BEIRUT: From mobile applications to tech gadgets, most purchasable or downloadable items on the market today came to life after a long process that often started with a simple idea followed by years of development to transform a creative concept into a product.
“The road from concept to venture can be a long one,” according to Mark Haidar founder and Chairman of Dialexa – a U.S. based company that offers incubator programs that help turn ideas into products in the market --, “and those who travel it often face numerous obstacles and setbacks; but armed with the right information and resources, you can put yourself on the path to bringing your invention to market.”
While starting a business can be risky and challenging, armed with the proper tools and information, one can spearhead the path to entrepreneurship. Haidar puts the transition from brainstorm to retail shelves in ten steps that each investor should go through:
Step 1: Sanity Check
Assess the idea to see if it solves a problem that people face, which will subsequently make the product needed while keeping in mind who is the target audience of the product and if it’s market is big.
As an example, Haidar noted for Annahar, “People don’t care much about vitamins, even though they’re good for you, but if you have a pain, you’re definitely not going to miss your pain medication."
Step 2: Validate
Validate the idea to others, build a "pitch deck" to introduce people to it and start pitching to friends and family. “When you build this pitch deck, try to tell a story about it and then pitch it to people close to you, see if they actually like it, see if your friends would invest their own personal money in it while encouraging them to criticize and poke holes in it,” the Lebanese entrepreneur says, emphasizing that criticism will help in perfecting the pitching technique.
The most important part of this step is to run the idea by potential customers and incorporate their opinion to see if the product offers a solution. Do this before building the product to lower the chances of wasting valuable time and money.
Creating startups is a difficult endeavor, as is the case of turning an idea into reality but it’s a little bit easier when a great team is formed around the idea for execution. “Ask yourself, can you convince someone else to leave their job or take that risk and join your company,” Haidar explains, noting that this validation can be done without building the initial product or taking any risks.
Step 3: Structure
After validating the idea, from the get-go, start determining the structure of the company especially if there are co-founders. Every company is different, and every company needs a different structure thus looking for the right structure is key.
“A lot of co-founders miss the idea of talking upfront about the operating agreement of a company such as ‘what are the laws that are going to govern this company? And how it’s going to be operated?” Haidar says, noting that it’s very important to have a frank conversation with team members for everyone to be on the same page and most importantly “anything you agree on put it in writing!”
Also, when a company has multiple co-founders, it is important to talk about the allocation of shares. “Never, ever grant all the stocks to the co-founders, even to yourself from day one, what you need to do is create a vesting schedule which allows team members or co-founders to receive ownership of a certain percentage of the company every couple of years,” Haidar says.
Last but not least is corporate governance, in order for the CEO not to get power hungry after some time or when success comes knocking on the door. “The CEO has a boss, which the board of directors, by recruiting your own team or independent people who are competent in the field that could give you candid advice and you want people to report to,” Haidar highlighted, adding that a Board of Directors is who hires and fires a CEO.
Step 4: Build an MVP/MLP
Don’t go and implement your vision, which might cost valuable time and money, before you find the Minimum Viable Product or what Haidar calls the “Minimal Lovable Product.” He notes that 80 percent of users will use 20 percent of the features that the product has to offer, so “find the core feature set in your product and build it in a great way and make sure people love it.”
Test it in a closed environment where people aren’t going to talk, share, Tweet or post about it to others and get feedback while not getting offended by criticism since a lot of “entrepreneurs are very passionate about this product and it’s their baby and no one likes calling their baby ugly.”
Listen closely to feedback while having empathy toward customers, since their true and honest feedback is what will make the product succeed and soften out the rough edges.
And finally if the company is offering a B2B product, then request a Letter of Intent (LOI) from other businesses, which is a document, outlining the key points of an agreement between two or more parties before a legal agreement is finalized, noting that “an LOI is not a contract and cannot be legally enforced; however, it signifies a serious commitment from one involved party to another,” Haidar added.
Step 5: Raise Seed Capital
It’s time to start raising money. But only do so when you need it, Haidar says, noting that the fastest way to secure funding is to approach angel investors. If that fails, entrepreneurs should seek funds from Venture Capital firms.
If that also fails, “you have to stop and ask yourself, am I pitching this right? Is this the right product? Is my idea a good one? because investors want to deploy their money and not leave it in the bank,” Haidar says.
Haidar recommends that entrepreneurs opt first for convertible debt instead of a priced equity round to avoid legal fees and lengthy procedures to secure financing. A priced round is the sale of newly-created stock at an agreed-upon per share price while convertible debt is a loan from investors that is never meant to be paid back but likely to be converted into stock at a future date, based on some yet-to-be-determined price.
Step 6: Build the Core Team
After raising money, it’s time to start hiring people. But before “you need to ask yourself an important question: what is your company's mission?” Haidar saying, explaining that a company's mission determines the reason for its existence beyond making money.
“Highly qualified people don’t want a 9 to 5 job; they want to be part of something big...thus focus on that and pitch it to your core team to convince them to join you,” Haidar says.
Create a culture within the company that is built first on radical candor which means that “whoever you are in the company, people should feel comfortable coming and being frank with you,” Haidar adds, noting that feedback given by employees should be respectful, collaborative and constructive.
It is also important not to underestimate how talented and capable a company’s employees really are. "They need to be trusted and if you don’t trust them, then ask yourself what are they doing in the company,” Haidar says.
Haidar argues that highly skilled people already have jobs, thus the best way to recruit them is by poaching them from other companies. “You’ve got to recruit them! Don’t be stingy, give them stock and don’t care about how much percentage you have in the company since its still worth zero at this point,” he adds.
Step 7: Product/Market Fit
Most companies fail at this stage, Haidar says.
“This is a critical stage, most startups fail here because they had an MVP, they had a team, they raised the seed round but they only get a couple of customers and false positives and then they fail,” Haidar said, adding that entrepreneurs must ask themselves the following questions: Is the market demanding the product? Do you have the right distribution model? Do you have the right revenue model?
“At the beginning of any new business, you need to be making money... thus you need to think of your revenue model, then iterate and iterate and iterate until you’ve figured out the answers to all these essential questions,” he says.
Step 8: Set the Right KPIs (Key Performance Indicators)
KPIs are a must for any business but vary depending on the business nature. “You need to define them [right], because if you define them wrong then you’re going to end up measuring the wrong thing,” Haidar says.
If the company is a services business, then revenue, utilization of assets, bookings, and sale cycles are considered KPIs. If it’s a consumer product, customer acquisition cost, the number of customers and their lifetime value (LTV) are KPIs; whilst if the company is a B2B product then sales and churn or percentage of subscribers are the indicators.
“In addition, the most important thing you need to track is how much money you are losing per month, you are only on the market because some investor invested money in you; so that money starts diminishing with time,” Haidar noted.
And last but not least, a company must measure the level of happiness, inspiration, and motivation among its employees, Haidar says, warning that a significant number of startups fail because they can’t retain their own employees.
Step 9: Growth
At this point, startups need to start raising series A or B funding, depending on the state of the company. Series A funding is used to polish the product and to perfect the sales process while series B is about growing the business.
“For series B, you need to make sure that you have the right product market fit, sales, the right KPIs, thus the money would be used just for scaling the company forward,” Haidar explains.
Step 10: Liquidation
This is the ultimate goal of successful entrepreneurs. “Whether heading toward an initial public offering (IPO), or another company buying you or by remaining private, if you reach such point then you can head to Hawaii and retire,” Haidar says humorously.
Mark Haidar’s 10 rules for startups was a publicly given presentation during Banque Du Liban’s Accelerate 2016 that held at Forum de Beyrouth.
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