There seem to be a lot of lists out there that enumerate things an entrepreneur should NOT worry about. But let’s face it, there are certainly things that SHOULD keep you up at night. Here’s my list. What’s on yours?
1. Am I building something that lots of customers will pay for?
You’re small. You’re just getting off the ground, but you are dedicated and you’ve put your heart and soul into a product or service. You’ve built it, but will they come? There are lots of apps in the world, and a lot of them are free. Would somebody buy it if they had to pay for it? So maybe your product isn’t free, but you only have three customers. Can you get to 100 customers? 1,000? Not every business will be a big business. Many businesses will never scale. But how do you know which one you are? If you want to be a big business, or even a medium-sized business, then this should keep you up at night. You should have a good sense of the size of your market, the number of competitors, the forecasted growth of the market over the next several years, as well as potential alternatives to products like yours. This will answer the question of whether or not you have enough customers to whom you can sell. The next question is trickier: do they want my product, and will they pay for it? A good rule of thumb is to ask yourself whether or not your product is so critical to your customers that even if revenues decrease, they’ll still buy it. A great example is QuickBooks. Every business needs a bookkeeping system. Even if you’re not making money, you still need to do bookkeeping. Of course, you could always just use Excel. However, using Excel is so much more painful than the cost of buying QuickBooks, that you’ll still buy QuickBooks even when you’re making less money! Is your business like QuickBooks? Most businesses aren’t. But figuring out how critical you are to your customer – how far away or how close you are to being a QuickBooks – will give you a sense of whether or not you’re building a product that lots of people will buy.
2. Which garage contains the next Uber for my industry?
If your business idea is any good, you already have (or you will have) competition. Anyone who says they have no competition is delusional. Your competition could be another company. Or it could be the way that people are currently addressing the problem you’re trying to solve. So you can’t lose sleep over the fact that you have competitors. But you SHOULD lose sleep over who they might be, or what they might be doing. Because a new entrant into your space, or a truly innovative improvement, can be disruptive enough to put you out of business. Just ask the music business, or video rentals, or the post office. (Okay, they’re holding on, but maybe not for much longer). Every entrepreneur should do extensive competitor research and stay abreast of new products, services, or improvements by the competition. That way, you are aware of major shifts in your industry, or pricing breakthroughs, or changes in customer expectations due to offerings from competitors.
3. Do I have the right team to get me where I want to go?
Startups rarely have the money to hire an all-star team. Most companies go through their entire existence with B and C list employees. A few companies recognize that they will start with B and C-listers, and will have to eventually upgrade to A-listers. Some companies never figure this out. Each entrepreneur has to actively evaluate the capabilities of his/her team to determine if they have what it takes to get the company to profitability or to the top of its industry. It may be that the observed gaps in competence can be addressed by ongoing training and development. This is the best case scenario. It is more likely, and more painful, that the solution is upgrading your team by hiring different kinds of employees, and these employees are rarely cheap. You will have to pay up for them. With the exception of one employee (which should tell you how good he is), we’ve already cycled through several rounds of employees, because we are constantly upgrading to get the team we deserve. Even if you have a great idea or product, having the wrong team will result in poor execution. And the brutal truth is that the difference between success and failure is, in most cases, execution.
4. When will I run out of money?
Unless you’re a well-funded VC-backed company, this may be the omnipresent worry of every entrepreneur. (And even VC-backed companies worry about this, although maybe not as much.) Time is an entrepreneur’s worst enemy. But it’s only the enemy because no one has an unlimited supply of money. If they did, then they could take as much time as they want to bring a product to market. So in this context, money equals time: time to research, develop, bring to market and refine your product. The more money, the more time you have. So, do you have enough money in the bank? The conventional wisdom is that you should raise enough money for at least 18 months of runway, and then double it for good measure, so 36 months of cash. I don’t have that much runway and you probably don’t either. So how much do you need? While there is no hard and fast rule, you certainly need, at the minimum, at least six months of runway in the bank at any given time to cover your operating expenses. As a growing business, your monthly expenses may fluctuate, so this is why you need to always be thinking about this. You don’t want to have two months’ worth of cash left in the bank and then be forced to go fundraise. That’s also known as “being held over a barrel.” This is when investors love to talk to you because you have no leverage, and you need their money to stay alive. So, always have this in mind. That way you never end up asking for money when you really need it.
5. Can I feed my family?
For the 99.9% of entrepreneurs that aren’t nineteen years old, single and carefree, this is a real issue. Is my company generating enough revenue (or does it have enough funding) for me to draw a salary? If yes, is the salary enough to support my familial obligations? If no, where is the money going to come from to pay the bills? Are you dipping into savings? How long will I give this startup before I call it quits and go get a “real” job? Can I get investors? Turn to friends and family? All of these questions have run through the minds of countless entrepreneurs over the ages, and rightfully so. Entrepreneurship is great, but family is more important. Entrepreneurship puts an immense strain on most families due to the inherently risky nature of the experience. There is no easy answer here. This is the 4 a.m. conversation between an entrepreneur and his/her pillow (or perhaps his or her wife or husband). When is the right time? When is it too soon? Is the next big deal around the corner? My only advice is that you should be truthful to yourself and your spouse about the challenges of the process, and the accompanying risk. Also, spouses are an amazing resource. They can help out by tapping into THEIR resources for additional funding, or find ways to bring in extra income to tide you over.