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April, 2015

Management Manual for a Start-up entrepreneur

POZZO DI BORGO Charles

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“A legendary hero is usually the founder of something—the founder of a new age, the founder of a

new religion, the founder of a new city, the founder of a new way of life. In order to found something

new, one has to leave the old and go on a quest of the seed idea, a germinal idea that will have the

potential of bringing forth that new thing.”

— Joseph Campbell, Hero with a Thousand Faces

Every entrepreneur is sure that his trip is unique. He is going to his start-up vision without a roadmap,

and think that none model can help him. When a start-up is succeeding whereas others are failing, we

could think that lucky is big part on this process. But it isn’t. As Campbell say above, the story’s frame

is always the same. The road to a succeed start-up is well established and understood. Reproducible

path to success does exist.1

1 From Steve Blank

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Table of Contents

I. The Idea ..................................................................................................................... 3

A. Innovation & New Economy .............................................................................................. 3

B. Pivot ................................................................................................................................. 4

II. The Team ................................................................................................................... 6

III. Learning & Failures ................................................................................................. 7

IV. Development by Customers .................................................................................... 7

V. Choose the Business Model ........................................................................................ 8

A. Long Tail ........................................................................................................................... 9

B. Economic model of free ..................................................................................................... 9

C. Economic model of “Freemium” ........................................................................................ 9

D. Economic model of “the Balt and the Hook” .................................................................... 10

E. The multi-sided platforms................................................................................................ 10

F. Open business models ..................................................................................................... 10

VI. Protection ............................................................................................................ 11

A. IPR .................................................................................................................................. 11

B. Accounting ...................................................................................................................... 12

VII. Funding ................................................................................................................ 12

A. Life Cycle & Venture Capital ............................................................................................. 13

VIII. Business Readiness Level ...................................................................................... 14

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I. The Idea

“And what if we can create this?” The Idea is the easiest part. You must ask yourself two questions to

quickly validate your idea:

Does it make a difference to your life?

Do you will pay for it?

If you have not answered "yes" to both questions, put it in a trash can. This is not scientific, but it seems

pretty generally accepted: The best ideas fill a startup of our needs. Not the neighbor. Ours. If your

solution solves your problem and you'll be your own happy and satisfied customer, there is a good

chance that others are in the same situation.2

A. Innovation & New Economy

It is important to define the HT Business accorded to the start-up. We call that New Ventures. The

“New Economy” represents nowadays the “substitution of knowledge and information for physical

assets”. There are huge investments in the IT sector. Technology is changing all time, that’s why also

there are falling prices. (Lower inflation and faster growth both).

Innovation is the word you must learn. You must innovate to stay in the course, stay in the market.

With the technology, the market is uncertain, and there is competitive volatility.

As a future entrepreneur, you need to understand these terms. A market uncertainty means that

consumer fear, uncertainty and doubt (FUD). Customer needs change quickly, and they can buy

whenever they want. There is now an anxiety to stay with the technology from the customer.

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2 From Stéphane Guerin 3 By newentreneurship.nl

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Technology is also very uncertain like I said before. We are not 100% sure that the new innovation will

function as promised, whereas the timetable of the new product development. Ries told us also that

there is an ambiguity with the supplier. He may not be able to fix customer problems with the

technology. Obsolescence is also a “master word” in this sector.

You need to know also that everyone can be your competitor in the next morning. There are not rules

in these type of sector. It’s opened to everyone. Competition between products classes and between

different brands focusing on the same product. (E.g Apple & Samsung).

Like Eric Ries say:” A start-up is a human institution designed to create a new product and/or service

(business) under conditions of extreme uncertainty.”

Market

Uncertainty Technological

Uncertainty

Competitive

Volatility

Marketing of

High-Technology

Products &

Innovations

Figure 1 - High-Tech Environment, based on original ideas by J.Mohr & Eric Ries

B. Pivot

In the learning process iterations, a startup can be discovered by field returns with real customers that

the product is not suitable, it does not meet a need. However, during this learning process, it is possible

that the startup has identified another need (often related to the first product). When the startup

exchange product to meet the new needs identified, is said to have made a "Pivot".

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The "market pivots" are therefore to change the customer segment targeted after finding that initially

targeted segments do not bite the bait. There is also the "pivotal distribution models," where designers

will spend a direct distribution model to an indirect model, or vice versa. There is also the

"monetization model pivots" between indirect models (often advertising) and direct models freemium,

subscriptions).

Warning: the real pivot is not to simply change of activity. As the name suggests, it is simply "rotate"

around a core competence.

Note that a pivot can equally apply to a business model change. A startup can be rotated several times

during its existence.

Listening weak signals - remarks annodines appearance of customers - is necessary to know when to

engage in such a turning point. Another key to a successful transition: building on a cohesive

management team that does not fear change. Thus, Gilles Babinet, multientrepreneur, the current

"Digital Champion" with the European Commission states: To be successful a pivot, it is imperative to

rely on a strong management team that will lead the change as a pivotal leads to questioning the entire

operation of the business, and even its purpose.

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Examples of famous pivots abound. Among them we can mention the IBM computer company that

has diversified its activities becoming an SII in the 1990 Marginal once, the service now accounts for

55% of its CA. More recently, the example of the most legendary pivot of social networks comes to

4 From techinasia.com 5 By Eric Ries, The Lean Start-up

Product => Optimization

Strategy => Pivot

Vision

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Twitter. Originally a social network called Odeo where users can find and subscribe to podcasts,

become a micro-blogging platform with the idea of Jack Dorsey and Biz Stone.

II. The Team

Can I create a company? If I can succeed of my fails? Am I a good manager? An artist?

Launching your new team is also very important. Your new venture team is gonna help you to move

your new venture from an idea to a fully functioning firm. Notice that usually, the team doesn’t come

together in the same time. When your new firm can afford to hire additional personnel, your members

will come gradually. Do not forget that team involves more than paid employees.

Creating a new venture is dangerous. If you do not like failure, don’t create your start-up. Indeed, new

ventures especially have a high propensity to fail. This high failure rate is due in part to what

researchers call “the liability of newness”, which means that companies often falter because people

who start the start-up cannot adjust quickly to their new roles, and because the start-up lacks a “track

record” (good experience) with sellers and buyers. One of my good friend is creating a start-up on the

manufacturing dehydrated nuts. He is looking for the person who is going to associate with him : a

chef with stars? A food critic? A dietician? A Nutritionist? You must see what the person you want is,

and how she can grow up your start-up. Many people are focusing on their weaknesses, and hire

someone in this sector. Assembling a talented and experienced new venture team is one good path

that firms can take to overcome his weaknesses and limits.

Founding a start-up is an art. Founder(s) have a significant impact on the manner in which the new

venture team takes shape. Your start-up is the partition you compose. A majority of new venture are

started by more than one individual. So it is believed that new ventures started by a team rather than

a single entrepreneur have an advantage.

Team brings more ideas, resources, talents, psychological support and moreover, contacts. You must

have a lot of contacts before creating your company.6

The team is essential, as employees and Board of Directors (if the new venture organizes as a

corporation). Concerning the first employee, it vary in terms of how quickly startup need to add

personnel. The founder can work alone for a certain period of time, and need an employee after.

Employee are a huge expense, so be very careful and serious and you will hire. A bad expense for an

employee can destroy a start-up.

Finally, the board of member is here to well-managed the startup. (Typically made up of both inside

directors & outside directors). BM has two main functions: provided guidance (obtain input and advice

6 By Waseset Founding Team in Prentice Hall, 2006.

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for the founder(s) and CEO), and lend legitimacy (famous and well-known person give credibility to the

start-up).

By the way, a start-up can also have a board of advisors. They provide counsels and advice, but they

don’t have legal responsibility. An advisory board can be set up for a specific issues, or just for general

purposes.

III. Learning & Failures

It is essential to know how you failed, because you will, but most important, how these failure are good

for your start-up. Anticipation is the first thing before failing. Market, especially in new technologies,

is changing all the time. If you are not proactive, your startup will die in a few. Moreover, you have to

be reactive also. If you think that you failed and now it is too late, you’re wrong. You must respond

promptly when problems arrive. Jukka Muilu from Energia Kolmio say that if business plan doesn’t

work, you have to have a plan B, plan C…

Do not be optimistic as well, your road to create a startup is treacherous. You must be rational, and

show to your team that you have and you want a good rational behavior. Especially when the market

is plummeting, you have to have a good behavior.

The valor of Energia Kolmio are Passion, respect, equality and 100% Performance. And these valor

allows Energia Kolmio to reach a turnover of 22M$ in 2013 and to exist for 20 years.

IV. Development by Customers

A new venture has to be very carefully in its business model. Shareholders have to see which the best

system is, are they going to take the same business model as traditional companies, or a new model?

It really depends of the sector of the company, his culture and the leadership of the shareholder. Lots

of startup use “lean start-up”. This concept was created in the Silicon Valley during 2008, mostly by

high-tech startup. It is the validated learning, the experiment and the iterative design. Startup have to

do always innovation, in order to create radically successful business. Steve Blank’s theory of

“customer development” is one of the basement of the lean startup. We can degage 5 major points

on this:

1. Get out of your home! You cannot create a company only in your desk, you have to move, see,

and meet a lots of different environments.

2. You need to understand your market. The kind of market defines the kind of strategy you will

do. Challenges depend on market.

3. Entrepreneurships need find a market for the product, not the opposite. Stop seeing always

the stereotypes and meeting real customers.

4. A startup go within 4 steps of increasing: customers discover, customer’s validation, creation

of customers and finally, society creation.

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5. Startup success with learning and iteration! 7

V. Choose the Business Model

The world is changing, and our lifestyle too. Companies must adapt themselves to “stay in the sector”.

So BM are always changing too. If you don’t like changing, don’t create a company. If you don’t like

risks, don’t create a company. And change is risky of course.

7 From Eric Ries in the Lean Startup, from the ideas of Steve Blank

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A. Long Tail

The so-called economic models of "long tail" aim to "sell less more" offer a great number of niche

products, each of these products being sold relatively rarely. Aggregate sales of niche products can be

as lucrative as the traditional model where a small number of bestsellers is the essential income.

Economic models of "long tail" must be accompanied by low storage cost and efficient distribution

platforms ensuring good visibility for niche content.

Examples: Netflix, eBay, YouTube, Facebook, lulu.com...

For Anderson, three factors have enabled the emergence of this model:

The democratization of production and the falling cost of technology tools to produce music,

short films or software

The democratization of distribution of digital products via the web (reducing storage costs,

communication, transaction,)

The lower research costs in linking supply and demand (via search engines, reviews, user

ratings,)

B. Economic model of free

In the economic model of free, a segment of important customers at least has the opportunity to

benefit continuously from a free offer

Different configurations make the free offer possible. The segment that does not pay is "subsidized"

by another component of the business model or another customer segment

Examples: Metro (free newspaper), Flickr, Skype, Google,...

Three distinct approaches make it possible to free a viable business model BM:

Advertising in multifaceted platforms

The freemium model (free basic services with premium services optional)

The model of "bait and hook" that a free or inexpensive initial offer attracts consumers in

repeat purchases stitches.

C. Economic model of “Freemium”

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- The word "freemium" was invented by Jarid Lukin, and popularized by the investor Fred Wilson on

his blog.

- The economic model "freemium" is a hybrid model that combines free basic services and paid

premium services

- The basic premium customers is usually <10% of service users

- In a freemium model, key indicators are: the average cost of the service of free users and premium

conversion rate

D. Economic model of “the Balt and the Hook”

The model of the bait and the hook:

- This is a business model that includes an attractive initial offer inexpensive or free, encouraging future

repeat purchases of products or services

- Model also known under the names "loss leader" or "razor and blades" (cf. Gilette)

- Goal: Customer Captivity

- Examples: mobile phone subscription, razors and blades, printers and cartridges, coffee machines

and capsules...

E. The multi-sided platforms

- This is an economic model that connects at least two groups of distinct but interrelated clients.

- They only have value if the other client groups are also present because the platform enables

interactions between groups

- To grow in value, a multifaceted platform needs to attract more users, which is called the network

effect

- Examples: Visa, Google, eBay, Facebook, Microsoft, Windows...

F. Open business models

- Create and copy of the value by working systematically with external partners

- This collaboration can be exercised in the sense of "outside in" exploitation by the company to outside

ideas) or in the sense of "inside-out" to external partners bring ideas or unused assets by the

organization)

- See the work of Henry Chesbrough on Open Innovation

- Examples: Procter & Gamble, GlaxoSmithKline, InnoCentive ...

Example of my own Business Canvas with Egamebling (the startup about Betting in Esport):

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VI. Protection

A. IPR

So you decided to continue? Wonderful, my book is not finished for you. Now that you are sure to

keep going and go furthermore, you have to protect your capabilities. Your IPR actions & strategies

have to be perfect, you know as much as me that there are every day lawsuits for plagiarism.

Don’t forget that your idea can be protected, once they have been materialized, as the result of a

human intellectual effort. The Intellectual Property Right are your foundation, and your protection.

In technology sector, patents are the strongest IPR. The holder can exploit the invention during 20

years, and prevent others to producing, exploiting this product or process who is now a patent. To

grant a patent, you must have 3 requirements: Novelty, Inventive step and an industrial application.

Notice that to apply for a patent, it takes time and money….so do an analysis first!

Few numbers:

8 From my personal Business Plan of “EgameBling” Startup

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700 000 patent applications field per year world-wide

4 000 000 patents in force world-wide

55 000 000 patent documents available world-wide

5%-10% of the knowledge which is written in the patent is containing in others sources as well9

Trademark can also protect your services/products. This is a marketing tool, consumers can identify

your start-up with this. (Colors as Orange of Hermès, drawings, designs, writing style…”. Copyright is

also another system which defends your start-up.

B. Accounting

The most important early activity and good command cash. This is also valid for both a startup, but

also for a traditional society. The accountant must provide reliable and timely information to

entrepreneurs. The first requirement is to perform a monthly analysis of their cash burn, neutral and

profitability, but also to help entrepreneurs in their cash flow forecasts to 3, 6 or 12 months.

The priority of the entrepreneur is to focus on its business (market, customers). But it must also be

involved in its management / accounting / paperwork to run his business and avoid big problems with

the sprawling administration. He has an interest in carefully selecting his accountant.

Jannifer Warawa explains us why every start-up must have an accountant. They can provide a new

perspective, a professional image of and for the startup. This guy will also give you a planning. They

understand tax as well and can analyze data for growth and profitability opportunities (if you are taking

an experienced one).

Indeed, 89% of business owners agreed that working with an accountant was a critical element of their

success.10

VII. Funding

Funding is essential to create a startup. Without money, no company of course. That doesn’t change,

however, the way we can have this money is changing. You can borrow from banks, from your love

funds (family, friends…), hedge funds, business angels and even with crowdfunding. Of course, the

market has to be good, with a great horizon. Lots of simulations are done to see that.

People are also always the central key in a company, people as shareholders, distributors, suppliers,

customers. It’s like a 360 vision, we have to be good everywhere and at every time.

Numbers concerning the Crowdfunding:11

7B$ in 2012 on 308 Website

9 By Juha Saukkonen, IPR, slide 11 10 From a study conducted by Sage among U.S 11 By Similarweb.com

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Growth of 81% compared to the last year (2012>2011)

Forbes attends a market of 1000B$ in 2020

Kickstarter the first with 32,4M visitors in October

A. Life Cycle & Venture Capital

The life cycle of a business is closely linked to its capital. Private equity is grouped into several types of investments: • Venture capital involved in the innovation and enterprise creation phase. We do not yet know if the company will be profitable. This is the starting phase of a company. There may be several "venture capital". • The capital development comes just after the venture capital. The business needs to grow and develop after the boot process. As for venture capital, there may be several "growth capital" for a company. • Then the capital transfer takes effect. It was at that time that the company will have a big choice (or will not have it at all!). Either it is consolidating at further increasing its capital, or it retransmits the capital. If it retransmits it happens then a reversal capital. Funds specializing in turnaround then support them to allow companies in difficulty to recover by providing capital and human resources. These two elements are essential in the recovery of a complex situation. • Finally, there are several outlets in the company's life cycle.

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12 By Alberto Balatti, Board Member

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Venture-capital funding may be toxic for startup. It is dilutive, distracting, burdensome and doesn’t

help a lot. But, if you raise money at a somewhat later stage of your entrepreneurial journey, you will

see that a lots of inconvenient will disappear.

VIII. Business Readiness Level

1•Find the Business Model

2•Conduct a Market Study (Primary & Secondary Researchs)

3•Be Sure that the solution solved the issue

4•MVP Prototype

5•Validation <=> Pivot

6•Revenue Streams, Customer Segments, Channels & Relationships

7•MVP Fidelity

8•Qualificate the entire process

9•Real business in an operationnal environment