Starting a company is a lot like starting a fire

March 7, 2020

Starting a company is a lot like starting a fire.

In the beginning, all you need are fire starters, getting a spark, the next customer, your minimum viable product (mvp), the things that don’t scale. Many people try starting with a log, it doesn’t work.

Next comes the long-lasting logs: culture, people, competitive advantages, distribution channels, etc. You can’t forget to keep the fire on while gently adding one log at a time, add too many logs at once and you’ll kill the fire.

Then there’s the oxygen, which is invisible, but you need it all the time. It’s the context surrounding your company: market, competitors, context (legal, technological, cultural), partners, investors. The amount of oxygen in the room makes a big difference.

The fire starters

Having a vision is great, especially because it gives your team a sense of purpose and direction. But it's not your vision that is going to carry you from 0 to 1. A vision is a log, not a fire starter.

In the early days of a startup, you will have to do lots of things that you are mediocre at. No one is a specialist at marketing, product, design, finance, operations, hr, legal, sales, and customer service, all at the same time. However, founders need to do all of them in the beginning. The distinction here is, you shouldn't be proud of your mediocrity, it should be painful (for example, I'm not a designer and designed this website myself, I can't wait to have an actually good looking website). Doing your best quickly at multiple things is a very powerful fire starter.

The logical but wrong advice here is: find other people to do the things you are not good at. This is good advice after you find product-market fit, but before that, everything is a hypothesis, so the more you hire specialists, the deeper you are committing to these hypotheses without testing them first. Hiring specialists is a log, not a fire starter.

Keep your burn rate low. Both the hypothetical fire and the money in the bank. This is probably the hardest to keep in check. Too many investors want to see top-line traction, but as founders, we can't optimize for investors, that's how you build a bubble, not a business. A low burn rate let your fire trust on fire starters for much longer.

Talk about your business, to everyone. Some people may get tired of talking to you because all you talk about is your startup. Don't worry, their friendship will come back when you are successful. Talking about your startup makes it feel real, even when you don't have a product or customers yet. It will also open doors for people to help you, that's how you will get your first customers and investors. Talking is a fire starter.

Build your product. This one is surprisingly controversial. There's some kind of weird consensus in certain circles that you should do 100 customer interviews before writing a single line of code. I think that's bs, do both. It's much easier to talk to people when you know what you are building, it's much easier to know what you are building once you are building it.

Starting to build the product also helps you delimit what's realistic when talking to people, so you will know how to guide conversations to understand the problems that you can really solve. The caveat here is, don't go for perfect, try to find the quickest way to provide value to some people compared to their current alternatives. How long is too long to launch depends on what you are doing and how good are the alternatives, if you are building a rocket ship, don't try to release in two weeks, but if you are building a simple app, just release it. Building and releasing early is a fire starter.

Sell every day, launch everywhere. Especially after you have an mvp, give yourself chances to be lucky. This is a great list of places to achieve visibility to your SaaS product. At Fluxo, we have been launching in one or two places per day for the last week, and here is what's starting to happen with our traffic:

Not bad, right? You can see some consistent improvement.
But wait, if we include yesterday, there's even more. That's what giving yourself a chance to get lucky looks like.

Last, once you get early customers, do whatever they need. Listen to them, make them happy, solve their problems manually if necessary. Having customers that are a lot of work is much better than having no customers. Don't worry if the economics don't work, spending 10 hours to serve a $20 customer? No problem. The important thing is not the $20, is listening to the problems your customers are pointing out. Also, there's a good chance that these early happy customers are going to become your biggest advocates. Doing whatever it takes to make your early customers happy is a fire starter.

The long-lasting logs

While your early trajectory is all about creating your initial sparks: starting a team, building the first version of your product, and getting your first happy costumers; your job won't scale linearly. Some of the long-lasting logs need to be built slowly, while others will just hit you in the face and become important out of nowhere. Understanding this dynamic is the first step to success.

Your culture is your first log. The hard thing about culture is that it's not something you can fake, it's set by example. Yes, it's nice to have value statements on a wall so everyone can recite them, but that's not culture. Enron's 4 values, chiseled in marble in the main lobby, were: integrity, communication, respect, and excellence. Yet, the company was responsible for one of the largest accounting fraud scandals in history. Your culture is what you do and what you incentivize, be intentional. Your culture is a log.

There is no magical formula to build a team. Nowadays every company seems to claim that they have the top 5% talent in the world, well, this is mathematically impossible. However, I don't believe in this definition of talent as something static. People become talented based on their traits and interests, you don't need the generally accepted best talent, you need the best talent for your company. While maybe for some companies this may involve attracting Nobel prize winners, for most it just means attracting people who have the capacity and interest in learning the best way to use their strengths to help your company. Finding what talent means to your company and attracting it is a log.

The more complex your business becomes, the more important it is for you to develop your overall strategy. MBAs have a bad name in some entrepreneurship circles. And I think most of it is because most MBA alumni can't go through the fire starters. However, this is where they shine, understanding where a company fits in the world, how it creates and extracts value, its overall and unit economics. Strategy is not only what you do, but also what you choose not to do. Great companies know how to prioritize. Strategy is a log.

None of the items above are static, the world is dynamic, the good product from yesterday is now a mediocre product, the strategy that worked yesterday doesn't anymore. That's why the last important log is the cadence of your business. It's very common in large companies to have departments in different cycles, marketing saying engineering is too slow, while finance complains that product is trying to move too fast. This happens because the company doesn't have a rhythm, or a drumbeat, as Reid Hoffman calls it. Setting your rhythm, deciding how fast things change, is a log.

The oxygen

There are so many invisible things surrounding a company, that sometimes it's easier to just call it luck. While I think luck is important, there are ways to improve your odds. Being unlucky playing Russian roulette is not the same as being unlucky getting hit by lightning. Avoid playing the Russian roulette and your chances of staying alive increase dramatically.

The best way to understand your oxygen is through Porter's Five Forces. How your customers, suppliers, competitors, future competitors, and substitutes behave set the space you have for growth over time. These five forces are your oxygen.

Why certain industries grow while others don't? In general, industries that are growing are getting better compared to substitutes, have a growing number of customers, and don't have too much pressure from suppliers. If you find one of those and you have some advantage over your competitors that is hard to copy, you are on to something special.

It's common to have big shifts on these forces influenced by changes in the environment, such as legislation, cultural trends, or new technology. Keep an eye on those, don't ignore them, too many businesses were killed by the words "we have always done it this way and it worked so far". Just think about it, Blockbuster could have bought Netflix for $50M and Yahoo could have bought Google for $1M. They both misunderstood how new technologies would reshape their markets. They didn't understand their oxygen.

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