5 Misconceptions You Should Know About Before Launching Your Tech Startup
5 Misconceptions You Should Know About Before Launching Your Tech Startup
With multibillion-dollar tech companies and growth startups making headlines left and right, it’s natural to want to get a piece of the action.
Ant Financial, for example, recently closed a ridiculous Series C funding round of $14 billion — one of the largest VC funding rounds in history. The China-based fintech company pushed its value to $150 billion with the latest round, according to The Wall Street Journal.
This sort of headline makes it look easy to start a game-changing tech company, but the reality couldn’t be further from this perception.
Many first-time tech founders jump into the industry with plenty of misconceptions. I’ve seen far too many aspiring founders hustling through their crucial early stages with incorrect notions that they’re about to get rich quickly. As you should probably expect, success takes a ton of hard work.
Five Assumptions You Can Toss in the Trash
Whether you are new to tech or have already built several successful startups, it’s a safe bet that you have a few misconceptions about the journey ahead. Here are the five assumptions I see most commonly among founders:
1. “It will get me really rich, really fast.”
Not so much. While some tech companies have certainly gained traction right from the start, it’s far more common for founders to experience friction on the uphill battle to success.
Tech businesses share many of the same struggles traditional businesses have — two out of every three startups fail or become self-sustaining, which isn’t good news for investors. In the same vein, 99.95 percent of entrepreneurs will never raise a dime of venture capital. And even for those that do raise seed funding, only about 1 percent of seed-funded companies will ever reach unicorn status.
2.“We won’t have to raise any outside capital.”
If you want to take less than 20 years to achieve these big tech industry valuations, you’re almost always going to have to raise outside capital. Tech companies can proliferate, but those that do suck cash in their growth.
Take Uber, for example. The global technology company has raised more than $22 billion over 20 rounds, but it has yet to turn a profit. When Uber finally decides to stop investing in growth, it will turn a profit and undoubtedly become a money-printing machine. The speed at which tech companies develop is a double-edged sword.
Outside funding is almost a given in tech. Your early financing round can disappear in the blink of an eye, and your early cash flow can constrain your growth. Unless a few billions are burning a hole in your pocket, you likely need to at least consider the possibility of securing outside capital.
3.“It will be incredibly different from running a ‘traditional’ business.”
Running a tech business is actually similar to running a traditional enterprise — but with a few twists. Business “physics” still apply to tech companies, but the tech creates leverage in business models that are unmatched by most traditional business models.
The leverage comes courtesy of increased access to anyone via the internet, revenue growth without increasing costs, measurability, relatively little infrastructure, no inventory (in some cases), fewer capital expenditures at the outset, and a few other factors. If you’re trying to escape the tricky parts of running a business, however, you’re better off rethinking the whole thing.
4.“It’s all about the app.”
This is the solution-searching-for-a-problem mindset. Great entrepreneurs identify a problem worth solving and create a solution capable of turning a profit. Apps themselves aren’t worth much — the business models that they enable or enhance are the actual prize.
App developers aren’t exactly swimming in money. Gartner reports that fewer than 0.01 percent of mobile apps will be financial successes by the end of this year. Instead of starting from the solution, spend time examining the problems that various populations face. Once you have your problem, build a business model that solves it.
5.“I’m too old/too much of a novice to start a tech company.”
While you might not be experienced in the tech world, your traditional industry experience is a blessing rather than a curse. We have found that industry experts make fantastic tech founders. Why? Their extensive knowledge, networks, and business experience.
Similarly, successful startup founders tend to be a bit older than what’s portrayed on shows like “Silicon Valley.” And while many tech founders are young, bright-eyed, and bushy-tailed, they aren’t necessarily destined for success. If you have a viable idea and a plan to make it happen, age or tech inexperience should not hold you back. Your unique background and life experience will probably offer you an enviable boost.
Make no mistake: It can be a real struggle to break into the tech industry (being good at what you do is an entirely different matter). If you feel as though you don’t yet know what you’re doing, surround yourself with people who have been there and back.
Bring together an advisory board that has built successful startups, study the lean startup methodology, secure an experienced product manager, find a lawyer who’s familiar with tech, or consider partnering with a startup accelerator. Most importantly, know exactly what you’re getting into. It’s not a journey for the faint of heart, but it’s an adventure worth taking.
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