Nick Hughes is the CEO and co-founder of Seconds, a mobile commerce platform that provides text messaging and mobile payments for local commerce. In his spare time, he inspires entrepreneurs to build meaningful and enduring companies through his writing. Follow him on Twitter@jnickhughes.So, you want to start a company? That’s a very exciting decision. But first, you must cover all your bases.
For instance, generate a clear and simple idea, then determine what industry or market you plan to target, what type of corporate organization you’ll implement and where your business will be located.
Each is an important decision, but the main consideration when starting a company is how to manage risk. Risk is the heart of entrepreneurship — defined as “the pursuit of opportunity without regard to resources currently controlled.” Risk is the sole determinant whether you will succeed or fail.
Billionaire Sir Richard Branson follows a principle called “protecting the downside,” which means that by looking at any situation and determining all options before making a decision, one can identify the worst case scenario and work backwards from there to find the optimal route forward. Protecting the downside is all about identifying and understanding risk.
Here are five risky steps that will actually help protect the downside of a new company and, counterintuitively, set you up for success.
1. Quit Your Job
Conventional wisdom suggests, “Don’t quit your day job” while you start your new venture; only jump over when it shows promise. Unfortunately, this decision can be a recipe for disaster. You will be double-minded, your current efforts at your job will suffer, your family time will suffer, and your product will suffer. Plus, investors will not be impressed with a lack of time commitment. And most likely, you will fail.
Sit down and ask yourself which path you really want to take. Do you really want to leave your current job and start something new? Or do you like the security of your job and a stable paycheck? Although risky, committing to one path will greatly increase your odds of success.
In the summer of 1994, Jeff Bezos quit his job as a vice president of the financial services firm D.E. Shaw. He and his wife moved to Seattle to take advantage of the explosive growth of the Internet and to launch Amazon. When the site first launched in 1995, everyone at the company worked until two or three in the morning, kneeling on a concrete floor to pack, address and ship books. He was all in on his new dream.
Would Amazon have survived and become what it is today if Bezos had chosen to stay at his job and work part time on his side project? I don’t think so. He’s no Steve Jobs, but Amazon is looking to become the next Apple, so I think he made the right decision.
2. Don’t Follow The Crowd
Oddly enough, once most entrepreneurs abandon a “normal life” and set out on their own paths, they then look at what others are doing in the industry and opt to imitate instead of originate.
Following others will only get you lost in the crowd. Why not be unique and stand out from the all the rest? Unconventional leaders and companies are, quite frankly, more interesting. A unique story and perspective will help you break away from the pack and shed more light on your value. Put differently, if your startup is unique and has a differentiating value proposition, you will more likely gain customers, media attention and ultimately lure investors.
Steve Jobs viewed himself as an artist, and drew inspiration from the Beatles and Bob Dylan, rather than from industry contemporaries like Bill Gates and Larry Ellison. He was, in a word, different. For those of us too young to remember what he was like in his twenties and thirties, here is a little snippet from Walter Issacson’s new book, which describes a time early in Jobs’s career.
Despite his new fame and fortune, [Jobs] still fancied himself a child of the counterculture. On a visit to a Stanford class, he took off his Wilkes Bashford blazer and his shoes, perched up on a table, and crossed his legs in a lotus position. The students asked questions, such as when Apple’s stock prize will rise, which Jobs brushed off. Instead, he spoke of his passions for future products, such as someday making a computer as small as a book. Later Jobs would complain about the new generation of kids, who seemed more materialistic and careerist than his own.
Guy Kawasaki calls it “jumping to the next curve.” He writes, “Big wins happen when you go beyond better sameness. The best daisy-wheel printer companies were introducing new fonts in more sizes. Apple introduced the next curve: laser printing. Think of ice harvesters, ice factories, and refrigerator companies. Ice 1.0, 2.0, and 3.0. Are you still harvesting ice during the winter from a frozen pond?”
3. Join Strangers, Not Friends
One of the biggest questions when starting a company is “who will start it with me?” Conventional wisdom encourages you to bring together a few friends — people you already know and trust — to help launch your new company.
In reality, starting a company is tough and many things can go wrong. Don’t let friendship get in the way as you pursue your dream. Although it would be great if one of your best friends was a world-class developer, highly trained in the exact programming language required for your new product, this kind of luck rarely happens.
In order to find the best team, get out of our comfort zone and meet new people. Use LinkedIn as a starting point to sift through your immediate network, or to find someone looking for a new adventure.
Sites such as Founder2be were created for this exact purpose: to help co-founders meet each other. Founder Institute can help you find others to round out the team and connect with like-minded people. Attend conferences and industry events, like the upcoming Ignition: West in San Francisco. These types of events provide great opportunities to not only increase your network, but also to find a co-founder.
Meebo CEO Seth Sternberg offers great advice on finding a co-founder: “The best founding team for a startup is a group of two or three people who have synergistic — not overlapping — skills. Note that it’s also important your goals and passions be similar…You need to find folks with skills that compensate for your weaknesses. Co-founding a startup is like getting into a marriage — picking the right people is critical.”
His big to-do’s: 1) Get out there and find activities that attract diverse groups of people, 2) ask your friends to introduce you to people in the area you’re targeting, and 3) join or attend local organizations designed to foster introductions between startup-minded folks.
4. Launch A Buggy Product
Which situation will produce better results: a perfect web application that took nine months to launch, or a buggy but working prototype released in four weeks that gets immediate attention from early test users?
Conventional wisdom says a product must be completed to be marketed, but releasing something sooner, albeit imperfectly, will actually decrease risk. The quicker you can get something built and into users hands, the quicker you can get crucial feedback on your product, which ultimately means the quicker your product gains market traction. Taking nine months to develop a product in solitude will only guarantee one thing: less outside feedback.
Eric Ries, voice of the Lean Startup movement, says you should release a “minimum viable product” for early adopters. That way, you realize perfection is not the goal. Releasing a product early enough allows you to quickly build, test, learn, iterate…and repeat.
Twitter was notorious for being a buggy product at first — users constantly encountered the fail whale. Do you think it hurt them? A Quora thread asked, “Why didn’t Twitter’s performance problems doom it early on?” Co-founder of Buffer, Leo Widrich, responded, “Twitter had to make a tradeoff: Continuing to add users like crazy at the risk of going down more often, or limiting the amount of new users and working more on the stability of their servers. In my view, it was the right choice to go for more users and downtime.”
Twitter founders Evan Williams, Jack Dorsey and Biz Stone realized they needed to keep gaining users at all costs, and that they could take care of the downtime issues later.
5. Build A Board of Advisors — Now
Conventional wisdom says that entrepreneurs don’t need to report to anyone. On the contrary. Developing a board of advisors as soon as possible will help keep a company on the right path. After determining the composition of your founding team, pinpoint appropriate areas of expertise and qualifications that you lack. Then recruit advisory board members the same way you would any top-level executive, by putting together a one-page description of your company, including goals and financial history.
Find five or six people who can validate the startup to investors, as well as connect the team to their networks. The move will be priceless and drastically launch a young company forward. You cannot make this decision early enough.
Starting a company is a risky decision. Always remember to protect the downside and look for creative ways to mitigate risks. Good luck!
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