What are the forces that trigger the birth of a startup?
Money is a good answer, but far too easy to guess. And the realities of startups have witnessed it flowing in either direction.Inspiration is a stronger force making up for many of the yet to be figured out details. An inspired mind is richer than an idle millionaire. That felt like a wisdom dropping. Feel free to quote please!And finally, the desire for innovation. To create something unique, reinventing something old or adding a new dimension to an existing product, or service.
These are some of the compelling reasons that lead individuals to exhibit their enterprising self. India is turning out to be the place to be around with a startup story to tell. It is now ranked third in the world, after the UK and US, with the number of startups predicted to rise to 10,500 by the year 2020, according to a Nasscom-ZINNOV report. And with funding available from venture capitalists, angel investors, the startup drive initiated by the Indian government, and crowd funding opportunities, life has been quite favorable for entrepreneurs. With well over a hundred incubators, starter uppers have enough resources to lead their projects towards the light at the end of the set up tunnel.
But what are the essential steps towards a successful business? Is it the idea alone? Is it capital? Is it about who is in your team or is it a mix and match of some, all of the above or more? Read Myths about starting your own business.
Let’s find out.
How to start a startup in India: A checklist
An idea without a thought…
The biggest, most important piece in the inception of a new business is its idea. If you are convinced that you have a brilliant, and not necessarily unique, idea then the next step is to find out what of it?
Idea is simply the first step.
Take the example of the 90s disaster startup, the long forgotten BOO.com in the UK. It was a novel idea for its time. The website was designed as an online fashion store. The only hiccup was that baby internet was just learning to walk. It was a course designed to show how to burn through $135 mils in two years.
Idea is important, of course. But so is timing and identifying your target.
So right after you wake up with that Eureka yell, get to doing your ground work – your Market Research. Ask the right questions.
- Does your idea have something new to offer?
- What is your business goal?
- Who is your target consumer/customer?
- Is there any existing, or potential, competitor?
- What advantages do you have over that competitor?
These are the right track questions that offer a deeper insight into your serendipitous moment of This sounds great. Let me make a business of it.
The better move is to ask the questions and get expert help to seek the answers. You may turn out to be the unluckiest dude unable to realize that your product/service already has someone else’s copyright, or is illegal in 13 states, before investing all your capital in setting it up. Talk to engineers, legal consultants, accountants and other experienced business owners on what you might be stepping on.
A thought without a plan…
Yes, this is that infamous business plan. But in its defense, it doesn’t have to be a 1000 page long manifesto. However, it should be like a roadmap to make your business easier to handle. Your market research, your strategies, market potential and all the other seemingly annoying, and yet important, details. The devil is truly in those details as you will most certainly realize once you begin to translate your dream idea to reality. Identify some of the key players in your business fruition.
- Market Analysis: Analyze who you are selling to and how you can position yourself to make the most of it.
- Competitors: Who are they? What are they doing? How are you different from them? How will your business sustain and develop in their presence?
- Product: What are you selling? How will you design and develop it? How much cost are you looking at?
- Team: Who, and how many, will you need to hire? How much will your team cost? How are they going to play a role in sustenance and development of the business? The best way to go about your business is to let the initial gains be made without too much costs in hiring a sales or marketing team. Let the startup grow organically, at first, and then begin to invest in employees once the business starts showing ROI.
- Technology, Inventory and Raw materials: What do you need? How much do you need it to be? Where will you house it? What will you do to protect it? How much will it cost to buy? How much will it cost to maintain? Plan to invest in technology and inventory in steps rather than in one go. It will help you to evaluate the returns, and requirements without any waste.
- Finance: Putting together all the initial, running, recurring, and maintenance costs to estimate how big of a bullet you will need to bite into.
These plans are not just a thick folder to present to investors, but rather also a complete guide for you to move forward. Keep it dynamic and record the updates as you and your business evolve. Read How to create a business plan.
A plan without an address…
Where will you locate your business? Location plays an important role in your marketing/advertizing strategy from its visibility aspect, your transportation and warehousing budget, availability of resources in the area, utility costs, and the general commercial perception of its surroundings. Your business budget needs to factor in not just the cost of renting a place to run your business, but also the costs to keep your business operational while operating from that address.
If direct walk-in type clients or customers are not essential to your business, or you don’t need immense amount of inventory, you might as well start in your garage. Many tech giants have been born that way.
The legal aspect
The next step would be to register your startup as a legal entity. There are a few known types of business.
- Sole Proprietorship Company where the founder and owner is the company. This is the most straightforward road to a running business. However, sole proprietorships are not eligible to get funding under the current StartUp India funding scheme.
- Partnership Company where 2 or more people operate a business while sharing management and profits. They can be of the General Partnership or the Limited Partnership sort. Under the General Partnership, partners contribute, run and share the profits, also making them liable to any company losses. While in Limited Partnership (LP), except for one General Partner, the rest of the partners enjoy limited liability, or little to no personal risk other than for the investment into that Partnership. The responsibility-less partners are also quite response-less in that they cannot control the business operations. The paperwork for registration is way more complicated in the Limited Partnership variety. Partnership firms are more expensive to establish than Sole Proprietorships.
- Limited Liability Partnerships (LLP) are similar to Limited Partnerships but for one iddy-biddy detail. No partner is liable to the company’s debts or losses.
- Private Limited Company are similar to LLPs in sentiment but generally enjoy way more flexibility in terms of getting outside investors, like Venture Capitalists, for later expansion. LLPs would need to make any investor their partners, a requirement which is relaxed in a Private Limited Company. However, with great flexibility comes great responsibility and hence their compliance requirements are also more stringent.
The vakaalat speak of all the different forms of registrations needs an article, or ten, more. If you are especially interested in availing the StartUp India Action Plan, you will need to register your startup as either of a Private Limited, LLP or an LP.
How to get the money to get things done? If you are a Tata ka Pota, you can skip ahead to the end. For the rest, find out the ways you can raise capital to run your startup.
- Incubators: They offer resources in exchange for a small equity stake. They come before you even have the seed money to get started and prepare you with mentoring, ideas, expertise, office space and other logistics help.
- Angel Investors: Not sent from heaven really but fairly loaded people or industry professionals who see potential in your venture, in exchange for an equity stake. These are relatively low as compared to Venture Capitalist money.
- Venture Capitalists: The money that may be needed to expand, and grow, after the initial stage can be obtained from VCs. The equity stakes are high and getting to shake hands with a VC is a challenging task in itself.
- Crowdfunding: A nifty way to get set up money by getting a large number of people to give small amounts, online. It is like pitching an idea to the world and letting a variety of people buy into it as investors. The only issue comes about when there are limitations on the number of investors, you can have, on account of your registration. Like a Private Limited Company can only have up to 200 investors. If you want more, you will have to transfer its registration to a Public Limited Company.
- Bank Loans: Banks may offer loans without any ownership or equity stake angle. All they need are their loans to be repaid and you not be related to Mallya.
- Bootstrapping: This is the lowest risk financing system. You don’t get outside medium to high risk investments, but rather work with what you have. And in doing so you become extremely scrappy with all your resources, making sure every penny is accounted for wisely. Also it means that often you don’t take in any salary, until the business takes off, and reinvest all your profits in growing the company. Of course, efficiency and all sorts of market analysis are a given. If it is your money, you will need to be cautious of how the market is going to react to your product. So always start in low doses. And outsource some bits to freelancers if you want to save on hiring full time employees. Once your business takes off, you can be in a better position to channel existing or incoming finances towards growing it.
And of course there is that aforementioned government StartUp initiative that needs your business to be less than 5 years old, with an innovative idea, tons of recommendations and other requirements that you can get. Read What investors look for in a startup.
Alright, that was a quick abridged version of how to go about setting up a startup company. The risks are phenomenal but, if successful, so are the rewards. So if you are a thrill seeker, can handle a fair amount of stress until your company makes way, and have an incredibly smart idea to commercialize, keep doing your research to father, or mother, a new business of your own.
Until then, dream big and take the small careful steps to make it happen.
Here’re some entrepreneurship blogs for gyaan.
–How this blind student built a 50 Crore business in India
–Advice, to Startups, from IITian Entrepreneur turned Venture Capitalist
–Life lessons from an Entrepreneur
–NYU dropout to owner of an Educational Startup
–Skills any Entrepreneur should have