Be honest with yourself: How do you measure up?
Have you ever shot a basketball and known from the moment it left your fingertips that it was going into the basket? Some shots just feel right.
Without explicitly processing all the factors, you instinctively know that your release was clean, your calculations for trajectory, angle and distance were all correct, and that — barring some freakish hiccup in the laws of physics — there’s only one place that ball can go: the net.
It’s not always that easy in business …
When you first register your company, it’s impossible to know whether you’re getting a goose that will lay golden eggs, or an albatross around your neck. Only time — and a lot of smart, hard work — can tell. However, that doesn’t mean that there aren’t certain indicators that can let you know when the future is looking bright.
Here are six common signs that a startup is in good shape. If one or more of these statements aren’t true about your business, that’s a red flag you’ll want to check and correct sooner rather than later.
1) There’s Harmony in the C-Suite
Nothing wrecks a promising startup faster than a serious dispute between founders.
Trust is the fabric that holds companies together. Once it’s gone, it’s incredibly difficult to get back. “When partners fall out, the ownership, control, and even survival of their company are threatened,” says Harvard Business School professor Philip Thurton.
If you can, be very selective about the people you choose to go into business with. Founding a company is a lot like exploring a new planet or trying to cross an ocean in a canoe: you want to make sure that your companions have your back, but also that they’re competent at their jobs.
If you trust and respect your partners, you’ve already taken a giant step toward success.
2) You’re solving a real problem for real people
Is your product or service making the world a better place? Are people’s lives getting easier and more secure as a result of your business? These are very good signs. No matter how brilliant your marketing team is, it’s really hard to sell products that don’t help anybody.
“I found a successful business niche because I experienced an inconvenience in my own life,” says Junaid Shams, co-founder of Rooam.
Especially for tech startups, the burden is on the founders to invent some kind of new technology that’s revolutionary enough to disrupt an industry — as Rooam does by putting bar and restaurant customers in charge of their own tabs. The more common and obnoxious the problem you’re solving, the more popular your solution is likely to be.
3) You’ve Already Failed a Few Times
Success in business is sweet because it’s scarce. With almost no exceptions, entrepreneurs’ first startups never succeed in a big way. If you’ve tried and failed with startups in the past — and you’ve specifically identified what shortcomings led to those failures — you’re actually in a better position than you would be if you’d never failed.
“A startup goes from failure to failure. All it does from day one is run a series of experiments and just like in a lab, most of them will fail,” says Silicon Valley professor Steve Blank.
If you’re smart enough to learn from your mistakes, every painful failure comes with a valuable lesson. At the end of the day, every business is going to experience major setbacks. If yours already has, it might be a good sign that you’re working the bugs out of the system and are ready to hit your stride.
4) You’re built for efficiency
You can’t accurately predict the future, but you can prepare for it.
Startups don’t usually have the luxury of tremendous income streams, a deep war chest, or comfortable lobbying ties with the government — in fact, those advantages usually belong to your competitors.
Your primary advantage as an entrepreneur is your flexibility and efficiency.
If you’re getting the most out of every dollar you spend and shunning unnecessary expenses, your business is going to be hard to kill.
On the other hand, if you allow bloat and excess to creep into your organization, you might not be prepared to deal with the financial wrenches life will inevitably throw into your works.
5) People are talking about you — without being paid to
A classic way to forecast the success of a business is to test how much excitement it generates. Are your customers buzzing about you?
Modern marketers are experts at the dark art of keeping products at the front of people’s minds, but what happens when you stop giving away free stuff or paying for positive PR?
It feels great to pose with your co-founders for the cover of Inc. Magazine, but the most valuable coverage you can get is a simple word-of-mouth review from a customer.
If people are excited enough about your business to talk about it, either online or in-person, that’s a great sign.
6) You’re turning a profit
I know I listed this one last, but it’s pretty important.
If your company is profitable, congratulations — to a great degree you’ve already succeeded. It takes the average company about three years to see a profit from a new product.
It takes many startups much longer than that to see profit overall. If you’ve managed to get your income above your expenses, the future for your company is likely very bright.
As a startup founder, there will always be times when you’re racked with doubt and insecurity. Entrepreneurship is risky business — and hard work. However, if you can see these six traits in your business, you can rest a little bit easier knowing that you’re trending in the right direction.
6. Seed round: How much money should I raise?
Seed round financing refers to money raised in the earliest stages of running a startup and usually represents the initial capital raised by a company.
It’s financing that is literally going to “plant the seeds” for your company’s future growth. You might have a stellar business plan, a working prototype, and even a few paying customers, but guess what? You still need money to purchase equipment, hire full-time staff, and rent out an office. So how much should you raise?
The easy answer, of course, is “as much as you can.” Imagine how easy things would be if you could raise enough seed stage capital that you would never have to go back to investors again in order to ask for more money.
In a best-case scenario, you should try to raise enough money so that you can take your company to profitability. But realistically, you are only looking to get enough runway for the next 12 to 18 months at which point, yes, you’ll need to go back to investors and raise your Series A round.
There are several benchmarks for how much seed round capital you should raise. Assuming you’re a tech company bringing a new product to market, you should count on having a team of 5 engineers (or developers).
As a rule of thumb, simply multiply this figure by $15,000 for every month of the runway you are trying to create for a company.
Using a few back-of-the-envelope calculations, you can immediately see that a five-person Silicon Valley startup is usually looking to raise between $1 million and $1.5 million for an 18-month period. (This is just math: $15,000 x 5 x 18 = $1.35 million)
If you’re based in a more affordable tech hub, you might be able to play around these figures and realize that you need considerably less than $15,000 per month. But that’s what a ballpark figure does — it puts you in the right ballpark.
When all is said and done, the minimum amount to raise during a seed round stage is typical $500,000 (which works out to roughly enough to afford 3 employees for 12 months). For an amount less than that, you can probably just go back to friends, families, and the deep-pocketed angel investor who happens to live in your neighborhood.
If you’re looking to raise more than $1.5 million, you might need to revisit your business plan to see where you are going wrong. (You might need to adjust from your “best case” scenario to your “base case” scenario).
One important point to keep in mind is that the seed round is no longer an equity round. In layman’s terms, it means that you and your partners (who own 100 percent of the company) no longer need to give up an equity stake so early in the lifecycle of your company.
In Silicon Valley, seed rounds are typically financed with convertible debt (or similar types of debt instruments that convert into equity at some later date). Your Series A round will be your equity round, so don’t worry, there will be plenty of future opportunities to give away ownership in your company.
Once you’ve raised your initial seed round, it’s time to get down to the serious business of pushing your company one step closer to profitability. The better the financial condition of your company after a period of 12 months, the better terms you will be able to negotiate with VC investors later.