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The art of a successful startup setup

Wichtigkeit des Innovationsmanagement

Image: Human capital, social capital, and financial capital are the fuel for the startup rocket.

The founding of a startup is an exciting but challenging journey in which the right setup plays a crucial role. In this article, we will delve into the significance of the startup metrics and examine in detail the impact of human capital, social capital, and financial capital on your success.

My co-founders are my best friend from university and the friend of a good friend, both with a business administration background.

Source: Anonymous interview with a Swiss tech startup

Human capital: The cecisive building block

What is human capital?

Human capital refers to the skills, experiences, and knowledge of the people involved in your startup. It is the fuel that transforms your ideas into reality. The composition of your team is crucial for your success.

Diversification in human capital

A diverse team with various skills and backgrounds can strengthen the innovation power of your startup. Roles, responsibilities, and reward systems must be clearly defined to ensure effective human capital. It is unproductive if founders have the same business degree but lack technical expertise when launching an app. Similarly, technically trained individuals working on solutions without understanding user problems or how to build and validate a business model make little sense.

The founding team consists of my wife and me. We were already married before the founding.

Source: Anonymous interview with a Swiss tech startup

Right team dynamics

Harmony and collaboration within your team are of paramount importance. Throughout this journey, you will repeatedly make decisions leading to new choices or conflicts, potentially causing co-founders to exit prematurely (founder exit) or even halting the project. These issues can hinder progress, while effective communication and genuine teamwork can foster success. A well-thought-out allocation of tasks, responsibilities, financing, and ownership structure is crucial. Whether it's an equal-share split, certain premiums (idea, time, experience, relationships, etc.) allocated to each founder, or a vesting arrangement, it forms a stable foundation. If not discussed fairly, tensions may arise later, especially among close individuals, potentially leading to the rupture of personal relationships (friends, partners). Starting a business with friends and family has advantages in building trust, but it can also lead to blindness, a lack of a culture of discussion, or ignoring problems.

A startup is not a leisure activity among friends but a serious economic project in which involved individuals bet on the feasibility of their business model with their time and financial commitment.

Responsibility and reward systems

It is essential to define clear responsibilities and create incentives for co-founders or team members that appropriately reward their contributions. A well-thought-out reward system can enhance the motivation and commitment of your team members. Attention should also be given to the motivations of individual founders to prevent future conflicts, and these motivations should be time-bound. Asymmetries in the distribution of ownership can lead to frustration and significantly reduce engagement later. Often, only the provided financial capital is considered in the ownership structure, neglecting the opportunity costs of individual founders, their time commitment, skills, relationships, etc. Whether the initial drive of the founders is control, autonomy, wealth, etc., addressing these issues becomes crucial when new investors join in an external funding round or when the first employees are hired, leading to consensus or problems.

Social capital: Relationships leading to success

What is social capital?

Social capital refers to the relationships and networks you build or bring to your startup. These relationships can facilitate access to resources, customers, and partnerships.

Building Relationships

Your startup establishes relationships with customers, employees, investors, influencers, distributors, partners, and suppliers, ideally engaging in two-way communication and interaction with all. Many aspects of a startup are hypotheses that need external validation, making these relationships extremely valuable. If these relationships are brought by the founders, they can have a positive impact on the start of your company.

I have been in this industry for over ten years. I know what the market wants and needs.

Source: Anonymous interview with a Swiss tech startup

Long-term relationship management

It is crucial to build and maintain these relationships in the long term. Trust and credibility are the cornerstones of social capital. Building relationships with customers in the B2B sector, suppliers, or investors requires perseverance as trust-building rarely results in quick wins.

Importance of customer and investor relationships

The loyalty and satisfaction of your customers and the cultivation of your relationships with investors are of particular importance. Anyone who thinks they can create a classic ten-page pitch deck and send it to various venture capital providers is miscalculating. Founders cannot start building relationships with investors early enough, meaning not walking in with the pitch deck directly (most have an upload function on their website) expecting the VC world to have been waiting for them but instead initiating initial discussions and getting to know each other. Regular updates on the activities of interested investors help build trust and strengthen relationships. Good investor management (before and after financing rounds) can significantly influence your success.

Financial capital: Fuel for growth

What is financial capital?

Financial capital is the money you need for the start and growth of your startup. This can come in the form of equity, loans, or investments from external sources. Most early funding is provided by the founders and their immediate circle. Rarely is venture capital available in this phase.

Need for adequate financial resources

Every company in its initial phase requires the necessary financial resources and a sufficient runway to transition the idea from initial prototypes to a valid business model. This phase often takes longer, as numerous adjustments to the basic idea must be made in the real world and proves to be more expensive than anticipated. Sufficient financial resources are crucial and one of the main reasons for startup failures.

Clear financial strategy

A well-thought-out financial strategy and careful cash flow management are essential to ensure financial liquidity.

Important funding sources

Apart from the capital introduced by the founders, startups have various options for capital procurement, including business angels, traditional venture capital, crowdfunding, and loans. Choosing the right funding source can influence your company's financial success but also entails external influence, dependencies, and the relinquishment of power (equity).

What Can Hinder or Promote a Startup

Choosing the right time for the founding of your startup can determine success or failure. "Shackles" can arise in various situations:

Energetic situation

A lack of energy and motivation can impact your success. It is important to focus on the right energy source and promote healthy habits. A healthy lifestyle and prioritizing self-care are crucial.

Cognitive situation

Difficulties in problem-solving and decision-making can block your progress. Clear thinking and effective problem-solving are crucial. Continuous education and mental fitness are important.

Physical situation

Health problems can affect productivity and efficiency. Self-care and maintaining physical health are of great importance. Regular exercise and a balanced diet are key elements.

Financial situation

Tight financial constraints can hinder growth. Careful financial management and realistic budgeting are necessary. A financial buffer and a strategy for dealing with financial constraints are sensible.

Family situation

Conflicts and family obligations can affect full dedication to your startup. Balancing professional and family life is crucial. Open communication and support from the family environment are helpful.

Age Factor

Age can also play a role. While young founders often start with fresh energy and new ideas, older founders have more life and professional experience. On the other hand, older founders are financially better established, potentially risk-averse, or too specialized, making it difficult for them to fulfill a often generalist role in a startup. It is important to consider your age in relation to your founding and understand the challenges and opportunities that come with it.

Conclusion - The Art of a successful startup setup

The right setup at the inception of your startup can determine success or failure. Human capital, social capital, and financial capital are the key resources that can enable this success. Careful planning and preparation, avoiding "shackles," are crucial steps on your path to success. The journey of founding a company may be challenging, but it is also full of opportunities. If you choose and nurture the setup wisely, you can lead your start-up on the path to success.

Yetvart Artinyan

P.S: Do you want to know more about how to make your startup project successful and avoiding typical pitfalls?

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