We always hear about the excitement in building a startup: coming up with the next great idea, revolutionizing [fill in the product or industry]. In reality, here’s the secret that every seasoned founder knows: building a company should be boring—at least some of the time. As crucial as the first spark of innovation is, the key to turning that spark into a viable business is paying attention to, and investing in, the mundane. For a great idea to have a chance of success, a founder needs to dig into the unglamorous nuts and bolts of the company, and to understand things like unit economics and gross margin profitability inside and out. Without this understanding, your great idea will probably stay just that—an idea.
At Expa, we advise founders and early-stage companies every day. The piece of advice I give most often is this: do the boring stuff now, and set strong foundations for your business early on. Times like those we find ourselves in now, when capital is hard to come by, show just how important these early efforts can be. Founders who have a deep understanding of the math behind their business—how much capital will be required to build the product, when (or even how) the business will generate cash—will be the ones who weather the storm, whether it comes in the form of a formidable competitor or a global pandemic.
Be strategic, be specific, and be realistic. As a CEO or founding team, set a few KPIs for yourself and for your leadership team— no more than 2 or 3 at time — and align your company strategy around these. (An example KPI: hit $1M in ARR by EOY or reduce CAC by 25%). Know that you’ll have to reach milestones along the way—this is how you validate your strategy and prove your core assumptions. (Your investors will care about this, too.) The key principle underscoring all of this: understand that half the battle for startup success is having enough runway to achieve your goals. At some point, you will need to become a profitable business. Otherwise you'll forever be dependent on selling equity in your company to keep the lights on.
These are exactly the lessons we applied with Reserve, a restaurant booking management platform and one of our first companies at Expa. We looked at existing competitors to target the price point and market size. We calculated our costs of operation based on our sales and engineering teams. And we mapped out how much venture capital funding we would need until we reached a certain scale (pegged at X thousand restaurants on the platform) at which point our revenues would outgrow our costs. In other words, we did the math. When Reserve was acquired by Resy, we were able to reduce both overhead costs and competitive pressure, helping to get the combined team closer to profitability. Shortly thereafter, these efforts paid off: Resy was acquired by American Express in 2019.
That Reserve had a successful exit doesn’t mean we didn’t make mistakes along the way. We made many, and learned from them all. As you forecast and plan for your business, you’ll be wrong about a lot—and that’s okay! Being wrong doesn’t mean that you shouldn’t plan and strategize. It means that you should constantly be checking, revisiting, and pressure-checking your numbers, and that you shouldn’t be afraid to pivot if the numbers don’t add up. A successful startup isn’t made up simply of a grand vision. That vision must be executed through regular planning and rigorous strategy. Examine your essentials at least quarterly, and also when you’ve reached a milestone or made a mistake. And, especially if these metrics aren’t your strong suit, find an investor, a board member, or an advisor who understands these fundamentals and will push you on them.
Part of what I love about Expa is that we help founders through the thick and thin of building great companies. We find good ideas and talented people, and lend our advice and skills to help ensure their vision has the best possible chance for success. If you’re an entrepreneur working on something new, reach out to us at email@example.com.