The term "startup," once reserved for a select few, has now become commonplace. However, its use is not always accurate and is often thrown around casually. Furthermore, the startup world conveys numerous images that may not always align with reality, potentially leading entrepreneurs to significant disillusionment. Let's examine some deeply rooted prejudices and their real counterparts.
1. Any business model is suitable for a startup
Paul Graham, entrepreneur, investor, and founder of Y Combinator, a renowned startup accelerator in Silicon Valley, has significantly contributed to the success of giants like Airbnb, Dropbox, Stripe, and Reddit since 2005. His authoritative definition of a startup is that it is "a company designed to grow rapidly." In this definition, the crucial element is growth – the ability of a company to generate strong growth defines it as a startup, nothing else.
Being a young company does not automatically make you a startup. For instance, a chocolate shop open for six months cannot be considered a startup merely because it is recently established.
Innovation alone does not define a startup either. Many successful startups have thrived as effective replicas of existing concepts in other markets. You may have heard of Rocket Internet.
So, how do you determine if a project is suited for exponential growth (and can thus be considered a startup)? It's simple: in a startup's business model, each additional unit of a product or service costs less to produce than the previous one. These are known as economies of scale.
Example: You sell a subscription to a video yoga course application. Let's imagine that a subscription for a customer A costs you 100€ to produce (cost of human resources, marketing, office space, video production, server storage, etc.). Now, you sell a subscription to a new customer B. This one will cost you less to produce. Indeed, your expenses will be spread over a larger quantity produced. To generate this new subscription, you may not need to hire new employees, have larger offices, etc. In simple terms, you can generate more revenue without increasing your expenses proportionally. In jargon, this is called "scaling" or "scalability." This scalability relies on the productivity gains offered by digital technologies. Whether you serve 100 or 1000 clients, your fixed costs evolve little, and the demand can be processed automatically at any time of day or night.
If you have a non-scalable business model, an increase in revenue will result in a proportionate (or nearly proportionate) increase in your expenses. Let's take an example: you open a bakery. You can serve 500 customers per day during your opening hours. If you want to grow and attract more customers, you will have to invest in larger premises, more employees, more ovens, more equipment, or more efficient equipment (and probably more expensive). Your variable costs will also increase (you will consume more raw materials, more water, electricity, etc.). In summary, to generate additional income, you will have new charges to assume, almost proportionally.
Consulting or artisanal professions are another example of "non-scalability": in these sectors, the services provided largely rely on human resources, whose capacity for work is limited in time (we don't work day and night!) and is not easily automated. The more clients you serve, the more you will have to hire.
However, don't panic: the race for growth is not an end in itself (it even comes with specific problems). You can very well have a "non-scalable" business model that is very profitable. You can also have a "non-scalable" business model at the level of each profit unit but "scalable" in its entirety. For example, developing a chain of franchised restaurants. Each restaurant may not be able to generate exponential growth at its scale (limited by the number of seats, opening hours, etc.), but the group can experience explosive growth as a whole, going from, for instance, 3 to 30 restaurants in one year.
Before starting, check if your business model is scalable. You will determine if you can be considered a "startup" project or not. This won't prevent you from launching, but it will have a significant impact on the development approach you can (or should) adopt.
2. Everything could/should be automated
Paul Graham (once again) wrote another famous article: "Do things that don't scale". This may seem contradictory, knowing that a startup should be scalable. In reality, the article emphasizes a crucial principle: as a startup founder, you will need to acquire your first customers "by hand." Indeed, the growth engine will not start on its own. Simply creating a buzz at the launch or relying solely on word of mouth won't naturally win your first customers (despite being a persistent myth!).
For instance, you will have to use your close network and your network's network to personally approach your first customers, participate in events, showcase your solution to as many people as possible, join a coworking space and network. Present your solution to potential customers, create an account with them, and guide them in using the product. These individuals will also be an excellent source of feedback that will allow you to improve the solution and the customer experience. Focus all your efforts on these actions and provide exceptional customer service that surprises—positively—and generates loyalty.
If your solution targets SMEs or large enterprises, find, by all means—usually through networking—a first pilot customer with whom you will develop a product that they will buy from you. When you start, this is the best you can hope for before targeting other clients!
If you have a B2B solution, other startups can be excellent customers: they are generally more open to using new solutions and may not be "locked in" by contracts with other service providers.
Before automating your service to the maximum so that it can grow exponentially, you will probably have to perform some tasks "by hand." The customer doesn't have to know that the solution they benefit from is based on human interaction (this is called an "Oz-like" product). This will allow you to collect payments and gather user feedback even if your product is not finalized.
Keep in mind that growth is not automatic. To set the machine in motion, you may have to spend months convincing your first customers, discussing with them in person, aiming to provide the best possible experience.
3. Success comes quickly
It's another widespread misconception: startups are born and become unicorns – companies valued at least 1 billion euros – in 2 or 3 years. In reality, growing a startup is a long-term process. You can have fun looking at the birth dates of successful startups: you'll see that they are often in operation for 5 to 10 years, or even more.
If you are attracted to this form of entrepreneurship, be prepared to invest a lot of time and effort. If your personal situation (work, family, associative or sports commitments, etc.) requires a busy lifestyle, will you be able to keep up with the pace in the long run?
The imperative for growth and the responsibilities that arise from it represent a huge workload (intensive customer acquisition, continuous product improvement, team hiring, process structuring, investor research and management, etc.). It also affects the credibility you will be granted: how can you convince people that your project has potential when you are not dedicated to it full time?
If you want to embark on the startup adventure, you will have to invest a significant amount of time and energy for several years. A lot of time and energy, indeed. If you prefer to undertake in a less demanding or more flexible way, then the "startup mode" may not be the most suitable. The good news is that success and fulfillment can be achieved in many other forms of entrepreneurship!
4. You can launch alone
In a startup, the entrepreneur cannot and should not handle all tasks alone:
- Firstly, the workload is too substantial to embark on the adventure solo. We won't hide it from you: developing a startup is not the best option if you are seeking a better work-life balance through entrepreneurship.
- Secondly, developing a startup requires multiple expertise that cannot be possessed by a single person.
- Finally, co-founders play a crucial role in the project's development: give the same idea to 3 teams, and you'll get as many different results!
The team is also the project's primary component. This is where everything starts.
And it's even more important at the beginning of a startup's life: often, it's through the team that you'll be judged (especially true for investors).
For all these reasons, you will be given little credibility if you are alone in carrying your project.
It is essential, therefore, to surround yourself with the right people.
Absolutely find one or more co-founders. Prioritize individuals who share the same vision and values. Having complementary skills is the icing on the cake. To do this, talk about your project as much as possible. Join online communities, participate in events, and reconnect with your network.
5. Technical aspects are secondary
As rightly pointed out by an expert we invited during a workshop: "Would you open a bakery without knowing how to make bread?" Whether it's a "hardware" solution (physical product) or a "software" solution (digital service), there is one golden rule: you must develop it internally.
A significant part of your added value will rely on your solution.
Therefore, there are too many risks in outsourcing its creation to external providers:
- Financial risk: In the medium term, an outsourcing partner can cost you more than an internal resource. The development of your solution will require daily work that represents a significant budget. Also, consider expenses related to maintaining and improving your solution. A small piece of advice: be wary of attractive rates offered by providers in countries where labor is "cheap." Quality may not always be guaranteed. Do not underestimate the difficulty of managing such a project remotely, especially if you do not have a minimum of technical skills. Interaction with your providers can be complicated.
Always keep this in mind:
- Intellectual property risk: If you use external providers, be careful to clearly define who owns the code or the product design! Poorly defined, these elements can completely block the project (difficulty in retrieving code once the service is completed, etc.).
- Product risk: You remain one client among others for your subcontractor. Therefore, you cannot expect the same level of responsiveness and involvement as with an employee or a partner. Moreover, if you end the collaboration with your subcontractor, it can be challenging to find a new provider willing to work on an technical code that is not their own.
- Human risk: Your product vision must be carried by your internal resources! It will be challenging to grow your startup if its own members are not personally involved in the development of the solution. You will also lose credibility in the eyes of many stakeholders in your project (incubators, funders, etc.).
Find co-founders who have the technical skills necessary for the development of the solution. Another alternative is to try to do as much as possible yourself! There are many no-code solutions today ideal for developing initial versions of digital solutions... without coding! Of course, these are not miracle solutions applicable in all cases. These tools will still require a few dozen hours of learning, but you can familiarize yourself with how a digital solution works and achieve initial successes that will help you attract technical profiles.
6. It is mandatory to find investors first
This notion challenges the common misconception that founders of startups should prioritize finding investors. In reality, focusing solely on securing investment early on can be a fundamental mistake. As an entrepreneur, the primary goal should be to acquire customers or grow the user base.
Here are a few reasons why seeking funds too early can be a waste of time:
- Funding is not a product validation: Investors, while crucial for scaling, may not necessarily be representative of your actual customers. Their decisions are often based on the team's potential and the ability to tell a compelling story rather than on the product's viability. Real product validation comes from the market itself.
- Lack of market validation is a credibility issue: Without a validated market, approaching investors may lead to a lack of credibility. Serious investors typically look for strong and recurring signals of customer demand. Approaching investors without market validation may result in a lower valuation and less favorable terms.
- Investors measure progress through growth: Early in the startup journey, significant growth may not be immediately achievable. Seeking investment too early can create undue pressure to generate rapid growth when the product and business might not be ready.
- Fundraising takes more time than expected: Securing funding is a time-consuming process. Crafting a persuasive pitch without a tested product diverts attention from engaging with potential customers. This time could be better spent building a credible story based on a thoroughly tested offering.
- Money doesn't force you to give your best: Operating with limited resources forces efficiency and a focus on essentials. Without external funding, you learn to be more effective in all actions. Being resource-constrained encourages direct interaction with the market, minimizing risks and avoiding unnecessary time spent on product features that may not add value.
The advice is to strive for product-market fit (meeting sufficient demand) without external financing. While this is an ideal goal, embracing bootstrapping, internalizing key skills, and using market validation techniques, such as the Lean Startup approach, can help validate the market quickly and efficiently.
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