Startup: how to live up to the round
Most of the founders start with their own money, and the first year of their life their projects are experiencing the strongest financial hunger. How can a startup live up to the first investment? And what can not be saved at the start? Alexander Antonov, founder and CEO of Puzzle Online, an online educational service, reports .
If you decide to open an online store, you can easily find a prototype and an effective business model - today this is a traditional business. Another thing is that a startup is launching a completely new business, when you already have a cool idea (as you think), but there is still no evidence of its business ability.
When Puzzle English appeared in 2010, it was a startup. It was an online service for training the understanding of English by ear. There was nothing of the kind on the Internet, and I didn’t know if people even had such a massive need, and if so, would they like the way I would learn English and would like to pay for it?
')
In the case of a startup, you will have to try by trial and error to check whether the product will be in demand in the market. And it must be done in the conditions of wild economy. Because the possible sources of funding for the project are reduced to three F - friends, family, fools - friends, relatives and fools, which are usually all the same relatives and friends. Therefore, at the pre-seed stage, you cut off all possible bones.
Salary. At this stage, you start to assemble a team of founders of a startup. As a rule, founders work without wages, - for the future.
When assembling a team, it is important to follow this rule: the skills and competencies of your team should cover all the needs of the startup. At the very least, but you should be able to do everything yourself. For one-time work, of course, you can pay - draw a logo, for example. But if you regularly order some work to someone, then take this person to the team: give him a share, tell him how rich he will be in a few years.
Or master this sphere yourself - this is another rule of economy not only for the sake of economy. Otherwise, your team will not be a person with the necessary competence.
At the very start for Puzzle English I did everything myself. I was lucky that I knew how - I started my career with a typesetter and a programmer. In some areas I understood as needed: contextual advertising was needed - I figured out this question.
Registration of legal entities, patents, trademarks at this stage may be a waste of money and time. Because the idea may not be confirmed, the team will burn out and fall apart.
I met the founders of startups who registered an LLC, considering that this way they increase the value of the project in the eyes of potential investors. Or they even registered a foreign company in order to formalize the shares of the participants.
In fact, the investor is interested in very different things. You are not impressed with its high costs, and having a legal entity at an early stage can even complicate a deal. The shares of the participants may well be fixed simply in words, by a gentlemen’s agreement. If your team does not have such confidence, then consider that you do not have a team.
In 2010, I registered a domain for Puzzle English, and we opened a legal entity in 2014, receiving seed investments from two funds. By that time I already had a partner, a business angel, and he gave money on parole without requiring the signing of documents.
The office is also an item of economy. I have not heard yet about such a startup that did not take off due to lack of office, almost all Silicon Valley start-ups started in garages. When you have a small team, you can gather in an apartment, in a cafe, in coworkings. In Moscow, for example, there are free coworking centers within the framework of the GBU Small Business program.
In our case, the team was distributed to different cities, and we resolved work issues via Skype.
Marketing. While you are in search of a business model, you do not need to drain a lot of money on advertising. You do not have the task to build a customer base. You only need to take measurements, and for this a lot of money is not necessary. We need to find the cheapest channel, let it be quite small.
When I launched the first version of Puzzle English, I spent no more than $ 100 per month on contextual advertising. I needed a small stream of users to analyze their behavior: to evaluate the conversion to registration, to find out whether they use the product, whether they return.
You can not save time on the nomination and testing of hypotheses . A startup either develops: puts forward and tests hypotheses - or is dead. You do not need to go into the refinement of the service until you have groped the product: you have not experienced how to find the best solution to the problem for which your product was created.
It so happens that the current hypothesis does not justify itself, and the product needs to be changed fundamentally. At startups, this is called “making a pivot” - changing the idea, and some founders feel sorry for the work done and the money spent. They are slow, losing time, or close their eyes to the problem and do not develop the project.
Here you can recall the history of Airbnb. The initial idea of ​​the project is a cheap overnight stay with inflatable beds for people arriving at the conference. But she was not for sale. On the way to success, the company made several pivots before becoming what it is now. And the inflatable bed remained in the title, although I have never met such a bed anywhere, using the service.
So, you checked the idea and received confirmation of the demand for the product, you have real data, statistics, which you can show investors to believe in you.
At this stage, the company still receives not so much money and the risk of its failure is still high: on the Russian market, only 10% of projects overcome this stage. Therefore, investors are cautious: on average, the market for the first investment tranche is 100-500 thousand dollars. Therefore, having received investments, you also need to be able to save, but on a different one.
The founders salary. The first thing to save on is your salary. Investors do not give money for a business plan, which identifies space salaries of founders. Because there is a conflict of interest: by setting yourself a salary above the market, you are trying to make money on investors, and not on your business, which is still very losing.
Maybe in some company you will be paid that kind of money for your work, but first, you still try to get there, and secondly, there you will do what they tell you. The main motivation of founders in a startup is their share, which should quickly grow in value if the project develops correctly. If you are sitting on a steep salary, then you are less concerned with the development of the project.
In Puzzle English, my salary was for a long time less than what I received when I worked as a manager in Yandex. And this continued until the company became profitable.
Salary staff. Increasing the staff of dear employees, you also risk to quickly go broke. Payroll in the company has a tendency to constant growth. Save on it will allow:
Do not inflate the staff - hire the minimum possible number of employees. Many people think that with a large number of employees it is possible to finish the creation of a product faster, to enter the market faster, but they often get the opposite effect. It is not necessary to have workers in all positions to create a good product.
It seems that you need someone for a job? First try to do the task yourself. Hire a person in the event that you have to do this task regularly.
Equipment and software. You can save on this cost item too. For example,
Taxes There are different ways to efficiently and legally optimize taxes. When your company grows up a little, you should take an experienced financial director who knows all these nuances. He will pay back his salary.
For example, the law allows companies that provide a wide range of IT-services to pay insurance premiums in two times less - 14% of salary instead of 30%. For this you need to get accreditation at the Ministry of Communications.
While the revenue of your company has not reached 2 million rubles per month, you can keep accounts on outsourcing and save on the chief accountant.
If your startup is involved in research and development, and you understand how to commercialize it, learn how to become a member of the Skolkovo Foundation. This program gives wider benefits. You will have to invest in cool specialists, but it’s worth it, is a contribution to the competitive advantages of the product.
And here we come to the point where a startup at the investment stage cannot be saved.
Product quality. If the market is new and you have no competitors yet, then you can quickly grow only through marketing. But as soon as a competitor with a better product appears, people will immediately find out about it.
Good example google. In the late 90s there were many large search engines on the Internet. Someone still remembers AltaVista or Lycos search engines?
We in Puzzle English pay much attention to the quality of the product. When we received money at the end of 2014 and just started to grow, Lingualeo was on the market with an audience of 10 million users. But they immediately relied on a global multilanguage project because of what the quality of the product suffered. We painstakingly made the content: we edited the dictionary, translators translated materials, experts shot grammar video tutorials, but they didn’t do this kind of content at all. This allowed us to quickly grow in the market, which we entered not the first. Today we have 6 million users.
Promotion. At the pre-seed stage, you could save on marketing, but now you need to show a good growth in the user base. Typically, marketing is the largest part of the costs of a growing project: there are more than half of the total costs.
Beginner startups often believe in myths about viral mechanics, word of mouth - they want to think that they have come up with such a cool idea that she will sell herself. But the real examples of such units and almost all of them were born at the dawn of the development of the Internet.
If you have a cool product, word of mouth can work in addition to traditional marketing, but until you have a large user base, it does not work well. And to quickly build a user base, you need marketing budgets.
Although today Puzzle English is developing steadily, and we already finance all our innovations ourselves, we had to save on the stratum. Twice we found ourselves in a situation where we completely ran out of money. The first time at the pre-seed stage, when we completely ran out of money, and we did not find the investments, we had to freeze all the works in general. I said to the guys: “There is no money, but you hold on! If you find a job, I will not be offended. ” We did not have an office and a legal entity, so the costs were reduced to zero. Several people stayed to work for free. And they are still in the team. For example, Anton Komarov, leading grammar lessons.
The second situation at the seed stage was less harsh, but no less sensitive. We have experienced financial hunger, and life has once again proved that happiness is not about money, but it is still better to avoid extreme situations and learn from other people's lessons. From our experience there are two of them:
In conclusion, we share the data of the American analytical company CB Insights.
Several hundred owners of unsuccessful startups surveyed rated the reasons for the failure as follows:
42% said that in fact there was no need for this product or service in the market,
29% of those surveyed cited a lack of cash among the reasons
23% - inappropriate team
19% - too tough competition
18% - problems with pricing and cost estimation. Another 17% of respondents said about a bad or inappropriate main product, as well as the absence of a business model.
Thus, the creators of startups agree that the key indicators that determine whether a startup will succeed or fail will be a good team, a high-quality product, and a market need for a product.
If you decide to open an online store, you can easily find a prototype and an effective business model - today this is a traditional business. Another thing is that a startup is launching a completely new business, when you already have a cool idea (as you think), but there is still no evidence of its business ability.
When Puzzle English appeared in 2010, it was a startup. It was an online service for training the understanding of English by ear. There was nothing of the kind on the Internet, and I didn’t know if people even had such a massive need, and if so, would they like the way I would learn English and would like to pay for it?
')
In the case of a startup, you will have to try by trial and error to check whether the product will be in demand in the market. And it must be done in the conditions of wild economy. Because the possible sources of funding for the project are reduced to three F - friends, family, fools - friends, relatives and fools, which are usually all the same relatives and friends. Therefore, at the pre-seed stage, you cut off all possible bones.
Savings in pre-seed stage (pre-seed)
Salary. At this stage, you start to assemble a team of founders of a startup. As a rule, founders work without wages, - for the future.
When assembling a team, it is important to follow this rule: the skills and competencies of your team should cover all the needs of the startup. At the very least, but you should be able to do everything yourself. For one-time work, of course, you can pay - draw a logo, for example. But if you regularly order some work to someone, then take this person to the team: give him a share, tell him how rich he will be in a few years.
Or master this sphere yourself - this is another rule of economy not only for the sake of economy. Otherwise, your team will not be a person with the necessary competence.
At the very start for Puzzle English I did everything myself. I was lucky that I knew how - I started my career with a typesetter and a programmer. In some areas I understood as needed: contextual advertising was needed - I figured out this question.
Registration of legal entities, patents, trademarks at this stage may be a waste of money and time. Because the idea may not be confirmed, the team will burn out and fall apart.
I met the founders of startups who registered an LLC, considering that this way they increase the value of the project in the eyes of potential investors. Or they even registered a foreign company in order to formalize the shares of the participants.
In fact, the investor is interested in very different things. You are not impressed with its high costs, and having a legal entity at an early stage can even complicate a deal. The shares of the participants may well be fixed simply in words, by a gentlemen’s agreement. If your team does not have such confidence, then consider that you do not have a team.
In 2010, I registered a domain for Puzzle English, and we opened a legal entity in 2014, receiving seed investments from two funds. By that time I already had a partner, a business angel, and he gave money on parole without requiring the signing of documents.
The office is also an item of economy. I have not heard yet about such a startup that did not take off due to lack of office, almost all Silicon Valley start-ups started in garages. When you have a small team, you can gather in an apartment, in a cafe, in coworkings. In Moscow, for example, there are free coworking centers within the framework of the GBU Small Business program.
In our case, the team was distributed to different cities, and we resolved work issues via Skype.
Marketing. While you are in search of a business model, you do not need to drain a lot of money on advertising. You do not have the task to build a customer base. You only need to take measurements, and for this a lot of money is not necessary. We need to find the cheapest channel, let it be quite small.
When I launched the first version of Puzzle English, I spent no more than $ 100 per month on contextual advertising. I needed a small stream of users to analyze their behavior: to evaluate the conversion to registration, to find out whether they use the product, whether they return.
You can not save time on the nomination and testing of hypotheses . A startup either develops: puts forward and tests hypotheses - or is dead. You do not need to go into the refinement of the service until you have groped the product: you have not experienced how to find the best solution to the problem for which your product was created.
It so happens that the current hypothesis does not justify itself, and the product needs to be changed fundamentally. At startups, this is called “making a pivot” - changing the idea, and some founders feel sorry for the work done and the money spent. They are slow, losing time, or close their eyes to the problem and do not develop the project.
Here you can recall the history of Airbnb. The initial idea of ​​the project is a cheap overnight stay with inflatable beds for people arriving at the conference. But she was not for sale. On the way to success, the company made several pivots before becoming what it is now. And the inflatable bed remained in the title, although I have never met such a bed anywhere, using the service.
Savings at the investment stage (seed)
So, you checked the idea and received confirmation of the demand for the product, you have real data, statistics, which you can show investors to believe in you.
At this stage, the company still receives not so much money and the risk of its failure is still high: on the Russian market, only 10% of projects overcome this stage. Therefore, investors are cautious: on average, the market for the first investment tranche is 100-500 thousand dollars. Therefore, having received investments, you also need to be able to save, but on a different one.
The founders salary. The first thing to save on is your salary. Investors do not give money for a business plan, which identifies space salaries of founders. Because there is a conflict of interest: by setting yourself a salary above the market, you are trying to make money on investors, and not on your business, which is still very losing.
Maybe in some company you will be paid that kind of money for your work, but first, you still try to get there, and secondly, there you will do what they tell you. The main motivation of founders in a startup is their share, which should quickly grow in value if the project develops correctly. If you are sitting on a steep salary, then you are less concerned with the development of the project.
In Puzzle English, my salary was for a long time less than what I received when I worked as a manager in Yandex. And this continued until the company became profitable.
Salary staff. Increasing the staff of dear employees, you also risk to quickly go broke. Payroll in the company has a tendency to constant growth. Save on it will allow:
- Options for key employees: the ability to get company shares, to become a shareholder - a strong motive for professionals;
- Remote cooperation with experienced specialists: if there is no technological need for a person to be in the office, take an employee to a remote location (remote work implies lower wages and a greater choice of candidates);
- Hiring young talented professionals who can quickly learn;
- Inviting interns under an agreement with the university.
Do not inflate the staff - hire the minimum possible number of employees. Many people think that with a large number of employees it is possible to finish the creation of a product faster, to enter the market faster, but they often get the opposite effect. It is not necessary to have workers in all positions to create a good product.
It seems that you need someone for a job? First try to do the task yourself. Hire a person in the event that you have to do this task regularly.
Equipment and software. You can save on this cost item too. For example,
- Do not buy appliances if employees can work on their computers. In this case, you can arrange a rental. For example, we pay 1 thousand rubles.
- Use preferential rates. Many services like gitlab / codacy / pivotal have tariffs for startups. Usually up to 5 people are free.
- Opensource. Open services have disadvantages, but their main advantage is free of charge. For example, in Puzzle English for internal communication, we used Slack before, and recently switched to Rocket.Chat.
Taxes There are different ways to efficiently and legally optimize taxes. When your company grows up a little, you should take an experienced financial director who knows all these nuances. He will pay back his salary.
For example, the law allows companies that provide a wide range of IT-services to pay insurance premiums in two times less - 14% of salary instead of 30%. For this you need to get accreditation at the Ministry of Communications.
While the revenue of your company has not reached 2 million rubles per month, you can keep accounts on outsourcing and save on the chief accountant.
If your startup is involved in research and development, and you understand how to commercialize it, learn how to become a member of the Skolkovo Foundation. This program gives wider benefits. You will have to invest in cool specialists, but it’s worth it, is a contribution to the competitive advantages of the product.
What can not be saved
And here we come to the point where a startup at the investment stage cannot be saved.
Product quality. If the market is new and you have no competitors yet, then you can quickly grow only through marketing. But as soon as a competitor with a better product appears, people will immediately find out about it.
Good example google. In the late 90s there were many large search engines on the Internet. Someone still remembers AltaVista or Lycos search engines?
We in Puzzle English pay much attention to the quality of the product. When we received money at the end of 2014 and just started to grow, Lingualeo was on the market with an audience of 10 million users. But they immediately relied on a global multilanguage project because of what the quality of the product suffered. We painstakingly made the content: we edited the dictionary, translators translated materials, experts shot grammar video tutorials, but they didn’t do this kind of content at all. This allowed us to quickly grow in the market, which we entered not the first. Today we have 6 million users.
Promotion. At the pre-seed stage, you could save on marketing, but now you need to show a good growth in the user base. Typically, marketing is the largest part of the costs of a growing project: there are more than half of the total costs.
Beginner startups often believe in myths about viral mechanics, word of mouth - they want to think that they have come up with such a cool idea that she will sell herself. But the real examples of such units and almost all of them were born at the dawn of the development of the Internet.
If you have a cool product, word of mouth can work in addition to traditional marketing, but until you have a large user base, it does not work well. And to quickly build a user base, you need marketing budgets.
Summary
Although today Puzzle English is developing steadily, and we already finance all our innovations ourselves, we had to save on the stratum. Twice we found ourselves in a situation where we completely ran out of money. The first time at the pre-seed stage, when we completely ran out of money, and we did not find the investments, we had to freeze all the works in general. I said to the guys: “There is no money, but you hold on! If you find a job, I will not be offended. ” We did not have an office and a legal entity, so the costs were reduced to zero. Several people stayed to work for free. And they are still in the team. For example, Anton Komarov, leading grammar lessons.
The second situation at the seed stage was less harsh, but no less sensitive. We have experienced financial hunger, and life has once again proved that happiness is not about money, but it is still better to avoid extreme situations and learn from other people's lessons. From our experience there are two of them:
- When you have an idea and have no money, you need to save on everything except the search for ways of development. You can not save on hypothesis testing.
- After receiving the seed investment, you can save on everything except the product and promotion.
In conclusion, we share the data of the American analytical company CB Insights.
Several hundred owners of unsuccessful startups surveyed rated the reasons for the failure as follows:
42% said that in fact there was no need for this product or service in the market,
29% of those surveyed cited a lack of cash among the reasons
23% - inappropriate team
19% - too tough competition
18% - problems with pricing and cost estimation. Another 17% of respondents said about a bad or inappropriate main product, as well as the absence of a business model.
Thus, the creators of startups agree that the key indicators that determine whether a startup will succeed or fail will be a good team, a high-quality product, and a market need for a product.
Source: https://habr.com/ru/post/429274/
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