In the previous article (Start-Up Slow Burn – Part 1), some of the issues that surround getting a start-up from the idea inception to a stand-alone entity that pays for itself were discussed. The discussion was based on the observation of three 2-people Start-ups that I watched as they went through this same transition. In this continuation article, I cover further ideas on what might happen after you’ve built your Minimum Viable Product (MVP – if you are unfamiliar with this term it is explained in Eric Reis’s excellent book The Lean Startup).
So where are we at now? There is an MVP that is out there and potentially we have real paying customers using it. All done right? No, there are plenty of ongoing costs: maintenance, new feature development, marketing, support, hosting (if you go outside the free tier) to name but a few. Again plenty of material there for future blog posts. Staying on topic, the issue was how long does it take to get to a self-sustaining product that the founders can quit their day jobs for? Well, there is the whole emotional side to leaving a day job – the ‘security’ and ‘stability’ changes therewithin. Those aside, you probably have some expenses: mortgage/rent, bills, fine wine drinking hobby… The first step is to do a budget and figure out what you need to survive financially – there are plenty of free tools out there to help you figure out where you can cut back. Next, don’t forget to budget for your time/lifestyle choices. If you have to care for an elderly relative or look after kids, you may have very valid reasons for not fully jumping from a day job to your start-up. Start-ups can soak up 100% of your time as you throw your all into it – you can treat the start-up as a more ‘lifestyle’ company and not your ‘day job’ but this will inevitably mean it takes longer for the start-up to stand on its own and grow.
The start-ups in question have not grown to the point where the revenue they generate covers their own costs and the day to day expenses of the founders but there is hope one day they will. A key observation here is, it is possible that the start-ups absorb so much time that to grow them effectively, you need to reduce the working hours at your day job or leave it altogether before the startup has become cash flow positive, let alone broken even. I think there are a number of suggestions here to help. You can trade money for time – e.g. pay a virtual assistant e.g. on eLance or ODesk to do some work for you so you don’t have to spend as much time on it. You still have to manage that assistant but if you get the delegation right you can extend your organizational productivity through outsourcing. Consider consultancy / contracting (e.g. aforementioned sites) may help raise additional funds alongside your day job (but we wary of Intellectual Property/Moonlighting issues in your employment contract). In extremis, you could quit your day job and do consultancy/contracting to pay the bills and use all the rest of your time for your start-up. Can you see the elephant in the room? External Funding… this is definitely a separate post but my key observation is raising funding has two key downsides, a) it takes up the founders’ time (that they could be using on their start-up) b) it often comes with strings or additional cost e.g. giving up control to the investor, financial reporting requirements etc.
My thought on the whole ‘success’ metric for a start-up is first, have you validated that there is a pain point for real customers that you have solved with your MVP and that they are willing to pay for it (unless you are doing it for fun/charity). Having met this bar, I think the next bar is, does the MVP revenue pay for the operating expenses (OPEX) of running the MVP e.g. hosting costs, marketing costs etc. In this situation you could keep the MVP running indefinitely with “just” a bit of your time, assuming the market conditions do not move one (e.g. a new product/competitor changes the minimum bar for you MVP). To get to the next stage, that is, the MVP generates enough profit (not revenue) to cover your founders’ expenses (i.e. effectively pay your personal bills). I think this is where the funding gap is perhaps most acute and baring impressive/viral organic growth in sales that can fund growth, you need to look at the other sources of raising capital e.g. consultancy, raising external funding, grants etc. Just as an aside, if you are lucky enough to have plenty of spare savings or come into some money e.g. from an inheritance, redundancy pay-out, lottery win :), you may consider self-funding this stage of growth (well at least using this to pay your personal bills).
So to wrap up this article, that has probably sown more seeds for future blogs than questions answered, the slow-burn phase of Start-up can be just that ‘slow’. There are ways to speed things up but no magic bullet to get you to a self-sustaining business that becomes your day job. It is worth considering all the free resource I mention and being creative with funding growth/development. Most critically, make sure you are building the “right” product and watch out for pivot points. Listen to your customers – ultimately, they will dictate whether your start-up becomes a self-sustaining success by voting with their wallets.
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