Founders! Time is NOT your friend.
Welcome fellow Founders!
If you’re a Founder of a startup, you probably already know that time is not your friend. Most of us focus on the impact of time on our cash but there’s a couple of other reasons that sometimes get overlooked. So in this article we’re going to summarise the main reasons why the passage of time can cause problems for startups, including the obvious one. Not all of these will apply to every startup, so if they don’t apply to you that’s great.
Cash Burn (the obvious one)
This is probably the most obvious of the time related issues that you’ll face. For those who haven’t heard the term, “Cash Burn” refers to the monthly expenditure your business incurs. Generally used in a pessimistic way, cash burn usually means all the outgoings that are unavoidable - employee costs, rents, all the little software monthly costs etc.
Every business will have a cash burn but the level of cash burn will vary widely. Obviously, running out of cash is bad so you’ll want to be careful about the sources of your funding (debt can be ok, but is a high risk option for a new startup) and even more careful increasing your cash burn.
Quick tips
> Keep an updated cashflow forecast! Yep, we’ve said it before and we’ll keep saying it. In this case, a forecast is the best way to work out the time you have left.
> Take early action. It takes time to arrange additional funding, or to reduce your ongoing cash burn. If it looks like you’re going to have an issue, act quickly and early to address it. This is especially true if you need to attract investor funding as that can take a lot longer than you think.
First to (Your) Market
This one will be highly dependent on what your business is. If you’re providing an existing service or product into an existing market and location this will be less relevant.
However, it’s more likely that your business has identified a niche that you think is under serviced or your product/service meets a need that isn’t being met which, for this article, includes all the R&D based businesses. In this case one of your key commercial advantages is being First to Your Market (“First”).
Being First isn’t just about generating initial sales. It provides critical business advantages by allowing you to build market reputation, build key customer relationships, understand what customers actually need and then iterate your product to meet that before the inevitable competitors start to gain traction with their version 1 products.
Losing First can be a really big problem (in some cases, business ending - particularly if there are patent or intellectual property elements) and, as a minimum, is going require additional effort to effectively compete with the competitor who is First.
Quick Tips
> Understand your market, customers and how your business delivers. While in some cases your market may be obvious, in reality there are always niche elements where customers will gravitate to the business that meets their exact needs. If you’re developing a completely new product/service (hello R&D and innovation!) be CERTAIN you actually have a market.
You need to understand exactly what version of the product/service you’re offering needs to do to attract your initial customers. You can add/develop capabilities later, but the minimum viable product (MVP) is what you need to get into the market and start building your reputation, getting those customers etc.
> Document your market penetration plan and stick to it. Once you understand what your MVP is, build your plan with specific actions and deadlines and make sure that you meet those deadlines. If possible, look for ways to get to launch faster.
> Remember that customers need to be convinced. Start your marketing process a carefully considered time before your product will be ready. Generally, you’ll want to have some form of simulation, a proof of concept or an initial prototype (or all three depending on how new your business product is) as a basis. You’ll need to be sure that your timetables are on track though - going too early can give competitors a heads up and endanger your First.
Intellectual Property Patents(*)
Intellectual Property (IP) Patents are probably one of the most debated topics in any business. On the one hand, having a patent protects your IP and therefore your entire business, plus investors will often want to see that you have the IP protected. On the other hand, though, a granted patent also specifies exactly what your IP is and this is public information.
Given that, plus very real cash constraints, many companies choose to lodge Patent Applications as a middle road and make a decision as to whether to get it assessed later. A Patent Application doesn’t give away your IP details (apart from what you describe in the title) until the end of the application period (or 18 months) whichever is earlier.
From a time perspective the important thing to remember is that the date you lodge your Patent Application starts the clock ticking down.
Quick Tip
> Get professional advice! If you’re business is innovating and there’s R&D involved, don’t mess around. Get a professional IP firm/lawyer involved from the start.
Investor Credibility ** - Are you meeting your timetable?
Investors view the passing of time differently to the way Founders do.
If you already have investors chances are that when you convinced them to invest you gave them an initial timetable. Now, from a Founder perspective, an initial timetable is just that, initial. It is a mistake to assume that each individual investor will have the same view. From their perspective they are expecting a return (which is uncertain) in that timeframe. The timeframe is often a key factor in an investor’s investment decision. So, even though you thought it was initial, well, it’s not.
Missing your timeframes can make it very difficult to keep investor credibility - which in turn doesn’t make it easy to raise funds in the future! (As an aside, yes investors do have networks and talk to each other….)
Quick Tip
> Communicate with your Investors! The fact that the investors believed enough in you and the business to invest at an early stage is a sign of faith. All investors appreciate and understand that often things don’t go to plan. And all of them hate surprises - especially ones which are too late for them to help with.
Do yourself a favour and communicate with them regularly - even a summary email once a quarter is better than nothing. Remember that your investors often have other investments and have contacts who may be very helpful. They’ll also often have business expertise you may not have. I believe it’s worth catching up with major investors face to face - it’s a great use of your time.
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That’s our top 4 list of reasons why time isn’t a Founders friend. What do you think, did we miss anything?
We’re Founders as well, so please reach out if you want to discuss your business.
*IP Patents are an important topic and we’re going to have a commercial look at the value of patents in a later article
**Again, an article is coming on Investors and being “Investor Ready”
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