Building a startup is like building a house


Imagine, if you Will, an entrepreneur who approaches you with a gleam in his eye and a plan so vague it might as well be written in invisible ink. “Trust me,” they say, “I’ll work on your house for three months.” I will spend 30% of the money on plumbing, 30% on framing and building the walls and roof, 10% on electrical work and the rest on painting, etc. » When asked if the house will be habitable in the end, they shrug their shoulders. “Who knows? But isn’t the journey exciting?

It’s a scenario so absurd that you’d make the contractor of your yet-to-be-installed front door laugh. But this example sounds eerily similar to the pitch many startup founders give to potential investors. My research indicates that more than half of founders don’t have a decent “use of funds” slide. It’s not great. Founders, you can do better.

When you build a house, you of course require a plan, a schedule and a clear picture of what your future home will look like. You won’t settle for an entrepreneur whose only plans are to “fly ahead.” However, in startup land, founders often expect investors to buy into a dream woven with threads of ambiguity.

Investors, like owners, are not looking to put their money into a foundation that is going nowhere. They want to invest in a “house” that, at the end of the construction period, is not only standing, but also ready for the next phase, whether to live in or sell.

For a startup, the “finished house” isn’t bricks, mortar, and those cool USB power outlets, but it’s built with milestones and accomplishments.

Will the startup have filed patents? How many customers will it attract? What revenue figures will it post? These are the “rooms” and “facilities” that investors are looking to find in the startup house. If these steps match what investors expect for the startup’s next funding round, the startup has a good chance of successfully raising funds.

The house analogy works in more ways than one: mistakes happen and downright wrong estimates are quite common. No one expects an entrepreneur to predict the future with absolute certainty; weather delays, supply issues and other unforeseen events can always put a damper on work. However, a good contractor will have a plan, timeline and contingency measures in place.

When it comes to startups, looking at plans and poking holes in them is what we call “doing due diligence.” Startup founders can’t predict every market fluctuation or challenge, but they can and should outline their goals, strategies, and how they plan to overcome potential obstacles. This plan is their model for success, and the plan should be at least in the realm of achievable.

Listen, I understand. Founders may be reluctant to provide detailed plans, perhaps out of fear of failure or criticism. This may be their first startup. Or maybe there are huge gaping holes of unknown in their future. That’s fine, that’s reasonable, but show that you also know how to plan for that.

The journey of creating a startup is an adventure full of unexpected twists and turns, much like building a dream house. Anyone who has taken their home to the stud farm has at some point sat in the middle of a ruined living room, sobbing their eyes out when a new curveball comes their way. That’s the life of a start-up: you roll with the punches.

But you need a plan, and you need to be able to present that plan as part of your pitch. No one is going to give you a van, a blank check, and directions to the nearest Lowe’s. You must define your “use of funds”.


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