Founders frequently ask me when is the best time to launch a venture? How does one know that it is the right time to take the plunge? For most entrepreneurs, the launch of a new business is a major professional and personal transition, a decision not to be taken lightly. The final decision takes a good deal of due diligence and reflection. While there are many individual circumstances and marketplace conditions to consider, let’s look at a few essential issues.
As a starting point, what do we mean by launching? For this post, launching your venture is defined as the point where the business begins operations to generate revenues by providing value to customers. You can think of it as the execution phase. This stage occurs you have sufficiently validated your business model, and products are ready to be sold to actual customers. Additionally, the founder is dedicated to the venture at least half of his work time and receiving commensurate compensation for time spent. Many entrepreneurs start their ventures without any payment from the business. In essence, they are self-funding the early stage of the venture. While this can be a viable way to start, it is not a long-term solution. Therefore, let’s assume that the founder needs to generate some income at the start of their business.
Many books and articles address why new ventures fail at such high rates and why fewer succeed. It can be a daunting proposition. But if you look at the reasons why some new ventures triumph and others don’t, you start to formulate essential questions to answer before officially launching your venture. While working with founders, I have them complete a launch readiness checklist to help them focus on significant issues. Let’s look at each category, starting with the two pillars of product-market fit, the market & your solution.
Marketplace Knowledge & Access
First, do you know enough about my market to launch? This knowledge includes a clear understanding of your most passionate customers, the problem they are most urgently hoping to solve, and what they want from an effective solution. You also want to validate that your solution solves this problem, addresses their critical pain points, and does it better than the current solutions in the marketplace. The responses to these questions describe your first target customer, and you must be very clear about your customer’s profile.
Secondly, have you segmented your market in the best way for your venture’s early market entry? Founders quite often push back on the concept of focusing on a single customer segment. They believe and (rightly so) that they may be giving up revenue by targeting just one part of the market. However, the tradeoff is that they can focus their marketing efforts to enter the market quickly and build a solid foundation. If they decide to go after multiple segments early, entrepreneurs risk using limited resources in a suboptimal way. This condition leads to a product that does not address all segments’ needs or increases in marketing expense to broaden the reach into multiple customer segments.
Thirdly, founders need to evaluate their current access to the customer honestly. A vital element of this market knowledge is an estimation of how many customers you will reach in the early years of your business. To determine what is possible, you need to look at your promotional strategies and the potential to reach early customers and move them through the sales cycle from awareness to purchase to advocacy. Of course, much depends on how much money you have to spend on marketing throughout the sales cycle.
Finally, founders need to evaluate how much to spend on sales and marketing. Do you have enough resources to fund customer acquisition aggressively? You need to ramp up promotional activities to move customers through the sales cycle. You will still do a good deal of testing to ensure that you spend your marketing funds optimally. The truth is that there is no way to get around this. Customers need to learn about your solution and then lead towards purchase. The idea that word-of-mouth marketing will achieve all this is mostly a myth. Even with a relatively large network, conversion rates are usually quite low. So even if you have 10,000 followers on Linkedin, it may not be enough. Consequently, you should plan to spend funds on marketing, and it is vital to establish a go-to-market strategy that allows for brief experiments to see which channel and approach bring in the most customers. As you find effective channels, spend more on them and make sure you eliminate any poor-performing activities quickly.
Product Development Status
There are several questions to answer when it comes to your product offering. First, have you proven that your product solves the customer’s problem they want (and need)? Have you tested your product with enough target customers to demonstrate that they cannot live without your product and can’t wait to get their hands on it? In a sense, these are fundamental questions that to be answered in the affirmative before you can move forward.
Startup challenges occur when the entrepreneur fails to test and validate whether the product they have conceived solves a problem that the customer values. When a venture meets both criteria, we call it a problem-solution fit and is sometimes erroneously referred to as product-market fit. Does the entrepreneur understand how the customer experiences the problem when confronted with a challenging task or job? When unpacking the customer experience, are the customer’s pain points identified? How severe are the pain points? To what degree does the customer value a solution that minimizes or eliminates these pain points? These questions should be addressed before one launches their venture. There is a difference between problem-solution fit and product-market fit. These early questions respond to the former; more due diligence is needed to validate the latter.
To validate product-market fit, you need to show that you can deliver value to the customer. Thus, founders need to look for confirmation that their business model works as proposed. Once you have confidence that the solutions solve the customer’s problem in the way they desire, then you need to zoom out and look at the whole transaction. The repeatable and scalable business model considers your go-to-market strategies, channel management, capability & adequate resources, and sound economics. Founders should have a solid handle on all these elements before launch.
The entrepreneur validates product-market fit during later minimal viable product iterations. Early MVP tests focus on the product functionality and its capacity to solve the problem the customer needs. Later iterations focus on market channel efficacy, customer purchasing behavior, delivery and service logistics, and the like. Many things can go wrong during these tests, so you want to ensure that each element of the customer transaction works as the customer expects. The quality of your launch is critical to your early brand identity. I always advise founders to manage customer expectations carefully during the launch phase. Be clear on the status of the offer; don’t over-promise.
Speaking of over-promising, many startups provide early customers with a high-touch concierge service. This type of service is part of a long-term strategy for some ventures, and founders plan to deliver products and services with a high degree of customer engagement. I agree that this high-touch approach is a good strategy in some business areas, like professional services. However, it will take plenty of resources to scale this business model. The concierge approach is applied to early customers for many startups while the business model is still being tested and validated. In this case, they know that to scale is not a long-term strategy. But in the early stages, it is an excellent way to build strong relationships with early adopters of your solution. These positive customer experiences are essential drivers for future traction and growth. As more and more customers purchase your products, you need to build capacity and resources to maintain quality. Unfortunately, many startups rush to scale at the expense of quality customer engagement and service.
Another challenge as founders transition from problem-solution to product-market fit validation is the level of technology innovation required at each stage. Innovation can happen in many ways in new ventures. For example, a solution using proprietary technologies can be exciting for entrepreneurs and customers. But emerging technologies can be challenging, forcing customers to learn new behaviors and entrepreneurs to spend more on tech development and customer education.
Many early MVPs will rightfully test problem-solution fit using existing technologies or blend old with new proprietary applications. During this early validation period, this makes the most sense. But founders are faced with many decisions about product development timing, testing, and marketplace transition of ever-advancing tech solutions as they expand their customer base. There will be signs that the existing technologies may be reaching their limit as you grow. You won’t be able to time these transitions perfectly, but keeping careful watch for signs of strain, such as product delays or quality issues, is essential.
Capabilities and Resources
As you prepare for launch, you must review your current capabilities and resources to execute your business model and consistently provide value to the customer. As a starting point, ask yourself if you have formed the best team for the start and early growth of your venture? Do they have the right mix of domain expertise, industry knowledge, passion, and character strengths to do what is needed?
Many entrepreneurs identify an opportunity, a problem that requires a new solution, with little or no expertise or competency in critical technical or knowledge areas needed to develop the proposed solution. I like to break down the required experience and skill sets into technical, marketing, and managerial areas. Of course, starting and operating a new business involves several skills and, not to mention, a great deal of hard work. However, there are some critical areas where expertise is helpful and required.
Once you evaluate your in-house team capabilities, you can determine what is needed and hire or contract it to an outside provider. There are many advantages and disadvantages no matter which way you go. Hiring core team members or co-founders can bring the necessary knowledge and skills to the venture. You have more control over strategic decisions and execution. On the other side, you are making a substantial monetary commitment. If the person you hire is a good fit, it will help solidify your value to the customer. However, if the person is not a good fit, it can cause tension within the venture and lead to costly turnover. If you outsource a specific functional task, you may give up some control over timely execution. Still, you can test the fit between contractor and venture, making changes as needed. Of course, it is not as easy as it sounds. Terminating any meaningful functional relationship can disrupt your progress.
Many founders start with a combination of in-house and external resources. Striking the right balance is essential. When I think about the most core activities required to provide value to the customer, founders will want as much control as possible of those tasks. As you prepare for launch, you need to inventory these critical activities and what resources you have at your disposal. What do you have in-house, and what do you need from external sources. External sources can come from hiring outside service providers or through strategic partnerships. As with the business model canvas, you decide on the key activities and associated resources, then make sure you can cover these either internally or from the outside.
Fundraising Status
One of the significant decisions founders must grapple with is when, how much, and from whom to fundraise. Before actual launching, founders must have a reasonable estimation of the funds required to operate and grow the business for the first couple of years. I always have founders project their financial performance for up to 36 months (month by month). After that, typical funding runways are short, usually around 18-24 months. So you need enough time to source funds, execute and meet venture goals, and begin the search for the next round of funding.
When considering a near-term venture launch, you need to ask whether you have access to the correct type of funders for the amount required? In general, you can begin to select the type of investments needed once you project the necessary capital to continue operations, along with what is essential to meet the next level of estimated growth. It always makes sense for entrepreneurs who seek outside investors to delay this event until as late as possible. Investors like to see that entrepreneurs are not dependent on their funding but know how to complement their money with other resources. Every entrepreneur, therefore, needs to learn how to capitalize on early startup financing. As part of your launch decision, ensure that you have looked at all the ways to find early funding sources, from bootstrapping to crowdfunding.
The timing of fundraising is tricky. Founders need to consider when they will need the money and then walk backward to decide when to start the search for funding. You also must think if your venture can be attractive to outside funders. Maybe an overused term at this point, but investors are still interested in some form of traction, evidence that there is consistent progress in crucial metrics – customer acquisition, revenues, and product innovation milestones. Typical milestones that can trigger a jump in the company’s value include:
- Developing a working prototype.
- Gaining a few paying customers.
- Having a patent awarded.
- Receiving a government grant.
- Signing up a larger company to test the results of the development.
- Getting some paying customers.
Overall, your progress and evidence that you can meet stated goals consistently will make your venture attractive to funders. The more a startup progresses with its plans before seeking outside capital, the higher its value.
One essential question to answer before you launch your venture is, do you have enough personal cash to sustain yourself during this period if needed? In other words, are you truly ready? Founders need to carefully assess how long they can manage with limited to no income. Generally, there are several common capital needs scenarios that founding must consider. You need to look at how much the venture needs to support early operations and how much you need to sustain yourself simultaneously. The scenarios range from having enough capital to support the venture and yourself to having enough to support yourself but requiring funds to run the business. And then, there is the scenario where you don’t have enough capital to invest in the venture or yourself without external funding and alternative means of personal income. I don’t think the latter conditions need to be deal-breakers. Many entrepreneurs find ways to balance the income risks by working on their venture part-time while employed in a full or part-time position. Sometimes if there are two co-founders, one works on the venture full time, with some part-time employment, while the other does the opposite. There are many options to balance the risks, and finding what works for you is an integral part of the decision process.
Legal Considerations
Entrepreneurs can quickly become overwhelmed by the many actions required to establish their new venture as a legal entity that meets all local and federal regulations. In many countries, the regulatory hurdles can be a barrier of entry in their own right. So, here are some clear priorities to help you decide what actions to take first.
For the first step, soliciting guidance from both a lawyer and an accountant is always advised. While there are certain activities you might accomplish on your own, having expert advice will ensure that significant mistakes do not occur.
Founders should review all intellectual property to ensure proper protection as a starting point. An excellent place to start is to check all brand elements to ensure that you can use them without fear of future challenges or litigation. For example, can you incorporate using your existing venture name? Is it available to trademark? Do you possess all associated digital assets, including domain names, social media handles, and associated marketing content? Before you launch, you should make sure you can essentially own your venture name and related brand elements.
Founders also want to consider how much protection you can wrap around your venture’s solution. Is your product offering different enough to apply for patent protection? Again, there are specific criteria to consider before you seriously consider patent protection. For now, if you think your solution is a candidate for a patent, immediately speak with a patent lawyer for advice. There are precise timetables to follow, so don’t delay soliciting legal advice.
There are also several significant legal agreements that you should have in place in the service of protecting your intellectual property and venture, in general. For example, you should have established founder and employee agreements assigning all intellectual property created by any employee during their employment is owned by the company. This assignment is a critical practice and must be a priority. You can risk future funding if you can’t prove that the company owns all intellectual property. On a side note, entrepreneurs employed by someone while working on their startup need to check any employment agreement to ensure that their employer does not own their startup IP. Again, have this discussion early.
Secondly, before you launch, founders must consider the best legal structure for their venture. There are several issues to consider and beyond the scope of this post. However, the legal structure you choose for your new venture will impact registration requirements, taxes, and personal liability. Each legal structure has its advantages and disadvantages, and your decision depends on your short- and long-term goals for your enterprise.
Another action to take before you start collecting and spending money is opening a bank account for the business. A business bank account helps you stay legally compliant and protected. You are ready to open an account once you have your legal structure documentation, tax IDs, and applicable business permits. There are many benefits to establishing a bank account, but most importantly, banking offers limited personal liability protection by keeping your business funds separate from your private funds.
Milestones and Metrics
Finally, do you have an established plan with clear priorities and timetables but with enough flexibility to pivot when required? Can you demonstrate a history of goal achievement using KPIs to measure and monitor progress? Have you identified the one or two key metrics that matter the most, the milestones you must meet to survive? I always have founders provide a detailed “next steps” plan and timetable focusing on essential business model activities such as customer acquisition rates, product development goals, key hires, and funding rounds.
Conclusion
Bottom line, launching a new venture is a major professional and life transition for founders and key team members. You want to establish the best foundation for success.
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