How much money do you need?

The investment is the runway for your startup to take-off successfully. The decisive question is: how much do you need before you earn?

The runway

The capital requirement for your runway is the financial illustration of your roadmap. If, for example, the first milestone is to acquire the first 1,000 customers, you will already be able to make a well-grounded statement on how expensive that is based on your unit economics. If the minimum viable product (MVP) has yet to be developed, one could name the costs incurred here. Start the process systematically and list your (estimated) deposits and withdrawals each month until a specific milestone is potentially reached.

The valuation…

Inevitably, as soon as you start quantifying investments, you need to talk about the valuation of your company. This is often the biggest blind spot for newcomers.

First off: There is no cure-all solution. Startup ratings are negotiable and investors and founders have fundamentally opposite goals: The founder wants to bargain for a high valuation and few shares to sell. The investor just the opposite, if he wants to get on board. However, when he is serious, he will never push the game too far or put you as the entrepreneurs into a minority stakeholder position. After all, he wants to continue to invest in motivated entrepreneurs and not in employees.

»Business valuation, especially in the startup phase, is an art, say many investors. For me, it's more like architecture. It is about balance, the static must also hold in later stages of construction (rounds of financing). And if you only have a subjective beauty in mind and forget the objective aspects, you end up quickly with an entrance door two meters above the ground and no staircase. This makes it more difficult for other guests to enter or even makes it impossible. «

Alexander Stoeckel, btov Partners

…is architecture, not art!

There are certain value drivers for a startup valuation. These are reflected in your milestones. If you have a working MVP, it’s a first starting point. If you have first customers and can thus prove that the market responds positively, your bargaining position will improve. If your unit economics are so attractive that you've built a solid money printing machine that's scalable, or you've already successfully protected your product with an (international) patent, offers might be flushing in.

Learn more about the nineteenth module "Investment" of the Startup Navigator in the handbook.

Fail until you succeed

Failure, quick iteration and optimization is part of the formula for success of startups, but this will only work if you test critical points of your startup.

Securing survival

The first premise for startups is initially pure survival, before any growth or profit is targeted. This requires developing a business model that enables profitable growth. Through profiling (your customer), prototyping (your offer) and sourcing (your value chain), you have already worked out three essential building blocks for a functioning business model. The scaling is now to ensure that your earnings model has profitable unit economics. Only then you can start executing with your team and additional employees and start funding for sustainable as well as profitable growth, thus completing your business model.

»From my point of view, there are four key factors why startups fail: First, the idea and the business model do not fit the market. Second, the core team shows weaknesses in implementation and scaling and develops differences among each other. Third, the execution of a business model is not done systematically and consistently enough. Fourth, the financial means are not sufficient to fund solid growth. «

Alexander Kudlich, Rocket Internet

Criteria for growth

For growth, you need to make strategic decisions that depend on the nature of your business model and the market. In a market with a very limited number of customers, as in a B2B niche market, it may make sense to first focus on the retention of a few companies and understand those that have churned. Hence, you will increase dependency with fewer customers but also Customer (Account) Lifetime Value (C(A)LV). Having built a well-tested product with these customers, you turn the switch towards growth. Otherwise, you would entrap the "few" existing customers. However, if you are in a B2C market that has a "winner-takes-it-all" character and low entry barriers for potential competitors, you need to ignite the turbo as fast as possible.

Growth through the right yield model

If you have created an offer that is "sticky" and was accepted by the market, then it is now time to increase your own sales. After all, liquidity gained through sales is the best and cheapest form of growth financing. You do not pay interest, nor do you have to sacrifice shares for that cash flow. But how do you increase your own sales? First, you can develop your business model with different revenue models. From freemium to product-to-service, subscription and mass customization, pay-per-use and cross-selling. On the other hand, you can define customers who have the same and valuable qualities through targeted customer segmentation and cohort analysis. Are there specific customer groups that are more profitable, that last longer, and are cheaper to acquire?

Learn more about the eighteenth module "Performance" of the Startup Navigator in the handbook.

Underpromise and overdeliver!

Founders know the problem: They have a clear goal, but they do not know how to get there, yet. With your developed Problem-Solution Fit (Profiling) and your Product-Market Fit (Prototyping), the goal is clear(er). In order to gather the gained and still missing resources and to focus on the dominant milestone ahead, it is necessary to draw an implementation timetable with a transformation map.

Milestones along the road

Your roadmap reflects a plan that divides the entrepreneurial journey into individual stages (milestones). With a roadmap you describe for yourself and your stakeholders, which way you want to take from A to B and which are the critical intermediate goals you have to achieve. Even though milestones are of a purely planning nature and often become moving targets or are missed in the dynamic startup environment, they are important corners that inform your resource requirements. With this gradual sourcing you can limit your risk until the next milestone. Only if you reach such milestone, invest more time and capital for the next stage. The further you progress along the way, the less important the milestones for your stakeholders might become. If you arrive at the financial key figures as future milestones, the roadmap leads to a classic reporting system to your investors.

But attention: The communication of milestones naturally raises expectations among your stakeholders. Therefore, promise less and surprise positively with the result achieved.

»Actually, I might pay less attention to milestone planning in the context of investments. In the end, everything will be different than planned! «

Simon Schmincke, Creandum

Implementation timetable with the Transformation Map

The Call to Action aligns resources with a common goal (or vision). For the implementation strategy, you develop a Transformation Map with your team that captures the main activities and milestones to reach that goal on the timeline. Like sunbeams, these connect with the common goal (the vision) for the individual areas, for example service, new product, processes, organization. In this way, you build the bridge between the here and now and the vision on the horizon over time and prioritize your activities and milestones in a clear roadmap. To do this, you should develop the Transformation Map together with your team (and board members if necessary) as part of a workshop.

The Transformation Map

Learn more about the seventeenth module "Call to Action" of the Startup Navigator in the handbook.

Wie Amazon in Deutschland den Markt dominiert

An Amazon kommt man in Deutschland momentan sowohl als Händler als auch als Käufer kaum vorbei. In einer Studie des Center for Entrepreneurship der Universität St.Gallen wurde nun ermittelt, dass der Onlinehändler Amazon in wichtigen Produktgruppen schon überraschend hohe Marktanteile hat.

Der Amazon Watch Report

Wie stark ist Amazon eigentlich in den einzelnen Kategorien? Wie viel Umsatz macht es dort und wie verteilt sich dieser? Öffentlich sind die Daten dazu bisher nicht. Um dies zu ändern, haben das Analysemagazin digital kompakt, der Loyalty-Anbieter PAYBACK, der Amazon-Experte factor-a, die Universität St. Gallen und die Unternehmensberatung Etribes den Amazon Watch Report ins Leben gerufen.

Zahlen zur realen Amazon-Dominanz

Für 2017 wird der Aussenumsatz von Amazon auf bis zu 23 Mrd. Euro geschätzt. Damit vereint Amazon fast 50 Prozent des deutschen E-Commerce-Umsatzes auf sich. Knapp die Hälfte der Deutschen nutzt Amazon als Suchmaschine für Produkte und Preise und 35% aller (deutschen) Amazon-Kunden sind laut PwC Mitglied beim Loyalty-System Amazon Prime. Amazon ist im E-Commerce eindeutig dominant.

Mit dem Amazon Watch Report entsteht erstmals eine Analyse zu Amazons realer Dominanz in jeder seiner Kategorien, die mit harten Zahlen unterlegt ist und anhand einer konkreten Indexzahl diese Dominanz beziffert. Das Center for Entrepreneurship der Universität St. Gallen entwickelte die Methodik zur Berechnung vom Dominanzindex AMDI (Amazon Market Dominance Index) für jede Kategorie.

Mit den Daten von factor-a sowie weiteren Marktdaten ermittelt das Center for Entrepreneurship der Universität St.Gallen dabei den Amazon-Umsatz je Kategorie und berechnet mit Zahlen des Statistischen Bundesamts das deutsche Marktvolumen dieser Kategorien. Durch die Gegenüberstellung beider Zahlen kann dann der Marktanteil von Amazon und die Dominanz je Kategorie abgebildet werden. Ein beispielhafter Marktanteil von 9% resultiert in der Dominanzstufe 5, ab 40% gilt ein Unternehmen als marktbeherrschend (AMDI = 10).

Weitere Informationen zum Amazon Watch Report gibt es unter folgendem Link:

Define your affordable loss!

Now at the latest, you may ask yourself: "What am I willing to lose?”. The possible answers to the “upside” question – “How can I profit?” – are too uncertain. We know neither the characteristics nor the probabilities of achieving the "best-case" scenario. We deceive ourselves by telling us that we know these parameters. It lets us quickly ignore the "downside" risk. In other words, you should start your entrepreneurial journey with using those resources you can afford to lose. Take it stepwise to afford possible missteps in either monetary (money), economic (time), psychologic (your self-confidence) or social (your reputation) terms.

How much risk can you afford?

To answer that question, you have to determine your affordable loss. You may derive that by considering alternative activities you are forgoing. For example, you could renounce on a planned trip to bring in the "saved money" as seed capital to your venture. Four categories define your affordable loss and thus your budget for your entrepreneurial journey.

  • Monetary risk: How much money are you willing to invest into your entrepreneurial path?
  • Economic risk: How much time do you want to devote to your startup project?
  • Psychologic risk: After which time loss and money spent, can you still look confidently at your own image in the mirror?
  • Social risk: When will it be difficult for you to justify your entrepreneurial adventure without any loss of reputation?

The risk compass

How much risk is too much?

The founders of eatVERTS, a food startup that is now operating successfully in the USA with 30 restaurants, used the risk compass above. The founders funded the entire corporate build-up with a privately-held loan: Ahoy, full monetary, psychological and social risk ahead in their startup navigation!

Learn more about the sixteenth module "Risk Compass" of the Startup Navigator in the handbook.

Welcome to the jungle of intellectual property rights!

Protection strategies for your intellectual property can help you to secure a future competitive advantage, in a best-case scenario through a – at least temporary - monopoly position.

Finding the right protection strategy

At first glance, the intellectual property law appears like a legal jungle. It covers all regulations on industrial property rights, for example trademark, patent and design protection, as well as copyright. Can your product, brand, design or technology really be protected? And if so, in which countries will you need this type of protection? Overcoming these hurdles requires a lot of desk research and eventually the appointment of a specialist – if we are talking about secure technological innovation.

Industrial property rights for startups are somewhat paradoxical. A patent should protect you, but also contributes to the publication of the protected content, because a large part of the patents is publicly available. Moreover, defending your rights can take a lot of time, money and energy.

»Depending on the industry, the resources put into IP protection are a waste of energy, time and money. It can be much more useful if these resources are invested in product development, for example to shorten the time-to-market. «

Simon Schmincke, Creandum

Is less more?

In any case, there might be less effortful strategies for you as a startup to play it safe and gain a minimum of protection. Some basics are: before you use a brand or company name, first research whether this name is already registered as a trademark (preferably worldwide). Later on, when you have been some miles down the market and received recognition, it may save you changing legal documents and sunk investments in company branding. Also secure your desired Internet domains as early as possible and clarify whether your company name can be entered in the commercial register. In the case of a corporation (AG or GmbH), no other company can register for the same name if the registration is successful.

Learn more about the fifteenth module "Intellectual Property" of the Startup Navigator in the handbook.

What do you need to implement your offer?

As a part of the co-creation, you have refined your goals together with your partners. But now it is up to you to realize them. Turn your view inwards again and put your own value chain to the test. It is important to understand which requirements your problem-solving entails for your startup.

The watchdogs

Part of the requirements arise from your regulatory environment. For example, if you work in the FinTech, LegalTech or InsurTech industry, it is obvious that regulators will play a role. It is important to find out which regulatory aspects are relevant for you in your offer making process and how you have to handle them. What is certain is that for every idea this aspect must be clarified seriously, because there are always and everywhere regulations. In the early stages of the crowdfunding phenomenon, pioneering platforms for example, sought direct exchange with their respective legislators and even offered self-regulation to meet potential requirements.

»Our banking license gives us enormous competitive advantages through which we change banking fundamentally. Since then, we have been doing everything in-house, and our own compliance experts are therefore close to the supervisory issues. This allows us to expand our product portfolio in line with our ideas and the needs of our customers. «

Valentin Stalf, N26

Your value chain

Your startup is based on a collection of activities in which your product or service is designed, manufactured, distributed, delivered and supported. All these activities can be represented in a value chain. You need to think about the value chain for your startup, display it and find out what you need at which point of the value creation process, in order to then implement it.

More specifically, we are talking about resources that you need, to put your value chain into practice. You have already marked out the human resources in the previous fields of the navigator. If you now notice further gaps in the team and the network at this point, it is important to note these. Also, you should make a classification, which persons or contacts of your team and network at which point in the value chain are relevant or helpful to you.

Make or buy?

If you have identified the requirements for your startup along the value chain, you are faced with the question "Make or buy?" Do you want to implement everything yourself, or does it make sense to outsource some tasks to external partners? This question describes the decision on the degree of in-house production. Which of my products would I like to produce myself? And which elements can I possibly outsource? Different strategies can lead to success. Even if it is not a startup, the example of the traditional brand Rolex is appropriate here: They indicate their so-called vertical integration with 100%. This means that every single part of the expensive wristwatches is manufactured in-house. The world-famous sporting goods manufacturer Nike, on the other hand, has a vertical integration of 0%. Yes, you read it correctly: Nike does not produce shoes - but sells and markets them!

But before you decide on a path, you should ask yourself where your strengths lie. What can you do best? This is what you need to focus on and outsource other aspects!

Learn more about the fourteenth module “Requirements” of the Startup Navigator in the handbook.

Be open for having your own goals influenced by the goals of your partners!

Equipped with a good team and flanked by strong partners from your network, the resources must now be meaningfully combined to create the promised value for your customer. Research identified a clear pattern: Successful entrepreneurs know - consciously or unconsciously – what their personal assets are, something that everyone has at his disposal: their own identity, their competences and their network.

The Co-Creation effect

The co-creation effect utilizes two subsequent features in one. First, you combine the resources available in your team and network into a common resource inventory. Second, you allow for extended and/or additional goals to be created from this extended fund inventory, in particular from those aspects your partners bring to the table.

The collaboration with a partner can have a lasting impact on your goals, regardless of whether you approach him, or he finds you. The experiences and goals of the business partner throw very different light on the market and the needs of its customers. If you can help him to solve a core problem for his customer group, you will also get new impulses for your own business model.

For co-creation, partners can be utilized along the entire value chain. The first contacts may already result from bootstrapping, where you try to work creatively with your stakeholders to achieve as much as possible with your limited resources. Also, suppliers are often your first contact in the value chain and thus good partners for a win-win situation.

»We work together with selected innovative FinTechs and traditional providers worldwide. This allows us to work very customer-centric and to offer the best products via our app. «

Valentin Stalf, N26 

Co-Creation with your competition?

Many entrepreneurs are afraid to work with other companies. Their idea could eventually be stolen. But keep in mind: Ideas exist like sand by the sea. They are "the cheapest" in the entire startup process. Only the execution through a certain team creates value and thus factual protection in the market. So what about co-creating with your competition? The example of N26 shows that even co-creation between competitors, that is between FinTechs and established banks, can be successful.

Learn more about the thirteenth module "Co-Creation” of the Startup Navigator in the handbook.

Does CEO overconfidence always sink the ship?

How much self-confidence do leaders need to successfully manage their companies? Prof. Dr. Charlotta Sirén, Assistant Professor for Strategic Entrepreneurship, shows that CEO overconfidence can also have a positive impact on company performance - especially when innovation is the strategic priority of the company. The study was conducted together with Barbara Burkhard and Prof. Dr. Dietmar Grichnik from the Institute of Technology Management and Marc van Essen, University of South Carolina.

Use your network!

It is inevitable that you will encounter difficulties and hick-ups in your startup journey, which you are not sure how to solve or overcome. No worries – this is the repetitive hassle when running your business for the first time and roots in the complexity of tasks, which sometimes appear unsolvable with a small startup team, limited skills and capacities. Yet, there is a way to walk smoothly around such issues and to get qualified helpers.

The extended team

Consider your contacts as the extended arm of your team. Your network offers the additional competencies, capacities and means that you lack but have access to through your contacts and those of your co-founders. Actually, it is decisive to add central supporters as an extended team by building an (advisory) board - even in the early startup phase. The board or the wider circle of your contacts can be important door openers with their own network and experiences. Research has shown that they serve, for example, as a sounding board for your ideas as well as a guide, investor, and as operative supporters especially in the startup phase that allows you to leapfrog your venture performance.

The industry experience gained by an advisory board can save you a lot of »training money«, for instance in the international distribution of your product. The startup Ava researches and develops its products in Switzerland - but the core sales market is the USA. Accordingly, the contacts to researchers from ETH Zurich and to various distributors in the USA were of crucial importance and partly managed through their (advisory) board engagements. This has attributed to building venture legitimacy and trustworthiness for partnerships and key-employee engagement.

»The US scene is extremely dynamic and fast. And the visions are very big. Most of the people I met in San Francisco are looking for international solutions with their startups. The many years of experience of our board members has helped us tremendously to gain a foothold in this market. «

Lea von Bidder, Ava

Do not overestimate: Strong contacts

Many may think: I don’t have such high-profile contacts. Far wrong! As a first step, family and friends are important resonators and advocates in the early stages of corporate development. They give you a first honest feedback. Does the developed problem solution make sense? Try to convince familiar people before you approach the first customer. These contacts are called "Strong Ties", people with whom you are in regular contact or have a personal relationship with. However, this will seldom include a sufficient number of successful entrepreneurs or managers of large corporations.

Do not underestimate: Weak contacts

The so-called "weak contacts" describe the part of your network that you know, but with which you only exchange sporadically. They ensure access to new information and resources, provide you with fresh ideas and further contacts, which - in the best case - bring your product as multipliers into the world. Try to go one step further and ask yourself: Which of my (weak) contacts is well connected and can help me with expert knowledge?

Learn more about the twelfth module "Network and Partner" of the Startup Navigator in the handbook.