Many companies don’t survive beyond the start-up stage. There are several reasons behind this reality and funding is not necessarily always the main culprit. It is in fact not unheard of newcomers raising significant amounts of cash and yet still closing their doors after just a few years.
There are ways to give a new company a really good start in life however. For example, as a former analyst, senior executive and now CEO, I know that regardless of how much funding you have, you should run the business like it is your own, like it’s your own personal chequebook that you are in charge of. The CFO should have as much, if not more, say on what expenses get approved as anyone else on the executive team. Also, you should assume that money needs to last through multiple iterations of product and go-to-market strategy before you get it "right".
When a company is starting out, the management should have a tight hold of marketing expenses as this can be a huge drain on the budget; a great deal of funding can go out the door when a start-up tries to act like an established player with large tradeshow booths, advertising, give aways and costly marketing campaigns. While you need to reach a broad audience, there are many more cost effective ways to get customers’ attention than having a booth right next to IBM on the show floor or giving away cars. Many smaller, focused events, venues or web promotions can go a long way, especially if you truly do have a unique solution.
Be very careful of big name partnerships and business development opportunities. It is always great to say "we are partnered with the 800 pound gorilla," but you need to realise that those big companies know how to negotiate a deal; many start-ups end up sinking tons of resources into making the product fit the partners’ needs, only to end up making next to nothing margin-wise in the long run. Make sure the financials make sense in any kind of resale or OEM agreement before you go too far down the path of investment in the partnership.
You must also be willing to say no to the customer. Many small companies will land a big name customer, and then feel captive to that customer; next thing you know the roadmap is not market driven but determined by a handful of installed base customers. This is a perfect way to let the competition sneak up and take over. Don’t be tempted to take your eye off the broader market.
But, never think that you don’t have to continue innovating. You may have a great idea, and yours may be the only technology like it on the market – but not for long. VCs will fund competitors with slightly better ideas or a more experienced management team, and the big guys can afford to throw resources at the technology. Always keep innovating.
Therefore embrace flexibility; realise that your first attempt might not work, that you might need to change the sales model, that your market message might need tweaking (think storage virtualisation: at first no one understood what it was, then when vendors changed their tune from "we virtualise storage" to "our technology lets you replicate from an expensive array to a cheaper one" it took off). You have to be willing to innovate and change on every level to find what works in the market.
A new company has the potential to make a huge impact on its market, but the first few years can easily be the hardest. The product needs to be proven, the sales team must remain motivated even when the lack of brand awareness can seem an insurmountable stumbling block, and the competition is trying to discredit you. But there are many positive stories out there and if you look close enough, you will see that they often share the same recipe for success.
Nancy Hurley is president and CEO at Bocada, a data protection service management company.
