By learning a few straightforward lessons, prospective IT startups can avoid the mistakes made by many of their predecessors. Ted Samson investigatesIn the fast-moving world of technology innovation, entrepreneurial opportunities emerge continually. But simply having a good idea does not guarantee that you'll successfully launch a startup, and moving from the concept to execution stages requires travel over some pretty rough territory.
Fortunately, lessons learned by IT colleagues who have become experienced entrepreneurs can help you make sense of the journey, whether you're a technology savant developing cutting-edge software or a savvy business-person building an e-business services operation from the ground up.
Lesson one: Know what you're doing
Starting a new company and developing fledgling technology requires the clearest of visions. Often, technologists get so preoccupied by what and how they are creating that they lose sight of who is going to use it and what real-world problems it will solve. On the flip side, visionaries can get so entranced by how a technology will change the face of business that they oversell the product before it's been developed or has even passed a proof-of-concept test. Knowing what product or service you're developing, the market it serves, how to build it, and how to charge for it are key to moving forward with a promising concept.
"The first thing an entrepreneur needs to do is clearly think about what the venture's basic purpose is . . . the pain you're trying [to] eliminate," says Dr Marco Iansiti, who teaches a course called Starting New Ventures at Harvard Business School (HBS), in Boston. "One of the mistakes that people make is that they don't spend a lot of time thinking about that."Fuzzy thinking is endemic in the technology industry, where the boundaries of what's possible are constantly shifting. The difference is that established companies can squander resources chasing ill-defined goals; a startup gets only one shot at making a viable product to serve its target market.
Rob Rosen, CEO at EventZero, a US-based IT services provider for startup companies, learned about practical applicability the hard way. Before he co-founded EventZero in 1998, Rosen started a business called Vertigo to develop a tool to build personalised multimedia applications for finance, planning, and management. Although Vertigo did generate revenue during its seven-year life span, Rosen and his partners chalked the endeavour up as unsuccessful: Vertigo had developed a product without first determining whether a need for the tool existed.
"In the end, ultimately, people didn't see it as having a lot of value," Rosen says. "We really thought it was a neat technology and we could imagine a lot of things it could do to help people. We never spent a lot of time asking people if it helped them solve problems."Determined not to make the same mistake twice, Rosen made sure that EventZero addressed a persistent problem in a specific market. He found a huge demand for his IT planning and design advisory services among companies deploying e-commerce Web sites. So Rosen tailored EventZero to serve funded e-commerce startups and formed partnerships with venture capitalists to network into his target client base.
Lesson two: Move quickly
No one contests the need for speed in today's market, where startup capital, doled out in million-dollar chunks, can create a competitor overnight. Many startup founders can attest to the fact that every day they spend wrangling with details and problems they're losing ground in the battle for the coveted first-mover status.
With technology developing at breakneck speeds, an aspiring entrepreneur needs to move quickly or else risk being left behind as competitors bring similar ventures to market, says Piyush Gupta, founder of Liquidprice.com, a California-based reverse-auction exchange through which buyers can purchase consumer electronics. Gupta says the key to moving an idea forward as expediently as possible is focusing on the essentials; bells and whistles can come later.
"You've got a Volkswagen and you're driving it down the Autobahn at 150 miles per hour," Gupta says. "You've got to know when to throw back the throttle just a little bit. You've got to know when to replace the air filters. But don't put on the chrome hubcaps."Lesson three: Stay flexibleAccording to Iansiti, some entrepreneurs lock on to an idea then find it difficult to evolve from that concept when circumstances change or when problems arise. For startups, every change in the business landscape affects their chances of success, and they must be able to adapt and react to changes such as new competitors, a flagging market, or flawed technology.
Jacob Pechenik, founder, president, and CEO of TechTrader, a Washington-based technology provider for vertical marketplaces, benefited from maintaining flexibility and revamping his original concept to solve a larger problem. His original idea was to provide sophisticated tools for trading stock via the Internet. However, he realised that the technology might have greater potential: matching buyers and sellers online in a digital exchange.
Pechenik came up with the new concept at a seminar on entrepreneurship, at which the speaker prodded the audience to think constantly about the goals of their businesses. "Sitting there at that meeting, I was saying, What do we do? What do we do?' That's where I came up with this [concept of] matching buyers and sellers online," Pechenik says. "I was able to hone in on that simple idea.
It opened up a whole world of opportunity. I started to look at all the different applications, and I quickly saw that we could go after enterprise industry segments with the vertical approach to creating marketplaces."The clear picture helped the company move forward in developing its technology and researching the needs of would-be customers.
Lesson four: Keep it simple
Another common problem, HBS' Iansiti says, is that some entrepreneurs spend too much time talking about the business model in the abstract and not what it will take as a company to get the business model built. For example, he says, an entrepreneur may want to set up a wireless service "aimed at giving coupons to [users] based on where they are". Travelling by a restaurant, for example, a coupon may pop up on a user's wireless device for that restaurant.
"That's an interesting idea, but there's a lot of thought that needs to be devoted to what it would be like to develop a business around it . . . and the bottlenecks in getting that business to actually work".
For example, the entrepreneur would have to talk to service providers, carriers, and prospective participants. "There are a lot of pieces that need to be put into place for a venture to function. People tend to underestimate what those pieces are," Iansiti says.
Lesson five: Find the right investors
Small, nimble companies can outmanoeuvre bigger ones, but they can't outlast them. Starting a venture, particularly one built on cutting-edge technologies, can be pricey, and according to Iansiti, venture capital is the most common fuel for driving forward an entrepreneurial endeavour.
Different types and amounts of venture capital are available at different stages. Traditionally, so-called angels tend to invest in the early stages of a startup. Because they take the greatest risk, they tend to invest the least capital. In the later rounds, other venture capitalists may put forth some funding. The model is changing, though, as rounds of funding have gotten larger, Iansiti adds.
"Venture capitalists tend to get involved in virtually all stages, [which is more] than they did two or three years ago," Iansiti says.
But a venture capitalist should be more than a source of capital, Iansiti cautions. "It's very important to get a partner on board that can help you build your business, that can take you into their own network of other businesses that you might want to partner with."Asking prospective venture capitalists about their track records is a good idea, Iansiti says. An entrepreneur should be confident that a venture capitalist has experience working with similar businesses.
Launching a self-funded venture can be difficult, but not impossible. Using their own capital, wife and husband team Brindala and Kishan Ananthram started IonIdea, an IT solutions provider based in Virginia. Brindala attributes the decision to self-fund the startup in part to the limited amount of available venture capital at the time.
"To be honest, if I had to do it all over, I would look for outside funding," she says. It would have been more comfortable to have had someone funding this and sharing some of the risk."Lesson six: Define your roleMany entrepreneurs assert that this path should not be travelled alone and that the partners should make sure to establish their respective roles so they don't stumble if they step on one another's toes.
Andy Martin, CTO and co-founder of Garden.com, a destination for gardening enthusiasts based in Texas, says that when starting a company there should be at least one person on board focused on the technology end and one focused on the business side of the venture.
"During the first two years of a startup, it takes an equal amount of energy and time to [lay out] a technological road map as it takes to build financial backing for the company," Martin says.
When Rosen started to move forward with EventZero, he called on four former associates to partner with him. He says he looked for three traits in the people he teamed up with: they had to be smart; they had to be people who really want to work in an entrepreneurial environment, which "is harder to find than you think," he says and they had to be people he could mesh with. He adds that determining one another's respective roles in the business was not difficult to do. "We fit together as a group if [I] do sales and marketing.
Nobody had to tell me that; I understood that," Rosen says.
Staying flexible and having the right attitude are good attributes to look for in fellow co-founders.
But establishing formal roles for each team member from the get-go is not critical to launching the venture successfully. IonIdea's Ananthram didn't separate the functions of CEO, COO, and CTO right away.
"You just do the job that is needed," Brindala says. The two shared the tasks of selling, marketing, hiring, and balancing the books. "We took care that we didn't step on each other's toes," Brindala says.
Further down the road, well after they had launched the venture, the couple realised they were both focusing on the company and neither one was focusing outside, on the market or the competition.
"That is when I took over as COO and he became CEO," Brindala says. She now focuses on the day-to-day issues within the company and Kishan focuses on the strategic endeavours such as networking, marketing, and generating more business.
Lesson seven: Make yourself known
Whether it's through networking, partnering, branding, marketing or advertising, getting name recognition is important to getting a toehold in a new market space. Many entrepreneurs agree that would-be clients should be aware of your venture before it officially opens up for business. When TechTrader launched, Pechenik says, "We did not have any clients lined up." After putting up a Web site in November 1998, the company did receive a phone call from a prospective client.
"That client ended up disappearing after a couple of months," Pechenik says.
Pechenik gleaned from the experience the importance of hiring staff early on to promote a startup.
But don't overdo it, cautions Liquidprice's Gupta. He took a conservative marketing approach via online mailings and partnerships, both in the interests of funding more critical aspects of the business and because he did not have enough dealers lined up to support a mass influx of users.
"You have to drive traffic to the site hand in hand with building up a dealer network," Gupta says. "In my case, if I get a million users to the site and 900,000 of them don't get any offers, I am in trouble. They won't come back.