Five Things Every Founder Should Know
There’s no greater satisfaction for us than seeing a founder’s vision fulfilled. Most often that is a combination of several things that result from the growth of their company: a sense of accomplishment, their ability to provide for their employees, positively impacting their customers, improving society, and of course, financial reward. The journey to that result, however, inherently contains challenges at every turn. Michael Schnaus, Executive Vice President, Strategic Development, shares his top five challenges encountered by company founders and, more importantly, how to overcome them.
#1: Really, really understand your market
Determining the size of your market is critical, which is why analyses such as Total Addressable Market (TAM) are so valuable. However, this is only the first step toward gaining a full understanding. Is the market large enough to sustain your business model for the foreseeable future and through economic cycles? Is it growing or shrinking? What sources of data are informing your decisions? Beyond determining the size of the market, there are other considerations. What are your customer needs? How can you help them? What's the competitive landscape? How tough is it? How different are you from your competitors? How can you access the market? What's your marketing, sales, and distribution plan to be able to get into that market space? Overall, where do you fit in the market and how can you protect and grow your position?
There are many companies that have a good product, but the competitive landscape is such that theirs is really just a “me-too” product. There are similar product alternatives, there's tough price competition, and there are no differentiators. There's no moat, there's no intellectual property protection, and companies must accept their fate that this is the competitive path they're going to stay on unless something changes. I've seen cases where they eventually come to that realization and change their strategy. They expand into tangential product lines, create product differentiation and leverage their distribution channels to grow revenue in new directions. Once they have changed their strategy, they often realize that the opportunity they are going after is much larger than expected, and they grow more substantially.
Understanding your market is the number-one issue.
#2: Honestly assess your products and services
Be honest—are your products and services unique? Do they have a first-mover advantage? Are they better and differentiated from the incumbents? Are they hard to replicate? Are they protected by intellectual property? Are they both difficult and expensive to support? Are there ways to strengthen your product position by leveraging other company resources? Do you have a product roadmap for the future and the “know-how” to evolve your products?
These considerations are important because the answers, when developed, help create differentiation that can be leveraged to win more customers and fend off competitive threats. For example, I know of one company that was first to market with a high-end product. After establishing a substantial market position, it offered customers exceptional service and made regular improvements to keep the product appearing fresh. Their competition had a very difficult time penetrating the space because the customers did not want to change. I can also think of another business that competed in a market against many companies with similar products. To survive, the business had to continuously develop its product to match the competition, but it also focused on building a strong, loyal distributor base. These committed channels were the differentiator that allowed the business to compete effectively in a very challenging environment.
Your customers and prospects have choices, and you need to continuously give them compelling reasons to choose your brand.
#3: Critically examine your team
Do you have the right talent? Who are the stars? Where are the gaps? Where do you need to hire and where can you contract to fill your needs?
I have seen companies that struggled to grow because they had the wrong people in key sales or marketing positions. One company had all the attributes to be successful, but they were having difficulty growing because they weren’t getting good direction on how to go to market, which channels to leverage, and which incentives to use to motivate sales. They struggled and went through multiple sales leaders until they found the right person. Eventually, they found a sales leader who had the right drive and capability to build both the team and the incentive structure to be a game-changer for the company. It took a while until they found the right salesperson, but once they did, the company got traction and sales took off.
People can be technically competent in whatever they do, but if they can't communicate well with their colleagues, figure out how to motivate them, and don’t possess the drive and leadership capabilities to take it to the next level, they may keep the business from reaching its full potential.
#4: Know your finances in detail
It is very important to build a comprehensive three-to-five-year financial model around your business plan, business segment and strategic direction, and you need to understand it. This comprehensive financial model can be a powerful part of your management tool kit and a key compass to guide your future business direction. You should know, manage to, and have visibility in detail into the next 12-18 months of that plan for proper execution in the current business environment. You should also be able to speak to the longer-term opportunity and possess a credible vision for the final three to five years of the plan. It is critical that you know your financials as you grow, and surprisingly, it’s often one of the last things businesses focus on, even though it can be one of the most valuable resources at your disposal. This is where all the aspects of a business plan come together. For example, as you work through a business planning session with a team, the business lines and pricing models you develop need to tie directly to the cost of the goods or services that you’re selling, as well as all the other resources required to support them. You will have sales and marketing presentations that talk about the market size and opportunity and how to best attack it by channel, engineers will talk about the technology, product development and investment requirements, and human resources will talk about employees and staffing needs. And other departments will do the same. However, until you put all of these pieces together into a comprehensive financial model, you really don't know whether the business plan will work or not and how much you need to fund it.
I've worked with companies that didn’t have a comprehensive financial model, and they were going down a path to bankruptcy, without even realizing it. They didn't recognize how fast they were burning through cash, understand why it was happening or know how long they could survive.
Overall, it is necessary to understand and “quantify” all of the critical elements of your business plan. This includes knowing the key value drivers, identifying where the bulk of your expenses will be concentrated, and recognizing your future financial requirements well into the future. Having this long-term financial vision will enable you to be better prepared for the near term and allow you to thrive in the long term.
#5 Be flexible. Be ready to adapt.
You will need to adjust and adapt your business as the market conditions require. There are many examples of founders who started down one path and then completely changed their business model once they got deeper into the market space. I recall a company that was a startup in medical technology. The founder was convinced there was a market opportunity for their medical product. He proceeded down the path as a product company and was two years into it when he realized there was a greater opportunity as a service company. So, he changed the business model, became a medical technology service provider, and ultimately became successful because of that bold change—though it was a totally different direction from where he originally started.
The key is not to be afraid to change, and not wait too long to make those changes. Those who do not adapt will not survive.