The most common approach that young people go for when attempting to launch a startup nowadays is:
Idea > funding > prototype > funding > MVP > traction > funding > market
Prototype > funding > MVP > traction > funding > market
or any other sequence with funding as an integral part of bringing the company to life.
The problem with this approach is that it is only likely to work if either you, the founder, are located in an area with very high startup investment activity or you are from a wealthy background, or have already generated substantial earnings from other activities. If you are a founder from a not-even-close to a wealthy background, in a developing country, this trick is not going to work unless you have mastered the art of summoning luck. So, what are your options? In this article, I am going to lay down a pragmatic approach to successfully launching a startup that can work for almost anyone.
Here we go;
1. Pick a Personal Problem
We all got problems. I always say that a person’s purpose in life is to solve their problems. Now, let’s not get caught up with exaggerated missions like extracting minerals from an asteroid. We both know that as an unemployed 25-year old with $10 to your name, extracting minerals from an asteroid is the last thing you need. What you need is an income-generating opportunity. And if you do have a job but you hate it, then what you need is to solve a personal problem while making a living in the process. I’m not talking about millions of dollars here, but rather solving an immediate problem that has affected you personally and making just enough money to sustain an average standard of life. Take a good look at your life and ask yourself:
– What annoys you daily? What are annoys your brother, little sister, mother, neighbor, classmates, etc.?
– What are you lacking? What do they say they are lacking?
– What do you always complain about? How about people in your circle, what do they complain about?
– What is your life story? The sad version, I mean. How about sad stories of people in your circle?
At this point, don’t even bother conducting market research and it will serve you best if you don’t. You have to pick an actual problem that you are living on right now. Forget about how big that problem is nationwide et cetera. You are not building a case to sell to investors.
My little brother finished school and wasn’t interested in taking the employment route. He had worked with many NGOs and led community development projects which is how he built up his valuable skills – just like I did. Now, being the supportive big brother that I am, I pitched him to get on a path to set up a startup solving an exaggerated problem using some sophisticated solution. Luckily, he is very in touch with his inner-self so didn’t buy into it. He remained in limbo. Years later, as I learned from my own entrepreneurial challenges, I shared with him this way of picking a personal problem to solve. He quickly saw one that his friends and neighbors were complaining about most – accessing microloans.
Pick a personal problem and move on to the next step.
2. Solve the Problem, Manually
I’ve seen many young people pitch a concept for a solution that is some sophisticated, high-tech product that requires substantial cash to build – big mistake! I’ve done this mistake myself and it cost me a good 2 years of cash draught. Your solution has to be existing tools and resources bandaged together, in a different way, to solve the problem you picked. The most important thing you should remember is that your solution should not be a product, but a service. In essence, all businesses provide a service. A service that Coca-Cola provides is to quench your thirst. The service that Toyota provides is to take you from point A to point B. It is never about the product, but rather the value of the service a customer receives. This is where your focus should be placed.
With Rwazi, I spent many months building a really sophisticated platform that does all sorts of tricks. When we hit major setbacks, we were forced to halt product development and I could not accept closing the company so I resorted to pushing on customer acquisition without the product. This is when I realized that the customers did not value Rwazi because of the tech but rather because of our network of mappers across 40 African countries which renders the ability to get on-ground data from any of these places in a very short time. It is the service that customers pay for, not the product.
Another good example is Grammarly. Grammarly is a writing assistance service. If you identify that people around you need a writing assistant, rather than going to seek funding to build software that detects errors in texts, you would immediately start providing writing assistance services. You proofread customers’ pieces yourself, then when business grows you hire more proofreaders, and eventually, you build a great case for external investment.
3. Don’t Define the Market
This sounds very strange, I know. And it is the total opposite of conventional knowledge. But here’s what you may or may not know, defining your target customer can cause you to ignore people who actually are in great need of your services. I have seen many startups sink because their target customers are not converting or responding at the anticipated rates. The reality is, most of the time, your perfect customers will turn out to be people you didn’t even think need your services.
When my little brother started his micro-lending business, his first customers were his friends. In less than 2 months the customer base flipped to become his friend’s parents. The parents have higher salaries, repay their debts on time, and increasingly borrow more at higher interests. The business that was thought to be for entry-level earners ended up services mid-career professionals who needed quick loans to cover living expenses. I’m only lucky that I invested in his business first.
As such, your approach to the market should be providing services to the complainers you personally know. Then, let it flow in any direction from that point onward.
4. Focus on Process Innovation rather than Product Innovation
In most cases, process innovation requires less capital than product innovation. As an entrepreneur with limited resources, you want to focus on:
– How can you change the sequence of actions in serving your customer to make it much easier for the customer? Or much cheaper for you? Or both.
– How many ways can you rearrange existing resources to get better results?
– Et cetera
When you do this you will find that your solution is improving rapidly, you are reaching new customers, and many other aspects of your business are changing for the better.
5. Raise Capital
At this point, you are already providing a service to paying customers and growing organically. You have proven that the problem you are solving is real, the solution you came up with is novel, and your service is valuable. The only question you need to answer is can you rapidly scale? If yes, your pitch to investors is that you need X amount of resources to maybe build a product that will reduce operating costs by X amount and allow for rapid growth. A much stronger pitch than showing up with just an idea and graphs.
These are your odds of securing capital on favorable terms, assuming normal circumstances:
Scenario 1: Solid business plan, no service, no traction, no revenue, no product
Probability of investment: 0.1%
Number of investors to pitch before securing at least one: 1,000
Scenario 2: Solid business plan, no service, no traction, no revenue, prototype
Probability of investment: 0.1%
Number of investors to pitch before securing at least one: 1,000
Scenario 3: Solid business plan, no service, traction, no revenue, prototype
Probability of investment: 0.2%
Number of investors to pitch before securing at least one: 500
Scenario 4: Solid business plan, service, traction, ‘00s USD in revenue, no product
Probability of investment: 1%
Number of investors to pitch before securing at least one: 100
Scenario 5: Solid business plan, service, traction, ‘000s USD in revenue, no product
Probability of investment: 10%
Number of investors to pitch before securing at least one: 10
Scenario 6: Solid business plan, service, traction, 10K+ USD in revenue, no product
Probability of investment: 100%
Number of investors to pitch before securing at least one: 1
By “investors” I mean everyone from angels, venture capitalists, banks, microfinance institutions, private equity guys, grant funds, etc. Because an overwhelming majority of investors value your company based on the ability to make money, you might as well start with that first. A great product and good traction can, unfortunately, be disputed. Also, you do not want to be eating one meal a day and trying to keep your startup from closing as you pitch investors otherwise you will accept a bad deal out of desperation. Focus on making an ok amount of revenue to sustain the company and yourself, and then, start striving for rapid growth.
People who choose employment are realistic and entrepreneurs are delusional. We can’t change who we are but we can learn from our employee friends and take what’s valuable from that side – security. People opt for a job because they want security. Entrepreneurs can have both security and the crazy dream. Launch your startup with a focus on generating a stable flow of income. After achieving stability, jump.
See you in outer space!
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