and how will the future possibly look like? Is it new, or here for good already? Are there any competitors? If yes, then how different are they and what sets your tech start-up apart? What is the condition of the industry? Also – do you already demonstrate any sort of commercial traction, do you have first customers, or are you talking about something that has not begun yet?
- What is the capability of your team?
Do you have what it takes to deliver? Will you be capable of executing the set strategy? What’s your domain expertise, do you have hands-on experience in what you’re about to be responsible for? Are the skills of the team complimentary and display a vast variety of what’s needed?
- Is there a fit and relevance between you and the investor?
That is also a very important factor. What is a good fit for you? An angel investor, serial entrepreneur, business celebrity, or rather an accelerator program, equity crowdfunding or maybe venture capital fund? Should you look for investors operating within your industry or rather aim for one that is building a diverse portfolio – never underestimate the importance of this fit.
- No red lights.
Often you’ll see that there are certain issues that scare investors away. Most popular are – no will to sign anything without NDA when there’s no IP-sensitivity involved, there’s no market for the product or service yet, the founders aim too low or they lack focus on what’s important, and most importantly – you have zero real customers, no references, nothing that backs up the valuation. Bear these in mind, and there’s a chance you’ll stay on top of the risk.
- The X factor / the wow effect.
Many business decisions are made based on nothing more than a gut feeling. It’s as simple as it sounds, but you know that in many cases you simply feel what’s the right direction. Trust is something you can build, but the clicking moment and the chemistry between the founder and the investor is either there or not. You’ll reckon.
Step 6. Plan your financial structure.
Being aware of how your financial structure and your funding requirements should look like is very important. Think about how much money you will need, when will you need it, and how much equity are you ready and willing to allocate to investors. Also, early defining a structure will spare you hustle later on, closer to the deal and will help you build business accordingly.
Looking at the market trends, be prepared to have 15-20% equity for first investors getting on board and leave 60-70% for the founders and around 10-20% for the employees. Remember, investors will share the risk (comfortably leaving some space for mistakes) but also share the benefits, leaving a little bit less on the plate.
Step 7. Listen and find inspiration in more experienced entrepreneurs.
Always be looking for tips and insights on how to do to stuff right. Many have walked the way you’re choosing, but only few of them got successful. However, it’s important to listen and learn from both winners and losers of the game – it’s great to learn from mistakes, and even better if these are mistakes of others.
Christian Reber, a founder of a tech start-up Wunderlist (now one of the top productivity apps in the World), gave an insightful and very informative interview to Medium.com. As an entrepreneur, he walked the talk and managed to succeed. Here are his best tips based on his experience in a nutshell:
- Dream big but start small. Ambition is important, but patience and humbleness are even more.
- Work to learn, not to earn. Be eager to experiment and learn from experience.
- Network with peers. Join communities, exchange knowledge, meet ambitious and successful people.
- Identify good and bad ideas as quickly as possible. Potentially promising not always means profitable. Separate the wheat from the chaff.
- Consistency is more important than being unique.
- Clearly define your purpose and metrics of measuring success. Review your progress regularly.
- Find the right people and don’t be shy to ask for help.
- Keep the finger on the pulse but be ready for constant change.
- Prepare to fail. Most do, despite none think they will be another failure. Losing money, losing good people, shutting down a business – it’s hard, but accept that risk.
Let’s wrap it up!
Last but not least, perhaps the most important tip – don’t forget to have some fun along the way!
Make the work enjoyable and embrace every day at the office, building a team that is in it together. Be yourself, but don’t be too serious. It’s bad for creativity.
Wow, that’s a lot to think about, isn’t it? It can sound daunting and hard but trust us, it’s worth the hustle. Have a clear goal to solve meaningful problems of other people with technology and keep pushing until you reach it. It will be rewarding, no doubt about it!