Startups

Updated at 2017-10-11 18:50

This note contains a progress outline from a startup to a company. All business notes are highly related e.g. companies, company vision, branding and company culture.

TLDL:

Avoid funding if you don't have to take it.
Keep your burn rate low; avoid hiring if it is not necessary.
Launch the product as soon as possible.
Build something small that people want.
Closely keep in touch with the first 20 customers who love your product.
Growth is the result of a great product, not the precursor.
Ignore your competition, but you must understand what is the difference.

Funding outline example:

Assemble founding team and think of a business idea.
Gather a couple thousand dollars between founders to create something to show for investors; frequently you can do this without any money.
Get funding through angel investors or VCs with a seed round.
Focus on launching the product and making a little revenue or traction ASAP.
Get early stage VC funding; Series A, Series B.
Focus on gaining users.
Get late stage VC funding.
Focus on expanding your target audience or create similar product.

Before You Start

Figure out your vision. Every startup should a long-term vision. That is the single most important thing you must share with other founders.

Know your competition. Know the competition but don't follow or challenge them. You're going to be killed by a lack of focus more likely than competition.

Startups are more likely die of suicide than murder.

Prepare to fail. Work vigorously but always keep in mind that most startups out there will fail miserably. Consider pulling the plug if start to see several of these signs:

No clear vision or purpose. Lack of focus.
Your weekly user base growth is less than 2%.
Your weekly revenue growth is less than 2%.
You spend more time chasing investor than customers.
You have no monetization model after 6 months.
You have worked on the same idea for 12 months without a launch.
Your CEO works far less than the rest.
You do not want to get out of the bed in the morning.
You are ashamed of explaining what you do for living.
You have hired a consultant to deal with less than 10 people startup.

Prepare to get screwed. There are more nasty people than nice people in the world. Someone, e.g. partner, co-founder, employee or investor, will try to screw you over. That's a fact. But don't let them. Written contracts reduce, but don't prevent, backstabbing. Work hard but keep your eyes open.

Never let a single stakeholder control the cash flow without supervision. Not even if he is your best-friend-forever. Greed is a funny thing.
Avoid taking any funding at the beginning. You get much better terms later when you have stable revenue and experience under your belt.

Learn to be open about your product. Share your idea to as many people as possible. They won't steal it, but they will give valuable feedback about the idea or how you are marketing it.

Learn to share your financial problems to stakeholders. Inform all stakeholders about financial problems as they rise.

You should understand P&L and balance sheets.

When someone buys a company, the transaction is done on zero balance sheet; meaning they pay extra for assets and reduce the price for liabilities.
Understanding zero balance sheet helps you to time company sale for maximal profit.
Discuss these with your bookkeeper when you have one.

In the Beginning

Plan overview seems simple:

Raise $10,000 from your own savings, friends and other founders.
Incorporate.
Create a promotional website and collect emails of interested people. Remember to include contact information for those people that are interested right now.
Create a minimal product that you can sell. Focus on quality, not number of features.
Rework your website and start selling. Get cash flowing as soon as possible.
Enter the Plan-Build-Measure- loop and keep the loop as fast as possible. Get your development process flawless, aim to release updates once a week at minimum.

Incorporate your startup when you start getting cash flow:

You are taken more seriously by prospects, vendors, potential employees and potential investors.
You are able to open a business bank account and begin to build credit for your business.
You are able to protect yourself from some personal liabilities, but not all.
You pay less taxes. As an individual, you effectively pay taxes on your total income with a few allowed deductions. As a business, you pay taxes on your net income.

Stripe Atlas helps to start an US company on the Internet. Consider incorporating straight to USA. Creating your company through Atlas costs $500. Post-incoporation package costs $250 extra, which includes managing the company shares, vesting and such. The whole process of starting the company takes around two weeks.

You will get:

A company based in Delaware, USA
A Silicon Valley Bank account that can be managed fully online.
A Stripe account linked to that bank account.
$15,000 AWS credits through AWS Activate.
Free limited advice from Orrick and PwC.

Create a great work environment. A great work environment is filled with people who are high performers, talented, optimistic, and passionate and care about their impact on the world.

Pick the founding team carefully. Everyone should be pleasant to work with, have at least one skill relevant to the business they're spectacular at, be extremely effective and pragmatic.

Maintain open communication. Making decisions shouldn't be about everyone agreeing. Communication is the most important in decision-making. It should be about hearing everyone and each supporting the option they think is the best.

Consider appointing one of the founders as a full-time CEO. Startup CEO should handle cleaning, paying the rent, marketing, setting up bank accounts, customer support, sales, recruiting, etc. Optionally divide these tasks between the founders but make clear who does what.

CEO is the final authority. Make most decisions by consensus, but have the CEO whose decisions are final. Make it clear from the day one.

Keep bureaucracy to the minimum. Consider having one person with revocable majority vote right, preferably active only on decision making. Speeds up signing papers.

Organize all legally forced board meetings. You might get in trouble otherwise.

Hire someone to do the accounting. You seriously don't want to spend your precious time on it.

Vest ownership over time for founders. Divide shares how you like and each person gets 5% of their designated shares every 3 months. After 5 years, they have received them fully e.g. 33% of ownership. This way people cannot walk away with the shares.

Example share percentages:
Starting year:    0     1y     2y     3y     4y+
---- 
CFO/CMO/CTO       10%   5%     2.5%   1.5%   1%
Vice President    5%    2.5%   1%     .75%   .5%
Director/Manager  3%    1%     .75%   .35%   .15%
Engineer          3%    .75%   .5%    .25%   .1%
Full-time staff   2%    .5%    .25%   .1%    .05%

Improve your product to the stage where people are willing to pay for it. More about this in the product-market fit notes.

After $2,500 Monthly Revenue

Focus on building the company. Use the revenue and user feedback to fuel the product development. You probably need a few employees to grow the business from this point forward. First few hires are the most important.

Hire jacks-of-all-trades. Big companies can have specialists but startups must have generalists that can adopt.

Hire passionate people. Talent is not fully used if person is not passionate.

Only hire passionate and talented friends. Don't hire friends or family just because they are close to you.

Don't be afraid to fire people. Fire people that are difficult, unproductive, unreliable, have no product sense, or aren't pragmatic. Do it quickly.

Good Job + Bad Behaviour ==> You're Fired.

Start doing systematic growth hacking.

After $15,000 Monthly Revenue

Hire someone to do payroll.

Start looking for seed funding to improve your product. You will receive much better terms and give up a lot less control and ownership in the funding deal as you are generating notable revenue already.

Keep track of your KPIs. Create real-time dashboard about important metrics in your business for all employees to see. Most likely customer count, new customers this month and monthly sales e.g. GeckoBoard, KissMetrics, Salesforce.com or custom dashboard.

You now have enough revenue to consider outsourcing stuff. Look locally first. Value face time.

After $25,000 Monthly Revenue and 7+ Employees

Create separate departments. No one should have more than 7 people to manage.

Hire a really good person to own marketing.
Hire a really good person to own customer service.
Hire a really good person to own sales.
Hire a really good person to own product development.
Hire an in-house bookkeeper to own accounting.

You should also hire a good administrative assistant who frees CEO to do marketing full-time.

Start using CRM. Keep track of your customers with a CRM e.g. Salesforce, Nimble, Zoho CRM, Highrise, SugarCRM or Batchbook. Separates customer data from people so no one becomes irreplaceable.

If you have not yet defined company values, now is the time.

After 25+ Employees

Hire a really good person to manage human resources.

Create new employee handbook. Should include all information for new employees like food policy, phone usage policy, paid time off policy, freelancing policy, dress code policy etc.

Start filling up anonymous peer performance reviews. Reviews should contain following open questions:

Generally, how do you feel the team member has performed in their job over the past year?
What specifically do you view to be the strengths of this individual?
Can you provide an example when you feel the member did an especially good job in the past six months?
What specifically do you view to be the items that the individual should work on in the next six months?

And following ranking questions, from range 1-5:

List each company value and how the employee is aligned with it.
Overall Result, Hitting Deadlines, Working Efficiently, Listening, Expression of Ideas, Quality, Team Work

You can start giving out bonuses by this point. Below there are how many percent of their salary can be performance based. You can give timeframe for bonuses e.g. twice a year.

Role                  Percent of Full Salary
--------------------------------------------
Sales                 40%
Senior Executive      30%
Department Head       20%
Supervisor            15%
Staff-level           10%

You should create compensation plans that the employees sign. They should define metrics (revenue, KPI, net income) that should be matched to receive the bonus.

You should get into advanced growth hacking at this stage.

After 5 Years

Expand your market. Start thinking of new markets you could expand to that also pay true to your company vision. Focus on new products to same customer or the same product to new customers. More about this in product-market fit notes