Experience shows that on too many occasions start-ups fail to survive because of avoidable mistakes. The absence of a simple model to follow has always been one of the main obstacles. There are many factors that can influence the success or failure of a company in the very early days of its foundation. In this article we would like to present a model based on the identification of five links in the value chain of a start-up. The analysis and overview of these elements gives us a comprehensive idea of the resources available to a start-up from its establishment to the early stages of growth.
The 5 links in the value chain
The proposed model is based on five elements that form the value chain of any start-up:
1. vision
2. execution
3. customers
4. funding
5. leadership
In order for any start-up to have any chance of success, these five aspects need to be questioned, and more importantly, how they are interlinked. Once these elements are clarified, it will be possible to assemble a suitable team, calculate the value provided by each aspect and then know the liquidity and capital requirements.
Vision
Entrepreneurs themselves often confuse vision with business idea. A particularly promising idea is no guarantee of success if it is not accompanied by a clear and shared business vision.
When setting out a company's vision, it is essential to explain what need is being met, what differential advantage the start-up provides, why it is important now and what demographic it is targeting. Having a clear vision of where you want to go and why is the fundamental starting point of any successful business project.
Execution
Execution is the ability to develop the solution proposed in the vision. Fundamental for this phase to work is knowing what kind of professionalism should make up the team.
For a technology or logistics start-up, for example, it is important to include developers or logistics experts (assuming you do not have these qualities) who share the vision from the outset. An important tip is never to delegate the core business of your start-up to a third party.
Customers
This phase consists of developing the ability to identify and acquire customers who will use the product or service. As with execution, depending on the type of product or service being developed, the search for customers may be very different - think for example of the differences between a B2B and a B2C model, or a SaaS (Software as a Service) business versus a traditional one.
It is very important to have someone in the core team who can answer questions about the target audience of the product or service. Moreover, developing a solution from the satisfaction of a need is often the best route to success. Agile tools and methodologies, such as Lean Canvas, which emphasise the search for potential customers from the outset and identify rapid development cycles, come to the rescue.
Financing
Access to capital is probably the most prominent aspect when launching a start-up. The importance of this step ensures the possibility of growth and helps determine the financial viability of the project. Useful questions to ask are: How much capital do I need to start up? How can I get it? How much will I need for subsequent growth phases? How long can the business survive on current liquidity? Raising adequate funding is a full-time job for a start-up. Having someone in the core team to take care of it is a definite advantage as this would leave the entrepreneur free to develop the idea and build the company.
Leadership
Leadership is the ability to align and coordinate the work of the other links to grow the start-up into a large company. The leader will be the person who provides the official face and voice of the entrepreneurial project. Some leadership skills are: being comfortable in situations of extreme uncertainty, having a developed ability to communicate and persuade, having a lot of emotional intelligence, having the ability to prioritise quickly, having the ability to make difficult decisions, having a strategic mindset, and being aware of everything that goes on inside and outside the company. The team leader must also be able to create a free-flowing communication network between all team members, implant agile working methodologies that provide measurable knowledge, define the company's vision and mission, and foster and maintain a company culture that is based on the start-up's values.
The links in the value chain do not add up, they multiply!
The fact that we have outlined five steps does not mean that every start-up needs at least five different people. In fact, it is much more common in the early stages of a start-up for one person to be responsible for several roles.
The most important thing about this model is not the identification of the five links in the value chain, but rather how they are linked together. Most entrepreneurs have heard these concepts repeated in abundance. However, it is not always clear that the links between the different areas, and the experiences of the core team, do not add up but multiply each other. If one link in the chain is weak in these early stages of business development, the whole chain suffers as a result.
This model, therefore, teaches us that it is not only necessary to cover the five elements of the value chain, but also that it is necessary to cover them all masterfully. Any deviation in any of the links will directly affect the entire startup, either positively or negatively.
From theory to action
Once you have clarified the starting needs of a start-up in terms of human and financial capital, you can move into action by starting to draw up a business plan and creating the core team of expertise that will form the nucleus of the new company. This is also the time to start thinking about funding.
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