This article was published on July 3, 2014

Try to kill your startup before you start


Try to kill your startup before you start

George Deeb is the Managing Partner at Chicago-based Red Rocket Ventures, a growth consulting, advisory and executive staffing firm based in Chicago.


I recently had the pleasure of sitting on an investor panel with Joe Dwyer, a partner at Founder Equity Fund and good colleague of mine. He made a very interesting comment – he was counseling the startups in the room to “try to kill your startup!”

My initial reaction was that it’s is a rather strange advice to make to a room full of aspiring entrepreneurs trying to successfully get their businesses off the ground. But, as Joe went on to explain, he said “if you have done everything you could have done to kill your startup, and were unsuccessful in doing so, then you are truly on to something that is defensible and worth building.”

This presented very interesting pearls of wisdom.

So, what does trying to kill your startup actually mean?

Fire

You need to poke and probe across all areas of the business, looking for holes that could lead to potential shortcomings in the business or can facilitate potential moves by competitors that will impede your own efforts.

Any macro level issues? Industry too small? Space not of interest to VC’s?

If the industry is not large enough, it won’t appeal to investors. If the industry is not one venture investors like to invest in (e.g., technology related), it won’t appeal to investors.

Any competitive issues? Pricing out of line? Product not as good as others?

Investors want to back first movers or “better movers” in spaces where there are not of ton of other venture-backed startups already ahead of them.

Any management issues? Any weaknesses in the current team? Is the team economically motivated for the long haul ahead?

Investors like to back experienced teams that have worked together for a while with meaningful upside incentives in front of them (so they stick around).

Any revenue related issues? Is there a real business model here? Can revenues easily scale?

Very few businesses can get away with no revenue model out of the gate. So, you need to show investors how you credibly plan to drive revenues with realistic market-driven assumptions.

Is your cost of acquisition too high compared to revenues? Does your lifetime customer value provide compelling economics and repeat sales? Is it a long sales cycle or a short one?

Investors are always looking for an affordable cost of customer acquisition that can drive a near term payback, and has previously been tested to ensure the plan is realistic.

Any technology issues?  Is it easy replicated by others? Is it patentable?

The bigger your barriers to entry, the better it will attract capital.

Any human resources related issues? Is it tough to find talent in this space? Can you afford the talent you will need?

Investors prefer models with limited human overhead, and scalable technologies.

Do you have enough money to not only build the product, but to test the initial marketing economics? Is it a small capital requirement, or a major fund raising exercise?

Make sure you have compelling unit economics, including a high gross margin. The less money you need to achieve proof of concept, and the higher your margins, the better.

Any investment related issues? Is there a logical buyer for this business? Can a 10x return be easily achieved?

If you can’t logically explain to an investor how they can exit their investment at a material return to them, they will not be interested.

At the end of the day, this reiterates a lot of the points we talked about in my Definitive Checklist for Startup Success. So, pull out your pistols and daggers and start firing away at your startup, much like your competitors will be doing.

If you survive that dog fight, then the hard work of building your business can really begin!

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