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Startup Success ?

Writer's picture: Tom Johnson, PopieTomTom Johnson, PopieTom


Money, money, money, it's a rich man's world. So you want to startup a business to build wealth. America is built for people like you. Is this your first startup? If so it may not be your last. I was part of new product planning and development inside a company and outside on my own during my 35 year career before retiring wealthy enough for me because of my last startup.


At What Startup Money Stage Are You ?

Investopedia has a good definition of startup funding stages:


  1. Pre-Seed Funding - Yourself, family and friends, people that know you well enough.

  2. Seed Funding - first official equity funding stage

  3. Series A Funding - business track record, think Key Performance Indicators, KPIs

  4. Series B Funding - taking businesses to the next level

  5. Series C Funding - Already successful need funding for new product

The Bottom Line from Investopedia

Understanding the distinction between these rounds of raising capital will help you decipher startup news and evaluate entrepreneurial prospects. The different rounds of funding operate in essentially the same basic manner; investors offer cash in return for an equity stake in the business. Between the rounds, investors make slightly different demands on the startup.

Company profiles differ with each case study but generally possess different risk profiles and maturity levels at each funding stage. Nevertheless, seed investors and Series A, B, and C investors all help ideas come to fruition. Series funding enables investors to support entrepreneurs with the proper funds to carry out their dreams, perhaps cashing out together down the line in an IPO.


The Bottom Line from Our Last Startup

Our preference was always to fund ourselves and only consider outside capital as a last resort. The 3 founders covered all the executive functions except Chief Financial Officer, CFO. We hired an exceptional CFO that Stayed with us from the beginning and through the venture capital investment, IPO and eventual sale of the company. She was spot on the financial reports and metrics whenever we needed them. I separately managed my own financial spreadsheet where columns were weeks and rows subtotaled all expenses, subtotaled all expected sales revenue and grand totaled the money left in the bank. I would maintain a 6 month forward looking forecast of money in the bank. So I knew 6 months ahead of time when we would run out of cash, enough time to find a solution. I could sleep at night.


We financed our way with sales through our IPO in 1995. We did get Venture Capital 2 months before IPO as a strategy to boost our IPO success; we did not need the money. We turned the tables on the Venture Capitalists in a win-win deal where they got a quick nice return on investment and we got a push in areas of the world where we needed it most. In my opinion we got market value and a lot of valuable support, a bigger win than most startups normally get from a venture capital investment.

How Our Successful Startup Grew Through the Stages

The 3 partners that founded our last startup worked together in a mature ongoing business where the product proof of concept design, development and market research was performed over a six month period. The team had just pulled off a "proof of concept" at an IBM Lab in White Plains, for NYNEX. Two of us were excited about the possibilities for the future; we were just not confident our company could develop the product that we believed in.


With the product still in the Pre-Seed stage, there was no paying customer yet, we quit the company and started a new startup. We made plans to acquire Partners, our plan for stepping through the growth stages funded by sales not investment capital. To accomplish this we needed to identify and sell partnerships to support our product. Partners such as:


  • Vendors

  • Prospects

  • Customers

  • Consultants

  • Employees

  • Investors

Vendor Partnerships

Our product design architecture depended on a number of hardware and software products that hugely reduced our cost to produce an awesome product that had capabilities beyond any competitive product solution. Our "secret sauce" that hid and integrated the capabilities of the underlying vendor software and hardware. Every time our product was sold we sold the underlying vendor's product as well. We sold the win-win benefits of our vendor partnership aggressively and got free use and support for vendor products in return, scoring a zero hardware-software cost for our product development.

Prospect Partnerships

Why prospect partnerships? If you spend time on a sales effort with a prospect keep the door open to learn and get support. Sometimes the timing is just not right. Maybe they can afford you in the future, but they can help you in the marketplace.

Customer Partnerships

Every customer is treated as a special win-win partner. Our software product was licensed by the customer for a year-at-a-time; six months from renewal we would meet with our customer to discuss any enhancements they needed. We addressed any functional problems the customer had with day to day support.

Consultant Partnerships

Consultants know the market and the players. If you educate them on your product, the word will spread fast and far. If your product is as good as you think it is, your sales funnel will be full.

Employee Partnerships

Employees need to be treated as extra special win-win partners to serve the win-win customer partners. All employees are equity stake in the startup business based on their performance, they are offered stock options that vest

Investor Partnerships

We regularly practiced our pitch and shared financial information and metrics,KPI, with sources of capital investors to know our value and where to get the best deal if we needed it.

Conclusion

I am publishing a series of articles analyzing my one big startup success searching for the reasons, the mental model, that explains my success. My belief is that the mental model that worked in 1989 would work in 2022. The purpose of this series of articles is to test my belief. I invite you to follow if you are interested.

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