The model of 10 strategic building blocks is one I've seen work at other startups and for other entrepreneurs and friends. It's a strategy for building credibility for your startup, and can be used to turn your startup from a mere idea into a fundable and respectable entity.
As an aside, I find the whole "startup" phase both fascinating as well as tiring. In my opinion the "startup" phase should be just that: a phase. Meanwhile it has become an industry where it is sometimes difficult to see the wood for the trees. But hey, that's just me.
This strategy for moving through and past the startup phase in the form of the following building blocks is by no means the only way. So if you have a different experience, I'm keen to hear from you in the comments. So to be clear – I'm not saying all of these 10 building blocks are required for funding, for being successful or that they have to be executed in this particular order. It's simply a map with some sign posts of what can help on the fundraising route.
From idea to VC funding
I've raised other companies before but wasn't forced to look into raising venture capital to get them off the ground. They were built purely on a combination of the first (idea), fifth (product) and 10th (client/sales) building blocks. However, with my current startup (Unified Inbox) being a huge idea it was a different story. Apart from investing a lot of money myself, I am required to raise substantial funds in order to turn the idea into an actual sellable product.
If you do need significant investment to get your startup off the ground, then the more of these building blocks you put in place, the better.
Without an idea, there is no initial point, there is no ignition. For me personally, the idea is very important and deserves much greater acknowledgement (and respect) than others, especially investors, give it credit for. From a founder's perspective, without an intriguing and ambitious idea, it is hard to get the rest of the building blocks in place. So the idea and especially the clarity of expression of it is key in the execution of the next steps.
It may become obvious working through the remainder of the steps why the person who has the idea is actually not always the one who commercialises it!
This brings me to the second point - to me the founders of the business are the ones that put together the strategy around making the idea a reality. So for an inventor that might mean finding the right founders for the business which specialises in the commercialisation of his invention.
Plenty has been written about if/when/how/why to find a co-founder, so I'll not dive into it here. I've had startups with a co-founder and startups without a co-founder - and found that if the idea is very big, you need a lot of connections with very different backgrounds and experiences. In these cases a great co-founder, much like a great life partner, is a good idea.
Founders are ideally a well-composed team that share common values, but add value and complement each other. Both should be equally confident in their abilities and realistically aware of their achievements so far to avoid any imbalances between themselves. Apart from the idea, the founders are probably the most important factor that investors pay attention to, so ideally their biography should match the experience required to execute the idea.
Once the founders have aligned themselves, it's great if they can get some support for their theories by doing research or market validation. A lot has been written about market validation, so again I won't go into too much detail here. What I mean by research is also not holding your finger up in the air and estimating the humidity. Putting some rigour around the research may involve a professor of a well respected university giving one of the students a research project that covers some of the ground of the problem the idea is trying to solve. This would serve well when convincing other people to buy into the idea and become part of the team.
If the university would lend its name to support your idea with its research, even better.
Team & Product
With some backup from a research paper and a well formulated idea, it is time to assemble the team and start building the product. Unless thef ounders (or one of the founders) can build the product themselves and without having any cash available yet, it is essential to motivate people with being able to reach a realistic (but fantastic) goal together and benefiting from it. At this stage payment with equity options should be considered rather than cash to keep the team aligned and focused on a common outcome and goal.
The team should reflect the experience, abilities and smarts needed to execute the strategy in building a minimum viable product (MVP) or at least a prototype thereof. The ability to add their experience and thoughts into the product building and positioning process is also something that may encourage potential advisors to start lending their support at this point - whether that's in the form of feedback, relationships or in actively helping to reach the next milestones on a long and winding road.
For us at Unified Inbox, advisors have provided invaluable feedback and introductions over time and I would highly encourage every startup to build an independent advisory group or board as early on as possible. Unless significant amounts have been raised, advisors could be compensated in much the same way as employees / the rest of the team are. However, often they are happy to lend a hand (or two) and share their advice and experience by mentoring the founding team over a cup of coffee or a glass of wine, especially during the early stages of a startup.
With the previous building blocks in place it is time to tap into some publicly available grants and gain further support by presenting certain show stoppers and challenges faced during the R&D process of the product to government programmes. If you're raising a startup and are living in a country that does not have any of these programmes in place, I'd highly encourage you to consider relocation. Don't get me wrong - I've been raising companies without the help of any government support, but, if you're really on to something big and especially if it involves heavy R&D with the potential to get IP secured within the country or legislation you raise your startup from, then it is very much in the governments own interest to support you wherever possible. Some countries that are famous for their support in this regard are New Zealand, Singapore, Malta, Newfoundland, the European Union, Chile - but I'm sure there are many others, too.
Getting any form of government support in place not only builds trust for the steps that come, but also the liaison with the related officials can help to attract interest from government departments to potentially use the product or service you're developing themselves.
By now we've responsibly built a strategy, team and product, backed that up with independent research and advice and got government support for it. Now it is time to go for some external investment. Unfortunately, unless you can find a truly great incubator, accelerator or a couple of well-connected and spot on angel investors within a reasonable time frame, this step usually requires a lot of time investment from the Founders that could otherwise be used on building the product and team further.
The ideal scenario is to just get a few great angels in place and have an excellent AngelList profile up and running that can be shared with many more. Getting some sort of buy-in from an external source in the form of real cash investment, is important as another building block to make this overall strategy work. The better quality this independent investor is, the more relevance for getting venture capital later.
At this stage of investment try not to get caught in too many discussions about traction (i.e. clients/sales or users). The reality is that especially those people ask for traction (and make this the basis of their investment decision) that either don't believe in the idea, its strategy/product or the executing people! So sometimes it is easier to raise funding without having to evaluate what the traction means but working with the fantasy and assumptions every individual has.
With some investment in place plus the other building blocks covered, it is very much possible for big corporate partners to trust and believe in the success of your venture. At this stage more than ever it makes sense to approach some bigger corporations and ask them boldly for their support.
This could be in the form of deferred payment terms in the case of legal advisors (i.e. to register IP or to work on the contracts required for the funding rounds, resellers etc.) or to get some desk space (i.e. in an office building which they use for co-working anyway) and you may even get some services and contractors to help you out free for a limited time period if they can rightfully hope for a longer-term cooperation with you when you get funded and expand internationally. This could work for accountants, banks, marketing agencies and so on.
There is no reason not to try particularly if they could potentially use your product. Basically any corporate partner who could have a great use of your product or service (even in a small team within a big organisation) would make an awesome trial site and could be a potential strategic investor at the series A, a great channel partner or turn into a respectable client down the road.
Clients / Sales
All these building blocks also help to convince clients to buy your product and/or service as they gain trust with each step along the way. This buys one freedom and space to focus on the actual message in the marketing campaigns (and why people should buy) rather than constantly explaining why we can be trusted and why we'll be here to stay. The question of trust is a key factor in any purchase decision - especially if I as a client will have to part with my money somewhere along the line.
What is the goal of a startup?
For me personally, it is very important to never forget that raising venture capital or getting investment is not the final goal. Neither is getting customers or hot press. Not even that big exit you may dream of. What I think really matters and means something, is if one can create value for others without hurting anybody along the way.
Let me know what you think of these building blocks and I'll write some follow-on posts to go into detail for the different parts of the strategy and what impact they have on the hiring process, PR, funding and sales. It would be great to improve this roadmap with the signposts based on the experiences of other entrepreneurs and startups.