A start-up a business venture, mainly revolving around a new concept, which gears towards meeting a need in the industry through the creation of a viable business model. Start-ups can be along the lines of platforms, goods, services, and processes. The concept behind a start-up is a company aimed at developing and validating a business model. Start-ups have high rates of failure, and as such, you must do your due diligence before investing in one. Some make it through the initial stages and go ahead to become some of the most influential companies in the globe.
As you work on a start-up, you need to bring in a team that has the necessary skills, know-how, financial capacity and other critical elements so that they can work on researching your target industry to find gaps that you can exploit. Once you have come up with ideas on how best to infiltrate the industry, you move on to the prototype stage where you test out a good on the target industry.
Before heading to the industry, you should come up with a shareholders’ agreement which stipulates the commitment of the members as well as their shares in the business. At this stage, you should also figure out how to deal with intellectual property and assets accruing from the company to avoid conflicts at later stages.
The business model should also be dealt with at this point, i.e., whether you will use a bottom-up approach or you would prefer a top-down model. Your business will not have the start-up status forever and making critical decisions at this stage enables you to concentrate on the growth of your business and prevent hiccups over ownership at later stages.
Once you become a publicly traded company, you cease to be a start-up. You also stop to be a start-up the moment you get into a merger or undergo an acquisition. In the case of start-ups, the chances are high that you could fail and get out of the industry entirely. Such failures often come about when you do not conduct enough research on your target industry such that you bring in an innovation that is not functional or you bring in a good which does not command demand in the industry.
Sometimes, start-ups fail because the founders lack the financial muscle to break into the industry. Many investors tend to shy away from start-ups because they are risky business ventures and if you fail to attract an investor, you could end up failing.
These kinds of businesses rely upon the size and the level of maturity of the ecosystems into which they get launched. The realm consists of individuals (such as mentors, entrepreneurs, angel investors and venture capitalists), institutions, as well as organizations (such as business schools, top research institutions, government entrepreneurship programs), business incubators and start-ups.
If you launch your business into such an ecosystem, your chances of success and growth are high because it is strong. Some regions considered to be ideal for the launch of start-ups include Silicon Valley in California. Many factors in the area make the launching of new companies easy such as technology institutions, a large number of creative industries, many entrepreneurs leading in the field and a vast range of start-up companies.
If you wish to bring an investor onboard, you must show them that they stand to gain a lot from the venture. Generally, investors want to see that your founding team is stable regarding skills, know-how, and willingness to face tough times. You should also present a risk/reward profile that seems balanced. The risk is high as you are bringing something new into the industry and are unsure of the probability of success. Balance this by showing them that if the good breaks through in the industry, the returns from the venture are high.
Scalability also comes in at this point where you need to show that you can expand your activities and serve more people, thus increasing your chances of success. You should aim at making your business have fewer funds invested by the founders and a high risk accompanied by higher returns on the project.
The thing with start-ups is that if done right, they have the potential to grow at higher rates compared to established businesses even where they have limited resources. The thing that you need to get right is the timing because if you bring in the good at a time where there is a need for it, then you are on your way to making it.
With the right risk/reward profile, you will be in a position to source funds from a variety of options including venture capital firms, angel investors, crowdfunding, equity, and factoring.
For a start-up to make it through the initial stages which can be tough, you need to conduct the necessary research on the industry to ensure that what you are bringing in has a ready industry.