Startups: From a creative idea to “something”

The Life Cycle of the Entrepreneur in Today’s Economy. This is the title of a four part series currently being run by the law firm Foley Lardner and wealth management firm BNY Mellon.  I had the honor of being on the panel for the kick off session that focused on starting your company.  We covered such issues as: characteristics of entrepreneurs, how do you know if it is a good idea, how do you identify a great opportunity, what to look for in team building, and financing options.

As part of the discussion (and to help me prep for the panel), I decided to look back at some of the startups I am involved in to better understand what entrepreneurs had done to start and get their company off the ground, beginning with the initial creative spark for the idea.  And I wanted to look at what they had done to go from this initial idea in their mind to “something”, which was the point that CommonAngels had invested.

I’ve posted the slides below.  For each company, I looked at what each had accomplished in 5 areas – the team, the idea, market/need, the product, financing – and how long it had taken to move the project along from idea stage to “something”.  On the right hand side of each slide is a high level view on what attracted us to each opportunity along with what we all agreed we were trying to achieve with the financing.

Each company of course has its own unique story, and maybe I will blog in more depth on one or two later.  I did though want to highlight some interesting points:

•    Ideas – in all cases the original spark and creativity for the innovation arose  from founders personal experiences – some degree of pain or frustration experienced in either their business or personal life.  For example, verifying the design of a complex FPGA chip was a real pain with existing tools and methodologies – so the founder invented a very clever and elegant technical approach to solving this problem.  In another case, the founder’s daughter lost all her data on her PC and in looking at consumer backup solutions, he found that there was nothing on the market that was a simple and cost effective solution

•    Taking this initial spark and starting to shape a business opportunity around it was an iterative, non-linear process.  Experimentation, research, creativity, brainstorming, networking, and team building underlined much of this phase.  And moving from idea stage to the point where CommonAngels invested took anywhere from 6 to 18 months.

•    During this time, and in a very capital efficient manner, each had started to validate the very high level customer assumptions around the core premises for the business (termed de-risking in the VC industry).  For example:
–    Alpha code testing with a couple of potential prospects – would the novel approach work?  Was there buying interest?  How much better than the existing ways of solving the problem? How would a new tool fit into the existing workflow?
–    Consumer surveys to better understand buying intent and behavior towards online backup – was it perceived as a problem?  How was it currently solved?  What features were perceived as important/not important? What price points were attractive/not attractive?
–    Pre –sold several sponsorships to validate demand for a yet to be launched hyper local news site  (this was huge validation that businesses would part with real money for the concept)
–    Built a very cheap online web site and spent a small amount on search engine marketing to validate that there was indeed an online audience looking for product information.  And from this established some parameters around the potential size of that audience and baseline measures for the cost to acquire.   Often enterprise value for online media companies revolves around being able to acquire a defensible and sizeable audience at a price significantly cheaper than can be monetized.  In todays web environment and using such acquisition channels as Google Adwords, Yahoo! Search Marketing, Facebook, etc its possible to run cheap experiments to test these assumptions

•    In all cases, there was a “team”, meaning more than one founder when we invested.  In one case we helped recruit another founder as the CEO to complement a strong technical founder.  Founding teams varied from 2 people to 5.  Some had worked together before; some were new teams.  Two were first time CEOs.

•    Side note:  As one of my members, Dharmesh Shah, blogged a while back, the optimum number of founders is 2.09 which in turn came from a back of the envelope analysis done by Chan Chaiyochlarb titled “if you are going to launch a startup how many friends do you need?

•    Financing to cover this initial period typically came from three sources:  the founder’s (along with no salary), sometimes family, and sometimes friends.  The friends category is really individual angel investors who had a personal connection to one or more of the founders.

In sum, these could all be categorized as “seed” stage financings with – at the time — lots still to be proven around the concept and business (I will blog more on what I think about in capital efficient first round financings), but we were extremely impressed along all dimensions – quality of the idea/innovation, quality of the team, and the potential market opportunity. And all entrepreneurs had exhibited a frugal and effective approach to testing some key business assumptions with customers and partners.

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3 Responses

  1. Ralph says:

    This was a great read although a few points were better than others. Do you mind if i re-tweet? I may even repost this to my Linkedin.

  2. Chris says:

    Yes absolutely – feel free to tweet it.


  1. April 2, 2010

    […] from $10k to a few hundred thousand dollars, depending on the type of business (see my earlier post on case studies for this […]

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