Startup Diaries — III
A Diary to express my experience of starting a venture, building team, funding etc..
In the last posts Startup Diaries — I & Startup Diaries — II, I had discussed about the team and points to consider before starting a venture. In this post, will move our focus to deciding equity division with partners, execution from alfa version to product implementation.
Once your team is ready and hopefully you have chosen right people on board. Now its time to divide equity. In a startup, a person is only required if he/she can create or specifically add value in whatever you’re doing. Let’s say initially if you can give your time but you can’t afford to invest money in it, then if your partner agrees to invest money against your time, then he might be the right choice for you. But you must check that the equity shared must be in proportional with the amount he’s putting in. Also keep in mind that how long his money will be required, and what if you get funding from angel investor or some VC firm as a seed funding. If he’s only there to finance your startup in early stage then give him little stack around 0–5%. I would even suggest that for initial finance it’ll be better to take loan from parents, friends and relatives than sharing equity because the amount you’re going to take from him can be on monthly basis or for a very short period of time, and sharing equity for that time might be risk for you and your company.
Now the other situation to consider is if the partners are taking risk for coming full time then how you’ll manage finance? Now the best way is to use your own savings and so before leaving your full time job you must calculate your runway, how long you can survive without single rupee earned? The same thing will be applicable to all your partners if they all are going to jump in the lake with you. After deciding the runway, calculate the time for your alfa/demo version to get developed, if suppose your runway is 6 months then how you will manage to build your prototype or working demo and also get a funding before you run out of cash. Funding is a very long process and most of the time it takes 3–6 months to get first version of the investment from any investors and in some case it could go beyond 6 months. Getting funding is not in our hand so the only thing you can do is to build demo version of the product/service and go out to showcase for getting funding in maximum 3 months you start working for full time and it also depends on the product/service. Apart from developing the demo version you must be ready with business model/plan, revenue generation model, brand visibility on social media and other platforms so it’s not only technical work you have to do but also non-technical work which is more important.
Now coming back to equity division, if it’s your own idea and rest are joining you for the same then always keep your hands up so that other’s can not obstruct your vision and speed of work. If one of the partner is not coming for the full time but he’s providing a finance give him 0–5% stake. If a person is coming for the full time and ideally he/she should come from the beginning then only can be said a co-founder, then share the equity according to the value he/she is putting. If the person coming is handling the core part of your product then you should share around 10–15% stake, also note that the person must be ready to handle other non-technical work during the journey. If he/she is ready and is really good at something like designing or marketing offline & online or sales or representation, then considering these skills adds 2–5% more in stake. There are so many tables and equations for dividing equity between founders based on number of parameters available online. But do refer those tables and equations rather than diving equity blindly. This is one of the most important thing which will be reflected in your journey on a long run.
Once the equity division is done, also decide the KRAs i.e. Key Responsibility Areas. This helps in executing things in a smoother way. Now prepare the plan to execute the devlopment of your demo/alfa version of the product. If you have completed market survey for similar offerings and their customer segements you must have concluded with your target market. First and foremost thing to do is creating the visibility of the product online as well as in the region where you think you’ll start your pilot. Development of product should go on simultaneously with creating brand visibility, connecting to the people whom you think are your target market, showing your progress to them and also taking feedback from experienced entrepreneuers so that you can improvise immediately if you’re going in the wrong direction. Most of the development work will be divided into technology development and preparing the proof of concept that can be represented to anyone like customers, investors. Your focus in the initial three/four months must be on technology development as well as creating the website, designing the website, putting the meaningful content on it, designing the logo, doing the SEO if required. One more important thing while designing the website and logo is selecting brand colors. Brand colors and the content of your website is the first representation of your startup, nobody will be interested to see your product if your website content is not creating any impression on the visitor. While designing the contents use more gifs, videos and images for describing things. Also select the colors which suits your concept and those colors should create a theme which represents your startup without any words. It’s all about representing nicely to anyone and whether your demo or technology is incomplete but your representation is perfect then your audience will definitely going to take interest in whatever you’re pitching to them.
Designing the business plan and revenue model is the most important part. Whatever data you have gethered by doing market survey of other similar products, whom they’re targeting as a customer, what’s the business model they’re following. After studying all these things, calculate for yours while keeping in mind cost of designing and development of product, manufacturing of it(if it’s a hardware startup), sales and marketing, customer acquisition cost, cost for digital marketing and branding. Considering all these expenses then and your margins according to the domain/industry/business model/revenue generation model finalize the cost to customer for your product/service. Also check that according to your survey/market research how much customer is willing to pay for the features you’re offering. Is the number you have derived match with what customers can pay? If it is then start showing to customers your demo product with the cost and ask their readiness to spend money. Also do take their feedbacks for the features and other aspects of the product.
I hope you’re benifiting from the information and experience I have shared. It will be definitely help the entrepreneurs for whom “Experience is the only teacher”.
Stay tuned for more on designing business plan, revenue generation models, getting feedback for your demo product to improvise from the very beginning and importance of pivot in the startup journey.