Four Points of Startup Readiness

I speak with many startup founders every week. Most work in drugs, medical devices, diagnostic tests, or digital health tools. Because I live in the Northwest US and I’m a faculty member for Washington State University, I also speak with quite a few developing innovations for clean energy, agriculture, and consumer goods. Regardless of their industry, they frequently struggle with similar issues. In this article, I’ll review my four points of startup readiness and offer some tips to address each.

Startup Founder Readiness

Founders are most frequently unprepared for everything that comes with launching, running, and succeeding with a startup. If you are the CEO, you will have to be an expert in the technology or product, develop a working knowledge of business operations and finance, and be pretty good with people. I discussed the roles of a CEO as Storyteller, People Leader, and Operator in my article “Thinking About Hiring a New CEO?” in November 2023. [1] No one can prepare you for how much energy you will need to sustain yourself, your team, and your business. Even positive events can be draining. You’ll need to be able to pace yourself, develop your reserves, maintain your health, and learn to quickly assess and adapt to changing circumstances.

Does this sound exhausting? It can be; however, your ethos, pathos, and logos as a founder will make or break your company. (Yes, I just dropped some Greek terms on you; check the references for a definition link.[2]) You can be successful even as a first-time founder, but you should start with a clear understanding of what you need to bring to the game. Omri Drory of NfX shared an excellent summary of founder “intangibles” VCs look for when evaluating a startup for funding. I’ll summarize them here and refer you to his original article.[3] They are:

1. You have grit – you must be 100% bought in for the hard and the easy;
2. You have to do it – starting the company is a compulsion, not a choice;
3. You authentically care about your market – be obsessed about helping your customers;
4. You are the “Quarterback” – you do the big and small things well (I’ll add assembling a team to cover your weaknesses as part of this intangible).

You need these from the start because you are as important as the idea in your company’s story. If you are several years into the work and your self-assessment is coming up short, it’s time to land the plane gracefully. Choosing to shut down and handling it well is another way you can show your founder capabilities.

Idea Readiness

The second point I see many founders struggle with is captured excellently by Alberto Savoia in “The Right It.” [4] As Google’s Innovation Agitator, he created a set of tools and techniques he calls “Pretotyping.” This method allows anyone to stress-test an idea before organizing a company and building a prototype. Your idea must solve a real problem in a compelling way to get enough market traction for your company to be fundable (regardless of which funding strategy you use).

Exploring ways to make the idea better, cheaper, more interesting, and less problematic is a valuable activity at any stage. Getting started with a market-tested idea will make your company more valuable from the start. This takes work; interviewing a few academic experts or potential users won’t give you enough useful data. I haven’t found a better approach than Mr. Savoia’s, which is why I recommend his book. Check your public library for a copy or make the investment in your own; this book is worth a careful reading.

Business Readiness

I’m not suggesting you have a multi-page business plan here – far from it. If you start your founder’s journey with help from the local US Small Business Administration office or a SCORE mentor, you may end up with a laundry list of documents they deem necessary to start a business. I believe you need three things:

1. A single-page plan for how you think your business should work. I like Ash Maurya’s Lean Canvas,[5] but other practical tools are available. You should be using this business canvas while pretotyping your idea (see above) because you can iteratively document your assumptions and compare them to your test data. Keep all the versions –reasonable hypotheses may resurface after a few tests and review of your documents will save time.
2. A legal business structure and bank account. You can’t get a business bank account without the structure, and your structure should protect you and any partners you add. To get dilutive funding from VCs, you should consider forming a corporation. Do some research to save time and speak with thoughtful advisors. My accountant helped me get started with an invaluable checklist; however, I had done my homework and knew what structures were available and what each would require.
3. A few basic business systems, like an accounts ledger, and instructions on how to use them. These don’t need to be complicated; they shouldn’t be at the start. You don’t need to spend money on Quickbooks or other specialized tools – spreadsheets will work fine (here’s where the advice of an accountant can shine). Paying bills, receiving and handling funds and other revenue, documenting business decisions, and keeping corporate records are examples of systems you should document. Again, a simple step-by-step list of what happens and when is all you need.

Life science founders or anyone expecting regulatory approval for your product, you can save yourself a lot of grief by creating a system for recording your product designs and approving changes as you start work. Almost every founder I’ve met has had to reconstruct their early design and change process by digging through their electronic files. Don’t let that be you!

Keep working on your business model and systems as you go. Set aside time to look at and update both every quarter. This is called working on your business (as opposed to in your business), and the effort will pay off. Refine your systems to make work easier and add new ones to remove obstacles. The Lean Canvas is planned to help you show how you create, deliver, and capture value. This narrative is an essential part of your pitch to investors, so you need robust data to back up each of your hypotheses. Some of the questions you are answering are: who buys your product, where do you find them, what will you charge them, who are your competitors, and how do they solve your problem? Many startups fail to answer an essential question: how does your business drive the adoption of the technology or product? If you can’t show a VC how a large number of customers will repeatedly pay to access and use your solution in a couple of years, they will quickly lose interest in your company.

Startup Pitch Readiness

The first problem I see with founder pitches is they are too long and detailed to serve every need. You need more than one pitch with 50-100 slides, and each version must be fit for purpose, whether you are trying to explain your story for a grant reviewer, interest a VC in a second meeting, win a demo day, or engage a strategic partner. These are only a handful of the scenarios you will face, and you won’t always have a computer or projector at hand to show those slides. It's your story; not only must you know it by heart, but you should be able to judge your audience and deliver the pitch succinctly in the right lengths and formats. Miss the moment and there is no going back. Furthermore, you need to be able to show you have the founder’s intangibles (see above) while packing in the right level of detail for the audience. You aren’t going to get it right every time, so it’s essential to accept that you are a human being rather than a human doing and recover nimbly from any gaffes.

Just because you have a great story parsed into different sized chunks doesn’t mean your pitches are wart-free. Christopher Mirabile summarizes nine typical pitch weak spots in his Seraf Compass article.[6] They are:

1. Explaining the market moment – Why you and why now?
2. Detailing the go-to-market – How will you affordably acquire your customers?
3. Assuming fast consumer behavior change – How do you make it easier and cheaper to use your solution?
4. Paying insufficient attention to buying priorities – how much of your TAM sees your product as a top priority?
5. Omitting marketing skills – Who are the marketers (and sales experts) who can drive success?
6. Building a realistic model – Are your estimates of costs and timeline realistic and data-informed?
7. Assuming it will translate – How will you pivot your business model to reach the next customer group or market segment? A corollary weakness is detailing more than one market opportunity in your pitch – What model will give you the best first revenue?
8. Engineering a sustainable competitive advantage – How will you keep making money over time?
9. Failing to think exit scenarios through – Who will buy you when you succeed?

Fix your pitch problems by creating decks of different sizes, recording yourself pitching to various targets, and evaluating your pitch storyline using Christopher’s list of weak points. Practice your pitch on anyone who will sit still for it and thank them for their feedback. Knowing you can explain your company and business model to Aunt Edna or your barista will give you more confidence. You don’t need to share all the details in your first meeting, so find out what interests your audience and speak to it. For an investor’s first meeting, concentrate on your core message and remove all the sales messages.

Founding a Company is Not a Spectator Sport

I’ve shared my thoughts on the four points of startup readiness in this article, along with the advice of a few people who know about founding companies. Now, it’s up to you to use this information. Review your motivation, idea, operations, and pitch against this article and identify the weak points. Prioritize them according to impact and feasibility and make a plan to go after the top three this year. You’ll be pleasantly surprised by the outcome.

References

[1] Katrina Rogers, “Thinking About Hiring a New CEO?” November 2023, krogersconsulting.com, accessed December 30, 2024. https://krogersconsulting.com/talent-development/thinking-about-hiring-a-new-ceo/

[2] Definition of Ethos, Pathos, and Logos. Accessed December 30, 2024. https://pathosethoslogos.com

[3] Omri Drory, Ph.D., “The ‘Intangible’ Game: How VCs See You.” December 2024, nfx.com. Accessed December 30, 2024. - https://www.nfx.com/post/how-vcs-see-you

[4] Alberto Savoia, “The Right It: Why So Many Ideas Fail and How to Make Sure Yours Succeed.” (San Francisco: HarperOne), 2019. https://bookshop.org/p/books/the-right-it-why-so-many-ideas-fail-and-how-to-make-sure-yours-succeed-alberto-savoia/8004049?ean=9780062884657

[5] Ash Maurya, Lean Canvas. Leanfoundry.com, accessed December 30, 2024. https://www.leanfoundry.com/tools/lean-canvas

[6] Christopher Mirabile, “Advanced Pitching Skills – Avoiding the 9 Worst Pitching Thin Spots.” Seraf Compass, originally published in Inc. Magazine. Accessed December 30, 2024. https://seraf-investor.com/compass/article/advanced-pitching-skills-avoiding-9-worst-pitching-thin-spots