The Formula for a Successful Start-up

Towards the end of an engaging coffee meeting with Harold Brown, a well known and self defined serial entrepreneur and investor in the rising tech community of metro Atlanta, he made this observation, “As I am getting to know you Mike I’ve come to the conclusion you are not a ‘creator’ you are instead a ‘doer’ and I bet if we paired you with a good creator we’d get one heck of a start-up.”   

I wasn’t insulted by that observation at all.  In fact he captured me perfectly.  I am a doer and always have been.  My consulting company is all about helping business owners become more disciplined doers.  There is no doubt the aircraft engineering degree (process orientation) and military upbringing (Dad was career USAF) contributed to these traits.  The whole conversation got me thinking about what the necessary ingredients are for a successful start-up – outside the risk taking, free spirit characteristics you hear about most often. Here’s what I concluded:

(C + D) + Fr = SSu

or

(Creator + Doer) + Financial resources = Successful Start-up

Leave it to a former engineer to turn an observation into an equation. Let’s take a moment to dissect this formula.

Financial resources:  The inclusion of this in the equation should not be a surprise to anyone. It takes money or equivalent to start a company.  We all know that - whether that means going without pay for years or writing checks for website, business cards, office space, travel, capital equipment, etc…. I read somewhere that one of the top three reasons for a start-up failure is being under-capitalized.  In other words they simply run out of money before sales revenues are sufficient to support the business.  Now I will argue that a vast majority run out of money because they spent unwisely namely because they lacked a Doer who would ensure a plan was in place to control precious cash.

Creator:  This is the passionate idea person who can see a problem or need as well as the business solutions to address it.  Though there are common traits between a creator and an inventor the difference is dramatic.  A creator in this case conceptualizes a business solution before a technology solution. Sadly an inventor‘s approach is exactly opposite, which explains why so many inventors are flat broke.  Jeff Stibell wrote this in a Harvard Business Review article titled, Are you an Inventor or an Entrepreneur?

“But don’t confuse being an entrepreneur with being an inventor. Great ideas are a dime a dozen. Action is what differentiates an entrepreneur from an inventor. If you want to focus on ideas, become an inventor — not an entrepreneur.”

Guys like Henry Buckley typify the definition of a creator. He conceived and started 10 businesses, the latest a jogger-based door-to-door pamphlet delivery service called JogPost.

Doer:  This is a person (a) with the discipline and skills to develop and execute a credible business plan, (b) who possess fundamental selling and marketing skills, and (c) who is versed enough in financial balance sheets to make critical and timely decisions, (d) who knows how to find, hire and motivate a talented workforce, and (e) who knows when and how to engage outside experts (legal, accounting, etc…). 

Now don’t get me wrong, I am not suggesting that this is an entirely different person from the creator.  Though quite rare, a creator may in fact possess some or all of these traits.  The important message is a business cannot make it without a well thought out plan, good marketing, strong sales and a disciplined approach to how capital is being utilized.  Take away any one of these and you’ve significantly impacted your chances of success.

Jim Flannery, Founder of the Four Athens technology incubator, reinforces this formula when he shared with me the reason the word “Four” is in his incubator name.  His experience says that you need the following four things to make a successful start-up:

• A business person
• A marketing/sales person 
• A technical person that can implement an MVP (software/hardware start-ups exclusively) 
• A service provider (legal/accounting) 

“I am very fearful of solo founders,” Jim says.  “My advice, rather than say "do you possess these traits", is "can you find two other people that possess one of these traits each AND believe in your (creator) vision"  

My strong message to those creators is to be brutally honest when assessing your skill-sets and if you lack any of those under the category of doer don’t make the mistake of thinking you can get by without it. I’ve seen enough to confidently say you can’t and won’t.

Want some growth advice for your metro Atlanta start-up from a proven "doer"?  Let's chat over a cup of coffee.  Contact me here.

Mike Gomez is the founder of Allegro Consulting, a business growth specialty firm.  He has served as a program manager and business development executive in both Fortune 100 companies as well as small businesses. Through the use of sound yet simplified business processes he has helped Georgia companies achieve remarkable sales growth. Mike is a growth strategy and complex sales expert, prolific writer, speaker, guest lecturer at GaTech and UGA, and a mentor at FourAthen technology incubator and Atlanta Tech Village.  http://allegroconsultant.com

“I’ve fallen and I can’t get up!” - Staffing needs and the early stage start-up.

So you have this great idea for a business.  You are prepared to make the sacrifices to self finance until sales can support the company.  You’ve analyzed your personal strengths and weaknesses and recognize you lack some of the critical skills required to get the business off the ground.  You need help.  But you can’t afford the full time salaries to hire the talent your business demands. 

What do you do?

This is one of the recurring scenarios I have seen with start-ups.  It’s an ugly sight really; watching a founder run full speed into this brick wall of reality.  And my advice is always the same.  If you do not have a solution to overcome this particular weakness then STOP. Don’t continue to build, or develop or spend time or money on this business idea because you will fail.

The staffing shortfall I see most often is the role of sales – sales strategy and implementation. Most founders first believe that selling is the easy part, that it’s something they can do themselves.  Or, there are those who attempt the, “if I build it, they will come” philosophy of sales. And finally, the last group, believing that social media and email blast will be a sufficient sales force.  They eventually learn that selling is crucial to the business and requires a level of expertise and experience. 

So, assuming you need more talent than is available through a free intern, what are the options for securing such talent? Let’s run down the choices.

1. Commission only.  This approach will have the least impact on cash flow because you only pay when sales are generated.  Yes, you might have to pay upfront for car allowances, cell phones and computer charges but that’s about it.  However, you’ve heard the saying, “you get what you pay for”?  This applies here.  Those who will take a commission only job are no doubt self starters but they will also ditch you in a heartbeat for a better offer. Their bottom line is the driving concern not your company nor your customers. If your product or service is a fairly easy sell and the rewards flow quickly this may be a good option for your start-up business. On the other hand, if it is a longer more challenging sales cycle and pay-out of commissions will take longer, I have found that more time will be spent by your new salesperson revising his or her resume and looking for a better gig than actually selling.
2. Base pay plus commission.  This is by far the surest method for hiring the exact talent you need – qualifications, industry experience, past performance.  The downside of course is impact on cashflow. You will be writing checks before any sales are generated.  Striking the right balance between the amount of base pay necessary to secure talent while keeping the motivating force of the commission will be one of your tougher challenges. 
3. Deferred pay plus commission.  This is an interesting variation of the base pay plus commission approach.  Here you and the candidate agree upon a market base pay and commission structure.  Then, predicated on current and future cash flow projections, you decide how much of the base pay you can afford to pay now and how much you will ask the prospect to defer to a specific date or milestone. The prospect is basically letting you use his pay as operating capital until there is sufficient cash flow.  Here are the four areas available for negotiation (flexibility) with this approach:
1. the length of the deferral,
2. the interest rate applied to amounts deferred,
3. the amount of compensation deferred, and
4. the pay mix or combination of cash and noncash forms of compensation that are ultimately paid.

This can be a particularly compelling tactic if there is a milestone on the horizon that will trigger an influx of new capital (meeting a performance standard, venture capital infusion, achieve positive cash flow status). As you might expect significant trust in the business idea, the business model and most importantly the management team to execute and monetize the idea is critical. As founder it is your job to instill that trust and make absolutely certain you pay the deferred amounts with interest as promised.  

Having the right talent on hand to support your start-up is crucial to success.  Attracting that talent can be a challenge with limited cash flow.  It starts with identifying the roles and responsibilities you expect that person to fulfill.  Follow that with writing down the qualifications and experience you feel are necessary for that person to be successful. Lastly is outlining a cash flow appropriate compensation plan that you will use to attract that individual.  

Mike Gomez is the founder of Allegro Consulting, a business growth specialist.  He has served as a program manager and business development executive in both Fortune 500 companies as well as small business. Through the use of sound yet simplified business processes he has helped Georgia companies achieve remarkable growth. Mike is a guest lecturer at GaTech and UGA and a mentor at FourAthen technology incubator. He can be reached by phone at 678-908-8433 or by e-mail at m.gomez@allegroconsultant.com. Visit http://allegroconsultant.com