What does the startup journey look like?

You can download a PDF of this article from here: What does the startup journey look like

What does the startup journey look like?

 The purpose of this article is to outline the major milestones in the growth of a software startup.  Almost every startup will fail. The time and money invested by the founders will be lost.

Phase 1 Build something that solves the urgent problems of a large number of customers.

The CEO is focused on finding and understanding a small group of people who love the great solution developed for their problems.

Founders, friends, and family initially finance the company.

  • The CEO is involved in every part of understanding the customer problems and developing the solution.
  • The founders have an idea. There are at least two founders. The CTO (Chief Technology Officer) is the primary or sole colder.
  • Founders gain an understanding of their target customers, their urgent problems, and the value to them of solving their problems. The founders may interview up to 300 potential customers.
  • Define the business model canvas. The business model canvas describes the value the startup offers its customers and illustrates the capabilities and resources required to create, market, and deliver this value and to generate profitable, sustainable revenue streams.
  1. The business model canvas is a set of assumptions and facts, which are constantly being validated, invalidated, and enhanced. The canvas changes at every stage of startup journey – sometimes changing daily.
  2. The canvas is basis for creating: various implementation plans, marketing & sales presentations, and investor presentations.
  • Build a working prototype, which solves a subset of the problems for a subset of the customers.

Some people and organizations may invest at this pre-revenue point.

  • Keep piloting and revising the prototype until the subset of customers are delighted with the prototype and are willing to recommend it.
  • Achieve a MVP (Minimum Viable Product). Customers are paying for this solution which solved a subset of their problems.

Angel investors and seed funds may invest at this point

  • Keep adding functionality to the MVP, until the founders believe the solution solves the problems of a large number of customers.

Phase 2 Build a company to sell the solution and enable a large number of customers to achieve benefits from the solution.

Venture capitalists may invest several million dollars. Most of the startups will lose the venture capitalist’s money.

  • The CEO’s focus shifts to building the company.
  • Prepare to scale.
  • Scale

Capital continues to be invested to fund the companies growth.

There are three things only the CEO can do, and no one else in the company:

  • Create and maintain alignment of people with the purpose of the company;
  • Nurture the company’s values, morals, and ethics (often referred to as culture);
  • Hire the leadership team and ensure they work well together. Up to 50% of the CEO’s time will go hiring and managing the leadership team. At least 1/3 of the leadership team hires will not work out and must be fired.

Much of the CEOs work from Phase 1 will be delegated. The CTO does little or no coding, while leading at team of 10+ people.

Phase 3 Exit

A financial exit will take from 7 to 15 years.  Few of the founding CEOs will be the CEO at the exit time.

The financial exist may involve:

  • IPO;
  • Sale to a strategic buyer; or
  • Sale to a long-term investment fund.

Mentor at gener8tor’s gBETA progam

On Oct 30, 2019 I became a mentor at the Toronto gBETA program. gBETA is a program from the US based accelerator gener8tor. gBETA is a free, seven-week accelerator for early-stage companies with local roots. Each program is capped at five teams, and requires no fees and no equity

https://www.gbetastartups.com/toronto

gener8tor is a concierge platform for the creative economy that connects startups, entrepreneurs, artists, investors, universities and corporations. The gener8tor platform includes pre-accelerators, accelerators, corporate programming, conferences and fellowships focused on entrepreneurs, artists and musicians.

https://www.gener8tor.com/

What is a business model canvas?

You can download a PDF of this article from:  What is a business model canvas?

The purpose of this article:

This article outlines what should be in your documented business model canvas. The business model is the story of who your customer is, why they buy from you, and how you make a profit. The story consists of both narrative text and numbers.

The documented business model canvas is valuable because it helps:

  • Founders figure out how to create a successful startup.
  • Leaders of successful companies focus all the employees on success by communicating what makes the company successful.
  • Leaders figure out why and how to change their company for continued success.

Execution plans are derived from the future state and current state business framework and business model canvas.

You can have more than one business model canvas, representing different points in time.  An early stage startup may have a single business model canvas outlining the future 3-9 months out.

The business model canvas I use is based on “MaRS Business Model Design, Workbook 2” https://learn.marsdd.com/wp-content/uploads/2012/12/Business-Model-Design-WorkbookGuide.pdf .

A business model canvas is only 1 of the 10 components of a business framework (See Further Reading “The Startup Business Framework has 10 sets of components”)

Each of the nine sections of the business model has 4 pieces

  • Definition: of what this section is.
  • Assumptions: What you believe is necessary in the section (both narrative and numbers)
  • Facts: These are the facts (both narrative and numbers)
  • Next steps: includes what you need to do to validate the assumptions.

A What is a business model canvas?

MaRS Definition:

“A business model describes the value an organization offers its customers and illustrates the capabilities and resources required to create, market, and deliver this value and to generate profitable, sustainable revenue streams.”1

B The business model canvas has nine components.

The nine components of the business model canvas are all inter-related.

#1 Customer Segments

Definition

These are the target customers.  Each customer segment will have its own value proposition.

Questions to answer include:

  • Who exactly will you be creating value for?
  • Who will pay you? Who achieves value and who pays you may be different – think of Google.
  • How will they recognize themselves?
  • Who will be your most important customers?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#2 Customer Value Proposition

My definition of a value proposition

A value proposition is the customers perception of value.

This perception can be influenced by: facts, emotions, family & friends, social media, etc.

The value proposition = (All the customer achieved benefits) / (All the customer incurred costs)

All the customer achieved benefits can include both financial and non-financial (e.g. time savings, convenience, status, etc.)

All the customer incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, etc.)

The value proposition also needs to be competitively differentiated.

Questions to answer include:

  • The critical question for early stage startup is: do you have a MVP (Minimum Viable Product)? Do you have some satisfied customers providing some revenue and who would recommend you. An MVP is only a partial solution.
  • The critical question for all established companies and startups who believe they are ready to scale is: Do you have product/market fit? It is clear that there is a large market with a demand for your solution.  A key metric to assess product/market fit is NPS (Net Promoter Score).   See Further Reading “Do you have product/market fit?”
  • What value will the customers perceive they will achieve? This is very different from you opinion as to what value you will deliver.
  • What problems do your customers think you will solve?
  • What customer needs will be fulfilled?
  • Why does the customer believe the value of your solution is better than the status-quo or the competition?
  • What does the customer believe will be the impact of your solution? E.g. 10 times improvement in something?
  • What product or service will each customer segment perceive?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#3 Customer Relationships

Definition

What type of customer relationship do your customers expect to have with you?

Questions to answer include:

  • How will customers be acquired, kept, and grown?
  • Why type of relationship does each customer segment expect you to establish and maintain?
  • What types of relationships have you already established?
  • What is the cost of each type of customer relationship?
  • What is CAC – customer acquisition cost?
  • How many customers are we losing – churn rate?
  • What is LTV – lifetime customer value? In the initial startup stages, LTV will be less than CAC, because of the need to obtain an initial pool of customers by doing inefficient things that don’t scale.  As the startup is getting ready to scale, it will have figured out how to make LTV exceed CAC.

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#4 Channels

Definition

Channels are how to connect the value proposition to the target customer.  There are three different types of channels:

  • Communications – used to communicate with potential customers. There may be many communications channels.
  • Sales – where customers and sellers agree on the transaction. Usually there are fewer sales channels than communications channels.
  • Logistics – how to deliver the solution to the customers.

Questions to answer include:

  • Through what types of channels do the customers want to be reached? In other words, what channels are most effective? E.g. website, app. Social media, face-to-face, marketplaces, etc.
  • What channels already exist?
  • Which channels are most cost efficient?
  • Which channels are integrated with customer processes?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#5 Key Partners

Definition

A partner may also be a channel, if the answer is “yes” to one of the following questions:2

  • Is the partner a leading entity with a brand and market position that adds to your credibility?
  • Does the partner add expertise and resources to your product solution in a way that increases the value of the product for the end customer?
  • Is the partner (and their brand/expertise/resources) required to land contract with the key target customers?

Questions to answer include:

  • Who are the key partners?
  • Who are the key suppliers?
  • What key activities, supporting your value propositions, to your partners perform?
  • How effective are your current partners and suppliers?
  • What types of partners and suppliers do you need?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#6 Key Resources

Definition

“….resources mean any relevant intellectual property (IP), technical expertise, human resources, financial and physical

assets, key contracts and relationships. In other words, resources refer to anything within your control that can be leveraged to create and market your value proposition (e.g., a patent pertaining to your value proposition, key contacts within the industry).”3

Questions to answer include:

  • What resources are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What resources exist today?
  • How effective are they?

Assumptions

  • TBD

Facts

  • TBD

 Next steps

  • TBD

#7 Key Activities

Definition

“…the key processes that are required to weave together your resources with those offered by your partners to deliver the value proposition, manage channels and relationships, and generate revenue. Examples of key activities include R&D, production, marketing, sales and customer service”4

Questions to answer include:

  • What key activities are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What activities exist today?
  • How effective are the current activities?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#8 Cost structure

Definition

“…the cost of delivering the value proposition, including the resources needed and key activities involved. We want to answer the following key question:

Does the cost structure provide a reasonable profit?”5

Questions to answer include:

  • What are the largest costs in the business model canvas?
  • What are the fixed costs and variable costs?
  • What activities are the costliest?
  • What resources are the costliest?
  • What is the burn rate? (i.e. excess of costs minus revenue)?
  • What are the most important number for the startup to survive?

Assumptions

  • TBD

Facts

  • TBD

Next steps

  • TBD

#9 Revenue Streams

Definition

What will you charge your customers and how will you charge your customers?

Questions to answer include:

  • What is the specific value the customers are willing to pay for?
  • What is the value the customers are willing to pay for?
  • How much are they paying today?
  • What is the pricing model? Subscription, one-time, freemium, advertising, etc.
  • How are they paying today? Cheque, credit card, etc.

Assumptions

  • TBD

Facts

  • TBD

Tom’s observations and questions

  • There is no mention of carry.

Next steps

  • TBD

C Further Reading

 The Startup Business Framework has 10 sets of components.

When a company is first launched, some components may not exist, or may be very simple. Successful growth results in the evolution of the framework, with components being created and modified

The 10 components of the business framework are all inter-related( e.g., every component requires talent).  The following article provides more detail.

https://koorandassociates.org/further-reading/2328-2/

 

Do you have product/market fit?

  • Do your customers love your solution?
  • What is the size of the pool of customers who will pay for your solution?
  • Will your solution make money?

The following article provides further detail.

 https://koorandassociates.org/points-of-view/creating-business-value/do-you-have-product-market-fit/

D Footnotes:

[1] Page 5 MaRS Business Model Design, Workbook 2

2 Page 10, MaRS Business Model Design, Workbook 2

3 Page 9, MaRS Business Model Design, Workbook 2

4 Page 11, MaRS Business Model Design, Workbook 2

5 Page 11, MaRS Business Model Design, Workbook 2

What does the Toronto startup ecosystem look like? (V4)

This document focuses on the high-tech and software startup ecosystem, and outlines the different types of organizations comprising the ecosystem, whose scope is global.  This is not a detailed listing of every ecosystem member. So far, I have identified 25 different types of organizations.

The core of the ecosystem are the founders.  Founders start with an idea.  They create a MVP (Minimum Viable Product) which satisfies some early customers.  Then, they refine the MVP until there is product/market fit. (Current customers recommend the product and there is a large pool of potential customers who have problems that can be solved by the startup’s solution.)

#1 Incubators and accelerators

There are a broad range of incubators and accelerators and almost every one is different. As a startup evolves, it may move among several different types of incubators and accelerators.  Incubators and accelerators focus on startups where can have maximum impact by utilizing admittance criteria and processes. Common characteristics of incubators and startups are:

  • Links to investors.
  • Access to lawyers.
  • Access to mentors and advisors.
  • Networking with other startups.
  • Financing is sometimes provided.

Incubators

The goal of an incubator is to help take a start-up to the point where there is a MVP (Minimum Viable Product). The process takes 12 to 24 months.  The founder decides what incubator resources to draw upon and at what time.

The key characteristic of an incubator is co-located office space with other start-ups.

Accelerator

The goal of an accelerator is to quickly grow the size and value of the startup to enable future funding. The key characteristic of an incubator is taking a start-up company (which already has a Minimum Viable Product) through a very structured 3-4 month process. Actions and outcomes are required every 1-2 weeks.

As of Sep 3, 2019 Toronto has:1

  • 29 pre-incubators.
  • 63 incubators.
  • 54 accelerators.

#2 Venture studios

A venture studio comes up with an idea, assembles a team of founders, and provides capital for the startup.

#3 Angel investors

There are individual angel investors as well as angel investor groups. Angel investor groups have government supported infrastructure (e.g. staff, office space), but the government does not provide capital to startups applying to the angel investor groups.  The capital comes from the angel investors.

As of Sep 3, 2019, Toronto has 216 investor organizations and companies.1

#4 Crowdfunding platforms

Investors make small online contributions.  There are two types of crowdfunding:

  • The investor does not get equity. Their return is a future product or service.
  • The investor does get equity. Any investor living in Toronto may invest up to $2,500 into a crowdfunding equity investment, with a limit of $10,000 per year.  Accredited investors may invest up to $25,000 at one time into a crowdfunding equity investment, with a yearly limit of $50,000.

#5 Pre-seed or seed investors

The goal at the pre-seed stage is to demonstrate that the solution meets a market need.  Pre-seed investors expect the following outcomes at the end of the pre-seed stage:

  • There is a MVP (Minimum Viable Product being used by some delighted customers with some revenue.
  • There is documented product feedback).
  • The team with the necessary skills has demonstrated that they can work together.
  • There are documented experiences with customers which provide facts regarding potential market size and market demand.
  • Conversations with distribution channels and partners have started;

The goal at the seed stage is to demonstrate that the potential market is large and that there is strong demand for your solution.  Seed investment is used to transform the initial MVP into a solution which customers from a large market will demand.

#6 Series A, B investors

At the series A stage, the founders believe they have product/market fit, and the investors believe the startup has both product/market fit and the potential to scale. Key investor questions are:

  • Who are customers and how will they be cost-effectively reached?
  • How will you make money and predictably grow?

Debt financing becomes available from debt investors.  At the series B stage, the startups have been successfully scaling. Debt equity continues to be available.

#7 Post-series B investors

Both equity and debt funds exist.

#8 Niche market investors

There is at least one investor targeting profitable startups focused on a niche market they dominate.

#9 Investment dealers/underwriters

Sartups can raise equity by listing on the CSE (Canadian Securities Exchange), or on the TSX Venture Exchange.

#10 Organizations to sell your startup

These organizations will help you sell your startup, once it’s achieved some success.  They can also help you buy other companies.

#11 Talent development programs

Some organizations train people, to enable them to be hired by startups.

#12 Outsourced or offshore talent providers

Many startups have offshore software development teams, or use outsourced resources for part-time or specialized needs.

#13 Talent acquisition

This includes job boards and companies which enable Toronto startups to hire people from outside Canada and relocate them to Canada.

#14 Associations

There are associations focused on specific types of members e.g., VC (Venture Capital), accelerators, startup CEOs, startup CTOs, etc.

#15 Advisors – legal, financial, functional

Every startup requires a range of advisors.  For example, financial software can collect and report on a board range of information.  An accountant can advise on how to set the software up.  Lawyers are key to providing advice on the range of legal and regulatory requirements, and how best to meet them.

#16 Startup operational services

These SaaS (Software as a Service) companies provide operational services needed by startups e.g., finance and financial reporting (cash flow, profit and loss, balance sheet, etc.), CRM (Customer Relationship Management), help desk, payment processing, etc.

#17 Reviews of startup companies

Some companies are focused on reviewing startup solutions.  Other companies enable reviews of startups as a sideline to their main business (e.g. job boards enable employee reviews of the CEO).

#18 Conferences

Conference organizers manage Toronto conferences focused on startups.  Many of the organizations in the Toronto ecosystem also host events.

#19 Regulators

Every startup needs to be aware of regulatory requirements as soon as they start raising capital.  Financial Services startups must be compliant with many more regulatory requirements.

#20 Federal government programs

Startups can benefit from tax credits, financing, and advisory support. When going global, Canadian trade commissioners are based in 160 global cities.  The startup Visa program enables a foreign employee with a job offer to quickly obtain a visa to work in Canada.

#21 Ontario government programs

The Ontario government has numerous programs, including the funding of the infrastructure for angel groups.

#22 Municipal programs

Many cities have their own programs.

#23 Ecosystem researchers

Facts about startups are available in databases.  Some organizations conduct and publish fact-based research regarding startups.

#24 Startup charities

The Upside Foundation focuses on startup companies donating stock options.

#25 Coworking space companies

Once the startup leaves the founders’ homes (or accelerator) they move to a coworking space. These companies also enable a startup to quickly establish a global physical presence.

As of Sep 3, 2019 Toronto has 73 co-working space organizations and companies.1

Footnotes

1 Startup Here Toronto   https://startupheretoronto.com/startup-support/

Do you need a Strategic Advisor?

Long-term value growth and preservation demands a competitively differentiated talent.  A Strategic Advisor can challenge your thinking, guide you through a decision-making process, and help you resolve issues regarding long-term value growth.

Tom is a Strategic Advisor.  Leaders hire Tom to help them think through and fix their critical company-wide issues

  • You have a critical decision or issue that significantly impacts your company’s long-term value growth or value preservation. You may be unclear as to the core problem, which questions to ask, and what the solution could be.
  • You are a leader (CEO, owner, board director, etc.).
  • You are accountable for the results and require deep understanding, because you are the one who must present and explain your proposed actions.
  • You will personally devote significant time to your issue.
  • The decision or issue is new to you and your company or you have unsuccessfully addressed this in the past.
  • You need someone to help you and your team think through what to do. You will meet with your advisor frequently, sometimes daily.
  • You may need help selecting traditional consultants and in co-ordinating their actions.
  • You may need coaching and mentoring.

Tom Koor is a Strategic Advisor, helping leaders think through and implement the company-wide changes needed to address critical issues with long term-value growth and preservation.  Click here to contact Tom.

You need a traditional consultant if:

  • You are clear on what the problem is.
  • You can delegate to others the preparation of recommendations for your review.
  • You need an industry expert to tell you what others in the industry are doing or have been doing.
  • You need a functional expert due to gaps with internal functional knowledge e.g. cybersecurity
  • You need someone who has done the same thing many times before e.g. install financial systems.
  • You need outside people to help with large amounts of data collection and analysis.
  • You will personally devote limited time to the issue.
  • You do not need coaching and mentoring.

I have a two-fold purpose for my professional life:

1) Help business leaders have a positive impact on society.

2) Help business leaders (current and future leaders) succeed.

Tom’s points-of-view

Long-term value growth and preservation demands a competitively differentiated talent driven board and C-suite.

My website contains my points-of-view about key issues and questions regarding long-term value growth and preservation in a for-profit business.  I do not address not-for-profits, government, or other non-profit oriented organizations.

Each point-of-view is a brief article (supported by a one-page slide available for download) designed to enable discussion among owners/shareholders, board of directors, advisory boards, and C-Suite.  I have no magic “one size fits all” solution.

The following is an overall framework, into which my points-of-view fit. Points-of-view will be added and revised over time.   Recognize my thinking evolves over time, thus all the points-of-view may not seamlessly fit together.

The points-of-view flow from beginning to end, based on 7 themes:

  • Avoiding business failure.
  • Strategy and strategic planning.
  • Understanding customers.
  • Corporate governance – who make the decisions?
  • Transformation – what is it, do you need to do it, it and how to do you do it?
  • Creating business value e.g. Mergers and Acquisitions.
  • Buying or selling your company, or raising capital.

As I create new points-of-view or revise old ones, I am:

  • Including fact-based research and stating the sources for the facts.
  • Adding a section “What do you do if you are a Small Medium Enterprise”.
  • Defining some of the terms I use. Definitions are critical. Feel free to use your own definitions.
  • Adding a section suggesting your next steps.
  • Including references to publications for further reading.

Chair, Advisory Board

I was appointed Chair of the Business Advisory Board at this financial services firm in June 2018.

An internal announcement was made to management. In early August, the founder and I determined that there were more pressing items to consider than the creation of an advisory board.  As of early September, I’m a Strategic Advisor, with a long-term goal of evolving to an advisory board.

Many of you have asked me for details regarding the company.  The company name and details must remain confidential.

I have added two published articles to my LinkedIn profile

I have added two published articles to my LinkedIn profile (www.linkedin.com/in/tomkoor)

“Why most businesses fail and how to buck the trend”, published in the Spring 2018 issue of Consult Magazine, put out by the Canadian Association of Management Consultants

http://www.cmc-canada.ca/consult/articles/all-topics/why-most-businesses-fail-and-how-to-buck-the-trend

“Managing the people aspects of supervisory change” published by The Toronto Centre in December 2016

http://res.torontocentre.org/guidedocs/Change%20Management%20FINAL.pdf

The Toronto Centre trains more than 1,000 government financial services regulators around the world each year. “Managing the people aspects of supervisory changes” is designed to help regulators understand how to use change management techniques.

Update to my points-of-view framework

This section contains my points-of-view about key issues and questions regarding long-term value growth and preservation in a for-profit business.  I do not address not-for-profits, government, or other non-profit oriented organizations.

Each point-of-view is a brief article (supported by a one-page slide available for download) designed to enable discussion among owners/shareholders, board of directors, advisory boards, and C-Suite.  I have no magic “one size fits all” solution.

The following is an overall framework, into which my points-of-view fit. Points-of-view will be added and revised over time.   Recognize my thinking evolves over time, thus all the points-of-view may not seamlessly fit together.

The points-of-view flow from beginning to end, based on 7 themes:

  • Avoiding business failure.
  • Strategy and strategic planning.
  • Understanding customers.
  • Corporate governance – who make the decisions?
  • Transformation – what is it, do you need to do it, it and how to do you do it?
  • Creating business value e.g. Mergers and Acquisitions.
  • Buying or selling your company, or raising capital.

As I create new points-of-view or revise old ones, I am:

  • Including fact-based research and stating the sources for the facts.
  • Adding a section “What do you do if you are a Small Medium Enterprise”.
  • Defining some of the terms I use. Definitions are critical. Feel free to use your own definitions.
  • Adding a section suggesting your next steps.
  • Including references to publications for further reading.

Website launched

My website has launched, with 11 one page points of view regarding long term value growth and preservation.  This includes topics such as: business transformation, mergers and acquisitions, and the role of governance in value growth.