I have a Money Tree in my office. I’ve had it since I moved AdPropel into it’s own facility. It’s a resilient plant and has aged well. The tree is in a nice red pot, has five “tunks” that are twisted together, and grows leaves in bunches of six.

Of the five trunks, three of them used to be alive with leaves sprouting. Now,  only one trunk is left sprouting leaves and it’s flourishing, all the others have died. This tree reminds me of a lesson about starting a business. A lesson about focusing resources and not being pulled in all directions. About how some ideas and ventures will eventually fail, and how by staying in there, eventually one idea will flourish and grow.

Growing a startup isn’t about taking on many goliath’s in parallel. It’s about nurturing the most promising ventures and then building from that success. Create leaves, not trunks.

Tonight I am suffering from entrepreneurial insomnia. AdAble, Inc. has soft launched and the pieces are coming together… the team, product, capital, and business plan. So, why can’t I sleep?

It’s not from worry. It’s from excitement and analysis. Business scenarios, investment pitches, financing instruments, customer relationships, marketing, branding, legal work and banking.

It’s constant iterations of scenarios, ideas, and plans. Where are the holes? What are the risks? What can be mitigated? What are the priorities?

This isn’t the first night of entrepreneurial insomnia I’ve suffered. Sometimes I can cure it through reading a good mystery book. Some nights, like tonight, I blog. Sometimes I work.

I know it’s something that other entrepreneurs go through. What kind of strategies do you use to silence your mind at night? 

So, you’ve got a startup. You’ve got a great team, you’ve got a great product idea, and you have a great market to sell to. When getting your startup off the ground I think there are a few key aspects to remember beyond the traditional “team, market, and product” mix.

• Capitalization- the number one reason companies fail is that they run out of money. Make sure you have enough personal assets, debt financing, or outside investment to keep running. Calculate your startup costs and add 50% for a buffer.
• Networking- get involved in local entrepreneurial groups. Having relationships with a wide range of people in different industries and skillsets, and generally being plugged in is critical to success. Having a network of informal advisors opens up new doors, sheds lights on problems, provides insight, and is generally good moral support. This is all in addition to meeting potential customers, partners, and acquirers.
• Leverage- When buliding a startup think of leverage. You’re recruiting people, you’re signing deals, you’re partnering, you’re working with investors. Do what you can to build up your company portfolio of assets. Do what you can to build up your companies options. Assets increase value and options provide room to negotiate. You want some leverage when you talk to people so you aren’t speaking from desperation.

They say there are three things to building a startup successful: team, market, and product. I want to explore these three concepts from my experience and then get into some of the other things that are necessary that team, market, product help you attain.

Team 

The team, in my opinion, is of the utmost importance. It doesn’t stand alone, a great team with a poor product and market is going to fail. But I put a lot of weight on team. Team is what generates the market and identifies and exploits the market opportunity. Team is the brains, the processor that makes the whole thing work.

Team is also relatively static. The founders in a startup will spend years and years together building product and addressing market. Markets landscapes change, customers change, and therefore products change. But it’s one team that gains the wisdom of living through this change.

Another concept in the startup world, that I agree with, is that it’s never your first idea that succeeds, it’s always the eighth idea. What does that mean? You start a business with a great idea, but through experience and gained insight you iterate and discover more and the business you succeed with sometimes never looks like the business you started with. But, the team is often the same.

I frequently have said that “the team is the same.” I say this because the core team needs to be cohesive. Needs to work well together. Needs to mesh. The core team must execute flawlessly together to succeed. You must have complimentary skillsets so that there is enough talent in the pool to address all the aspects of running a business. If you are missing skills, acquire them or find another team member.

Market

If team is first, market is second. Finding a great market opportunity is a hard thing to do. I’d argue it’s the hardest thing to do. Searching for a market with a gap or a problem or a need can be tricky. Trying to establish a new market is difficult to do, though not impossible. If you can find that gap in the marketplace and have a market strategy to exploit it you’re way ahead of the game.

In searching for a market I suggest to sticking with what you know and have experience with. You’ve spent time in a career, in an industry, in a market learning the ins and outs and getting paid to get an education in that market. Leverage that knowledge in your own business venture. If you seek out a market you are unfamiliar with be sure to solicit as much advice and input as possible. You need to learn some things as well as learn what you don’t know.

A usually overlooked aspect of the new entrepreneur is a strategy to reach a market. A need is identified, but how do you bridge the gap between your product and the customer. A strategy to get your product to market is just as important as identifying the market itself.

Getting your market strategy in place is tough. First you need to take your market and break it down. Then break it down again and again. Keep narrowing your market down until you have a sliver of the market that you can talk to directly. You want to know so much about who your customer is that you could describe their gender, age, income level, and other personal characteristics.

You have limited resources and by focusing in a very narrow sliver of the market you will have a clear message and focused efforts. By addressing a market segment as a whole your message gets watered down. By speaking to everyone you are speaking to no one. Once you have captured that sliver of the market, start knocking down the next ones like domino’s.

A good market is hard to find, it’s the intersection of what you have personal experience with, where there is an unmet need, and a method of reaching that market.

Product

In this case, think of product as actual product or a service. Product is a critical part of a successful company. Managing a product and especially a product roadmap needs to take several aspects into consideration. When you offer something is just as important as what you offer.

First, the obvious points with the product is that it has to meet your audiences need. You’ve identified a market gap and your product, at a minimum, must fill it. If you can do that then you’re ahead of the game. But, there are other considerations to make as well: can we make the product more pleasurable to use, can we reduce our costs in producing the product, how will we support the product, what are our measures of success.

Having a product roadmap is a critical aspect to the product. Some customers will demand it. But, more than that, you need to make sure to balance your time, resources, money, and opportunity. Forgoing features to gain speed to market. Leaving money on the table to capture a customer base. Delaying release to include a critical feature. Taking time to develop specific barriers. Make sure your first version meets your markets need, then, balance everything else with speed to market, lost opportunity, and barriers to entry.

Priorities, that’s what we set when we’re in business. One priority that is tricky is optimization in search of a greater profit margin. Product optimization, workflow optimization, operational optimization, and any other ways of making business more streamlined is a good thing in general, but can be a bad thing at times.

In general, optimized business means greater operating profit. But, there are some times when you should consider putting your short term operating profit less than front and center.

• When you’re launching a product.When launching a product there are a lot of concerns. First, is even getting the thing off the ground. Then there are considerations of adoption rate, market success, customer feedback, supporting operations, and quality testing are also important. At this time if you are engineering down product and operational costs you could be sacrificing a few things of value: time and money. It takes time to optimize your offering, and in the mean time you’re not in business. It takes money to streamline your business, but you may never see adoption of your product and that investment was of naught. Or, maybe worse, a competitor makes it out before you.
• When you have a market but are entering new territory.If you have a product that is successful in a market and you are looking to expand, this could be another time to consider de-prioritizing profit. Business is fast and if you’re racing to grab market share you sometimes need to put product optimization behind you so you can control a market. This can mean entering contracts with less margin. It can also mean that those plans to engineer down costs are backburnered so you can capture a new customer base.
• When the cost/benefit doesn’t work out. Often times we see the carot. We see that we can increase our operating profit by a certain percent. Or we see that we can decrease our costs by so much per unit. We get tricked into investing time and money into chasing these margins. We don’t really do a cost/benefit analysis. Look at the man-hours and money it will take to reduce costs. Try to quanitfy for yourself the lost opportunity cost of time passed. Look at your increased margin per unit. Look at your sales projections. Look at the opportunity cost. Then, decide what the best course of action is.

So, with all that said. Optimizing your offerings and operations is a great thing. It can be easy money to capture. Just be cautious of the situation you are in before pursuing optimization.

It’s tempting for startups to look for increased margins, especially if they are thin to begin with. Sometimes you have to make the investment so your business can survive. Just remember, sometimes the search for optimization can kill you. I’ve seen it a lot.