By Dotun Olowoporoku, founder of meals.co.uk
My frame of reference when talking about start-ups is essentially the fast-growth online and mobile business. This can be a disruptive new business model for an old problem, such as how to get the best hotel or car-hire deal, or a completely new approach such as the one adopted by my own start-up; meals.co.uk. The proliferation of tech start-ups sometimes indicates that barrier of entry is low. However, whether it’s hotel bookings or a mobile phone recycling platform, the barrier of execution is always incredibly high: it’s all about the metrics.
When embarking on a new business venture, most entrepreneurs will have confidence in their ability to attract and retain web traffic, and convert this traffic to generate money. Drill down into the metrics and you will discover how much it costs to acquire a new customer and how long they stay. This will give you the lifetime value of the customer. Then it’s a question of sizing the market and assessing realistically how much of it you could carve out. Once you have that information you can work on scaling it up. How? The answer lies in a combination of investment capital and good processes. Here are five pieces of advice to consider:
1. Translate the metrics into processes
You need to get the right people doing what they are best at. Many start-up founders are maverick problem solvers; that’s how they came up with the idea in the first place. The trouble is; once you have cracked the metrics you need some real business people who can translate the metrics into processes and execute against them.
When you move from a one man band to five people things can still run on an informal basis but how are you going to change things so that it can grow to a 25 person business? That is a totally different animal and you will need a robust plan of action and the right skills on board to achieve this. If you don’t have a clear plan to recruit, motivate and retain the best staff you won’t get the funding.
2. Demonstrate your appetite for growth
As a start-up founder it will be no surprise that you will have to be passionate about your business. Not only must you be passionate but you need to be seen to be passionate. Investors will look closely at your figures but they will look even more closely at your appetite for growth. They need to see that you have the drive and belief in your own abilities to make this venture work.
3. Find an investor who can offer advice as well as funding
If you are serious about growing a start-up you will need cash. Quite a lot to start with and a hell of a lot if it shows early signs of success. You will only have a competitive edge for a short window, so you will need the cash to scale up fast. Start with seed funding from friends by all means but better still, approach people who can help with the initial funding but also offer great advice. I work with a number of start-up investors who have done the hard miles and made mistakes along the way so I don’t have to. One typical mistake is to give away too much equity too early. If you have already given away two thirds of the business, what incentive is there for Series A investor to part with £2-3M? If you are reading this having already given away too much then negotiate with your partners to achieve an equitable settlement. This may involve a payment at the eventual sale of the business.
4. Stay focused
A good VC will be investing in you as a person as much as the idea or the market potential, so make sure they understand that this is your only focus. In return they will understand that you are the best person to drive the business forward and so long as you are delivering on the numbers they will let you get on with it. Your mentors will help you get the right sort of VC backing that allows you to grow their investment rather than looking to get too involved with the day to day running of the business.
5. Don’t be afraid of failure
If you have all the metrics right and external factors conspire to scupper the business, maybe you were just unlucky. Silicon Valley investors will frequently back a start-up entrepreneur who has failed before. They follow the logic that you are much smarter for the experience and will get luckier next time.