How to jump into the unknown with a controlled level of risk
Launching a startup is hard. You’re on your own, with limited capital and a fuzzy understanding of the problem you’re trying to solve and the solution you might propose. You have to stay afloat financially. How do you know when it’s time to work full-time on your startup? Let’s dissect the problem.
Why Starting a Business Is So Difficult
Every circumstance is different. Depending on your educational background (Computer Sciences vs. Business vs. something else), location (SF vs. London vs. somewhere else), inherent network (family, friends, colleagues), and level of wealth (e.g., ex-founder, wealthy family), starting a business might be easier or more difficult.
Even if the conditions are favorable to you, starting a business is though. You have to:
- Find a problem to solve;
- Design an initial solution;
- Verify your problem/solution pair with potential customers and investors;
- Get a team together to work on the business;
- Build the product;
- Raise capital;
- Ship it to market.
You’ll have to go through these steps with a high level of confidence and energy while, at the same time, managing your personal life and finances.
Unfortunately, it is likely you will feel stress from:
- The lack of cash to finance the pre-startup phase;
- The high level of uncertainty;
- The lack of external support (you’re ‘on your own,’ so to speak).
If you manage to, entering a successful startup studio can be a great opportunity to facilitate starting a business, as you’ll benefit from (1) a salary from day 1, (2) a network of support and resources to tap into, and (3) a governance and reporting structure. It will, however, cost you control and a sizable portion of your equity (30% or more).
Idea Selection: Play With Your Cards
I recommend a structured approach in finding a business idea. Great startup ideas will generally come from your intuition and natural observation of the world rather than a systematic exercise.
However, you can build a system to document and rate your ideas coming from both intuition and systematic brainstorming.
Ideally, you want to find problems that are urgent, recurring, and costly. In a perfect world, you’d find inspiration from your day-to-day experiences in the business and consumer worlds. But, if you’re short on ideas, Crunchbase, this video from YC partner Kevin Hale on finding and evaluating startups, and Peter Thiel’s classic Zero to One are all great starting points.
You generally want to rate your ideas from 0–10 based on the following criteria (you can weigh the criteria if you want to):
- Expertise: This represents ‘Founder-Market Fit’; to what extent is this idea for you? What are the unfair advantages, knowledge, or skills you have, in particular, to solve this problem;
- Defensibility: How defensible is the idea short/long term? Typical moats will be network effects, technology, and monopoly effects;
- Market: How big is the market? If you want to build a VC-backed business, you want to go for markets that are $10B+; how fast is the market growing? Small but fast-growing markets (e.g., AI voice transcription in 2010) can become massive markets in the near future;
- Why now: Why is now the right time to solve this? Sometimes a regulatory change (e.g., carbon reduction, GDPR) or technology change (e.g., chatGPT) can be a catalyzer for new ideas;
- Passion: While this shouldn’t be the main factor (see the article of Paul Graham on ‘Schelp Blindness’ and the Stripe example), I do believe that working on something you’re passionate will help you succeed in the long run.
Divide ‘Conquering The World’ In Small Phases.
While launching a startup might be overwhelming (how do I build a unicorn from my parent’s basement?), it’s worth breaking the problem down into phases (I prefer the word ‘phases’ vs. steps because it implies a structured, managed approach to the problem). I recommend the MAT (Milestone, Assumptions, and Tasks) approach outlined by Guy Kawasaki in the Art of the Start.
The Pre-Startup Phase
The most important thing in a startup is the speed at which you operate (here again, a great article from Paul Graham on the importance of speed in a startup). Many founders often fail at the pre-startup phase. That phase should be managed with the same (if not higher) level of energy than the startup phase itself. It generally takes a lot of energy to ‘set things in motion’ (especially if you’re by yourself). Think of it as a space rocket needing to burn massive energy before ‘cruising’ once into space¹.
Treat the pre-startup phase with a lot of structure and energy. I recommend taking this phase part-time and keeping your day job or main source of income. You can do many things in 2–3 hours a day, like:
- Researching the problem/solution;
- Designing mocks;
- Contacting potential co-founders;
- Conducting client & VC interviews²;
- Researching the startup (e.g., MVP) cost;
- Building a pitch deck and financial model³.
The Decision:
You drafted a problem/solution pair, talked to your customers, made your model, and know how much the MVP will cost. Now it’s time to make the jump. I would treat this as a Go/No-go phase based on the case that was built in the pre-startup phase. A bit similar to cases that VCs build on whether to make a startup investment or pass (after all, you’re the biggest investor in your startup).
The pre-startup phase will cost you (in time and energy), sometimes in the 10s of thousands of dollars. However, don’t fall in the Sunk Cost Fallacy trap (link) or start the startup just because you ‘feel like starting a startup.’ Try to take an external/consultant perspective and ask yourself: ‘with all the info I’ve gathered so far, do I feel confident enough to go full-time on this startup?’
Be Your First Investor.
Many founders will try to keep their full-time job while launching the startup (startup phase) or bootstrap it while keeping a service/consulting business. I don’t think it’s the right approach. Performance comes from focus. Why would external stakeholders (e.g., early hires, investors) invest in your business (be it by pay cut or cash investment) if you’re not the first one to invest? Going full-time will therefore build credibility but, most importantly, give you the required focus and energy to set things in motion.
Thus, deciding to go full-time should involve not only the ‘confidence in the startup’ but an analysis of whether your personal situation (e.g., cash, family) allows you to proceed. Try to have an understanding⁴ of the minimum amount of cash you need to reach the MVP or Proof of Concept that could open the door to a first institutional investment ($500K or more).
Conclusion
While building a startup can be hard, taking a structured and analytical approach to building the pre-startup case can not only improve your confidence in going full-time but also increase your chances of success altogether.
If you want access to a startup idea evaluation grid, sign up for Frame, here! Frame will give you access to the best of breed of templates across notes, tasks, and processes so you can focus on building your business instead of building tools.
Nicolas is the founder of Frame, an all-in-one collaboration OS for startups. Frame offers pre-built collaboration apps like Notes, Task, Wiki, Whiteboard, and more. If you want to find a free ‘startup idea template’ on our Wiki app, sign up today!
1. Cruising might not be the right term for the startup phase, however.
2. I do recommend a VC interview, if you can, they will give you a lot of insights on the problem, market, and competitors, and who knows, they might write you a check!
3. I agree that building a prototype and testing your product is more important than building ‘documents’, however, I do believe that structuring your thoughts in a pitch deck and a financial model is a great way to articulate your ideas and verify the financial feasibility of your business. Most financial assumptions you will make will be more or less wrong, but working with ‘assumptions data’ — that will be refined over time — is better than not working with any data at all.
4. Hence the importance of building a financial model.
