The perfect startup setup

I am trying to build a personal checklist of how a startup can set itself up for success. This checklist has the most value in the early ideation phase, where one can use it as a structured way to either work on the setup of the own startup or to evaluate other startups.

Each startup is unique and its assessment varies depending on the viewpoint. However, the elements on this list are frequently discussed by entrepreneurs in my network (located in Munich, ranging in age from 24 to 30, affiliated with Manage & More, CDTM, and IEC).

The true worth of a checklist like this lies not in only obtaining it, but in being able to accurately verify each item. The points cannot be simply marked off but often need to be validated by conducting research or doing business modeling, particularly when examining the economic aspects. That is why at the end of each point, I suggest a deliverable that proves that the point is fulfilled. 

Here is an interactive version of this tool that I use at pitch events. It allows you to take notes on each point and then save the evaluation as a PDF.

Idea

✅ The purpose of the startup needs to make for a good story

• Allows to market the startup over the press to gain momentum and interest of the general public
• Easy way to keep all the stakeholders aligned with the purpose long-term
• Good base for making tough decisions
• Proof: Check that one can write a gripping press article about the startup which is actually interesting to read and not just a marketing tool

✅ The founders are believable proponents of the story

• Makes sure there is a fit between the founders and the idea
• Keeps founders believing in the startup and reassures them about why they are working on the startup in tough times
• Proof: Founders are passionate about the purpose and would also work on something similar if no money was involved

✅ The idea needs to solve a problem that customers stated

• Needs to be a real problem that independent customers stated. Keep an eye out for social desirability bias (= colleagues telling you they have this problem to be nice) and conformity bias (= you suggesting the problem first nudges colleagues to confirm it without thinking about actual problems).
• Founders with experience in the industry can speed this process up and use their gut feeling. However, be truthful and check if the problem is really as common as you think.
• If founders talk about and validate a solution before having validated a problem, they are in nearly all cases building a solution that is not needed and will not get traction after launch. The only exception to this is if the startup is attempting a tech push.
• Proofs: Personal experience in the industry, data from independent research that proves there is a problem, unbiased interviews that the founders did with real customers (not friends and family)

✅ The idea focuses on business customers instead of end consumers. If it focuses on B2C it is prepared for it

• Both B2C and B2B are possible but B2B is usually more feasible for small teams with limited resources since one only needs a few B2B customers to achieve the target revenue while with B2C customers, one needs to handle a big pool of customers for the same revenue.
• When going for B2C ensure that you can scale all parts of the startup to be able to manage a huge customer base. Make sure time, skill, and money for profitable marketing campaigns are available and create structures to handle communication and problems of the customer base at scale.
• Proof: When going for B2B, have concepts of how to comply with their high standards like availability times and mean time to recovery despite being a small team. When going for B2C, calculate how many customers you need to pay your salary and then have a concept for how to handle so many customers efficiently

Team

✅ The founders cover all needed skills to get the MVP off the ground and also begin scaling

• The MVP typically represents the core operations the startup will run later. The founding team should be able to build and run the MVP without external help since this makes sure that there are knowledgeable managers for each part of the business later on.
• Requiring external help to run parts of the MVP means being dependent on the help and makes it hard to attract talent in that area later on since there is no internal leader for this topic. Try to make the external help a part of the core team asap.
• Proof: Skills and past experience of the founders need to cover all aspects needed to build and run the MVP

✅ At least one founder comes from the industry that the startup works in and optimally experiences the problem and has a network of people that experience the problem

• Without this, it takes a very long to understand the industry, and decisions are made from an outsider’s perspective which is bad because the startup does not understand how its customer really tick.
• Not coming from the industry also harms scaling since the startup cannot rely on an exciting network but has to build the network first which means losing a lot of time in networking events.
• Proof: At least one founder has past experience in the industry

✅ At least one founder needs to have the knowledge of a venture builder and bring things to the table like pitching, funding, and other startup basics

• Every business goes through roughly the same stages and has the same underlying support functions. Having a founder with experience in building ventures helps to get the standard processes, the approaches, and the next steps for the business right. Alternatively, a mentor or angel investor with a good track record can also serve this purpose.
• Proof: At least one founder has past experience with building a company or the team has a strong mentor or angel

✅ At least one founder needs to be an extrovert that is passionate to talk about everything to everyone

• Optimally more people in the startup love to talk about the startup but at least one founder needs to be a visionary spokesman that can get people interested in the startup, make valuable connections when networking, and is passionate to pitch at any time.
• No matter how good the product is, if there is no charming spokesperson that can communicate its value and build a network, people will not get on board with the mission.
• Pitching, networking, and selling are not about the objectively best or most impressive product but about who can entertain and communicate with partners, customers, and investors best.
• Proof: At least one founder delivers a great pitch

Market

✅ The market in which the startup operates grows or you have a good plan for disrupting a saturated market or you know how to turn around a declining market

• Growing markets are often attractive because they are still in development and therefore have space for newcomers, therefore making it easy to enter and grow with the market
• If going into a saturated market, keep in mind that you usually need disruption to grow big since the market shares are already taken by big players.
• If going into a declining market, keep in mind that you usually need a solution that turns around the situation of the market to be able to exist long-term
• Proof: Research on the market with concrete numbers, trends, and overall development was done. Additionally, depending on growth, saturation, or decline, a thought-out plan exists on how to approach the market.

✅ The regulation in the market favors the startup in the long-run

• Ensure that the startup direction will be uplifted and not penalized or shut down by the future goals that are set by the government and society. Especially regarding the 17 sustainable development goals.
• It’s much easier to grow a business with a backwind from the regulations while it’s hard or even impossible to grow when the long-term direction of the regulations goes against your long-term direction.
• Proof: List of regulations in the market, their long term goals and how they affect the own startup exists

Product / Service

✅ The solution gets its value from a distinct core feature and not from many nice-to-have features

• A good solution usually provides value by doing one specific thing really well and not doing 10 things mediocre. Swiss army knife solutions usually do not work since you compete with companies that just focus on one of your 10 features and outrun you. Do not underestimate feature creep.
• If the solution does not seem valuable with only its core feature and instead needs 10 nice-to-have features on top to make it attractive, then the solution usually lacks substance.
• The fewer features needed to make a solution work the better. A small amount of features makes prioritization easier, it allows to build the solution faster, the reduced complexity makes operating the maintaining the solution simple and also allows for communicating the core of the solution to customers in an easy and fast way.
• Proof: Solution has a clear core and maximum of three hard-hitting features around that core

✅ There is the ability to monetize the product on at least one side

• There are many solutions that tackle real problems that the world potentially needs, however, no one is willing to pay for it. Make sure that the product can ask at least one of the parties involved to pay for it because otherwise, the startup is an NGO. If building an NGO, do it deliberately and not by accident.
• The monetary value of the product needs to be validated by the target party that should pay for it. Design MVPs with real economic consequences to avoid customers stating a hypothetical WTP that does not match their real WTP.
• Proof: MVP where the target party paid for the product

✅ Barries exist that keep others from easily copying the product

• It is likely that the competition will crush the startup as soon as it reaches a noticeable scale because the competition has the advantage of more people, more resources, and more networks.
• With digital products there are a few common barriers like network effects (= build userbase so that those users are out of reach for competition), lock-in effects (= build partnerships so those partners are out of reach for competition), new technology ( = competition does not know how to replicate the technology – be careful because competition catches up), excellent skills in the team (= competition cannot execute what you are executing as fast or good as you)
• Proof: MVP or final product vision shows barriers

✅ The solution has a clear distinction from the competitor’s offers

• Makes it easier to communicate why to chose this startup or product and not the competition.
• If the startup does not differ in what it sells (= sells the same product as the competition) then it should distinguish itself in how it sells the product (= lower costs, higher quality, better internal organization, etc.)
• Proof: A table or matrix of competitors that shows how the startup is different from what is out there.

✅ The solution needs to fit into a big vision

• If aiming to grow a big company, a big vision of where the solution is applicable is needed. If possible, the vision should span multiple countries, industries, use cases, and customer groups.
• Smaller visions that target only a single niche often only allow to build small businesses or side projects since the solution does not provide enough revenue streams in the long-term.
• Founders often spend years building their startup so make sure that there is room to grow, which means having the opportunity to diversify and expand the solution even after years in the market.
• Proof: Provide a grandiose vision of how the solution and startup could impact the whole industry, country, or civilization

Economics

✅ Profitable unit economics of the product at some point in the future

• The end-to-end costs of creating, marketing, and supporting one unit of the product should be smaller than the revenue made from this one unit of product at some point in the future (one unit = one product, one order, one subscriber).
• Go through the whole lifecycle of the product and add all revenues the product makes currently and in X years when the startup wants to be mature and profitable
• Go through the whole lifecycle of the product and add all costs the product makes currently and in X years when the startup wants to be mature and profitable
• If the unit economics don’t work out, the startup scales itself into debt
• Proof: Truthful, validated, and believable unit economics calculation that is based on real benchmarks or data the startup gathered during the MVP

✅ Exact plan of at which scale the product becomes profitable and a plan of how to fund the runway of the startup and the team expenses until then

• Having money to execute the idea is fundamental, without it the startup will just have a vision but never be able to execute it
• It is sometimes overseen that the expenses of the founders should be calculated into the runway. To fully focus and push through ruts, the founders at least need to be able to receive enough pay to live a ramen lifestyle (= costs of living when living like a student on ramen noodles)
• Proof: Plan out expenses along the runway and ensure enough funding exists to pay for executing the idea and the people needed

✅ Day to day operations need to be scalable and the additional revenue that comes from scaling needs to outweigh the additional costs from scaling.

• Crucial point because otherwise the startup only works on a small scale when everything is handcrafted but never turns into a system.
• Modeling the long-term trend of how the costs of automating, outsourcing, and delegating the processes increase with company growth versus how the revenue increases are important.
• If the revenue overtakes the costs with company size in a linear fashion it’s okay but needs good cash management. Exponential growth of the revenue in regard to the costs is optimal because then it gets easier to be profitable the bigger the company gets.
• Proof: Financial plan that can be based on unit economics but then expands them further by drawing the future development of revenue streams and cost factors over the next 1, 3, 5 and 10 years.