Feeling like you'd have a better chance of winning the lottery
than getting a term sheet from a VC?
July 07, 2000
by Vincent M. Occhipinti
Your odds might not be that far off. An established venture capital
fund will receive more than 9,000 business plans per year. Of those,
only .17 percent, or about 15 companies, will secure funding. Why
did those 15 get financed? Because they had a strong combination
of four components critical to a startup's success: great team,
right market, focused execution and market leadership.
With the right resources, great employees
can build great products and services.
The first startup essential is attracting stellar individuals into
your organization: employees, board members, advisory members, and
partners. Every person associated with your company is a credibility
point that shows customers, prospective employees and VCs that this
company is going to be a success.
While most entrepreneurs articulate the importance of "building
a strong team," they tend to wait too long before they begin. Top-tier
management will cultivate, grow and attract top-tier employees.
With the right resources, great employees can build great products
Here's the conundrum. How do you build a top-tier team until you
get financing, and how do you get financing until you have a top-tier
team? First, start with a commitment to bring in complementary skills,
including a stellar CEO, as soon as possible. Having a hard time
recruiting Jim Barksdale to be your next CEO? Then get him, or someone
like him, on your board of advisors. Be creative, use all your contacts
and fearlessly recruit a strong advisory board. A strong advisory
board can open funding doors, provide strategic direction and help
the company recruit quality employees.
What is the actual, addressable size of your target market? There
must be a large, demand-driven market for your products and services,
and a compelling value proposition.
To gain venture financing, a company typically has to have the
potential to achieve a market capitalization of $1 billion or more.
Test your ideas on potential customers and survey them to develop
your product specifications. Don't assume that what is intuitive
to you will be wanted by them. Knowing your target market and competition
will increase the likelihood of building, pricing, marketing, distributing
and selling your product or service successfully.
There is a good chance you will get distracted. Keep your execution
focused on the primary target market to yield the greatest results.
Avoid the temptation to tackle too many opportunities and related
markets too early. At the same time, if your business model and
initial strategies are not resonating with customers, be willing
to change, but stay focused on your new positioning.
Those who get there first usually get the most. If possible, quickly
establish alpha and beta tests with customers. After they have been
successful, lead your market and execute with speed. Use momentum
to your advantage by continually improving your product and entrenching
your value proposition in the minds of your customers. The speed
at which you execute will produce barriers to entry and credibility
that will help capture market share and venture-capital attention.
Most startups do not begin with these essentials, and each one
drives the other. The best partner, venture capital or otherwise,
should help you build the right balance among these essential components.
While there are many other startup essentials, if you have these
four, you are well on your way to building a sustainable company.