Page 194 - 6 Secrets to Startup Success

Staying Power 173

Although he didn’t start with specific clients in hand, J.C. Faulkner
serves as an exemplary model for how to study and scrutinize a market
idea while working for someone else. In his sales management role
with First Union, he developed close relationships with hundreds of
entrepreneurs and salespeople throughout the mortgage industry. Be-
fore resigning from his job, he knew exactly what customer segments
he would target with his new venture and how his early business
model would work. Even with this preparation, he spent more than
$600,000 in capital over a year’s time before breaking even, but be-
cause he had patiently allowed his concept to mature prior to launch,
he moved his effective starting point much closer to the marketplace
than most venture founders.

In contrast, consider the example of two corporate professionals
who, talking over a beer on a Friday afternoon, hit upon an idea for
providing an innovative information service to large corporations.
Within a few weeks, they had resigned their well-paying jobs. They
tapped into their personal savings to bring two more salaried team
members on board, leased office space for the team, built a prototype
of their technology, and began pitching their concept to senior buyers
in target organizations. After six months of expenses, as their resources
began to diminish, they were still in search of their first account. These
founders continue to gamely press on, and their concept may yet catch
fire, but their margin for error is now razor thin. Had they chosen to
test and refine their concept prior to committing full resources to it,
it’s likely that they would now enjoy a much lengthier startup runway.

ADDRESS YOUR BIGGEST RISKS EARLY

Venture capitalists call it the Valley of Death, the period after a
founder has begun to spend capital but has yet to find a steady stream
of revenues. A large percentage of new business attempts never make
it through this first phase, which is why startups are known to be haz-
ardous and the word “entrepreneur” conjures an image of a daring,
swashbuckling gambler. But, as Matthew J. Eyring and Clark G.
Gilbert note in the May 2010 issue of Harvard Business Review, the
stereotype of the risk-loving entrepreneur is a myth, at least among

American Management Association • www.amanet.org