This story is part of Business in Vancouver's Launch series, focusing on B.C. startups and emerging trends in entrepreneurship
The common plight of start-up tech companies is one of struggle – of taking years to first get off the ground and become profitable. Or, all too often, striving to fulfil the promise of an initial idea before crashing into a hard wall of business reality.
With brief highs and desperate lows, most startups ride a rollercoaster of uncertainty until they secure a foothold in the market – and even then the real journey has only just begun.
A few companies, however, have bucked the odds and ach-iev-ed success straight out of the gate, at the same time gaining a kind of legendary status among their peers in the tech realm.
While some might argue that originality of ideas was one of the few guarantors of early success for these exceptional startups, many CEOs say otherwise.
“My approach in entrepreneurship has never been to be the first to do something,” said Dave Gens, CEO of Merchant Advance Capital Ltd. “I’ve always sought opportunities that have proven to be successful for others and then done them a little bit better.”
Merchant Advance provides financing for small businesses that lack the collateral required to qualify for traditional bank loans. The company is also involved in equipment leasing and asset-based financing.
Gens has been at the helm of many different startup companies in the financial technology (fintech) space. He founded Merchant Advance in 2010 from the den of his apartment.
”I’ve done all the jobs that there are in the company because I was the only one for the first 18 months. Then I had one employee, then nine months later another. A few years into the business, there was only maybe three staff. I think that gives me an advantage to the business.”
So what determines early success in a startup company? Luck – particularly the kind that allows striking when the iron is hottest – is a key element, Gens is quick to admit. But good luck isn’t everything; Gens and many of his peers attribute early success to a number of different factors, and perhaps chief among them is to first leave as little to chance as possible.
“Companies that are successful early are solely focused on solving customer problems,” said Greg Malpass, CEO of Traction on Demand, a cloud consulting and software development firm.
“Too many [companies] build solutions for problems that they haven’t confirmed are going to be impactful,” Malpass said. “There is a tendency to perfect product before showing customers so that they stray too far down the wrong path.”
Malpass said too many entrepreneurs will exhaust contacts trying to secure capital without first perfecting the product.
Understanding customers’ needs, and solidly gauging the market potential of a product or service, will determine a winner.
“Entrepreneurs have these great visions – they really believe in them; they raise a lot of money from a lot of people before they have really proven themselves and they burn a bunch of capital and their reputation,” said Gens.
Finding out where a product belongs in the marketplace – who is going to view one’s masterpiece, who it is created for, where it is going to be displayed – is at the core of early success, according to Greg Smith, CEO at Thinkific, an online platform that allows users to create and deliver online courses or sell under a unique brand.
“Figuring out product-market fit and figuring it out as fast as possible is essential,” said Smith. “Some people obsess over the product and don’t think about the marketing. There is product-market fit and then there is also a marketing-market fit, and I think you really need both to accelerate out of the gate.”
Bill Tam, CEO of the BC Tech Association, agrees.
“Finding early product-market fit, and then taking that and leveraging it as fast as you can along that particular dimension, and building sufficient reference around the set of customers that it can actually scale, proves crucial,” Tam said.
Once a new company has developed its product, there is a common pitfall that awaits it.
“Unless you are building something that no one else has even conceived of, which is very unlikely, then stealth mode is futile,” Smith said. We are in the golden age of customer feedback and, according to Tam, not offering products for trial is a massive folly in the tech space.
“The very onset of startups is really about an idea,” he said, adding that the crucial next step is “testing that out with as many possible customers as you can – and the key to all that is actually being really good at listening.”
In the tech sector, customers can take a free trial of the product online, give feedback, be offered incentives, share with friends and help market it through social media channels.
The CEOs of instantly profitable tech companies agree that hiring practices are always pivotal in developing a successful firm.
“The difference between a really amazing software developer and one who is not so great … is massive,” Gens said. “In tech in particular, you are solving extremely complex problems, and the capability and the experience of a really strong individual is going to be huge.”
Finally, a common blunder committed by many startup companies eager to make their marks on the sector is overextension.
“Entrepreneurs do not have the luxury of diversification,” Smith said. “Don’t work on three different things at once.… you have to pick one and put all your eggs in one basket.”
Gens said one quality that will invariably determine the success of a company is perseverance.
“You are playing the game for that moment where the economy goes to bust, supply credit gets constricted and all the capital providers get jitters. It’s how you fare in that moment that … determines whether or not you have really built a business.”