Many Canadians know how to wield a hockey stick from an early age.
Hockey stick growth is more elusive – the path for new businesses, starting with slow growth, as if along the blade of a stick on the ice, and then, if they are lucky, the exponential development that shoots up, as if along the handle.
Bobby Martin, a Raleigh, N.C., entrepreneur who has co-founded two startups dealing with industry research, sets out four stages to be prepared for when starting a business.
First is tinkering, which the illustration in his book The Hockey Stick Principles shows as coming even before the actual blade.
You don't want to leave your regular job while playing with the startup concept; indeed, for 173 successful startups he studied, this period took 10.6 months.
Next is the all-important blade years, when you set the foundation for the growth you hope to see by learning about your product and, more importantly, the market you may serve. This will take longer than you expect, usually three or four years, and often the big problem becomes the founder's salary: There is not enough money to pay adequate compensation and after a long period of little remuneration he or she throws in the towel. In better situations, a growth inflection point is hit, the curve of the stick, the critical time just before the business takes off, and you can shoot up the handle with the final stage: surging growth.
Along the way, he has delineated 90 principles – mostly counterintuitive – you should heed. They include:
- You don’t need a good idea: There is far too much emphasis on concocting a brilliant idea but he says good entrepreneurs often have many ideas that could work. The key is whether you have the skill and determination to help one find the right market. He notes that billionaire Wayne Huizenga had three arguably bad ideas: Go up against governments with his waste-management business, move into fast-growing video rentals with Blockbuster, and try a chain of used-car dealerships when the market seemed saturated. But he attained surging growth for each.
- Starting with a business plan is self-deception: The bank may require a formal business plan, forcing you to write one. But don’t believe it yourself. The key is finding your market, which will always be unexpected – not what you had originally thought. The plan for his first business, he says in an interview, “wasn’t close to accurate. You should research. But don’t put time and money into making it pretty or supposedly accurate.”
- It’s not what you know that matters; it’s what you learn: In his study the average age of the entrepreneurs was 29. Those under age 30 tended to be more successful as they were more open-minded than the older entrepreneurs, who knew too much and weren’t as willing to learn, he believes.
- Accurate predictions of costs and revenue are not possible; plan to spend more than you think you’ll need and to earn little to nothing: You need to cut your personal and family expenses for about four years with a startup. Don’t expect money to come quicker than that. Too often people can’t hold out for a sufficient length of time.
- Don’t invest any money you aren’t prepared to lose: Entrepreneurs get deep into their effort, are sure success is around the corner, and start investing their retirement funds in the business. Fine, if you can afford to lose it. Otherwise, don’t.
- Raise the minimum amount you need to get to launch: The myth is that you should raise as much as you can up front. But he says “the most successful entrepreneurs in the blade years are scrappy entrepreneurs that keep a low cost structure. Instead of spending rainy day money, they are trying to figure out the business model.” They don’t need massive production runs and big investments in facilities; they need to test the market – find the market, as he puts it.
- Equity is worth incalculably more than its current value: Bill Gates and Paul Allen knew this when they founded Microsoft, not giving up equity at the start for investment, but saving it for themselves.
- You can’t build it and expect a market to come; you have to build your market as you build your product: Identifying a market that will be enthusiastic about your business offering is far harder than identifying a product. “To do that you need to sell face-to-face, talk to people, and learn what they think and if it’s the right product,” he says.
Try it. You might score.