Startups are known for being innovative and scrappy — meaning they welcome risks and solve problems in unique, creative ways. You’ve also probably heard the phrase “lean startup”. The Lean Startup methodology refers to development and growth processes designed to minimize the need for funding as well as market risks. This process also saves precious time and resources — two assets that startups can’t afford to waste.
We don’t want you to fail (so much so that we’ve created a HubSpot product dedicated entirely to startups). That’s also why we created this guide. Below, we’ll cover the basics of starting a business designed for impact, innovation, and fast growth.
Starting a startup isn’t a linear process. There are some steps that predetermine others, but for the most part, startups involve a lot of moving parts.
The following sections outline the different spokes that make up the proverbial startup wheel. Master these sections, and you’ll get your startup rolling.
Setting Up Your Business
Before you can scale your idea, you’ve got to set up its foundation — your business. There’s a lot that goes into starting a business, like strategy, budgets, and legalities, before you can create and roll out your product or service. While this isn’t the most exciting step, it’s crucial for receiving funding and scaling your startup down the road.
Read all about starting a business in our guide here.
Validating and Launching Your Product
You’ve got a business — now you need an idea. Let’s say you’ve got a great one. Subscription boxes for pets, toothpaste tablets, or a co-working space for servicing your car … whatever your idea may be, you’ve got one. You’ve named it and outlined how it solves a problem that your customer faces. And you’re excited about it.
But that doesn’t matter … not as much as how excited your customers are about it. Ideally, excited enough to pay for it.
By talking to your potential customers and understanding their wants, needs, and expectations, you can avoid investing in products or services in which your customers aren’t interested. The same goes with competitor research.
This is how startups avoid wasting resources — by ensuring their idea and product will be well-received before they take the time and money to create it.
How can you do the same? By conducting market research.
Market research is a must when it comes to building a startup. It’s invaluable for multiple reasons:
- Market research helps you define and engage with your target audience and learn more about how you can better solve their problems with your product or service.
- Market research helps you analyze your competition, research their product or service, pricing structure, messaging, and unique selling proposition (USP), and better understand how you can set your business apart.
- Market research helps you formulate your positioning statement for your product and your brand.
- Market research helps fuel your go-to-market strategy, which outlines precisely how you’ll present your product or service to its intended market.
All in all, market research keeps things accurate and aligned with proven market concepts as you validate and launch your startup idea.
Now, let’s talk money. Did you know that a vast majority of startups are funded by the founder(s) or by friends and family? That’s called bootstrapping — when a business owner pays for the business expenses.
Bootstrapping is tough work. (Remember when we said 90% of all startups fail?) Getting funded by outside investors doesn’t necessarily make it easier, either … considering that 75% of funded startups fail.
But that’s not to say you shouldn’t get funding. If done right, working with investors can give you more than money — it can also provide connections, advice, and mentorship.
There are a few ways to raise money for your startup, but these methods aren’t a good fit for every business. Read through the list below to see which one might work for you.
Incubators help startups accelerate their growth by providing support through management training, office space, capital, mentorship, and networking connections.
Incubators can be sponsored by a variety of organizations: for-profit ventures, non-profit organizations, academic institutions, and even community and economic development organizations. Incubators can also be organized by industry, niche, or location — some may work specifically with fin-tech or agricultural startups while others only accept startups in Kansas.
Not every startup is a good fit for an incubator. Fit depends on capital and physical needs, size, location, and how much equity you’re willing to give up. Regardless, for new startups, incubators are worth looking into.
Learn more about incubators here.
Venture capital (VC) is private equity (money) given to startups who show high, long-term growth potential. This money is provided by venture capitalists who spearhead these specialized firms or funds.
VC is often a give-and-take scenario: Venture capitalists give money and take equity — thus gaining a seat at the table for company decisions. Some startups appreciate the extra voice; others don’t. Tools like capitalization tables (cap tables) can help you understand your equity and manage your ownership.
Also under the VC umbrella are angel investors, which are high net worth individuals who are also entrepreneurs themselves. Angel investors often look to fund startups in the same industry as their own, and they sometimes “co-invest” with another angel investor or group of investors.
Fun fact: HubSpot’s Dharmesh Shah is an angel investor in over 60 startups.
Crowdfunding refers to raising money from your future customers and fans. It’s a great way to gain equity without giving away ownership, although crowdfunding doesn’t offer the same level of mentorship and education as incubators or venture capitalists do.
Crowdfunding is also valuable for more than raising money. Crowdfunding increases awareness around your brand and product, markets your brand to a new audience, and inherently validates your product or service ideas.
Growing Your Customer Base
Startups scale fast because they 1) target the right customers and 2) continually work to grow their customer base.
How do they do this? By “growth hacking,” which is a fancy term for using creative, innovative, low-cost strategies to achieve exponential user growth.
On the surface, growth hacking might seem overwhelming and intimidating. But if you’ve ever tested any aspect of your marketing strategy — an email subject line, web form format, or social media copy — you’ve dabbled in growth hacking without even knowing.
Another way that startups grow is through organic growth. Organic growth refers to growth achieved by internal initiatives — versus external funding or acquisitions. Some examples of organic growth include content marketing, social media marketing, SEO, PR, paid advertising, and email marketing.
Read more about organic growth strategies here.
With such a high failure rate, it’s no surprise that startups are hard work. Thankfully, the literal thousands of founders that have come before you have learned a thing or two about common startup struggles and how to overcome them.
While we’ve hardly captured them all, the below list should give you a good idea of what to look out for.
When designing and selling a product, it’s good practice to listen to your customers and continue improving on the product. But, have you ever thought about when to stop? Not many founders do … which is how they experience feature creep.
Feature creep is the ongoing, excessive expansion of a product or the continual addition of new features. While improvement is a good thing, non-stop improvement can be a drain on resources and eventually become unhealthy.
Think about it this way: If you had a goal to lose weight, you wouldn’t continually lose weight until you die, right? No way … you’d waste away into oblivion if you tried. At some point on your weight loss journey, it’d become more about maintenance and balance than loss.
The same goes with your products. It’s great to have goals and to shoot for the perfect product, but at some point, you must stop and focus on maintaining a best-seller. Then, you can reroute your resources to a new goal or product.
Ah, the silent startup killer: money management and cash flow.
Lots and lots of startups fail because they 1) can’t bring in money, 2) spend their money on the wrong things, 3) manage their money all wrong, or 4) all of the above.
While we can’t necessarily advise on how to fix all of these problems (as that will depend on your specific startup and expenses), we can equip you with a few helpful tools for managing your money better.
- Your operating income formula calculates your startup’s profitability. Profitability is a major indicator of success and potential future success.
- Your burn rate shows you how fast you’re spending money before reaching profitability. A correctly calculated burn rate can be responsible for growth, planning, and future success.
- Your debt-to-equity ratio shows how exactly your capital has been raised. This number tells lenders and investors how financially stable or risky your business might be.
- Your working capital calculates how much money you have left to pay off short-term debts. This indicates the current financial health of your business.
- Your cash flow tells you how much money you have coming in and out of your business. It shows exactly where cash is coming from and how it’s being spent.
Use these tools and formulas to evaluate and improve the financial health of your startup.
If I asked you to, I bet you could list a whole host of startup founders who’ve been successful — Steve Jobs, Bill Gates, Jeff Bezos, just to name a few.
In the startup world, it’s easy to compare. It’s also easy to change our decision-making and problem-solving processes when we hear what worked for others. But when we blindly focus on startup success stories — and forget about the numerous failures — we risk learning the valuable lessons that those failures could teach us, too.
This is called survivorship bias, and many startups struggle with it. As you grow your startup, it’s important to learn from successes and failures. As amazing as the stories of Jobs, Gates, and Bezos are, they represent a fraction of the business owners that have come before you.
To avoid survivorship bias and grow your startup on your own terms, try to keep your “business blinders” on. Focus on what’s ahead of you, and do your best to not compare to other founders or startup businesses. If you have a pressing question, try to seek answers from successes and failures alike — there will be valuable lessons available from both.
Growth in the startup lane moves quickly, and managing it can be super difficult. Keep your business’s growth on track by balancing your influence and focusing on your own business.
If you want to learn more about startups and starting a business, check out some of the below resources.
- OnStartups — By Dharmesh Shah of HubSpot. This blog talks about lots of common startup topics and features guest posts by other startup experts.
- Signal v. Noise — Started by Basecamp’s founders, Jason Fried and David Heinemeier Hansson. These founders share strong opinions and perspectives on the current state of startups, business, and capitalism.
- A Smart Bear — By Jason Cohen, the creator of WP Engine. Cohen writes about all things startups, sales, bootstrapping, fundraising, technology, and entrepreneurship.
- Venture Hacks — By the creators of AngelList, a site for finding job and investment opportunities for startups. This blog features a mix of how-to content, opinion articles, and guest posts from fellow investors and startup founders.
- The Lean Startup — By Eric Ries. This book covers the entire Lean Startup methodology and how to apply it to your business.
- Rework — By Jason Fried and David Heinemeier Hansson. The co-founders of Basecamp talk about “a better, faster, easier way to succeed in business.”
- Do More Faster — By Brad Feld. Feld aggregates practical advice from founders and investors about startups, growth, and raising money.
- Startup Owner’s Manual — By Steve Blank. This book provides a step-by-step guide to starting a profitable, scalable business.
- Startup Weekend — A 54-hour startup event put on by Google for Startups and TechStars. Multiple locations around the world.
- SXSW — A week-long event in Austin, TX that celebrates entrepreneurship, tech, music, and film. 2019’s event is March 8-17.
- TechCrunch Disrupt — One of the oldest startup events in the world. Held in San Francisco and Berlin.
Over to You
So, what does startup mean to you? After this guide, you should have a good idea of how you want your startup to look. As long as you have a validated idea, plan for funding, and rapid growth mindset, your startup should be poised for great success.
Consider us your partner on your startup journey. Regardless of what stage you’re in, we know it’s an emotional, difficult, scary, exciting, risky, and rewarding journey. We’re honored you’ve made HubSpot a partner on your path to growth and victory.
Originally published Jan 21, 2019 8:58:00 AM, updated January 22 2019