Most startups begin as basement ideas between friends. Occasionally, a group of people will have not only an intriguing idea but the capacity to follow through with it. The first step is certainly the most difficult. The personnel and skills, the upfront cost, and the time required to get your idea off the ground can be too much for many young entrepreneurs. There is certainly a right and wrong way to get started. For those debating whether or not to dive in, here are three general tips for young and hopeful startuppers.
Make sure someone else thinks your idea is a good one
This may sound pointless, but there are plenty of aspiring entrepreneurs with ideas that sound wonderful in their basement and are complete failures when they attempt to follow through with them. This step is simple and easy. Go to someone you trust (preferably someone with business experience) and ask their opinion. This can also be an opportunity to find funding, but first you need to make sure your idea is both executable and has the potential for success.
Don’t quit your day job
The facts are in and in reality, a vast majority of startups fail. Don’t be left out to dry when your “waterless lawn care” business flops. Building a business requires time and stability, but it also requires discipline. Until you can guarantee a certain level of income from your startup idea, do not be hasty and quit your job. Make careful, calculated decisions that you will not regret later. Your startup is like a child that you need to feed and nurture with your own cash flow.
Of course, there are exceptions to this rule, but generally it holds true. If your startup receives funding, or you are part of a startup incubator, you probably will not have the option of keeping your day job. But if you are selling vacuum accessories out of your garage, it is wise to ensure an alternative source of income until you can upsize your startup.
Use your own cash
There are plenty of exceptions to this, but generally it is a solid rule of thumb. If you can avoid selling equity in your unformed company or afford to not take out a loan, you absolutely should. A business that you have funded yourself will appear stronger to investors later. After you have a foundation your business can be valued appropriately. Only then can you sell it (or a portion of it) to investors. This also means that if your business fails, worst case scenario you lose the money you injected. It is much better to lose your investment than it is to pay back loans from a business venture that does not exist anymore, or unfortunately selling 30% of your company for $20,000, only to find that 12 months later your business is grossing $20,000 a month.