Before You Start-Up by Pankaj Goyal – Book Summary
Entrepreneurship seems like an all flashy lifestyle and appears in the media all time and gets influenced. Are you planning to start your Entrepreneurship journey? But have you planned or done the things that are needed to do before starting the journey? But there are lots of works that are being carried behind the scene which is generally not known to most of the people, Before you, Start-up is the book which gives a brief idea about the things to need to know & planned for before.
So you want to be Entrepreneur Think Again
On average there are nine failed start-ups for the one successful one, but no one speaks about those nine failed ones.CB Insights firm did intensive research about the 150 failed companies.
The research zeroed down to the following reasons
- Your product is the problem
- Your competition kills you
- Legal System kills you
- Start-Up runs out of cash
- The Team in the start-up is weak
Most of the solution offered by the start-ups are for the small set of customers but is irrelevant for a broader base. The second assumption is that the product has not reached the target audience.
Ok next things are to be considered are and ready to face during the initial phases of the start-up
- Bank will make you cringe
- Lifestyle will go for a toss
- Personal and social commitment will have to take a back seat
- Sharmaji’s Son(Neighbours son) will continue to torture you with his achievement and your family will worry about you
- At instance, your career make take a hit
There is sometimes no rational reason to be an entrepreneur. Be ready to go the unchartered territory.
Understand Your Why?
Pankaj in this chapter mentions that one of the mistakes he made was that he did not understand his why before starting-up and later lost his interest in the business. Before Starting-Up you should be clear. Entrepreneurship is like more of a marathon than a race
Having Why helps you stick to the fight when you are hit the hardest. It also helps in taking the hard decision in the business. Your why also will serve as motivation for your team and employees for working towards their goal.
Beware of the weak why’s “I hate my boss” or “I want to have an adventure”.If your goal is independence or money there might be other ways to achieve it. Understand pain vs gain equation before you start-up
How to Generate Business Ideas?
So what is a business idea? In simple words, it is a solution to a problem. When you think of a business idea, you have to think of a problem and its solution.
Some of the techniques we can use to start to generate more ideas by spotting problems
- The problem faced by you ( Friends / Family ) in your day to day life
- Problems faced at work or in your area of interest
- A problem faced by companies leading the latest trend
The first step is to develop a customer-centric view. Then understand the customer problem then understand how the customer thinks and what they want. Then think, is there any better offering you can provide compared to the competition. Can you do it cheaper or more efficiently compared to the existing product in the market?
Example: As a programmer, you are not hired by the company to write the code but to solve one or more problems of the customer through software.
Always try to talk with customers and try to broaden your horizon and understanding with reviews from the customer.
When it comes to raising funds, investors love the proof of concept and what is better is if the business is already running. It is much easier to explain & understand “Uber of India ” or “Paypal of India”. It is said that in the gold rush it is not the gold digger that makes money but the tool provider who makes money.
Pick an emerging industry or trend and try to understand the complete end to the end value chain.You might just discover the opening that you were waiting for. Make idea creation a habit by daily writing down two ideas in notepad.
How to Evaluate a Business Idea
Research shows that most of the people often underestimate or overestimate the potential of their own creation. Intuition can be our friend if we are working in the area of our expertise.
When evaluating the business plan it should answer the following question like following
- Can I identify and profitably serve my first 100 customers?
- Finding the cash to start this business
- Can I execute, i.e transforming ideas into a business?
- Does the Idea fit with my “Why”
Pankaj the author of the book says that one should focus on a small set of customers, say about 100. Then Evaluate if you can solve the problem profitably and expand along the process. Wallsoft labs used this process for their business. Initially, the solved the problem of one customer and then developed the problem along with that one anchor client along the way of expanding the business.
But the problem which was solved was widespread in the industry and alone did not have any problem if the initial client backed out.
Can the customer problem be defined and is the problem real ??
It is important to understand and define the customer’s problem carefully. As not every person walking on the road is your potential customer. You need to narrow down “customer profile” to narrow down the customer you need to reach.
One of the target customers is identified now its time to validate the hypothesis of the problem statement with the customer. In the process of validation try to understand things like what motivates them to buy, what is their social & professional behavior? , how do they buy? And what they like and dislike?
How is your solution better than the competition?
Understand your competition, if your identified problem is real. Ground research can help in this cause but not limited to customer problems but also understanding the drawbacks of the current solution being offered in the market.
Evaluate whether your idea can solve your customer problem in a better way than the competition. These improvements should not be marginal over the existing solution or else it may not be a value proposition for the customer to switch over.
Are your target customers willing to buy and at what price?
Once the target problem & customer are identified next comes creating the prototypes. The aim of creating the prototype is to collect the response & feedback from the customer before the original product is launched in the market. The closer the prototype is to the real product more real-time will be the feedback.
Depending upon the feedback evaluate how many people will be ready to buy it and what prices the customer are ready to pay to avail using your solution
Can you find the cash to start?
There are generally 3 major phases in the star-ups
- Building an MVP ( Minimum Viable Product )
- In this stage, it includes expenses like office spaces, equipment (laptop, printers )
- Software & licenses, number of people in the team
- Acquiring the first real customer
- Salesperson cost, Inventory cost,
- Deployment & Delivery Cost, Payment Schedules
- Expand & grow the customer base
- Marketing cost and all the above cost at the larger scale
Ideally, when one is a start-up they should have enough capital to cross the first two phases. When evaluating the business idea one should also do the estimate of cash needed.If you believe that you need huge capital from day one and cannot raise from the know avenues then probably it best that the idea is not persuaded further.
Can you Execute?
To start – ” A business is 10% idea and 90% execution”. Execution to put things simple is getting things done. Once you draw the rough sketch, Do you have the skills, commitment, and the network to make the start-up work?
The question to ask yourself is – ” Do I have the skills that are the core existence of my Start-Up?”. Generally, you should have at least one if not two core skills like subject matter expertise and sales. These are some brief examples.
So if you do not have one of the core skills, then it is time to go back to the whiteboard and reevaluate the idea.
Does your idea fit your why?
The best way to evaluate the idea is to understand whether the business is cash-based or equity-based. One should match their financial, professional, Personal goal with their business type they are considering to start.
If you feel that idea will not satisfy your goal then its a red flag and you will end up being disappointed.
Choosing your Co-Founder
Investors sometimes independent of the business idea, evaluate the founders then further evaluate the ideas this acts as an easy filter for them. A start-up needs excellent people in their skills, good or average is not just acceptable.
“When you start something, the first and most crucial decision you make is who to start with” – Peter Thiel
But if you are the sole founder and you try to do everything alone then it will take a toll on you personally. Just because you know him for years or you share a great relationship does not mean that he/she will form a great founding member.
Things to look in Co-Founder
- Do they bring skill sets to the table that are complementary to your own?
- Can you work with them in a professional environment
- Are your goals and mission-aligned with theirs?
- Do you trust them?
Forming a prenup with your co-founder is important. A founder’s prenup forces an open dialogue between the co-founders on the key issues before they start working together and prevents being a point of the dispute at the later stage.
A prenup on primary should include points like
- Roles & Responsibility
- Equity Split
- Vesting schedule and exit clause
- Intervention mechanism
Sometimes a split of 50-50 equity is not the best way forward but should be based on the sweat equity invested, experience, and the skills brought on the table. Finally, if you do not find the co-founder do not wait to start the journey because it is your dream and eventually you will find the co-founder along the way.
The Final Leg
Ok at this stage you are serious about your start-up. You have attested and validated your idea and done your market study. Now some additional points to be considered and action to be taken against.
- Set the time frame
- Set milestones
- Make your mind ready for the journey
- Enlist the support from the close ones like friends & family
- Get Finances in order
- Upgrade your skills
Setting up a time frame will help in deciding the time you will give to yourself to pursue the start-up and beyond which you will make an exit from it. Time frame will help you in setting up the mental alarm that no matter what you will pursue your start-up and post the time frame it’s time to exit.
Set the milestone, setting a milestone will help in measuring the progress needed to be achieved at a certain point of time. These milestones should be realistic. Mentally preparing for the game is preparing for all possible scenarios like best case worst case, and making plans for it.
Communicate with friends and family about your start-up journey and explain to them your plans so they are comfortable and well aware of your journey. If you’re not able to convince them then there’s less possibility of convincing your investor as well.
Plan for your finances: estimate the expenses that are going to be incurred. Also, make plans on generating cash inflow through the start-up so that it does not have a huge strain on your savings. Lastly upgrade your skill if you don’t understand accounting, take courses, or do an MBA if needed.
Cut the cord
All the things are taken care of now the only thing is now to execute the plan. Take the plunge, once you start you need to set priorities for 5 things – product, team, cash, time, and self.
The author says that with every passing time the opportunity cost of foregoing steady income increases. Treat time as a limited pool of cash.
There are chances of slipping off the daily schedule, to avoid this prepare a plan and follow the schedule regularly and set tight deadlines and be strict on the targets and milestone set.
In the initial days of start-ups, the focus should be on building products and selling in. If you are not able to find the right people then look for hiring people with the right attitude & experience. Also, you should be ready to hire and fire the member before it’s too late.
As a founder, understand what motivates your team. Creating a good company culture for the working and also delegating responsibility to team members.
Do not focus on sales and keep attention on cash flow management. Negotiate hard and do not leave cash on the table. Maintain and build your professional network and along the way create your brand. Lastly, take care of yourself and your health.
Well, this book initially can be daunting in the initial chapter but makes you aware of the risk involved. As the book progresses it gives a lot of insight into the risk involved which makes you prepare beforehand and reduce the risk factors.
- Entrepreneurship is a journey, while you cannot be completely prepared but try to be prepared as much as possible
- Finding the right Co-founder and team is also important as the business idea
- In the journey of Start-up, five things to take care of are product, cash, team, time, and yourself.
As the books say but anyone who is looking to start their venture, this book is also for the aspiring entrepreneurs and also people who are are the stage of ideation.