Entrepreneurship is the pursuit of opportunity beyond resources controlled

 Pursuit: the actions of an individual entrepreneur — drive, resiliency, focus,

discipline, and balance

 Opportunity: the type of venture — a better, cheaper, or more efficient offering

for the customer

 Beyond resources controlled: managing the risks of external constraints

Overcoming Concerns

Here's a bit more on the perceived hurdles:

 Innovation/Idea: most ideas have been thought of before, and all will have
competition. Success comes down to executing on your idea well and finding the right
customers where you can solve their needs better. Think of all your favorite companies,
and chances are, there was already someone doing a startup very similar when they
founded.

 Time: starting a company does take time, and this just comes down to
managing your time well. Focus on the things that matter most, and remember that
perfect is the enemy of done. Recall also that many great ventures start as side
projects, which is why companies like Google allow their employees 20% of their time
to work on projects they think will benefit the company.

 Team: you can do a lot on your own, though when you do go to find
teammates, understand the gravity of this decision and what is most important in
choosing a great team. Check out this post for more.

 Funding: the average amount to start a company is only about $10,000 -

$30,000 (depending on the source — Kauffman Foundation estimates $30,000, while
the Small Business Association quotes smaller numbers). Most entrepreneurs fund
their company either on their own, or with a small loan from friends and family. Media
skews what is needed to start something with the few outliers who raise millions of
dollars, but the truth is, it usually requires much less.

Plus, check out this post for more debunking of some common myths of
entrepreneurship.
 Will you let these things stand in your way, or will you be one of the brave ones,
an entrepreneur?

At The Martin Trust Center for MIT Entrepreneurship, we’ve found that there’s a
process to becoming a successful entrepreneur, requiring students first to be inspired,
learn, then to fully engage and act, and have a support system. This involves four
components:

Heart: it starts with heart — having the inspiration, passion, and mindset. Being an
entrepreneur requires confidence, resiliency, work ethic, and adaptability. While it's
practically impossible to have the perfect mindset at the outset of starting a new
venture, being in an environment that allows you to have idols can provide much
needed inspiration and the reminder of how to engage with your passions.

Head: next is learning the knowledge. This includes how to identify opportunities,
business skills, and how to sell and pitch. MIT has an integrated, comprehensive, and
proven process to crank out successful companies called the Disciplined
Entrepreneurship process. Some things cannot be learned just by doing, and this
process breaks it down and makes it manageable.

Hands: once inspired and passionate, and equipped with the knowledge, the next
piece is about getting out there and DOING STUFF. It's not enough to write a fancy
business plan, but important to realize the value of interviewing customers, developing
a prototype, pounding the pavement to sell to customers, and pitching your company.

Home: finally, having the people around you to be able to pull it off. These people
include co-founders, peers, mentors, instructors — all the people for feedback,
potential customers, and moral support.

A school ecosystem can be especially valuable in providing all of these components —

community, courses, inspiration, plus the resources to make it happen.

Goals as an Entrepreneur
This exercise is just for you!

Develop a reflection of what being an entrepreneur means to you – a few paragraphs.

You may consider reflecting on the following questions as part of this reflection:

 Why do you want to be an entrepreneur?

 What does being an entrepreneur mean to you?

 How should a startup relate to the founders, customers, community, and

society?

 What defines good or worthwhile work?

 What does money have to do with it?

 What do experience, growth, and fulfillment have to do with it?

Spend at least 15 minutes developing a thoughtful reflection.

When complete, go through and highlight keywords that stand out. For example, you
may highlight phrases such as “solving problems”, “helping others”, etc. – whatever
stands out to you. These will serve two purposes:

 Share with any co-founders to gain a better understanding of your workview

perspective. The most common frustrations among founding team members is when
two people have differing core perspectives and feel that theirs is not being respected
properly. This sharing can get ahead of potential issues.

 One of your creativity exercises will use a few of these keywords – see the next
section!
 aring Your Idea
Before we get into market research, let’s talk about sharing your idea with others. At
this early stage, you don’t yet want to start talking about ideas to solve the problem -
you’re still trying to uncover customer frustrations.

Later in the process when you do share your idea, you shouldn’t be concerned about
people stealing it. Startup success is more about execution than the idea itself. Most
ideas have been thought of before, and are easy to come by, but the hard part is
actually doing something with those ideas, and doing it well.

Plus, the risk of someone else taking an idea is really low. Someone would need to have
the perfect mix of interest, skills, ambition and time. Factored together, this is an
extremely low probability!

Once you finish uncovering and validating customer frustrations, the value of sharing
an idea far outweighs the risk. Every time you share it, you gain the opportunity to get
 feedback and make it better. The best entrepreneurs are those who are open to
feedback and adapt to early market research.

Finding Interview Subjects

1. Develop a list of a few potential customer segments (segments are groups of

customers that have similar needs and buying characteristics).

2. Aim for at least 5 one-on-one interviews per segment

 Find people within the category who are on the leading edge of
innovations in the space — the ones who tend to adopt the newest technologies

 Maintain at least one degree of separation — that means no

interviewing family and friends

 Ask for referrals (who would you recommend that I speak with next?)

 Get creative — find different recruiting means like going to the locations
where these customers frequent, looking people up on LinkedIn, etc.

 Promise to be brief

Interview Guide - Example

The following is an example of the market research process from a Launch

Summer company, Dropwise, who sought to reduce water wastage.

Who to Survey

 Eco-friendly college students

 Young couple homeowners

 Apartment complex owners

 Utility companies

 Water solution installers

 Hypothesis
People want to use less water (note: we just need to validate who has the need in this
early step, then can dig into specific ways to change behavior later).

Interview Questions

 Tell me a bit about yourself

 Tell me about your water usage

 Why?

 Why?

 What frustrates you about your water usage?

 What keeps you from using more or less water?

Conducting an Effective Interview

What NOT To Do

 Don’t come into a customer interview feeling you have the answers. If your idea
doesn't adjust at least some based on these conversations, you're not listening.

 Don’t expect customers to have the answer (possible exception: lead users).
They'll know their frustrations and needs, but not necessarily how to solve it. Lead
users may have cobbled together a solution, though.

 Do not sell! No demos! No presentations! This is the time to learn, not to sell.

What To Do

 Focus on the need, not the solution!

 Beware of confirmation bias — you are NOT there to validate what you think,
you are there to uncover a need.

 Do it in person, one at a time — this will allow you to pick up on cues from
gestures and facial expressions.

 Ask open-ended questions — this makes it a conversation and allows you to get
to more depth of the need you may not have thought about before.
 Get subjects to tell a story.

 Listen much more than you talk!

 Follow your nose and drill down (Why? Why?...).

 Understand their priorities.

Interviews - Examples
Bad Examples

 On a scale of 1-5, in which 1 is none and 5 is a very much, how would you rate
your need for organization?

 Do you like to travel?

 Would you find value in having an app that allows you to workout without the
need for a gym?

These are too leading, vague, and don't take advantage of being able to talk to the
person about their real needs and frustrations.

Good Examples

 How do you keep yourself organized now? When do you find yourself not
staying on top of everything? What keeps you from staying organized in those times?
Would anything help?

 How often do you workout? How often do you wish you worked out? What
keeps you from that goal? Tell me about a time you planned to work out and ended up
not doing so.
Give your interviewee the opportunity to talk about how they do things now, how they
wish they did things, and what they think could help them bridge that gap. You may
uncover great opportunities you never expected, and they may even give you great
ideas!

Choose your Target Customer

 Steps to gathering insights from your market research and choosing your initial market
(continued):

 Gather similar insights within a customer segment

 Determine the common themes of the need first

 Assess where the need is the biggest / most frequent

 Review insights of potential features

 Additional research may be valuable here, sometimes through a

survey of target customers

 Choose your top segment — this will be your beachhead market or target
market

 Determine which segment has more positive insights

 Assess if the needs of customer segments have overlaps

 Determine if there are gaps in insights

 Perform further research as needed!

Common question: What's the right size of customer segment?
Basically — small enough that the customers within the group are homogenous in their
buying behavior and important demographic indicators for your industry, but big
enough to have profit potential for your company. Also, it would ideally be a customer
segment with credibility in the space, where other "follow-on markets" will trust this
initial group's recommendations.

You’re ready to determine the top need of this group and how best to fill it!

Choose your Target Customer

Steps to gathering insights from your market research and choosing your initial market
(continued):

 Gather similar insights within a customer segment

 Determine the common themes of the need first

 Assess where the need is the biggest / most frequent

 Review insights of potential features

 Additional research may be valuable here, sometimes through a

survey of target customers

 Choose your top segment — this will be your beachhead market or target
market

 Determine which segment has more positive insights

 Assess if the needs of customer segments have overlaps

 Determine if there are gaps in insights

 Perform further research as needed!

Common question: What's the right size of customer segment?
Basically — small enough that the customers within the group are homogenous in their
buying behavior and important demographic indicators for your industry, but big
enough to have profit potential for your company. Also, it would ideally be a customer
segment with credibility in the space, where other "follow-on markets" will trust this
initial group's recommendations.

You’re ready to determine the top need of this group and how best to fill it!

Dropwise Example
Interview results / insights

 Renters tend not to have to pay for water usage, so are less
likely to implement a solution

 Homeowners would prefer to use less water due to:

 Monthly costs

 Environmental impact

 Water shortages

 Homeowners who have the biggest concern of the above are in

locations like California, where there has been a drought
 Target customer: eco-friendly homeowners in California who install
energy- saving products, such as the Nest thermostat.

Dropwise Example

 Name: Jennifer
 Occupation: Refuge Manager for
the US Fish and Wildlife Service

 Age: 38

 Location: Sacramento, California

 Status: Married, 2 kids (ages: 7,

9)

 Interests: Trivia nights, board

games, camping, kayaking, running her
daughter’s Girl Scouts Troop
Frustrations: Wants others to appreciate
nature and wildlife (and its preservation)
as much as she does; working mother who wants to do more for the
environment

 Needs: More fun and engaging ways to have her family take
part in a sustainable lifestyle

 Challenges: Sustainable practices, like saving water, are hard

to track right now, especially while balancing work and raising her
kids

 Goals: To raise environmentally conscious kids and do her part

to preserve nature

 Quote: “My kids respond well to metrics and accomplishments,

which is easier for things like recycling, but I’ve struggled to have the
same with other environment-saving practices.”

Common Questions about Customer Personas

What if I have a two-sided market like Uber (drivers and

passengers)?
Your customer is whoever is paying you. In the case of Uber, this is
the passengers. The drivers are the offering that is provided to the
customer. It is most important to develop a persona for the paying
customer, and to fit the offering to their needs.

Do I need to include all components of the customer persona

 that were listed?
No - you only need to list the components that are relevant to your
business that help you tailor the offering to their needs. Relevant
items are the ones that might impact the customer's buying
behavior.

Should I really have a visual of the persona?

Having a visual like a poster can be extremely valuable to allow the
team to consistently be reminded of the person for whom you are
developing an offering.

Customer v. End User

Often, your customer will be different from the end user, and many
early startups make the mistake of optimizing a solution for the end
user. Keep in mind that your customer is whoever is paying for the
offering, though the person who obtains value from what you develop
may be different. Here are a few examples:

 Educational products — the school is the customer while

students are often the end users

 Public transportation — governments pay for the solution while

commuters are the most common end user

 Corporate products — the business buyer will be the customer

while it is usually another person in the organization is the end user

In all of these scenarios, you need to appeal to both the customer

and the end user, though optimizing to the needs of the customer is
most important.
 Competitive Advantage
Steps to perform your competitive advantage analysis:

1. Determine your top customer priorities (only two). These might

be things like convenience, reliability, specific capabilities, or items
 specific to your customers' frustrations. Note that some priorities may
be in conflict with one another - such as quality and cost. Customers
that care about one often do not care about the other as a top
priority, and it is practically impossible to deliver both. Draw your
customers' top two priorities on the axes (you should have listed
these out in the last section on Value Proposition).

2. Rate your competitors on these dimensions and map them on

the chart.

3. Rate yourself and map where you would be on the chart.

4. If you've done the previous steps correctly, you should be in

the top right with minimal competition nearby!

 If this isn't the case, look at how you've defined your

customer segment — should it be more defined?

 Look back at your market research — where is the unmet

need highest?

Value Proposition Recap

The value proposition is your sales message

Defines "why you should buy from us"

 Clearly communicated to the customer
Shapes every choice you make and every aspect of the customer's
experience
Is NOT a slogan or catchphrase

Your value proposition must have a few key parts:

 Customer: Who you are providing value for

 Industry: What category the company plays within

 The promise of value to be delivered

 Strategy: Belief from the customer that value will be realized

Outline for writing a value proposition statement:

For (target audience), our company is the brand of (industry or other frame
of reference or type of product/service)
that delivers (quantified primary benefit) because (key attributes).

The Promise - Quantify It

Once you have assessed the single most important priority of your
customer, you need to quantify how much more valuable you are
than your persona's current solution along that dimension. If they
care about time and convenience, quantify the hours and portion of
their time on this problem that they save. If they care most about
money, quantify the savings and put it in perspective of their current
costs.

Keep away from weak "promises" within your value propositions:

 Our product saves you precious dollars

 You will get countless benefits

 Our technical superiority will save you money

 We are the best when it comes to saving money

Instead, use strong "promises", that are convincing and verifiable:

 This new policy saves you $10,000 per year and provides you
with more coverage

 Our clients have increased their business by 20-25 percent

using our business solutions services

 Your savings on waste management will be nearly one percent

or $1300 per year
Dropwise Example: For eco-friendly homeowners in California, our
company is the brand of smart home sustainability offerings that
reduces water usage by over 30% through providing an easy to
install device that provides real-time water usage data.

Types of Strategies
Your entrepreneurial strategy is about how you will test and
commercialize your offering. This can take a few forms:

 Product Development– product innovations can be brought to

customers through:

 Manufacturing yourself – you may choose to make the

product yourself and sell it to the market. This option has the most
control, though can be slower to get sales since there will be a
learning curve of how to build and distribute the product.

 Hiring a manufacturer – you may hire a manufacturer

develop your product. Keep in mind that you will need to provide
clear instructions and have robust expectations on both sides of how
the process will work, to ensure things are to your quality and
timeline standards.

 Partnerships – with both of the above, there is the

opportunity to partner with credible complementary companies to get
the product to market. For example, Dropwise may consider outreach
to Amazon Alexa, Google, or other companies focusing on smart
home devices.

 Licensing – Some innovative products are best suited to

licensing to existing companies. This is especially true when the
innovation can be integrated into the product of these other
companies. An example would be a headlight company licensing an
 innovation to car manufacturers. To use this method, the innovation
must be patented.

 Commercializing a Service Offering – most items that are

not a physical product can be considered services, including schools,
hospitals, travel booking websites, community forums, food delivery
services, crowdfunding sites, online shopping plug-ins, music apps,
and more. These can be commercialized in a few ways:

 Improving the value chain – This builds on the offerings

of other companies in the industry, requiring their support. A music
app needs to license music, shopping plug-ins access shopping
websites’ information, and food delivery works with restaurants or
cooks.

 Stand-alone offering – The alternative is to create an

entirely new offering with your own resources, without being reliant
on any other companies. This approach can have a lot of competition.
An example is education workshops, where many organizations have
developed programs.

Dropwise Example
Dropwise could have considered:

 Developing an online community of environmentally conscious

homeowners who shared tips for saving water

 An app that allowed users to manually track their water usage

through a few usage options

 A water usage awareness campaign

 Developing a new water tap for faucets that was more eco-
friendly

 Partnering with smart home product companies

Remember, their customers need a solution that takes minimal
interactions on their part, while allowing them to save water across
all of their usage.

This means that the Dropwise team ultimately developed a product

that could be installed by homeowners to determine real-time water
usage, shown through a simple app. The users can track water usage
passively across all water needs in the home, plus compare it to the
amount used by others in their area.
 Customer Acquisition

1. First, assess what marketing strategies will be right for you

— they vary by industry and business type. Beware of relying on
channels that tend to have low conversion rates, like social media.

2. Then, determine where best to reach your

customers through these strategies

 Consider mapping the customer sales process, from

when they first discover their need through to purchase and realizing
value. How can you insert yourself in the discovery process?

 Think about specific windows of opportunity or

timeframes that might be particularly relevant for your offering.

 Make a list of places your customer frequents, and

consider if there are ways of leveraging some of these locations to
market or partner.

3. Get out there and sell!

 Keep in mind that it may take several times following up.

Elevator Pitch
The term “selling” brings up a variety of visual images – used car
salesmen, door to door salesmen, and Wall Street stock brokers.
 Selling includes so much more than just sales as one’s primary
profession – every single person is selling every day – convincing
their kids to eat dinner, persuading their friends which movie to see,
and selling their skills and ideas in the workplace. Selling your
business idea is no different, and uses the same communication skills
of persuasion through building a story. This story is called a pitch,
and we’ll start with the shortest version of that pitch – the elevator
pitch.

You’ll be surprised at how much you’ll need to use an elevator pitch.

People will ask you about your company both formally and informally
– elevator pitch! When you email people about your business and
need to introduce it – elevator pitch! When your friends want to know
about the cool new business you’re starting – elevator pitch!

Elevator Pitch Outline

 Start with why — your mission / vision (just a few seconds)

 Cover the components of your value proposition: your

customer, your industry, the promise, and your strategy (succinctly).

 Spend the bulk of the time sharing how you are overcoming
the biggest potential concern or risk- typically through how you
have proven your product in the market.

 Make a clear ask (if it makes sense to) — This may include
asking to continue the conversation at another time, or gauging their
interest in being a partner or customer. Don't let the receiver
decipher what you want from them

Elevator Pitch - Examples

Let’s move on to some examples. The following are two extremes of
what NOT to do. Make note of what you like and don't like about each
of the following examples.

Example #1
"We can help you prioritize, manage, trouble-shoot and then
implement new ideas for your business. Our firm specializes in
engineering consulting, including putting designs into CAD software in
any software type including Solidworks, ProEngineer, AutoDesk,
 Catia, SketchUp, and more, doing analytics with large amounts of
data and under complicated scenarios, and specifying and sourcing
supply chains and manufacturing from prototyping to contract
manufacturing needs."

Example #2
“We are a wearable device that will revolutionize the way you interact
with the world. The overall market for wearable technology is
expected to reach $31 Billion by 2020, at a CAGR of 18% between
2015 and 2020. We’ve mastered what Google, Apple, and Samsung
have failed to capitalize upon. I’m sure you’re familiar with the
underwhelming results and market reception of some recent items by
these companies, such as the Apple watch. We utilize groundbreaking
technology to sync seamlessly across devices and bring a superior
experience for today’s technology age. Join us in creating the future.”

Elevator Pitch - Examples

Let’s move on to some examples. The following are two extremes of
what NOT to do. Make note of what you like and don't like about each
of the following examples.

Example #1
"We can help you prioritize, manage, trouble-shoot and then
implement new ideas for your business. Our firm specializes in
engineering consulting, including putting designs into CAD software in
any software type including Solidworks, ProEngineer, AutoDesk,
Catia, SketchUp, and more, doing analytics with large amounts of
data and under complicated scenarios, and specifying and sourcing
supply chains and manufacturing from prototyping to contract
manufacturing needs."

Example #2
“We are a wearable device that will revolutionize the way you interact
with the world. The overall market for wearable technology is
expected to reach $31 Billion by 2020, at a CAGR of 18% between
2015 and 2020. We’ve mastered what Google, Apple, and Samsung
have failed to capitalize upon. I’m sure you’re familiar with the
underwhelming results and market reception of some recent items by
these companies, such as the Apple watch. We utilize groundbreaking
technology to sync seamlessly across devices and bring a superior
experience for today’s technology age. Join us in creating the future.”
 Examples - Lessons

Example #1

"... prioritize, manage, trouble-shoot and then implement ... CAD

software ... Solidworks, ProEngineer, AutoDesk, Catia, SketchUp ...
analytics ... supply chains and manufacturing ... contract
manufacturing needs."

Tries to impress by:

 Telling a listing of all the features

 Using industry-specific terms and acronyms

Why this fails:

 Alienates and intimidates the audience

 Can leave uncertainty of the specific problem being solved

 Opens opportunities for concerns with so many features listed

We call this mistake The Engineer, since he/she often has a
technical background and tries to over-engineer the pitch.

If you've found yourself identifying with this pitch style, you can
recover by reminding yourself that your pitch needs to be about the
problem being solved.

Examples - Lessons

Example #2

“... revolutionize ... the world ... Google, Apple, and Samsung ... I’m
sure you’re familiar ... utilize groundbreaking technology ... superior
experience for today’s technology age ... creating the future.”
 Tries to impress by:

 Using business jargon and buzzwords

 Name-dropping, putting others down

 Painting a big vision without saying any real benefits

Why this fails:

 Reeks of intellectual superiority and elitism

 Comes across as too grandiose / not practical

 Can seem frustrating to work with and too arrogant

We call this mistake The Business Person, since he/she is often the
teammate with a background in management, either in industry or
getting an MBA. They have been taught that success is in who you
know, and want to lead with this, though this can backfire when it
doesn't contain enough content.

If you're concerned about coming across in this way, simplify your

the language of your pitch as much as possible. Keep in mind also
that some of your information may be more valuable to bring up later
in context versus in an initial pitch.

Delivery

Great presentations require great content plus great delivery

Communication is:

 7% content

 38% tone — reinforcing what you are saying

 55% body language — open and commanding presence

That means to be objective-oriented, expressive, and engaging. If

you're not excited about what you're saying, then why should anyone
else be interested?
 Know your objective — you want to get people to want to
know more. Let this guide your core messaging, versus trying to
cram too much information.

 Be engaging! Leverage tone and body language. Use defined

gestures and occupy space.

 Practice, practice, practice. Filming yourself and watching is

a great way to learn and improve, hence this section's assignment...

Dropwise Example

(vision) Dropwise empowers individuals to reduce their environmental

impact through providing smart home devices that enable customers
to track their consumption, saving money and the environment.

(value proposition) For eco-friendly homeowners in California, our

company provides smart home sustainability offerings that reduces
water usage by over 30% through an easy to install device that
provides real-time water usage data.

(traction) We have already developed the first easily self-installable

device that tracks water usage through a simple app.

(ask) Would you be available next week to meet for us to tell you
more and show you our demo, to see if this is something you might
purchase for your home?
 Operations
Developing your operations requires mapping out all the processes
that allow your offering to be made, sold, and reach the customer. In
particular, note items that you will need from others, what will be
done by your team, and the amount of time each process will take.

Process
Mapping your operations includes everything from developing
marketing materials and the website to developing your prototype
and fully manufactured product and determining work space and
inventory space. The teammate in charge of each area should detail
time and costs, and the full team should put together a timeline that
shows areas that are dependent on each other. This will allow you to
work in a time-effective manner.

Culture
Your company culture should be part of your operations. Set
expectations early and refer back to how well you perform relative to
those expectations, particularly in working style and decision-making.
Frequently rate your engagement with the process, as well as how
excited your are about the work and the company potential.

Financials
If you have done a good job creating value, you should capture some
of that value for your company. This value will be captured through
generating revenue for your business, with a variety of revenue
models depending on the business type. Ultimately, though, pricing
will have the biggest impact on the profitability of the business. In
this section we'll cover:
 Revenue models - the strategy by which you get money from
your customers

 Pricing - how you set your price in a way to get the most value

 Sales projections - the approaches to putting together your

expected sales over time

 Valuation - though it is still too early to be considering

investment, we will lightly cover the approaches to valuations for
educational purposes

Revenue Models
Depending on your business type, there are a few options of revenue
models, and pros and cons of each.

 Products: most products are sold outright, though some are

rented, and a few are patented and then licensed to big companies.

 Services: many services are an intermediation fee (for

example: Uber takes a percentage of the total amount charged to
riders), while others charge a subscription service fee (consider Hulu
and Netflix), while others charge clients for data (Yelp is an example).

 Apps: phone and mobile applications have opened up some

new revenue models including advertising, freemium (or gated
features), and microtransactions.
As with any of the preceding decisions, focus is mandatory at the
outset of the company. More mature companies may be able to
balance multiple revenue streams, just as they may be able to
balance multiple customer segments or multiple product offerings,
but focus is required at the outset.

Pricing
Pricing makes a HUGE impact. On average, a 1% price increase for a
typical US corporation would lead to a ~12% net income boost!
(Income = (Price – Cost) * Volume). That means getting your initial
price right is really important. There’s a few important things to
consider:

 Value – what value have you created? Remember your

quantified value proposition? You should be able to use this to be able
to know how valuable your offering is to the customer! But here’s the
 tricky part – that’s not necessarily how much they are willing to pay.
Their perception of the value will be impacted by your marketing of
your product and by their alternatives, which will vary depending on
the customer. Consider what the customers’ benchmarks for pricing
will be.

 Costs – this should NOT be the main consideration for your

pricing, but you do want to make sure your costs get covered. Here’s
a few good quick calculations to do:

 BOM (bill of materials) – determine the total cost to make

your product, ideally in both the short term and long term, since you
will get some cuts with suppliers in the longer term at scale.

 See how many sales you would have to make to recover

the short term cost at different prices.
Note: willingness to pay varies — be flexible for the earlier
innovators. Your earliest customers will have the biggest burning
need, so should have the highest willingness to pay. First time
entrepreneurs often try to dilute their value by pricing too low to
begin. If you do offer flexibility for early customers, consider a
discount for special beta customers who offer special value to you.
Dropping the price is easier than increasing the price.

Let the data decide – though calibrate decisions based on data

gathering method.
 Key Financial Terms

 Gross profit – this is how much profit you have left after the
direct costs of developing a product. Note: this does not factor in the
additional costs of sales and marketing, office space, or any other
costs that are not directly related to developing each individual
offering.

 Net profit – this is the profit remaining after factoring in all

costs.

 Cost of customer acquisition – this is the cost to acquire an

individual customer, averaging in the costs of all the efforts to acquire
customers that did not purchase.

 If you spend $1000 on sales and marketing and 10

customers purchase, your cost of customer acquisition is $100.

 You ideally want to ensure that the amount of total

revenue you will receive from a customer is at least three times the
 cost of customer acquisition. If your cost to acquire a customer is
$100, your revenue per customer should be at least $300.

 Breakeven – your breakeven calculates how many customers

you need in order to recover your initial costs. It can be helpful to
know this number of customers to then get an estimate of how long
(in months or years) it will take you to break even.

Valuation
Your companies are mostly far too early stage to be considering an
investment, and therefore too early to be developing a valuation. But
for the purposes of education, we’ll cover this topic lightly.
First, there are a few ways to develop a company valuation:

 Discounted cash flow (DCF) – this is the mathematical

approach using the value of estimated future cash flows and
discounted to present value. This method is highly contingent on the
value of the forecasting.

 Comparables – this method uses industry averages of

multiples of revenue or EBITDA and applies it to the company to
calculate a value. This is a common quick and dirty method that
investors use to check what value a founder is placing on their
company relative to industry standards.
 Competitive advantage – this method is more applicable for
early startups, essentially asking how much it would cost to re-create
the company as it exists today.

As discussed previously, the media can overhype the extent to which

early stage companies gain outside funding. Most startups are
internally funded by the founders, a term known as “bootstrapping”.

The three general types of funding are as follows:

 Self-funded – this allows for maximum control of the business,

though as the business grows, it can be tough to expand.

 Debt (getting a business loan from a bank) – the company still

retains ownership, which is positive, though banks can be risk-averse
in financing startups.

 Equity – there are a few different types of potential funders:

 Friends and family – this is usually the first route for

external (equity-based) funding, though some people prefer to not
mix personal and professional.

 Angel investors – this group specializes in early stage

startup investing, either as individuals or in groups.

 Venture capitalists (VC’s) – these are large groups of

investors who invest large amounts of money in advanced stage
companies that have a significant amount of progress.
You may be asking, where does crowdfunding fit in? It’s somewhat of
a mix of bootstrapping, debt, and charity. Most of the money taken
on the crowdfunding platform is intended towards the purchase of a
product, which makes it a purchase or deferred revenue.

Before you get too nervous about investors, though, remember, you
should be doing a lot on your own first. Prove demand through
bootstrapping.