Six New Rules for Social Enterprise Start-ups
Start-up CEOs featured at this week's Stanford Summit in Silicon Valley say it's cheaper than ever to launch a social enterprise. Here are their Top 6 bits of advice for new entrepreneurs in today's fickle start-up climate:
1) Don't let the economy dictate when to start. "The best time to start a company is when you, as a person, feel you don't have a choice but to start a company," says Mike Lee, co-founder of Tapulous, a start-up that creates social apps for the iPhone. "It doesn't matter whether there's a recession happening or if zombies are attacking. " Adds Doug Knopper, CEO and co-founder of FreeWheel: "The time is right when you have a good product, have a good team, and are ready to give it your all."
2) It's cheaper than ever to start a new company; seize the day. Â You don't need as much capital to start a company today as you did, say, 10 years ago. Infrastructure costs are way down; customer acquisition costs also are starting to tumble, says Treb Ryan, CEO of OpSource, a cloud-hosting startup. "Customer acquisition costs used to be the killer for start-ups," Ryan says. "You'd get the product ready and out the door for $1 million but then, you'd need $30 million in sales and marketing costs to get people to buy it. That, I think, is changing. Buying patterns are changing, even for business customers. You can now use the immediacy of the Internet and apply it to business customers, too, and that is going to bring down costs for companies even further."
3) Keep your day job. Barry Silbert, founder andÂ CEO of SecondMarket, an online auction site for assets not readily convertible into cash, says that you don't need to give up your day job to get your start-up off the ground. "A lot of people are talking about starting companies to change the world and disrupting the status quo versus starting a business just to make amoney," says Silbert, "and that's a good thing now. It takes such little capital now to start a business, to get a prototype out there and test it. It used to be you had to go out there and raise money on a business plan and you'd run the huge risk of failing pretty miserably. Now you can start a company on the side while you keep your full-time job; you can try something at night; code something on the off-hours and get it out to market."
4) Tap VCs more for their social capital than their cash. Venture capital funds are winding down and some firms are not raising new capital. "There's a lot of talk about how the venture industry is too big and I think it's fair to say that's true," adds Silbert. "You can get capital now, up to $5 million now, from lots of different sources like seed funds and angel networks and even high net-worths (individuals). Before, you had to rely almost entirely on venture funds." Are VC's becoming obsolete? No, says Lee. "It's getting cheaper to start a company and there's less need for VC funding but rather than make the VC extinct, don't just look to VCs for money anymore," Lee says. A good VC who can be a great board member, a great mentor and a good friend, adds Silbert, and is "easily worth whatever dilution you're going to take on the front end."
5) Go global sooner. It's cheaper than ever. Doug Knopper, CEO of FreeWheel, says that thanks to Skype and social computing, "the world is getting a lot smaller."Â Knopper says it's easier and cheaper to have multiple offices in multiple countries. "When we started the company a few years ago, my cofounder said she wanted to build a development team in China, and so she did," Knopper says. "And from Day One, we have had a 24/7 marketing and a sales team in China. I can call her on a 415 number, we Skype and we're just constantly communicating. You couldn't do that 10 years ago."
6) Cool trumps cash as a recruiting tool. "Money is no longer the No. 1 recruiting tool, for the first time in history," says Lee. "People do great stuff because they want to do great stuff -- not just make money. If you come to them and say, let's make lots of money, they will most likely turn you down. People now want to work in a cool place, with cool people, doing cool things." Okay, but what about stock options? Much more valuable, say start-up CEOs. But beware, adds Chris Barbin. Â Nowadays, companies have to sell themselves, too. "I think employee prospects are smarter today than they used to be. They want to see a plan. They ask better questions. It's not like they want to read your six-page business plan. But they want to know the company actually has a vision, has a strategy and great key operating metrics."
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