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A Primer on Startups

 

STARTUP BOOKS PHOTO_HL

What Is a Startup?

According to startup founders, there are several key features:

  1. Generally a single office (if any)
  2. Revenues less than $20M
  3. Less than 80 employees
  4. Less than five people on the board
  5. Rigorous culture of innovation
  6. Strives to solve critical pain points of existing frameworks
  7. Ability to scale quickly, unconstrained by geography

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“Marmer” Stages

The 6 Stages of the Startup Lifecycle

Named after the cofounder of the Startup-Genome Report, Max Marmer.

Stage 1 – Discovery (5-7 months)

  1. Solicit the advice of mentors
  2. Evaluate business potential
  3. Are we solving a problem, and are people interested?
  4. Establish a founding team
  5. Garner investments from friends/family
  6. Generate minimally feasible products/services
  7. Join an accelerator/incubator

Stage 2 – Validation (3-5 months)

  1. Acquire money or attention to verify interest in product
  2. Refine core features
  3. Obtain pre-seed/seed funding
  4. Expand hiring beyond founding members
  5. Get first paying customers
  6. Implement metrics and analytics

Stage 3 – Efficiency (5-6 months)

  1. Refine business model
  2. Improve efficiency of customer acquisition
  3. Fine-tune the value proposition
  4. Augment the conversion funnel
  5. Reinvigorate or overhaul the user experience (UX)
  6. Achieve viral growth
  7. Find a repeatable sales process

Stage 4 – Scale (7-9 months)

  1. Push aggressively for growth
  2. Acquire a large number of customers
  3. Improve the backend scalability
  4. Hire first executives
  5. Establish departments
  6. Partake in a large round of venture funding

Stage 5 – Maximizing Profits

 Stage 6 – Renewal

Where are Startups Established and Why?

According to Ewing Marion Kauffman Foundation, 2014

  1. Metropolitan areas with more college graduates generally produce more startups
  2. Higher high school completion rates further increase an area’s startup rate
  3. Larger metros tend to have higher entrepreneurial rates
  4. Regions with access to VC funding don’t necessarily generate a higher ratio of startups
  5. Promoting high-tech entrepreneurship does not necessarily elevate the overall economy
  6. Diverse economies normally found in larger cites are more resilient than those of smaller cities

According to the Kauffman Index (Ewing Marion Kauffman Foundation)

  1. 32 percent of American adults created a business per month in 2011, among the highest levels in 16 years
  2. Entrepreneurial rates were highest in the West and lowest in the Midwest

Top 10 Metropolitan Areas for High-Tech Startup Density

  1. Boulder, CO
  2. Fort Collins-Loveland, CO
  3. San Jose-Sunnyvale-Santa Clara, CA
  4. Cambridge-Newton-Framingham, MA
  5. Seattle, WA
  6. Denver, CO
  7. San Francisco, CA
  8. Washington-Arlington-Alexandria, DC-VA-MD
  9. Colorado Springs, CO
  10. Cheyenne, WY

Six Characteristics of Successful Startups

(Laurence A. Baiada Institute for Entrepreneurship, Drexel University)

  1. Ability to identify fertile ground for market opportunities
  2. Compelling value proposition
  3. High-performing teams
  4. Effective communication of a vision that connects the dots
  5. Successful navigation of uncharted territory
  6. Confidence and drive

Failure Rate by Industry

(via Statistics Brain 2014)

Year Failed In

  1. First – 25 percent
  2. Second – 36 percent
  3. Third – 44 percent

Percentage Still Operating After Four Years

  1. Finance, insurance and real estate – 58 percent
  2. Education and health – 56 percent
  3. Agriculture – 56 percent
  4. Services – 55 percent
  5. Wholesale – 54 percent
  6. Mining – 51 percent
  7. Manufacturing – 49 percent
  8. Construction – 47 percent
  9. Retail – 47 percent
  10. Transportation, communication and utilities – 45 percent
  11. Information – 37 percent

White House’s “Startup America”

Startup America is a White House initiative to celebrate, inspire and accelerate high-growth entrepreneurship throughout the nation.

Core Goals

  1. Increase the number and scale of new high-growth firms that create economic growth, innovation and quality jobs
  2. Celebrate and honor entrepreneurship as a core American value and competitive advantage
  3. Inspire and empower a diverse population to build great American companies
  4. Increase collaboration between large companies and startups

Activities

  1. Unite government agencies, innovative entrepreneurs, corporations, universities, foundations and others
  2. Expand access to capital for high-growth startups
  3. Expand entrepreneurship education and mentorship programs to help create jobs
  4. Identify and remove unnecessary barriers to high-growth startups

Startups and MBAs

(Forbes, 2013)

The majority of successful entrepreneurs and investors have an MBA.

  1. 16 percent of Stanford’s MBA graduates launched startups in 2012
  2. Access to research and top professors for feedback can help students execute ideas
  3. Can provide an opportunity to meet other entrepreneurial-minded students and potential business partners
  4. MBA programs are sharpening their focus on entrepreneurship

 


 

 

Reprinted by permission.

Image credit: CC by Erikaow

About the author: Jason Feimster

Jason is an early-stage investor, entrepreneur, and Marine. He believes in entrepreneurship and its ability to improve the human condition. Jason is dedicated to serving entrepreneurs with angel investing and venture capital.

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