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5 Key Elements You Need to Create a Highly Successful Startup

Updated: Aug 22, 2023

This was an interview completed regarding the 5 Things You Need To Create A Highly Successful Startup Published in Authority Magazine written by Doug Noll

1. Business fundamentals must be right. It starts easier than you think: who is going to do what by when, where, for how much, with what expected result. What are the actual requirements and roles to ensure a return on the invested capital once it lands? One particular acquisition I looked at had a particular height ‘ask’ in price for the deal. I had been at the game of M&A in the civil construction materials space for a long time. The numbers made no sense, and they were beyond what I typically see as the owners ‘blue sky.’ After a lot of review including talking to employees, it became apparent a significant amount of business was being done on a cash basis. It didn’t hit the books. I didn’t want any part of that. The company ended up being bought for 40% more than I offered. To a large extent that was a defensive maneuver to keep companies like mine out of their market. But the point is, the business fundamentals weren’t only off, they could have created a lot of legal trouble had they gone on. Get the business fit first.

2. Focus only on precisely what needs to be done. In selling, general and admin costs I challenge you to consider 100% of your SGA ‘discretionary.’ Do you really need it? Can you precisely show the cause-and-effect relationship to margin creation? In my book, ‘Funding Your Future — Beyond Banks,’ I cover a story regarding the recent frack sand rush in Wisconsin; ‘Wisconsin White’ is what the sand was referred to. Many of those companies had hefty SGA expenses up to and including ‘CEOs’ for simple one plant and straight forward operations. Almost all of them are out of business. Complexity and expense were added to these operations for apparently no margin-producing reason. They had options. Make sure you separate the emotional ‘it’s really nice if…’ from what’s needed. Much more detail on this one in the book.

3. Find your ‘Magic Market Graph.’ How do you know you are going to get the sales you think you are? Replace as many assumptions as you can with evidence. Your sales are good, but with investment comes the requirement of return — so why is it that you are going to grow? For me, in my water companies, there is a well-known data point that shows a graph of the diverging demand over supply globally for the next 35 years. Find your version of this. And add details. More on this in my book too.

4. Who’s money, is it? Get your stakeholders’ expectations aligned. Both as the money lands and also where it’s being invested, and when it starts to pile up, where is it going? It’s amazing to me how this is not answered for companies/startups and is a reason cash burn happens. Let’s prevent cash fires!

5. If you can’t make it work on paper, it’s unlikely you’re going to make it work in reality. In fact, I say, do not go forward if paper doesn’t work. This means running a complete set of financial statements complete with investments and into the future at least 5 years. So many in the professional world think five years is over kill, its not. You need to simulate when your assets are going to be replaced and demonstrate that your business is robust enough to replace them, pay the creditors, and get you a return. It’s an easy mistake to unconsciously show a robust plan, but not account for asset replacement. In fact, a ten-year horizon is good just for this reason. A longer horizon also pushes you to account for your human resources plan at an earlier stage: this way you’re proactive in these investments, not reactive.

In ‘Funding Your Future — Beyond Banks’ I discuss how you test this to ensure all stakeholders are accounted for and run various futures that might happen. It's more than best/expected/worse cash. You must cover all requirements. The devil lives in your assumptions. Work very hard to back up assumptions with evidence from reality. And if you cannot, then establish a clear and realistic casual activity that will drive the result dependent on the assumption.

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