Most startups fail. That is a fact. Even the most experienced operators fail 50% of the time. Experienced Super Angels see exits nearly 20% of the time. Scaling is very hard. Building a successful company is about understanding the changing needs and challenges of a company throughout its lifecycle. It is about team building, execution, managing expectations, establishing relationships, and understanding the ever-changing markets, needs, trends, and product market fit.
There are common mistakes that are made, that if avoided, dramatically increase the chances of success. Most entrepreneurs are too excited about their idea to take the time to examine the foundations of what they are building. Over the decades, I have come to learn to ask a number of questions, that help me determine if the team has thought through the idea, their plan, and how to execute on it.
My first focus is always on the CEO/Founder. Is he/she backable? I define that by determining if he/she can build rapport. That tells me that he/she will be able to build great teams, raise capital, sell, and provide clarity and focus.
Next, I look at the company’s setup; the legal structure, operating agreement, roles and responsibilities, vesting schedule, conflict resolution, etc. Then I begin asking what I consider to be pivotal questions:
- What is the problem you are solving?
- Do you have a personal connection to the problem?
- What is the story? How did you come up with this concept?
- Have you validated the problem?
- Who are you solving this problem for?
- Is this a big problem that will continue to exist?
Then I want to know:
- Why you?
- Why now?
I then look at how they will solve the problem:
- Do you have the right solution?
- Does the solution match the problem?
- Do you have Product Market Fit?
The market:
- How big is the market? Is it a growing market?
- What does the competitive landscape look like?
- What is your differentiation?
- What is the business model and monetization mechanism?
- Is your model defensible?
- What is the go-to-market strategy?
- What are the key sector trends? Headwinds or tailwinds?
Operating questions:
- What are your assumptions around unit economics?
- Do you have the ability to grow and scale the company and get it to the next stage?
- Is the timing right for this company?
- How much do you need to raise for an 18-month runway?
- What are the use of funds?
- Do you have a budget laying out the expenses over the next 18 months?
- What are your pre-money valuation expectations?
- What does success look like in 12 months?
- Who is on the team?
- Who is in charge?
- What if you have to pivot?
- How are you going to recruit talent?
The goal is to make sure the founders have thought through the basics of the company, the market, and how to get to the next round. Additionally, it is key to understand if they are looking at the same key factors and unit economics in determining the company’s success. And if they can use best practices and focus on key factors in building a company from the ground up, developing and validating a business model, validating the problem, building a team, working with VCs, and avoiding the most common mistakes.