When an entrepreneur develops an idea and turns it into a profitable business, it is time for celebration. But what does it really take to transform a start-up into a value proposition? Starting a new business and scaling it up involves a deep understanding of issues such as legal, finance, marketing, intellectual property protection, liability protection and human resource management. A smart growth strategy is vital to understanding the roadmap that leads to a sustainable business.
Among the many things an entrepreneur needs to manage, the following six key parameters are essential for a strong foundation:
1. Strong founders
If the founders have the right attitude, passion, leadership, and clear communication, they’ll be able to navigate through the pivots while complementing each other in building a business. Founders imbue their vision with effective decision-making and a driving motivational force. The team they choose is also crucial. Together, their ability to mentor and to execute plans, and their attitude while facing uncertainties, will make all the difference in their entrepreneurial journey.
2. Product, branding and target market
A vital part of the start-up pie is the product (sector) and the market size of the opportunity. If this addresses a real need or problem, it will not fail. Great start-ups always solve a pressing need or disrupt a sector. How you package and market your business or product is vital. An inferior product that’s branded in a more appealing, exciting and unique way will always outsell a superior product that happens to have rather plain and non-memorable branding. Additionally, marketing the product to the right target market increases its chance of success.
3. The USP or value innovation
The uniqueness of the solution that start-ups are trying to present is an integral factor. How does this offering compare to other players in the market? What is their differential and disruptive value? Path-breaking products and solutions are guaranteed successes. Take, for example, the Red Ocean strategy vs the Blue Ocean strategy. A traditional approach to strategic thinking has been described as the former, characterised by exploiting existing customer demand and survival based on beating the competition. Red Ocean companies try to outperform their rivals by grabbing a greater share of existing demand. As the market space gets crowded, prospects for profits and growth reduce. Products become commodities and cut-throat competition turns the ocean a bloody red.
In contrast, firms that adopt a “blue ocean” approach by entering previously unserved markets or that develop a disruptive innovation that redefines industry standards demonstrate a completely different mode of strategic thinking. Here, the competition is irrelevant. Yes, imitators will arise, but experience shows there is a wide window of opportunity to stay ahead of the also rans. What consistently separates winners from losers in creating Blue Oceans is their approach to strategy. Creators, with this approach, do not use the competition as their benchmark but follow a different strategic logic called value innovation.
4. Optimal fund planning
What the start-up intends to do with the funding and how far this will get the venture before it needs to raise the next round is important. Often, good ideas are not actualised because of poor planning; cash burn and a requirement for more funds.
Start-ups should not raise funds just because everyone else is doing so. A sound strategy which ties into why the funds are needed, how quickly the growth engine can further propel the business, and the profit model are relevant factors to take into consideration.
Some ways to optimise funds:
a. Experiment with the modes of growth beforehand so that money raised is not spent on lost causes.
b. Timing of fund-raising is crucial. The process may take anything from one to nine months or more. Funds should be raised in a way that it does not impact daily operations and survival does not depend on the investment coming in.
c. Fund-raising is a full-time job. One of the founders may have to fully commit to this task.
d. Early paying customers are a strong validation. A pipeline of strong paying customers ensures that the burn is taken care of, while funds continue to be raised for growth.
e. The capitalisation table needs to be closely monitored. Excess fund dilution in earlier rounds may not leave enough for investors to stay motivated and continue for further rounds. This may also act as a deterrent for later round investors.
5. The perfect investor
The cost of equity is high. Start-ups should ensure that they tap funding from the right investor, who can help them with the appropriate strategy, right set of connections, and the possibility of investing for further rounds as well. Start-ups should also ensure that they dilute equity only when they have exhausted all other fund-raising avenues. The best money is raised from customers. If your customers are willing to advance you for your products, there’s no better validation of your business.
Bootstrapping is another good option for some start-ups. Start-ups should evaluate other debt instruments and options available under various government schemes at conservative interest rates. Start-ups can reach out to incubators for seed support, as this could fetch much more value and validation for their equity than pure investment.
6. A resilient growth model
A planned growth strategy plays a significant role in the way a start-up develops. Growing too fast stretches the company thin. Growing too slowly won’t get the venture anywhere. So, it’s imperative to strike the right balance and monitor growth carefully.