2010 Answers To The 20 Questions Every Startup Should Answer

The results are in for the 2010 startup company survey recently sponsored by Kevin' Corner. The survey included 20 questions designed to uncover how startups are approaching their businesses, funding and operations. The response to the survey was great with more people participating then I had originally expected. The results are intriguing and in some cases unexpected. The participants were selected from the Kevin's Corner contact list. Over the past two years the Kevin's Corner blog has attracted thousands of visitors from 75 countries. Many of these visitors are entrepreneurs, business owners and investors.

The objective of the survey was to provoke thought amongst the startup community about how best to approach a startup and to solicit real opinions on how startup participants manage the startup process. The long term goal of the survey process is to see how startup trends are changing based on market and economic conditions.

The following are the results of the survey. I have added my own interpretation of each question to provide a context and hints as to the purpose of the question.

I would like to thank everyone that participated and took the time out of their busy schedule to answer the questions. I was extremely impressed by the honesty exhibited by individuals that provided comments and reasons behind their selections.

1.) Should you craft an exit strategy in the early stages of a company.

71.4 % Yes
14.3 % No
14.3 % Other

I was not surprised by the heavy skew towards the support of an exit strategy early in a startup's life-cycle. Many startups have a preconception of how and when they exit. They also have notions of how much they are going to profit from an exit. The problem with this is that savvy investors that I have spoken to can be turned off by this focus. What they really want to hear is how the founders are focused on creating a solid successful company. In reality making a company a success is hard work that could take a long time. If an entrepreneur goes into a venture with unrealistic expectations those expectations could have a impact on the startups ability to execute. With that said startups are build on dreams and many dreams are fueled by the big payout.

2.) Are conflicts and disagreements amongst co-founders good or bad for a startup.
50% Good
21.4% Bad
28.6% Other

I asked this question because conflicts inevitably occur in a startup and founders need to be prepared for them. Some discord is a good think because it stimulates creative thinking and challenges the team. To much of it and it will start to have a negative impact on the team. The comments from the survey support this position.

3.) All Internet related startups can be started and launched with little or no investment capital.
21.4% Yes
78.6% No

Most of the participants answered this question with a resounding no. I was surprised to see this because many people believe that you can bootstrap your way to Internet nirvana. The survey participants are obviously seasoned entrepreneurs and realize that this is more myth then reality.

4.) Startups should have a time line for milestone achievement.
85.7% Yes
0% No
14.3 Other

The majority of survey responders agree that setting milestones and seeking to meet or exceed them is a good idea. This is good advice for people just starting out with a new company. Unfortunately, many entrepreneurs do not break down their startups into measurable achievable goals so they never really know where they stand.

5.) Establishing business metrics in the early stages of a company is an effective management tool to measure progress against goals.
78.6% Yes
21.4% No

This is a follow up to question 4. Setting goals is great but being able to measure progress is better.

6.) A startup should always be engaged in fund raising even if the startup has proper funding.
71.4% Yes
07.1% No
21.4% Other

In general most entrepreneurs understand that continually being in the hunt for investment capital is necessary part of an entrepreneur's life. The comments did bring out that not everyone is good at this and it does eat up a lot of time and effort. These last points are well taken and does imply that someone in the startup needs to be a good fund raiser. In many cases this is all that member will be doing allowing the other members to get the real work done.

7.) Equity only compensation is an effective way to attract staff to a startup company.
26.6% Yes
50% No
21.4% Other

I was surprised by the results for this question. The answer does indicate that founders are now realizing that real cash is required to get a company up and going. One interesting comment was that equity is actually a very expensive way to compensate participants. I found this to be a very good comment because there is so a finite amount of equity in a company. Also the legal fees to continually allocate equity for compensation can add up to a significant portion of a startup budget.

8.) Are venture capitalists a good source of advice in the early stages of company formation even if you are not seeking their investment.
57% Yes
14.3% No
28.6% Other

The majority agrees that there is value to a VC's advice and comments even if theire is no investment capital coming from the VC. The comments themselves reveal that the individual VC's you talk to make a big difference in whether there is or is not value to the advice.

9.)What should your reaction be to an investor when they decide not to invest in your startup.
0.0% My idea and company are not worthy of investment
14.3% The investor does not know anything about my business
07.1% The company should change its strategy
28.6% The investor is not knowledgeable about my business sector
00.0% We are asking for too much money
64.3% Other

Clearly the answers to this question were not adequate to answer the question properly. The majority of the respondents answered this question with comments. The responders do not come away from an investors lack of interest with one take away. There are many things that can be derived from an investors lack of interest. One theme consistent amongst the respondents was that this reaction is not cause for panic. Investors are not all knowing and do have their own prejudices.

10.) What should you do if your working capital runs out.
0.0% Close the company
0.0% Mothball the company
14.3% Scale the company down
21.4% Change the product or service
57.1% Seek new investment sources
14.3% Put all of your own money into the company
28.6% Other

The majority of the responders indicated you should carry on and seek new capital sources. The comments themselves were heavily skewed in this direction.

11.)All startups should prepare a business plan even if they are self funded.
85% Yes
7.1% No
7.1 % Other

It was great to see that most startups do create some form of a business plan to sort out revenue, expenses and staffing.

12.) A commitment to a startup lifestyle will have no impact on an entrepreneur's family or close friends.
07.1% Yes
92.9% No

I have to admit that this was a leading question on my part. You never fully realize the impact of a startup on your family or friends until you are involved in the venture. A commitment to a startup has a significant impact on your personal life that can not fully be understood unless you have started your own company.

13.) If the majority of the people you survey think your business idea is a good one you should start a company based on that idea.
21.4% Yes
07.1% No
28.6% Ask them why they think it is a good idea
64.3% Ask them if they would invest in the idea
35.7% Other

The really important question is would a person invest in the idea.

14.) Startups should assume that outside(non-founder or friends) investors will invest in their company.
42.9% Yes
42.9% No
14.3% Other

I do not know what to take away from this dead heat. It certainly indicates that the entrepreneurial community is split on the role and commitment of outside investors.

15.) Institutional(Venture Capital/Bank Loan) investment is required for a company to reach its full potential?
21.4% Yes
50%% No
28.6% Other

The preferred answer to this question appears to be somewhat inconsistent with the answers to questions 3 and 7. Apparently, the crowd believes you need external working capital to run a startup. However, it they are not keen on institutional funding.

16.) Founders should invest all of their savings into their startups before seeking external funding.
0.0% Yes
78.6% No
21.4% Other

Clearly the participants do not suggest investing all of a founders cash into a business. This answer plus the answers to several other questions indicates that the preferred form of startup funding is angel or individual investor funding.

17.) Startup teams should be multidisciplinary including business, finance, legal, domain and technical expertise.
92.9% Yes
08.1% Other

Everyone agreed that in a perfect world you need a diversity of skill sets in a startup to make it work. This dispels the myth that a couple of geeks in garage can start and launch a successful company.

18.) Startup founders should have a preset time line for when a business will be successful.
50.0% Yes
21.4% No
28.6% Other

The participants generally agreed that a time-line of some kind should be established as a benchmark and guideline. Some of the comments indicates that things naturally happen that upset the plan. However this does not mean you should not have a time line.

19.) Startup entrepreneurs should get approval form their family members before starting a company.
14.3% Yes
42.9% No
7.1% All close family
14.3% Direct family members
14.3% Husband or Wife
28.6% Other

This one was very interesting based on the fact that the answer to question 12 indicated that the majority agreed that a startup lifestyle has a big impact on family and friends. Despite this close to half of the responders indicated they would go for it without family approval.

20.) Should a company's original business plan or idea be modified before the company receives market feedback.
35.7% Yes
35.7% No
00.0% If A Company Can Not Receive Investment Capital
14.3% If Too Hard To Bring To Develop And Bring To Market
21.4% Other

Most the comments in the Other category support the notion of changing direction based in different sources of information. This pushes the general consensus into the yes category.

In conclusion, this survey pointed out some very interesting startup characteristics, attitudes, operational approaches and funding preferences. All good portion of the entrepreneurial community that responded to this survey where seasoned entrepreneurs that appear to have at least one start-up under their belt.

It also indicates that entrepreneurs are beginning to change their notions about how much investment, the form of investment and the time-line for success are changing. It will be interesting to see if next years survey will differ from the current results.

Once again I do appreciate the contribution of the participants and the valuable information they have provided.. Having real life feedback to tough startup questions will help newly minted entrepreneurs, people considering a startup and existing professionals.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about startup companies. Kevin is a long time entrepreneur having started, sold, IPOed and operated a number of startups in the US and Europe. Kevin currently advices startup companies on technical, funding and business operations. Kevin is a frequent speaker at conferences in Asia, Europe and the US.

Managing Startup Expectations

I thought long and hard about the wisdom of addressing the subject of startup expectations. The startup expectations of business owners, investors and employees are a complex mix of emotions, dreams, culture, naivete, ambition, peer pressure, ego, risk assessment and national pride. These factors make the subject delicate and inherently risky for anyone brave enough to address them. You can easily be accused of being on a religious/political/cultural quest or a CFO's rant on expense management when you talk about a ventures expectations. Despite this minefield startup expectations are such a fundamental part of early stage companies that the subject warrants the risk.

My experience starting companies, closing companies, taking companies public, selling them, managing them and funding them has made me realize that the way a team manages expectations can be one of the most influential factors in the success and longevity of a startup. It is also one of the most difficult subjects to deal with because expectations are so crucial to making the leap into a startup. Expectations are associated with many startup problems that lead to issues ranging from team member conflict, investor dissatisfaction, insufficient funding, unrealistic time lines and inappropriate staffing. Well managed startup expectations are also at the root of companies that become very successful companies.

Startup culture has historical roots going back well before the current age of technology. In the US the mass emigration into the country was spawned by individuals wanting to start something new. In many cases people came to the US with virtually nothing except an idea and hope that things would turn out well. Back in the 1800's Horatio Alger wrote books on how social mobility in the US allowed anyone to work hard and make it big. His series of publications mixed with the American dream eventually grew into a national business culture fueling the notion that if you have a good idea and work hard you will be successful. This culture has spread throughout the world becoming the fuel for entrepreneurial ventures.

People are inspired by the success of Facebook, Google, Apple, Oracle, SalesForce.com and Microsoft and strive to do the same. It happened to the founders of those companies why not me?

Yes, that is true. However, many entrepreneurs jump in without fully understanding the intricate mix of factors that led to the success of the big named companies. Take Apple for instance. This company nearly collapsed with Steve Jobs being thrown out on his butt only to rise from the ashes of Apple and a number of failed startups(remember NEXT) to make Apple what it is today.

In point of fact many startups will go through several phases and may never become an Apple, Microsoft, Facebook, Twitter, etc. or it will appear that the startup is doomed when in fact a bit of good fortune and quick thinking will prevail and the company will survive. In some cases the company will prevail yet never reach the level of the original expectation or goal.

This is where the real challenge lies for entrepreneurs. How do you manage expectations given the realities of a startup company? How do you manage investors, employees, advisers and management team expectations. How do you keep the company on a trajectory to meet the original goals when the going gets a lot rougher then you ever anticipated?

This subject is too interesting and complex to be fully addressed in a single blog. The subject deserves a more detailed history lesson, examples, interviews, war stories and tactics used in specific scenarios. However, there are some short thought provoking tips that are worth mentioning that can help to successfully manage expectations.

Bury The Discussion Of The Big Pay Out - You may have sat around a table and speculated about the big pay out. However, when you start the company get rid of that notion. You need to hunker down and figure out how you are going to start and run a real company. The prospect of the big payout may be the initial reason you got into the venture. However, it can wind-up being toxic when reality hits. Forget about the dream until its proven that you are on the dream track.

Team Composition - Startups are not for everyone. That includes investors, contractors and employees. Spent some quality time assessing potential team members. Have they ever lived through a startup before? If not, what is their risk reward expectation levels? How often have they been thumped by a life experience and gotten right back up? What is the energy level in the team. Do you really have the right skill set mix or are you a bunch of friends that want to start a company.

Execution is 9/10's Of the Law - Expectations are great. However, they need to be backed up by execution. Everyone in the company should get a startup orientation. The dream may be far off so let's focus on the here and now getting the critical tasks done step by step. Focus, focus, focus.

Is The Idea Any Good? - If a company has already been successful with an idea it is unlikely that another company will be. Pick an idea that is new yet not so far out that people will not get it or it is too hard to implement. Derivative of successful ideas are good if you can move fast enough to beat everyone else thinking the same thing. Does the world really need another social network? The idea phase is actually very important and is filled with insidious expectations that need to be dealt with before turning the idea into something practical.

Success Takes Time - It will always take longer then you expect. In many cases much longer. Deal with this upfront.

Investors - Be careful with naive and ill informed investors. You do not want to have them knocking on your door six months after they invest asking for 100x of their investment. All startup's desperately need investment capital. Many of them take money from investors that have unrealistic expectations. Make sure they understand that time may actually work in their favor or be prepared to spend a significant amount of time managing investors and not your business.

Dream Parties, Fun And Milestones - Recognize the smaller milestones even if they are not the home runs. This will emphasis the importance of baby steps and deemphasize the big dreamy stuff. Above all try to have a congenial environment without masking the bad news. This is really hard to pull off and requires real leadership skills on the part of the management team.

When Things Are Not Going Well - Let investors and employees know about it. This is part of being in a startup. If they can not handle it perhaps they should go to work for a big bank or insurance company.

Expectations are complicated yet essential to get a company off the ground and to drive employees and investors to shot for the moon. Expectations can be managed in a way that keeps your team grounded and at the same time motivated to accomplish things they would never have accomplished without them. Be careful with expectation setting because people will buy into them and expect you to deliver on the promise.

The Entrepreneurs Survival Guide In A Double Dip Recessionary Environment

Many entrepreneurs and startups are now mumbling about the prospect of a double dip recession. Ii is not clear if we are receding back to the late 08 and early 09 economy or experiencing the “new normal economic reality”. Certainly, the stock market got way ahead of itself in terms of valuation, the European debt crisis made us aware that Europe was worse off than the US and has curbed our enthusiasm for risk and investment, jobs are not being created at a rate that equals the new people coming into the job market and “under employment” is now a way of life with people taking jobs below their skill level and their pre-recession salaries, companies are maintaining profitability at the expense of hiring and real customer growth and of course and the gulf oil spill is bringing us all down psychologically.

What we may be experiencing is a new normal economic reality where growth, salaries, jobs, opportunity and available investment capital will be in short supply. So how does an entrepreneur succeed in an environment like this? Is there a way to take advantage and to thrive in this new economic reality?

In late 08 I wrote a blog entitled “Managing Startups In A Recession ”( http://bit.ly/ddrecession). Recently, I went back and re-read this blog to see if I had any new insights into managing a startup in a tough economic environment. Has anything changed since the start of the recession? Certainly the points I addressed are still valid and I suggest you take a look at this blog as a refresher and a reference point. Moving forward, the last year and a half have given us some new hard evidence on how to survive and flourish in this brave new economic world. Entrepreneurs have settled into and adapted to the new world realizing that the environment is not likely to change very much any time soon.

Entrepreneurs-By-Necessity – This is a new phrase being coined in the San Francisco Bay area acknowledging the fact that there is little job growth and the actual amount of money being paid to employees(especially if you consider the hours salaried employees are putting in)is significantly less then what was being paid prior to the recession. This means that an individual’s only choice may be to start their own business if they want to actually make money and have an opportunity to achieve personnel wealth and some degree of self respect. This means we are actually seeing more entrepreneurial activity and not less compared to the prior era. Ironically, this trend will create its own opportunities for entrepreneurs. For example, there are special startup/investor office sharing facilities popping-up all over San Francisco catering to these entrepreneurs.

The Absence Of Institutional Capital For Early Stage Companies – Working capital provided by institutions or angel investors has increased somewhat since the start of the recession. However, it is still anemic relative to pre-recession levels. Essentially, there is not going to be much capital available for early stage startups requiring startups to self fund their companies. This has a number of repercussions that we will discuss later in the blog. The basic take away from this is; do not expect an institutional investor to come along on a white horse with working capital. If they do it will most likely come at a time when you actually do not need the cash. Also, watch out for the percentage equity that they want to take and the time expectation for cash-out. For a number of reasons a quick turn over is going to be the goal.

If I Do Not Have Money To Fund My Company What Do I Do? – I have stated this before in previous blogs and I will state it again. Look for investment from another business that can take advantage of what you are doing or making. I funded my first startup like this. In fact, I received three tranches of funding from 3 separate companies and finally sold my company to one of them. Before going to angels and institutional investors start searching for companies that can take advantage of what you have and contact their business development team.

A Long Runway – It is going to take you a lot longer than you would like before your company gets going and eventually becomes self sustaining. Little working capital translates into little resource to build and market you product and service. Be prepared for a very long road from a business and personal perspective.

Economic Pain Points Are Opportunities – This new economy is going to be painful for individuals and companies. Forcing them to look at many ways to save on expenses, hire people temporarily, forcing people to constantly be on the look out for jobs and opportunities and companies will be laying off and firing people at will. Believe it or not this situation creates opportunity. These are great areas for entrepreneurs to focus on and create businesses around these pain points. For instance, the current job board systems fall short providing individual job seekers with little feedback on how many people looked at their resumes, what kind of companies and people looked at it and what they did or did not like about it. There is no scoring system based on skills and backgrounds and what scoring combinations are having the most success. This is just one simple example of an opportunity. There are many more areas where entrepreneurs can make a real difference including feeding the startup machine with talent, advice and possibly micro-loans as opposed to venture capital.

Too Many Ideas Not Enough Execution – Entrepreneurs are very creative. However, sometime they put too much emphasis on ideas and not enough on what it takes to execute on these ideas. Building a business around an idea is difficult. Pick you battles and focus on easy problems to solve. This will get you to market faster and keep the expenses down.

Don’t Hesitate Too Long To Change The Approach – If it does not work fix it! If you can not fix it move on. Do not spent too much time with a broken business model, service or product. I have seen many entrepreneurs stuck in this no man’s land. There is no time and money for this anymore.

Keep It Really Simple – New businesses these days have to be really simple and not capital or time traps that require an abundance of full time resources to launch and retain. Your first launch should be an extremely simple business model, easy to understand and low cost to maintain and grow.This will also increase the likelihood that someone, company or institution will invest in your business.

Conclusion – The recession economy is here to stay and is now the new economic reality. Embrace it and take advantage of the new opportunities that it creates. Forget about institutional investing for now . You are going to have to go it alone or hook it up with another company that sees "value" in what you are doing. When you are off and running start exploring the institutional money route. However, be aware of the valuation you will give up in a buyers market.