Start-Up Advice from Our CEO
Over the summer, at the Ferris Wheel in Flint, Michigan, our founder and CEO, Mark Arizmendi, had the opportunity to speak to a group of entrepreneurs that were going through the XLerate Health accelerator program. Michigan, like many areas outside of Silicon Valley, is thriving with entrepreneurship and vital new ideas. The “Rise of the Rest” lives in Michigan, and NCP has been investing in the Midwest for over 15 years.
Mark shared what he has seen work successfully in the last seventeen years of running Northwestern Capital Partners, and although every business is unique and a strategy needs to be tailored to that specific business, there are several principles that hold across all industries.
One of the most important considerations when getting started is the stewardship of money. Even as funding is raised how it is used needs to be thoughtful and strategic. Two strategies that could be implemented for start-ups are (1) the founder not taking a salary and taking compensation in equity, and (2), giving consultants more equity and a smaller fee or no fee at all. Both of these strategies allow funds to be put into operations that will continue to move the business forward, and align the business leaders and consultants with the mission of the business.
The next piece of advice that Mark shared was the advantage of using an accelerator. Taking advantage of an accelerator allows for not only making connections, but enlisting local help, running through the business strategy in a learning environment with seasoned veterans, and could also lead to meeting people that may eventually be hired or fund the company. Customer discovery is a key facet of this learning phase – you may have a product, but does the market want to buy it, or can it be configured in a way that will increase adoption?
Recruiting the right people is key to any business’ success but can be a challenge for a start-up that has limited funds. Finding people who believe in the charge of the company will allow for offering benefits other than a high salary, such as stock options and ownership interests. For example, one founder would allow employees to use their vacation home free of charge.
Lastly, finding the business’ “play in the space” is critical to success, but also helps differentiate it from what’s already out in the marketplace. Start-ups should do a competitor analysis and customer discovery survey to tie all their assets into a uniform plan, which will allow for making pivots as needed.
This means that a business has to know what they are – a first mover and disrupter, or a fast-second mover. A study published in the Harvard Business Review advocates advantages in both approaches, but self-awareness is important. Early-stage capital, which generally funds the earliest movers, has dropped by more than 50% since 2015, measured by the number of transactions and by aggregate funding (see Exhibit 1).
Knowing the competitors helps determine strategy, and if the business can afford to compete with against well-funded first and second movers. Whether or not a business should be raising funds or finding a strategic partner is another critical piece of the startup puzzle. Mark suggests business ask themselves, “are my competitors raising a lot of money? Can I afford to compete with them? Is there a strategic partner that can add to your technology platform? How will I raise capital? And, most importantly is my valuation realistic?”
While startups may seem like a “calling,” they are in fact hard work, honed by research, unyielding work, and a great team of employees. The rewards, both financially and personally, make the journey worthwhile!