1. What are you motivated by?
First, get clarity on why you want to found a company. As investors, we’ve heard everything from:
- I’m sick of working for other people
- I want to get rich
- I came across a problem, and I wanted to solve it
- I want to build something meaningful
- I want to leave my mark on the world
- I have a vision of the future I want to share
- and everything in between!
We can’t tell you what your motivation should be, but make sure it runs deep enough to give you fuel for the long-haul - including in the deepest of lows. We’ve seen founders that go the distance are motivated to solve a big problem they care about deeply. It’s important to make sure that founding a startup is the best and most natural fit for your underlying motivation. If you simply want to get rich - remember that for every founder that makes the Rich List, there are hundreds whose companies fail.
Similarly, if autonomy over your work is what you crave, there are arguably easier ways to achieve this than founding a company.
Lastly, make sure that whatever motivator is a ‘pull factor’ (a factor that draws you towards founding something) rather than a ‘push factor’ (a factor propelling you away from your current circumstances - such as a job you’re unhappy in). Push factors are transient - it’s important to be motivated by something that will stand the test of time.
2. Is this a problem space you can obsess over for a long time?
Building a business takes a lot longer than one might expect. The average exit (in the form of an acquisition or IPO) happens eight to ten years after launch. So ask yourself - are you building something in a problem space that can sustain your interest for a decade? Is this a problem you want to be living, breathing, and sweating ten years from now?
As a company grows, your role as a founder and executive will evolve. On Day 1 you might be writing the first lines of code for your product; on Day 500 you might be overseeing a product team, and on Day 1000 you might be more focused on high-level strategy than on the day-to-day running of the business. Think about whether there’s something at each stage of running the business that will energise and excite you.
It’s also important to consider how your interests, experiences, disposition, and skills match up to the kind of company you want to build. As investors, we sometimes refer to this as founder-market fit. As investors, we think about founder-market fit in two ways:
- Do you have a ‘spike’ in something that is critical to how your business succeeds? If you are building a sales-led business, are you an excellent salesperson with a deep insight into your customers’ needs and purchasing behaviours? If building a big brand is a key part of your business’ success, are you a brand visionary with a unique insight on how to build a cult-like brand following? We love when founders can articulate alignment between their skills and the business they want to build.
- Do you have a unique insight about your problem space that few others share? As investors, we have to assume that most ‘obvious’ problems have already been solved. Can you articulate something you see that others don’t, and link this insight to a business opportunity?
3. Is the problem you’re solving real?
It’s crucial to start with a clear - and real - pain point. Not only do enough people need to experience the problem you’re solving, they must feel it so acutely they’re willing to part with their valuable money to solve it. Before you start building, get clear on exactly what your prospective customers agonise over and articulate it from their perspective. Get to know your prospective customers intimately by amassing feedback - not only through asking them what they think but by observing how they interact with early versions of your product.
4. Are you building something customers will love?
It’s not always enough to solve a real problem, it’s important to create a product that people love. The kind of love that looks like logging in every day, or camping outside a store to get their hands on new releases, referring you to their friends, and defending you from negative reviews.
You want your customers to be gutted if they could no longer use you. You can track customer love quantitatively, such as by asking ‘How would you feel if you could no longer use [this product]’. According to Superhuman CEO Rahul Vohra, strong product market fit looks like at least 40% of your users answering they would be ‘very disappointed’.
5. What is the size of this opportunity?
To determine the size of an opportunity, think about how many people / businesses have the problem you want to solve and how much you could charge to solve their problem. If you think one thousand people in the world have the problem and they would each pay one hundred dollars for a solution, then the total addressable market (TAM) for your opportunity would be $100,000.
Of course, market size is not set in stone. The most innovative businesses can create new markets or significantly expand markets, sometimes by manifesting new consumer behaviours. Additionally, as you build, you may add adjacent product lines that unlock new markets. Importantly, knowing the approximate size of the market you’re building for will shape how you build and fund your business. When we speak about ‘venture scale’ businesses, we typically anchor to $100 million of annual revenue potential. If you’re motivated to build a business for a significantly smaller market - consider whether taking venture funding is the best way forward.
6. Can you create some momentum?
In the early days, prove that you can fan a flame into an ember ready to explode. This looks different for different companies - you could be tinkering away at a prototype, building a community of prospective customers, building a waitlist for your beta launch, or building a content funnel that’s attracting an audience you can later turn into customers.
No matter the form, momentum matters - not only does it lay the foundation for future momentum and build muscle memory for the future, it builds your own conviction in the opportunity you’re chasing. Here’s an article we’ve written about different forms of momentum and how to communicate momentum to investors.
Once you've built a product you think customers will love, you need to start thinking about selling it. If you are building a sales-led organisation, here's an article we've written about generating momentum in your sales machine.
7. Can you move quickly and make a little go a long way?
One of the advantages that startups have over incumbents is speed. In the early phase, demonstrate you can work quickly, iterate in response to feedback, and make magic happen with limited resources. Capital efficiency (often manifested as scrappiness) is a superpower insofar as it enables you to experiment and course correct as needed.
Even after you start making revenue or raising capital, we find many great founders hold onto this resourceful mindset. Practice making a little go a long way - being able to run on the smell of an early rag makes you less dependent on the availability of capital and able to avoid dilutive fundraises in the early days.
8. What resources do you need to achieve your vision?
To figure out what resources you’ll need to build your company, back-solve from the end-state you want to achieve. Does the kind of company you want to build require scale to be successful? Do you need thousands of employees to help build and distribute your product? Alternatively, can you be successful with a lean team, with a business that’s profitable from very early on?
The answers to these questions should guild the kind of funding you seek to raise for your company. If your product has immense capital requirements to reach scale, be clear-eyed about the amount of funding you’ll need to raise, and the equity you’ll have to give up in every funding round. Alternatively, if your company can be bootstrapped, consider whether you need to raise funding at all.
Most importantly, take the time to ensure there’s a match between the kind of company you’re building and the life you want to live. Is your dream to wear the responsibility of many employees, customers, investors, and upside potential? Or is your goal to make enough money to live comfortably and enjoy flexibility in your work?
There is no right answer - the only important thing is to make sure there’s alignment between your goals, your business model, and the kind of funding you seek.
9. What are the right support systems for you?
Building a business is one hell of a ride.
From elation to despair, you’ll be exposed to a range of superlatives - multiple times a day. You’ll need support systems to help weather these ups and downs.
You can't gaze into the future to see what support you'll need when the time comes, so invest in building a supportive network around you before you need them. Speak to other founders to learn how they manage the bumps, side knocks, and near-constant stress. Put together an Elephants group or invest in an executive coach. In this article about our recent investment in Medoo, we dive into the transformative impact that coaches can have.
Explore some resources such as Airtree's support panel for mental health and wellbeing and AfterWork's repository of resources for founders. If you have family and other personal commitments, think deeply about how you can continue to honour these other aspects of your life.
Before you're in the depth of it, get a lay of the land and determine the mix of support systems that work for you. It pays to be prepared.
10. Can you rally people around your vision?
As a founder, part of your job will be to help people see and be inspired by your vision for the future. Here's an article we've written about defining your vision - in a manner that's authentic and resonant.
You may not naturally enjoy the spotlight, but getting prospective investors, employees, and customers about what you're building is an essential part of a founders' job. When you believe deeply in what you're doing, you'd be surprised at how naturally you'll become a magnet for people who feel the same way. Make sure that bringing people on the journey is something that excites you, as it'll be a major part of your remit.
To build a significant company, you'll need a lot of talent. Make sure your vision is one that rallies ambitious people. Before you get started, stress-test your vision with the kind of hires you'd like to bring on board - find out if it excites them enough to leave cushier jobs to join you.
To provide some food for thought about hiring, here's we've written about how to attract the best talent to your startup and how to embed diversity, equity, and inclusion from Day 1.
You've made it!
Now you've made it to the end, we'd love to hear how you did! If you're feeling fired up and ready to jump off the deep end, get in touch to pitch your idea.
If your curiosity has been piqued but you want to collect more information and perspectives, join us on Friday August 19th at Fishburners in Sydney CBD to hear our investment team members discuss our investment principles. You can register for the event here.
Are you thinking of taking the plunge and becoming a founder? There’s no magic eight ball that can tell you whether it’s the right decision. But there are some things that may be useful to work through before you dive in!After all, the most important investor to get onboard is yourself. Your time and effort is more scarce and more valuable than investors’ money, and unlike VC investors, you don’t get to take a ‘portfolio approach’ to the decision. In this article we’ve compiled ten questions we recommend to every prospective founder who’s on the precipice of going all in. These open-ended questions are designed to help you get clarity on what you want to build and why, whether you’re solving a real problem, what the size of the opportunity is, and what you’ll need to make your vision a reality. We’ve written this for founders who may already be tinkering on something after work, and are building the conviction to make it their life’s work. Here goes!