The Startup Checklist

25 Steps to a Scalable, High-Growth Business

David S. Rose

• Publisher: Wiley
• Year: 2016
• Print ISBN:
  9781119163794
• Edition: 1
• eBook ISBN:
  9781119164043
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

25 Steps to Found and Scale a High-Growth Business

The Startup Checklist is the entrepreneur's essential companion. While most entrepreneurship books focus on strategy, this invaluable guide provides the concrete steps that will get your new business off to a strong start. You'll learn the ins and outs of startup execution, management, legal issues, and practical processes throughout the launch and growth phases, and how to avoid the critical missteps that threaten the foundation of your business. Instead of simply referring you to experts, this discussion shows you exactly which experts you need, what exactly you need them to do, and which tools you will use to support them—and you'll gain enough insight to ask smart questions that help you get your money's worth. If you're ready to do big things, this book has you covered from the first business card to the eventual exit.

Over two thirds of startups are built on creaky foundations, and over two thirds of startup costs go directly toward cleaning up legal and practical problems caused by an incomplete or improper start. This book helps you sidestep the messy and expensive clean up process by giving you the specific actions you need to take right from the very beginning.

• Understand the critical intricacies of legally incorporating and running a startup
• Learn which experts you need, and what exactly you need from them
• Make more intelligent decisions independent of your advisors
• Avoid the challenges that threaten to derail great young companies

The typical American startup costs over $30,000 and requires working with over two dozen professionals and service providers before it even opens for business—and the process is so complex that few founders do it correctly. Their startups errors often go unnoticed until the founder tries to seek outside capital, at which point they can cost thousands of dollars to fix. . . or even completely derail an investment. The Startup Checklist helps you avoid these problems and lay a strong foundation, so you can focus on building your business.

Part I
Prepare to Launch

1
Translate Your Idea into a Compelling Business Model

Every great business starts with a great idea. You probably wouldn't be reading this book unless you already had at least the glimmerings of a business idea. In this chapter, you'll learn how to take your raw, perhaps unproven idea and measure its likelihood of success—then enhance, improve, and solidify it.

Elements of the Business Model

A business model is the idea that underlies a successful business. It describes how the business creates value for customers, delivers that value to them, and captures a portion of the value for its owners. Every successful business, no matter how large or small, complex or simple, operates according to a business model that makes sense. (Of course, some large, complex companies operate according to several business models at once since they include divisions or departments that create, deliver, and capture value in varying ways. But don't let that confuse you.) Therefore, one of the most important steps you need to take as an entrepreneur is to transform your business idea into a business model that shows how you'll create, deliver, and capture value.

There are many ways to think about a business model. One of the most effective is described and illustrated by Alexander Osterwalder and Yves Pigneur in their best-­selling book Business Model Generation.^* In their structure, a business model includes nine basic elements:

1. 
   Customer segments. The specific, different groups of customers the business serves—that is, the identified customers for whom it will create value.
2. 
   Value propositions. How the business solves problems and meets the needs of its customers, creating value for them in the process.
3. 
   Channels. How the business reaches its customers and delivers value to them—for example, through direct online sales, retail distribution channels, value-added resellers, company-owned storefronts, or affiliate programs.
4. 
   Customer relationships. The ways in which the business connects with, relates to, and retains customers.
5. 
   Revenue streams. Where the money comes from: how the business generates income from the value propositions it offers to customers.
6. 
   Key resources. The assets required to create and deliver the value propositions to customers—for example, physical assets such as buildings and machinery, and human assets such as employees with particular skill sets.
7. 
   Key activities. What the business does to make its business model work, such as inventing, buying, building, distributing, operating, and so forth.
8. 
   Key partnerships. Outside organizations, such as suppliers and partners, that help the business model work.
9. 
   Cost structure. The costs that the business incurs in operating its business model.

These nine elements can be mapped in a diagram that Osterwalder and Pigneur call the Business Model Canvas, which provides a standardized, visual way of analyzing, developing, and refining your ideas. You can print out a large-format version of the Business Model Canvas and post it on a wall or spread it out on a table so that you and your cofounders can work on it together.

One benefit of the nine-­elements model in the canvas is that it forces you to think through all the key pieces that need to be in place to make a business idea into a viable basis for a profitable, self-sustainable company.^*

Figure 1.1 The Business Model Canvas

Copies of printed templates for the Business Model Canvas can be downloaded for free from businessmodelgeneration.com. An online, interactive version of the Canvas specifically designed for high-growth startups is available at LeanMonitor.com. Another comprehensive online version is available at Strategyzer.com.

The Importance of Understanding Your Business Model

These days, it seems like everyone is a wannabe entrepreneur—just as everyone used to be an aspiring actor or have the Great American Novel in a back pocket. While I have heard many clever ideas for products and services over the years, in my experience, the number one differentiator between an aspirant and a real founder is that the former is in love with his product, but the latter is in love with her business model. I have often had discussions with other investors about companies that have approached us for funding, and we all had the same reaction: “I can't wait to buy the product when it comes out . . . but no way would I invest in the company!” A product or service can be cool, or innovative, or beautiful, or even useful, but it only becomes a viable business if the aggregate economics of the value being created are significantly more than the aggregate economics of the costs of operating the business. If you are aiming for a scalable business, then you're looking further for a viable business that gets better—not worse—as it gets bigger.

How can you determine whether your business idea has the potential to become a multi-billion-dollar unicorn? In general, there is a simple math equation that estimates basic viability by multiplying four factors:

---

Number of potential purchasers ×

Percentage of capturable market share ×

Absolute dollar amount of each sale ×

Percentage margin of net profit =

Total potential profit

---

The perfect new business idea would be one that would check all four boxes—that is, it would be appropriate for a large number of potential purchasers, be attractive to a high percentage of those possible customers, generate sales with high dollar value, and promise a high profit margin on each sale. To make it truly scalable, you'd want to check a fifth box—the business would need to get even better as it got bigger.

For example, if you were trying to evaluate a concept for a housecleaning business, it would be great if everyone in the world needed their house cleaned; if you had a way of locking up the entire global market and servicing every house in the world; if everyone would be willing to pay a large amount for this service; and if your cost to clean a house was low, and dropped with every additional customer. I assume you would take that business, right?

Unfortunately, these five propositions turn out not to be true in regard to housecleaning—which explains why no one has yet ascended to the top of the Forbes list of the world's richest billionaires by launching an international housecleaning business.

As you might imagine, business concepts that check all the boxes are exceedingly rare. However, when you look at successful businesses, you'll discover that even three out of the five can make for a viable—and even potentially scalable—business.

For example, take the business of sending tourists up for a visit to the International Space Station. There's obviously not a giant market for that, since it can only accommodate one visitor every few years. But it so happens that one of my portfolio companies actually does that. Why? Because the ticket price is around $50 million per person, it has decent margins, and it has 100 percent market share. (It was also a business, believe it or not, that could be started relatively inexpensively, because its customers paid in full, in advance, before the company was required to pay the Russian government for the actual experience.) And while it's not scalable per se, the company has leveraged its experience into allied areas, such as zero-gravity airplane flights, astronaut training, and jet fighter missions.

Furthermore, when you do the analysis, it's important to be clear about what the business is actually doing. Let's go back to the idea of a housecleaning business. It would be very problematic to try to grow housecleaning into a truly large business. The logistics of service delivery around the world would make it extremely difficult to eke out a decent profit margin, and the minimal cost of entry by competitors (who need only a van, some tools and supplies, and a few employees to set up a rival cleaning company) means that you would probably never develop a large market share.

But if we're talking about something like Angie's List or Home­Advisor, the first thing we need to realize is that the business these companies are in is not actually housecleaning. Instead, it is lead generation and/or booking and intermediating payment for house cleaners. Looking at in that way completely changes the equation. Your marketing and service delivery costs are at Internet scale, and therefore low and decreasing the larger y...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Foreword
• Preface: Why Every Entrepreneur Needs This Book . . . Instead of the Other 93,210 Books on Entrepreneurship
• Introduction: 25 Key Action Steps (Plus One) for Every Entrepreneur
• Part I: Prepare to Launch
• Part II: Launch and Build Your Company
• Part III: Raise Funds; Collaborate with Investors; Plan for Your Exit
• The Startup Checklist Onlinegust.com/checklist
• Appendices
• Acknowledgments
• Index
• End User License Agreement