Startupers - people who make the world go round

Startups are companies in the initial stage of their operations and every huge enterprise used to be one of them. For example Google started on Stanford campus in 1998 (IPO in 2004) almost as inconspicuously as Apple which was founded in 1976 in Jobs' family garage (IPO in 1980). The essential property of this kind of business is a possibility of relatively easy adjustment to a bigger scale of its activity and capability of constantly expanding the range of its operations, which would make it far more profitable and by attaching new features to the core model of the company. Spotify also went along this way by launching a new business model which let them easily compete with iTunes.

Setting up startups is currently an increasingly more popular way of starting the entrepreneurial activity all over the world. The brightest example of this phenomenon is USA where over 100-150 thousand startups were launched monthly in 2012. This follows not only from the continuously growing variety of organizations and programs supporting this sort of business, but also from the character of this kind of enterprise which enables young and creative people to derive benefits from using their potential and inclination to work hard for their success. A common example of such a person is Mark Zuckerberg who dropped out of Harvard and rejected the possibility of working for a corporation because he was taught it best ‘to rather set up (his) own corporation’.

As the peculiarity of this kind of business is related to concentrating on the founder of the company, it is essential to consider the type of personality of a certain individual, which creates an opportunity to encounter the challenge of managing ones own company. At first, without a huge dose of determination an entrepreneur cannot count of final success as well as even on successful performance in the process of setting up the firm.

Another key trait is self- confidence as an entrepreneur shouldn’t rely on other people’s unjustified doubts, but be critical of others’ opinions in order to evaluate his projects sensibly. Lack of creativity would also be a serious obstacle to tackle and the best way to scare off potential investors because it conveys information that the starter is not able to develop his product in a way that will gather the public’s attention by its originality and functionality. Steve Jobs has used a vast amount of his creativity by refusing expert’s ideas, working at night and assuming that "people don't know what they want until you show it to them."

Despite the fact that general patterns on becoming a perfect startuper simply do not exist, we can sketch an image of a typical beginning entrepreneur based on available statistics. This is a person between the age of 35 and 44 who has already gained experience in product development, sales or marketing, also often in fields such as engineering. In this case, the founder usually had managed another company as a CEO or director before he decides to start working independently. Many founders have previously worked as hedge fund managers, engineers, lawyers or attorneys, obtaining valuable skills, experience and contacts. An outstanding example of a startuper with specialized technical knowledge about the certain industry is Tad Witkowicz- a Polish entrepreneur living in the USA, who succeeded in introducing his two companies to NASDAQ after working a few years in (the) telecommunications (industry).

Another typical example of an entrepreneur is the 22-34 year old who is still in the middle of his studies or has dropped out a few years ago in order to run a business, similarly to the founder of Microsoft – Bill Gates, Gabe Logan Newell- founder and managing director of Valve Corporation or Mariusz Baciński founder of PERK.

Naturally, the focal point in the process of setting up a startup is the initial stage of creating an idea for a business. Theoretically, there is no unique recipe for a cutting edge idea which would conquer the market and empty out wallets of customers passionate about the product. However, when planning ones own business, some basic advice for inventing an idea should be taken into account. Firstly, the vital factor is to take into consideration personal hobbies and passions. Dealing with things which give you pleasure is the only way to gain long-term success and avoid occupational burnout. ‘In the beginning you make products that you would love to have. Later, you adjust the features to market needs, but you must have the passion it takes to work 25 hours a day to achieve something’ says Mariusz Baciński. On the other hand, only getting involved in business related to well-known areas guarantees a possibility of controlling the quality of a product.

Among all the aspects of running a business, definitely the most significant is the cycle of financing which in case of managing a startup is slightly different from other forms of business and consists of several essential stages.

Firstly, the board of the startup has only a small amount of money at their disposal, which covers the main expenses of the legal costs of setting up a company, product development, market research and other initial costs. These resources come usually from families, friends of founders or their personal assets and are called ‘seed money’ or ‘seed investment’. Institutional investors approach to potential early investments with caution due to the extremely high risk of such undertakings. However, those who attempt to entrust the emerging company with their funds might be rewarded with a huge profit coming from the substantial growth of the company’s worth. One of best-known investments made in the seed phase was $500 000 spent by Peter Thiel on 10,2% shares of Facebook in 2004 which he traded in 2012 for more than $1 billion achieving 159% annual return. Without investment, Facebook probably wouldn’t be so competitive and the founders wouldn’t earn so much, without sharing stocks with Thiel.

‘My advise for beginners is to prolong payments as late as possible. Let’s assume you have got 30 thousand dollars of monthly costs. If you make down payments to your suppliers and team you will spend 30.000 in the beginning. But if you pay after 3 months, you will have got 90.000 of a seed funding which let’s you build something valuable and also to repay your suppliers.’- says Mariusz Baciński, founder of PERK.

Another contemporary source of seed money can be crowdfunding, which is a form of financing a business by a large number of investors allocating small amounts for small parts of company’s shares. An American company named ArtistShare, a record label for creative artists founded in 2000, is a forerunner of this business model. Such actions take advantage of social media and web campaigns which let the startupers gather a large number of individuals willing to invest their money in a promising idea.

After receiving the initial funds enabling the company to start off its operations, it is high time it looked for Venture Capital’s reinforcements. If you show proof of concept, a good team and a huge market potential you might gain the money to scale. Venture Capitals are institutions which invest their capital in businesses usually in their infancy in order to earn money on the growth of their value and sell their shares after a few years. In a portfolio of most Venture Capitals there are tens or even hundreds of companies. Some VCs concentrate on enterprises from a certain branch like high-tech firms (key players in the USA are: Sequoia, Accel Partners and in Poland: CEE Internet Ventures from MCI and Giza Polish Ventures) but others prefer diversification. In the beginning entrepreneurs often benefit from VC’s help, because they do not only support startups using their money but also offer organizational backing and let entrepreneurs take advantage of VC’s members’ experience. At the same time they give junior businessmen the freedom of managing the operational activity of their companies, but support in taking the strategic steps for the business.

The first year of a startup usually decides about its future. According to research conducted by the University of Tennessee, 25% of startups fail after one year and only about 56% still operate 3 years after their launch. The continuation of activity let them get involved in next investment rounds leading to initial public offering (IPO) which is the key source of external funding and makes it possible to scale the business rapidly.

Taking up own entrepreneurial activity is not only about making money. It consists of overcoming a number of difficulties as well as setting and meeting goals on the way to a long-term success. As Steve Jobs said ‘sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations’.

Many great companies were developed from little startups. You can also try your luck in the adventure of running your own business and transforming it to the stage of a $1 billion company. All you need is self-discipline, persistence and willingness to improve your skills using professional business knowledge of experienced coaches. Just start, keep going and remember to have fun!

How to start a Startup

Join the group