For new entrepreneurs, starting a business can feel overwhelming, like you’re lost in the wilderness with limited resources. As innovations and trends emerge, business success seems more challenging than it was a decade ago. Today, it’s estimated that over 50% of U.S. startups fail in their first four years. The odds of success are worse if we consider sustainability, scale and value creation.
If business leaders want to escape the proverbial woods, they must journey over rough terrain to find their city of gold. As emerging entrepreneurs navigate the startup landscape, they need to identify the necessary tools to survive.
After years of building my own companies in various sectors, including the fintech industry, I’ve highlighted the essential tools that have helped me evolve and effectively lead companies to success.
1. Create A Business That Solves Problems
The best entrepreneurs don’t need to come up with the best ideas, but they need to solve market needs. Your product or service should serve a community purpose that is continuously in need. Lyft solves various intersecting problems in the same business area. Affordable ride sharing was not always accessible or accountable in every neighborhood, but it’s also safer and provides more information for the driver. Recognizing two key variables, the company generated a solution to the problem.
Advice: In its report on why 101 post-mortem startups failed, CB Insightsidentified the No. 1 reason as “no market need.” Market research is vital, so in order to become an expert in your field, commit the time to focus on key problems — and solutions — in your industry. Work from a general perspective and then analyze the details of the issue. Knowing your industry inside and out is one major key to survival.
2. Understand Value Proposition And Unit Economics
Funding is necessary to start your venture, but the real focus should be on creating a financially viable company, not simply sustaining growth through each funding stage. Many CEOs have tanked companies because they couldn’t accurately keep track of cash flow or focus on a product or service with attractive, scalable unit economics.
Advice: First, focus on revenue and profitability on a per-unit basis and then determine the potential scale that’s realistically achievable. As you focus on profitability, a refined monthly budget can help track how much you’re spending for yourself and investors. The latter will want to know the specifics of your spending, and along the way, they’ll ask you questions in various financial areas. Here’s how you should prepare:
• Hire a competent, well-qualified CFO to understand the nitty-gritty numbers.
• Calculate the company’s three-year projections.
• Identify the assumptions underlying your projections, including on a per-unit basis.
• Track KPIs for financial performance.
3. Form The Right Partnerships
Hiring the right people builds the sturdy foundations of any business. If you have business partners, establish a company with someone you know, like and trust. Co-founders can help ease the pressure a bit, but it’s essential your relationship has clear terms. A strong founder agreement will help avoid a scenario a la Mark Zuckerberg v. the Winklevoss twins.
Advice: A founder’s agreement should break down the legalities that are fair and profitable for each member. These steps and questions can help you form trust and lasting partnerships:
• Identify which members get which percentages of the company.
• Determine if vesting is appropriate (it usually is to ensure alignment and focus).
• Detail the roles and duties of each founding member.
• Create buyback terms. Does a founder or company have the right to buy back a share if a co-founder leaves?
• Provide fair salaries.
• Agree on a removal process. Under what terms can a co-founder be removed from their position?
• Clarify how much capital founders can contribute or invest in the company.
• Determine who has control and a say in which matters.
• Solidify a review process if a co-founder isn’t performing to standards.
• Agree upon the overall goal and direction of the business.
4. Prioritize People
Your customers are your north star. As a tech entrepreneur, prioritize people and their needs. Invest time to simplify your business into a clear model with strong support systems that differentiate your company from others.
A second aspect of the people equation is your company’s team and work culture. The team you choose will help define your success. Business strength comes from its team players, and it’s necessary to build a company culture that is dynamic, meritocratic, positive and driven.
Advice: Invest in employee advocacy, create transparent team structures, offer opportunities for career development, and encourage diversity and inclusion in decision-making.
5. Line Up Legal Sources
Legal frustrations are bound to occur. New businesses often hire cheap, inexperienced legal services. However, it’s worthwhile to hire expert legal counselors as more serious legal issues arise. Over the years, we have worked with many law firms and have come to develop a few deep, trusted relationships with counsel. A great deal lawyer is worth his or her cost in gold.
Advice: Line up legal counseling before you need it. You can find legal experts through recommendations from business partners, star bar referral services, online research or referrals from venture capitalists and angel investors. Evaluate different types of lawyers or law firms that have experience in different legal backgrounds.
6. Remain Calm And Carry On
A positive mindset can help you get through the stressful times. In fact, mental stability is its own survival skill. As a leader, you’ll be networking with clients, industry professionals, investors, employees and vendors each day. All eyes are on how you act — and react — to new or negative situations.
Advice: Build confidence but remain humble. While it’s important to remain determined and pragmatic, emotional intelligence can also help you secure deals and interact with helpful investors. Balance and self-awareness are also crucial for creating a diverse and supportive team. Exercise, meditate and self-reflect when you have the time. In fact, studies show that meditation helps leaders focus on cognitive tasks and decreases poor emotional reactivity to problems.
This article was originally published on my Forbes Technology Council profile*