Startup Questions by Jennifer Chou
I respond to topics posed by an SFU graduate.
Hey folks 👋
Before I took a break from writing over the summer, Jennifer Chou reached out to suggest a bunch of topics that I should write about.
So you can get to know her a little bit, Jennifer recently graduated from Simon Fraser University with a Bachelor of Arts in Psychology and a minor in Print & Digital Publishing.
During her last year of study, she co-founded an initiative to address a lack of accessible, social, skills and portfolio-based learning opportunities for university students. Today, it’s called Emerge GX.
Here’s how Jennifer framed it:
My co-founders and I identified a common problem.
Every course teaching industry skills like UI/UX Design, graphic design, digital marketing, etc. were all really expensive, not live or engaging, or there was a lack of projects you could get feedback on to improve.
We started a club at our school, which was wildly successful.
We had over 700 enrollments around the world. We’re hoping to build a platform to turn our school club into an actual startup.
Seven hundred enrollments is awesome!
When I read through her topic suggestions, it became clear they’d resonate with other founders in a similar place in their startup career.
So now, I’m going to cover these items all in one go. Q&A style!
Here we go.
Jennifer: How do you know when to stop working on a prototype or MVP and just launch?
Me: Depending upon your MVP implementation, as soon as the benefit to using it can be understood or extracted by your target customer. If you are finding yourself tweaking design elements, it’s too late. Launch!
A common misconception about MVPs is they have to be reliable and widely functional under all sorts of conditions.
In reality, your MVP can be clunky and break half the time. People who *really* want the value you are providing access to will keep trying to use it until it works. Or, it may never work but you’ll have collected a ton of data on how many times they have been attempting to use it. These are powerful signals.
Jennifer: How do you get funding? What should you do with it? What shouldn’t you spend money on?
Me: First of all, I would ask yourself the question on whether or not you need *or even want to* raise funding at the beginning of your startup journey.
The further you can get on your own, and thereby reduce risk for investors, the more equity you get to keep.
Plus, going through a fundraising process is massively time-consuming and distracting from doing what matters—building a product that customers love. This really sucks at the very beginning of a startup journey when you want to focus on talking with customers and executing your mission.
At a minimum, a working prototype goes a long way—particularly if it’s hardware. Ideally, try to build a product customers will pay for, hustle your first cohort, and then review the situation. You may find you’re able to grow sustainably from this small base. It’s tough at first, but can compound quickly.
From that point onwards, you have excellent leverage with investors. You don’t *need* their capital. Anything they put in will fuel an already well-burning fire.
In terms of utilising the capital you have raised, every penny should be applied to activities that deliver the maximum ROI against your business objectives. The same goes for your time, since that has a monetary value too.
It’s key to constantly evaluate this as you go along, so you know what the maximum ROI activities are. First, define your business objectives, then map out the leanest route to achieving it.
Jennifer: How to know if you should bootstrap vs. pitch to investors?
Me: Ask yourself a few questions. Can you realistically bootstrap a monetizable product? If yes, can you realistically acquire paying customers into it under your own steam? If yes, will those customers be materially profitable within a timeframe that is commercially viable?
If the answer to any of those is a solid no, then raising capital is necessary.
It’s also worth remembering that many VCs only fund startups they believe will have an exit opportunity above $1bn. If your long-term enterprise value is under this figure, bootstrapping or raising relatively small amounts from friends, family, angels, and crowd-funding platforms are your main options.
Jennifer: Whose advice we should listen to and whose advice shouldn’t we? (i.e. when it changes our core values too much).
Me: At the earliest stages of a startup, advice is over-rated. I would advocate the pursuit of knowledge and feedback. Knowledge as to how a particular market or industry works. Feedback from target customers and stakeholders. Definitely blaze your own trail to start, then navigate to where the market and your learnings direct.
Jennifer: Why is reading about startup failures just as important (or more important) than reading about startup successes?
Me: Reading about startup successes and failures are most useful from a motivational or psychological standpoint.
Usually, they are high-level stories about people, places, and times that are not massively relevant today. A lot of founders draw comfort or inspiration from this type of reading, which is useful, but not necessarily actionable. For this reason, success stories are probably more important.
The actionable detail really comes from drilling down into specific areas of those businesses. Growth flywheels, hiring strategies, culture, etc.
So, I encourage reading both types of literature.
Jennifer: Incubators and accelerators – how do you know when it’s worth it?
Me: This really boils down to two main factors:
How good is the incubator or accelerator?
How applicable is it to your startup?
To evaluate the first, you can initially Google them to get a basic sense of how worthwhile it is. If that checks out, get references from founders who passed through their program. When doing that, cut through the noise and look for signal. Incubators and accelerators are generally exciting to go through, so it’s important to drill-down on material outcomes that the founders received or achieved.
In terms of applicability, this really depends upon how much you *need* an incubator or accelerator, and your industry. You can learn and develop all of the skillsets you need as a founder without going through one. That being said, a huge value driver of these programs is the network and community plugged into them. Some are very mediocre, while others (like Y Combinator) can drive outsized results.
Jennifer: Is it important to have multiple streams of revenue?
Me: In the beginning, it’s often bad to have multiple streams of revenue. It can be a sign you’re trying to do too much. It’s more important to spread your one revenue stream as equally as possible across many customers.
Why? Once your one revenue stream has been validated, it’s unlikely to disappear overnight. So, the emphasis is on building and diversifying your customer base. Once you hit product-market fit, it’s normal to start out with just a handful of paying customers who are keeping the lights on. Losing a few or just one of these can put you underwater, so it’s key to double-down on growing that customer base rather than pursue other unproven revenue channels.
Jennifer: What happens when you scale ‘too quickly’?
Me: I’m going to interpret ‘too quickly’ as in achieving bad commercial results. So many things! Hiring too fast and not having the infrastructure to maintain culture as headcount grows. Spending too much on marketing campaigns that deliver vanity metrics and not material results. Hiring for positions that don’t really need filling. Buying crap you don’t need. Basically, capital is deployed sub-optimally across the entire business.
Jennifer: Should all the processes (tracking things a certain way, organizing documents, etc.) be set up as if it were a small business when it’s just a small team?
Me: Processes are productivity inhibitors. They make a lot of sense in established, larger organisations with a ton of moving parts. But, for super early stage founding teams agility is key. This is your superpower against your large, well-capitalized competitors. They are slow and encumbered by process.
Founding teams will naturally gel into a state of workflow that could be characterized as ‘process’ in hindsight, but pre-meditating it is sub-optimal. This works best when each founder knows (or can quickly figure out) the best practices of their particular domain and introduces this for the rest of the group to follow.
Jennifer: How to find mentors?
Me: The best mentorship you can get is from reading books. This gives a virtually unlimited supply of deep-dive insight and knowledge from the best business and intellectual minds that have ever walked the earth. They may not provide specific guidance on your exact situation, but I’ve found they don’t need to. Our brains naturally translate abstract information onto our individual circumstances.
Jennifer: Mentorship vs hands-on experience – which is better in which situation? (like whether you can learn more about X topic by finding a mentor or just trying it out).
Me: Definitely get stuck in with hands-on experience. You will learn the most from doing this.
Jennifer: When should you NOT test hypotheses?
Me: If the underlying evidence to support it is thin. Or, if you are not motivated by the mission if it’s validated.
Jennifer: When to outsource and what to outsource? What things should you NEVER outsource?
Me: Outsourcing is useful in many scenarios to reduce costs and improve productivity. A prime example is AWS, where startups no longer have to buy or rent their own servers.
As a rule of thumb, outsource to software wherever possible since it’s usually the most cost-effective over doing the same task manually. And, never outsource critical business functions or key ingredients to success to external contractors or personnel.
I learned this the hard way on a project I worked on some years ago. It was an e-commerce website where we outsourced the SEO. Our whole go-to-market strategy was to drive traffic from organic search results. The SEO agency we hired messed it up. It should have been executed in-house.
So, as a rule of thumb, anything you outsource shouldn’t be able to cripple your business or diminish your chances of success if it goes wrong.
Jennifer: Should we create solutions for today or create solutions for problems people will have in the future?
Me: Generally speaking, most startups that ultimately become successful hit product-market fit with solutions that solve problems today. Deliberately building products to solve future problems is highly capital intensive and extremely hard to raise money for.
Thanks for your questions, Jennifer!
If you’re an aspiring founder and would like to connect with Jennifer directly, here’s a link to her LinkedIn profile.
That’s it for today, folks. I’ll be back with another newsletter soon. 👋