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founder management startup

Company Values: Why They Matter and How to Come Up With Them

Why Values Matter

It’s no secret that your company’s culture is directly tied to its success. And that culture is founded upon core values, which in turn define how you work together as a team. So if this crucial aspect is overlooked, you’ll find yourself having a lot of problems later down the line: issues that could have been addressed early on start festering and become much larger problems in the long run.

Therefore it’s a good idea to define your core values early in the game. This creates a baseline through which you can gauge your company’s performance, and — more importantly — the performance of your employees and co-workers. By having a solid set of values that everyone understands and agrees on, the whole team can abide by the same rules.

Co-Founders Divided

Take my old startup, Gymhopper: some difficulties arose early on when dealing with new hires, because the company’s values were just not well defined. This became especially apparent when my co-founder’s behavior started clashing with mine — a red flag that, being ignored, caused way more problems than it should have.

This happened because, while I really valued Honesty as a core tenet and wanted to have a transparent view of the company and clear feedback from our team with which to improve and plan future goals, my co-founder was… well, not entirely honest. This led to time and energy being diverted from productive tasks and instead being redirected towards trying to pick apart the truths from the lies.

And let me get this straight: you simply cannot have the co-founders lying to each other. That will tear the company apart; it will breed a culture of paranoia and second-guessing in everyone. For those reasons as well as several others, my problematic co-founder had to be fired from the company. In retrospect, it has become clear to me that our values were not aligned — but had this been identified much earlier, some of these situations could have been resolved without causing the ruckus that they did.

Accountability and Versatility

Do not underestimate the importance of the company’s core values. Define them early on, look for them in the people you hire, and hold these people accountable to them. That is how you keep everyone in the company moving in the right direction.

An ideal startup team should be composed of a few talented members whose complementary skill sets each fill a niche in the company, and among all of these people there should be 3-5 shared values which everyone agrees on and works according to. This way, productivity will be much higher, because team members feel secure in having a solid foundation upon which to cooperate.

How to Find Them

If you are already working with a team, here are a few steps on how to get the process started and how to find the unifying values among your co-workers:

  1. Use a survey that allows your team members to select their Top 10 values.
  2. Then, you need to analyze the data and find the patterns. Identify which values show up the most and see if they align with your own. If you picked the right people for your company, the same values should consistently get picked.
  3. Set up a meeting to talk about the values. Discuss which ones were picked the most, and more importantly discuss what they mean for everyone. Hear every opinion, from both those who selected them, and those who did not.

At this point you should have your top 3-5 values identified. But the work does not stop there. Now you need to define them. A great way of doing this is by assigning a phrase to each value, so that you can encapsulate them in easy-to-remember forms. This way, you will avoid making your values vague or open to interpretation.

Values Stated Briefly

As you may imagine, such discussions can be intense, but they are nonetheless crucial for the company’s long-term success. So, to exemplify this concept, let’s take five specific core values and define them in this fashion:

  • Ambition – Aim Higher, Go Faster
    • This communicates that everyone on the team should push themselves to achieve as much as possible, raising the bar to the next level.
  • Accountability – Walk the Talk
    • If you say that you are going to do something, then do it. Follow through with your word.
  • Excellence – Go the Extra Mile for Quality
    • If you are going to do something, aim to be the best at it, because you won’t get there unless you really work for it.
  • Efficiency – Get More Done with Less
    • Find ways to squeeze as much productivity and quality work out of the situation you are in. If you are efficient, you can accomplish the things that larger, less coordinated teams can’t.
  • Creativity – Finding Unexpected Ways to be the Best
    • Often, the established norm will not necessarily help you stand out as the best in your field. Do not be afraid to be creative and try new things, even if you encounter failure along the way (which you certainly will).

These simple sentences encapsulate the meaning behind each value, clearly transmitting the desired message in a way that everyone at the company can understand.

Upholding Your Ideals

Now armed with the core values, you should think about printing posters and hanging them up around the office. Bring up your core values as often as you can, so that they become ingrained in the team’s psyche. When it comes to this matter, it is better to over-communicate than to under-communicate, lest your values become forgotten.

Another important factor to keep in mind is that you should make your values exceedingly clear to potential new hires. That way, you can hold them to the same standard as everyone else. You should also consider holding quarterly meetings where you rate your team members based on their adherence to the company’s values and culture (including yourself of course). Through a simple rating system, you can give them feedback on whether they are living up to the expectations, or if they are falling short, and more importantly, how they can improve.

The key point here is that you need to communicate to people how they are performing. Because if you do not, you tolerate their behavior, which in turn develops a bad company culture. So, if someone does not fit into the company’s culture, it is simply best to part ways amicably. No hard feelings, just a clear understanding that this way will be better for all parties involved.

To get you started, follow this link to select your top 10 values: https://www.valuescentre.com/tools-assessments/pva/

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startup

Resistance Leads The Way

Have you ever had to face tough a decision about which route to pursue further? Whether in personal life or in business, you will most likely have to make these decisions over and over again. It’s not always easy to know which route is the right one for you or which one will lead to more success. However, there is a nice way of thinking about the different options you have that can lead to a better outcome. Let’s discover what this way of thinking is.

Resistance makes all the difference

We all know that building a successful company is an incredibly difficult thing to do. The odds of succeeding with this are low; however, there are still many entrepreneurs out there pursuing exactly that path. 

While building a successful company per se is really hard, the way there doesn’t have to be. In my first startup, Gymhopper, we had a great initial business idea (or at least we thought it was) to sell day passes for gyms across Switzerland. After talking to the first couple of gyms and trying to get them on board for free (!), we had to understand that our idea just wasn’t working and they were not interested in joining our network at all. We faced a lot of resistance from the market as we were not offering a solution to a relevant problem.

When something like this happens, you have different options on how to move forward. The first option is to insist on the market fit of your product and try to push it into the market with a lot of sales & marketing effort. You might run the risk of annoying your potential partners by aggressively contacting them, but with enough power and effort, it could work and become a suitable business. There are some examples of companies that have succeeded in doing this, like Groupon, who executed pretty aggressive sales tactics to cover the market. I personally don’t think that this is a sustainable way of doing business, neither for your partner relationships nor for your personal life because a lot of resistance usually goes hand in hand with a lot of stress.

Changing course is ok

The second option you can choose is to change course. If you don’t have investors that push you towards a more aggressive strategy, you can experiment and adapt your concept to find a better market fit. Ideally, this would entail potential clients contacting you because the problem you solve for them is highly relevant. This will not only save you the aggressive marketing tactics but also a lot of stress and headache.

While this is of course my particular preference and will depend on your own personal and company setup, it is of my opinion that if you need to push too hard for a sale, your product or solution is not good enough yet. Instead of clinging to your idea, you should be open to changing course until you don’t face any more resistance.

At Gymhopper, we changed course, talked to gym owners and asked them for feedback. Their input allowed us to adapt our model and base it on their annual gym memberships, which was the core business they were focusing on, instead of the day passes that they were not interested in. This led to us closing our first sales when simply asking for feedback. After talking to some of the gym owners, they said that if we were going to go through with this idea, they would be interested in joining our network and even paying us money.

Listen to your gut feelings

There it was: This great feeling of solving a real problem for our clients and not having to face too much resistance from the market. That’s the sweet spot. We later realized that this was only the case in Switzerland and not in international markets, but that’s a topic for another story. The point I am making is that you need to test and change course until you hit a spot where customers actually contact you and want to buy from you because you’re solving a relevant problem for them.

The logic of resistance isn’t limited to the market; you might also feel resistance when working with certain people – it’s just more effort than it should be and something doesn’t feel quite right. Take these signs seriously and change course. There’s no shame in doing that, and in the end you will be better off, have more fun along the way and will also achieve better results. 

Life is too short to run against a wall you cannot break through. Change course and find a way around the wall, or choose a different wall that you can actually break through.

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founder management startup

Success comes from de-risking

You might think that the most successful entrepreneurs on this planet got where they are today by taking huge risks. Some of them got lucky, others didn’t. While luck indeed does play a crucial role in achieving success, there is another component I recently discovered. It seems counterintuitive at first but actually makes a lot of sense. I am talking about de-risking your options.

More Risk = More Reward

What is true for investments, where higher risk is usually compensated with higher return and therefore more risk offers more reward, is also true for the business and startup world. But as with any investment, you can think about how you can de-risk your choices while still keeping the upside as high as possible. That’s what I want to talk about in this short article.

Richard Branson marvelously practiced the strategy of derisking when launching Virgin Airlines. He saw a business potential but wasn’t sure if it’s going to work. Instead of just blindly investing and hoping for the best, Branson was looking for ways to cap his downside. So he was able to negotiate a deal with Boeing to return the airplanes he bought in the early days at no cost if the business plan didn’t work out. Here’s what Branson said about this on the Tim Ferriss podcast: “Look, I promise that I’ll only go into the airline business on one condition and that is if I can persuade Boeing to let me hand the plane back at the end of the first year to protect the downside. So I knew the worst that could happen would be to lose six months of the profits of Virgin Records if it didn’t work out. Boeing agreed to it.”

Think about the worst scenario of your new business idea or business decision you are currently facing and understand what the worst possible outcome is. Then think about ways to mitigate this worst result by negotiating special deals, setting yourself a specific timeline e.g. trying something out for 6 months and kill it if it doesn’t work. You focus on the downside rather than the upside and try to cap the maximum risk you could get there. At the same time, you most likely still have a significant upside, even if it’s just a testing period or a pilot project that you launch. That’s exactly the scenario you want to be in.

A real life example from a startup

Now it’s time to focus on a real life example from a startup I was able to consult over the past months. When the corona crisis hit, many small businesses were caught off guard and either had to suspend or even close their business activities. One company I was working with during that time was active in the fitness industry. Their product was a physical fitness installation that was being sold to gyms. Unfortunately, due to the corona lock down, the gyms were closed and not open for any business and people had to stay at home.

Now you think, people stay at home, so we should develop a version for the home market so people can train at home. This is not what the product was designed for but it is an obviously logical way of thinking about the chances and limitations in the current corona crisis. The only issue: This means quite some heavy upfront investing to adapt the product and software to a completely new market in a super short period of time and without having any proof if the new, adapted product will work. So the investment and time commitment that is required to pull this off as fast as possible is significantly high. The potential upside on the other hand, by not knowing how many people will buy this and having low revenues per customer is pretty limited. This is basically the last situation you want to be in.

A good way of handling this situation is thinking about how you can derisk the downside, the huge upfront investment of time and money while still keeping a relevant upside potential. One way to go would be to launch a landing page, explaining the home product there, before it is even built, driving traffic to the site (e.g. through your own email list or some social media ads) and giving people a chance to preorder the product. If you hit a certain number that justifies and compensates for the upfront investment, you give it a go. If you don’t, you reimburse every single person that preordered from you and apologize for not being able to go ahead with the planned product launch. That way, you can test the upside potential while limiting your downside risk.

As you see, successful companies and entrepreneurship are not so much about taking huge risks, but thinking about how you can mitigate and cap your downside while still having a significant upside. The application of this strategy of risk mitigation allows you to stay alive longer and take more bets than just a single big one. That way you are more likely to find success along the way, and out of different experiments and tests you run an upside you can capture and a successful business you can build around this opportunity. So the next time you face a tough business decision, ask yourself how you can mitigate the risk while still keeping a relevant upside potential in the equation. Happy derisking 🙂 

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founder idea problem solution startup

How to start the next big thing

In his book zero to one, Peter Thiel delivers a blueprint of how to build a successful company. Although his book was published several years ago, it’s still relevant today. Let’s have a look at the most important takeaways.

The right area and market to start a business

Peter Thiel is a contrarian, he opposes popular opinions and therefore likes to ask questions like “What important truth do very few people agree with you on?” during job interviews. His personal answer to this question is that “most people think the future of the world will be defined by globalization, but the truth is that technology matters more.”

In order to choose the right area for your business you should first of all think for yourself and develop a clear image about the future. Then you should ask yourself: “What valuable company is nobody building?” There are underlying secrets behind this question that tackles secrets about nature that we have not yet discovered and secrets about people that we don’t want to tell.

Thiel delivers an example for a promising business: Nutrition. It’s important for everybody on earth but top scientists seem to work in other fields and most of the big studies were done 30 to 40 years ago. There might be an underlying secret behind this area and by uncovering this secret you could build a great business.

It’s important to note that the area where you want to do business should be something that you’re good at but also something that will be relevant in the future. Once you identified your business area, it’s time to tackle a small market where you can gain a large market share fast.

You should aim for the last mover advantage and enter the market last in order to develop a strong, monopoly position for your business. Only with the avoidance of competition will you be able to build a sustainable long term business that generates profits.

A monopoly is usually created through one or several of the following areas: 

  • Proprietary technology
  • Network effects
  • Economies of scale
  • Branding
  • Distribution channel(s)

While the proprietary technology is the most important point to focus on. Your underlying technology should be at least 10x better than the closest substitute.

Finding the right co-founder(s)

Thiel describes the choice of your co-founder(s) as important as getting married. Once you decide to work together (“getting married”) you are basically bond together for lifetime (the lifetime of your company).

A good co-founding team offers strong technical abilities to develop proprietary technology, complementary skill sets and should have a history together before they start a company. From my personal experience the last point especially is very important (which I got wrong at my first startup Gymhopper) because only then can you decide whether you also work well together and share the same values to make it work. 

What a successful company structure and incentives look like

Your company will basically be structured in three different parts:

  • Ownership
  • Possession
  • Control

The ownership focuses on the legal owners of the business, meaning the shareholders. Usually this is a mix between founders, employees and investors. The possession focuses on the operations, the people operating the business and executing the plan. These are usually founders, managers and employees. The last part control describes the board of directors which consists of investors and founders.

A few additional remarks here: Your board should be small and fast and therefore not be bigger than 3 people. Usually it’s a smart idea to have 2 founders sitting on the board and one representative of the investor’s side.

On the employee, founder and manager level it’s important to make sure that everyone who is involved with your company is involved full-time. Usually part-time doesn’t really work out. It’s also important to realize that everybody who does not own stock options or draws a regular salary from your company is fundamentally misaligned. Because these people are biased to the short-term value instead of long-term value creation. That’s also the reason why startup consultants rarely work out.

One important topic is also the CEO’s and founder’s salary. Peter Thiel has strong data that supports that a company does better the less it pays its CEO. That way the executive focuses on long-term value creation and increases the value of the company, instead of defending the status quo.

This alignment is also important for employees. While you are usually not able to pay market salaries (and also shouldn’t due to the points just mentioned before) you should definitely hand out share options to your employees in order to incentivize them to create long-term value. Don’t waste time on people who don’t have a long term future with your company.

Sales is constantly underrated

Sales is constantly underrated by companies. Most businesses are not able to make one distribution channel work and go bankrupt after desperately trying. If you can make one channel work well, you have a solid business. Additionally, superior distribution can create a monopoly by itself.

There are two important metrics you should focus on in sales: The total net profit that you earn on average over the course of your relationship with your customer, called customer lifetime value CLV. The second is the amount you spend on acquiring a new customer, called customer acquisition costs CAC. They should be at a ratio of 3:1 or higher.

Also think very hard about how you distribute and price your product. For expensive products (10k + USD) it makes sense to set up a sales force and hire sales people. For products that cost around 100 USD, hiring sales people would never pay off, so you usually go with traditional advertising. In between, usually for products priced at around 1k USD, there is a deadzone because these products are too expensive to just sell through traditional advertising but don’t pay enough to set up your own sales reps. Avoid this zone at all costs.

Additionally, something Swiss companies don’t like to do too much, selling your company on the media is a necessary part of selling to everyone else. Even if you don’t run your own salesforce and have a viral growth, media coverage will help you attract the right employees and investors for your company. So pay attention to this area and have a clear PR strategy.

The 7 questions every company must answer

Last but not least, Peter Thiel delivers seven questions that every business must answer. This can also be seen as an idea or investment evaluation tool – if people involved in that particular business have good and compelling answers to the questions at hand, they might be up to something. Here are the questions:

  1. Can you create breakthrough technology instead of incremental improvements?
  2. Is now the right time to start your particular business? (and why is now the right time?)
  3. Are you starting with a big share of a small market? (important to build a monopoly business)
  4. Do you have the right team?
  5. Do you have a way to deliver your product? (Distribution & sales focus)
  6. Will your market position be defensible 10 and 20 years into the future?
  7. Have you identified a unique opportunity that others don’t see?

With these key takeaways and questions you can find and evaluate your next big startup business. It all starts with the question: “What will the world look like in 10 or 20 years from now and how will your business fit in?”. Good luck!

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investor management startup

How to manage your investors

If you’re running a fast-growing startup it’s very likely that you’re funded with external money and therefore have investors you need to report to. This article should give you an overview on how to manage your investors successfully.

Your relationship already starts before you say yes

You should be very careful with the selection of your investor and not just say yes to the first best offer. Having investors on board is very similar to being married – you go through the good, the bad and the ugly and only get rid of each other if a) you get fired or b) your company goes bankrupt. Both scenarios are probably not what you’re looking for.

But where and how do you find good investors? There are two aspects: first of all, make sure that, besides the money, they also bring additional benefits to the table. For example: you are running a b2b startup that sells to enterprise customers. In that case, you’re looking for investors that also have a broad network of enterprise executives in your area and ideally also b2b sales experience. A good investor can not only open doors but also provide you with the right feedback on how to sell better and faster. Ask the person that can a) support you with the most value and b) has the time to join your board.

Now you might ask: but where do I find these investors that add value to my business? Do your homework and search LinkedIn up and down. Reach out cold to the potential investors, and ask them for their input and expertise. Eventually they will be interested in investing in your company or support you with their network and open doors for you. Doing cold outreach is uncomfortable but it will benefit you in so many ways – so just do it!

Especially in Switzerland, seed investors usually ask for too many shares and offer too little money. In a healthy seed round, you offer 20-25% of your shares, not more than that. An additional tip: Make sure to do your reference checks and ask previous or active founders the investors have invested in for their feedback. This is a must-do due diligence check.

Spice up your monthly reporting with a specific ask

I suggest that you send your investors a monthly reporting. Not only because this will discipline you and your team and will establish a certain level of professionalism, but also because every reporting is a chance to put your investors to work for you.

At the beginning of each reporting put a specific ask: e.g. you’re looking for a new chief marketing officer and need some intros or recommendations. Put it there and ask your investors to support you on this. You will be surprised by how much their network can actually help you.

To manage the monthly reporting you can either create a powerpoint and excel sheet or use cloud tools like Visible (https://visible.vc/). Always deliver the reporting on time, ideally even 1-2 days earlier than planned but never late. Don’t forget to proof-read it several times or let someone from your team do this if you’re not good at spotting the little details (I am terrible at this).

Investor relations 2.0

Your monthly reporting is not enough to establish a good founder//investor relationship. Something I haven’t paid enough attention to is the regular in-person exchange with all investors. Host a dinner or go for some drinks every 4-6 months and invite all of your investors (they might even pay for their own drinks) to facilitate this personal exchange and strengthen your relationship.

This, combined with the regular specific asks, are crucial parts of building trust and having an honest and open exchange. This way, you will not only set yourself apart from 90% of other startups, but you will also leverage your investors’ networks and know-how the best way you can. In return, this will push you and your company to new heights of success.

How do you manage your investors? Do you have any additional recommendations? Feel free to let me know in the comments.

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management priority startup time

How to prioritize your time

An entrepreneur’s day also has just 24 hours. You probably have enough work on your plate to fill the whole day but not all of these tasks have the same effectiveness for your company. Let’s first look at the two critical KPIs every company should focus on and how to drive them, and secondly, how to prioritize your tasks to give you clear guidance on where you should spend your time.

The two core KPIs every startup should focus on

If you look at all startups from a very high-level perspective, there are two core components that you should focus on: Building something users really love and earning money with that. With that in mind, you should focus on 2 main KPIs: revenue and active users.

You can look at active users from a daily, weekly or monthly perspective. Which metric you choose, and how you measure it, heavily depends on your business case. If you run an app for example, you probably want to measure how many people open your app at least once per day or full week. However, if you run a restaurant reservation platform, you probably want to measure how many people book at least once a month through your platform. Think about what characterizes an active user in your business, set the KPI and always measure it the same way to be able to compare the numbers and measure growth.

Revenue is simple to measure: How much revenue comes in on a monthly basis? How much were you able to grow revenue compared to the previous month? You could, of course, monitor many other KPIs too (and you probably should), but these two are the must-haves. Everything else is a nice addition, but not critical, and can often kill your focus.

How to drive your KPIs

Once you set up the two core KPIs and focus on them, you want to understand how you can influence and drive them. As with the core KPIs, you can basically structure your activities between two key areas: talking to users and building the product.

Talking to users can mean many things — not only interviewing potential clients and identifying their pain points, but also going out there and setting up a pipeline to make sales. This could also mean asking existing clients for referrals and feedback about the existing solution and doing some structured upselling. The important part here is that this task change as your company grows. While the focus is on getting feedback and identifying problems in the early days, it shifts to a replicable sales process after you’ve hit product market fit. The key here is to constantly be out there talking to users in order to close new deals and gain valuable insights.

On the other hand, what is especially important in driving the active users KPI, is building a great product. So, investing your time to create a solution that is 10x better than anything else out there is also time well invested. That’s also why it’s a smart idea to split your co-founder roles between business/sales (aka talking to users) and tech (aka building the product).

The entrepreneurial prioritization system

Now you know what you focus on and what activities actually influence your KPIs in a positive way. But you still haven’t figured out how to navigate through the endless tasks and possibilities where you could spend your time. The following system will be a great help.

First, start with a weekly goal. The goal you want to fully focus on throughout the whole week, where you want to show some real progress and move the needle.  Once you set your goal for the week, you can start prioritizing and measuring all your tasks and activities at hand against this goal.

Start with the question: How does the task at hand impact my weekly goal? And choose between the three options “High”, “Medium” and “Low”. Rate all your tasks according to this question. Ideally, you should do this on a google or excel spreadsheet.

The second dimension you want to look at is the complexity of the task. Ask yourself: How complex is the task at hand? Also, choose a rating from “High”, “Medium” to “Low” for every single task that you already rated before.

Once you’re done rating the tasks, you’ll get a list that shows you the impact on your weekly goal as well as the complexity of the task. Now this will give you a clear focus because you want to start working on tasks with a high impact on your weekly goal and a low to medium complexity. These are the quick wins for you and your company.

Avoid tasks with a low impact on your goal but a high or medium complexity at all costs as they are a big waste of time. Also important: don’t tackle too many things at once, because then it’s really hard to get anything done. Tackle the first task (ideally high impact on goal and low in complexity) and get this done. Only move to the next task if the first one has been successfully completed.

While this system is still based on a very subjective opinion and rating, you will get much better at this the longer you implement it. This will not only lead to better prioritization of your tasks, but also to stronger and more successful results for your company. Give it a try and start by setting your goal for next week and rating your tasks.

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investor management salary startup

How much founders should get paid

A trade off between founders and investors interests

Recently we hosted a startup founders dinner in Zurich and asked how the different company CEOs and CTOs were handling the delicate topic of salaries for their own founding team. A topic that is a very crucial part of being an entrepreneur and usually causes lots of discussions between founders and investors. This article should give you an overview of the different perspectives and a clear guide on how to set the salaries for your founding team.

The unicorn approach

Earlier this year I interviewed unicorn investor Daniel Gutenberg (13 unicorn investments in his portfolio) for the Swisspreneur show and when asked about founders’ salaries he had a very clear take: If you’re convinced that you’re building the next unicorn, the only rational thing to do is invest all your money into your startup company because you will basically earn much much more if your plan works out.

That basically means you should analyze your living expenses and pay yourself exactly that amount on a monthly basis. Everything else you have saved or can remain in the company should be invested in your startup to push it to unicorn level and generate your big pay day with an IPO or M&A deal based on your billion dollar company valuation. 

Of course this is also a very risky approach; as we know, 9 out of 10 startups usually fail and therefore while the reward is indeed very appealing, the risk should not be taken lightly. However, for unicorn investor Gutenberg it’s critical that founders have a large amount of “skin in the game” and are personally invested in their startups’ success. So if you’re goal is to build a unicorn and you want to win Daniel as an investor you know what’s required.

What founders say

That you don’t have to invest your last cent in your company shows the general practice of Swiss startup founders. Usually they also focus on their living expenses which generally tend to be lower the younger the founders are. If there is more than one founder, most of the companies take the highest living expenses of their team as a base salary and pay everyone the same. I think in general it’s smart to pay the founders the same salary to avoid distracting discussions and fully focus on building a successful company. This of course only works, if all of them are working full-time for your company (which they definitely should be).

Some founders get paid a regular market salary while most said that they don’t pay themselves a high salary on purpose. This is because of the potential upside through their company shares which is part of the payout and compensates them for the lower salary. I think here it really depends on how you earn your shares: If you have to invest a significant amount of money yourself and basically buy the shares of the company, a salary closer to the market standard seems appropriate.

However, if you, like most first and/or early stage founders, get your shares basically free of charge and sell some equity to investors, a regular market salary wouldn’t make sense and significantly reduces your run-rate. So you basically have less time to hit your next milestones. Therefore, depending on your living expenses, a salary between 3-5k seems appropriate and is also the way most founders in Switzerland handle it. There are some outliers that only pay themselves 1k a month and others that get paid 8-10k CHF but they are the exception rather than the rule.

Grow your salary with your company

I would personally suggest to go for 4-5k during your early phase and then steadily increase the salaries as you progress and approach a potential Series A+ financing round. Right before you start fundraising for your Series A you should pay yourself a market salary because VCs will want to know how much money you make or usually burn based on fair market terms. If you pay yourself a lower market salary you are basically cheating on this. From what I have learned from talking to VCs, this is usually a bad sign in their perspective and a potential red flag for an investment. 

So basically your salary policy is similar to finding product market fit: first you try to reduce everything to the minimum until you find something that’s actually working. In this phase you pay yourself close to your living expenses to survive, but only live a very basic lifestyle, so 3-5k CHF per month should do the trick in Switzerland. As soon as you find something that’s working and entering scaling mode, where you also need to attract senior talent and pay them appropriately, you should pay yourself close to market standards and with that also send a strong signal to potential investors so they take you seriously. 

What do you think about this topic? And how much do you pay yourself as a startup founder? Leave your thoughts in the comments or send me an email.

Categories
founder idea problem solution startup

How to evaluate your startup idea

You might have several ideas to start a new company but are not sure which idea is the right one or has the biggest potential. The recently launched startup school by Y Combinator addresses this issue with an outstanding podcast episode. Here are the most important key take-aways.

A startup is focused on growth

Before you actually start a company it’s important to understand the playground you choose. A startup is designed to grow really quickly. Fast growth is everything. Profitability comes second. While it’s totally fine to also launch a company that is not growing quickly and considered as a “normal” enterprise or SME, it’s important to understand the implications if you launch a startup.

If you want to build a rapidly growing company your startup idea is basically a hypothesis – why your company can grow quickly. So it’s important to also treat it as such: test and learn as much as possible about it.

The basic structure of a startup idea

A startup idea basically consists of three key parts. The problem, the solution and the insights.

The problem

The problem you solve basically sets the initial conditions. It’s crucial to find problems people actually care about. There are several characteristics that make a good problem:

  • It’s popular, meaning millions of people face it.
  • It’s growing – usually characterized by a growing market of 20+%.
  • It’s an urgent problem – people want an instant solution for this.
  • It’s expensive to solve – and therefore a good basis for your business.
  • It’s mandatory – e.g. through new laws or regulations and need to be solved.
  • It’s  frequent – meaning it needs to be solved multiple times (per day ideally).

If your startup is not taking off, it’s most likely due to the absence of these points mentioned above. While you don’t need to have all the characteristics of a good problem in your startup, you should have at least a few of them, like 2-3.

The solution

As already mentioned above, it’s crucial to start with a problem people have and care about and not with the solution. There are many great technologies and solutions out there that nobody cares about because they don’t solve a good problem. Hence, you will not be able to create a fast-growing company around this solution.

Once you’ve found a good problem, test things out, learn by trial and error and validate or falsify your hypotheses to move towards a good solution. Here it’s important to prove that you can actually build the things you sell to potential clients and investors – a track record of your team certainly helps, but mainly proven execution and delivering on your promises is the best you can do.

Insights

In the third and last part of your startup idea you explain why your solution is going to work. This basically describes your unfair advantage that separates you from other people or companies trying to do the same thing. Your unfair advantage needs to be related to growth, otherwise it won’t be an attractive explanation to potential investors. It’s also crucial that you have one or several unfair advantages; otherwise you most likely won’t succeed.

Here are 5 types of unfair advantages a startup can have:

  • Founder advantage: Only applies if you are a super expert on a specific topic e.g. you have done lots of research in a very specific deep tech area, hold a PhD and several patents. This usually applies to max. 10% of all founders.
  • Market advantage: Meaning you operate in a market that is growing 20% or more year over year. This alone is the weakest advantage you can have but still a good position to be in.
  • Product advantage: Your product is 10x better than the competition, e.g. faster, cheaper, etc. and people will notice this immediately.
  • Acquisition advantage: You successfully set up user acquisition channels that don’t cost you any money e.g. viral loops or word of mouth. Any paid channel does not count as an advantage because as soon as you’re successful, competition will enter the market and prices will increase, so this paid acquisition is not a sustainable advantage.
  • Monopoly advantage: Peter Thiel probably describes this best in his book Zero to One: your company basically becomes stronger the more you grow. This is mainly a result of network effects and marketplaces where the winner takes all.

These 3 core components of a startup idea should give you a good overview of what to focus on in the early days when thinking about your next venture. Think the ideas through with the problem in mind, validate it with potential users and see where you have an unfair advantage and you might be able to build a successful company.