Stage 2 deep dive

seed2sequoia
seed2sequoia defines 4 key stages of a startup to maximize growth and minimize growing pains!
Stage 1: SEED
Have your “Eureka!” moment.
Analysis of competitor landscape (more than just a Google search!)
Find co-founders (note, avoid hiring friends! This is a common mistake)
Legal Counsel
Financing– use this to create an alpha product

Stage 2: SPROUT
Product: beta, prototype, MVP (minimum viable product)
Customers: create a small user group to generate feedback.
Incorporate feedback, pivot/evolve product as data is looped into product offering
Financing: Transition from Friends/Family to Angel/seed. Form VC relationships

Stage 3: SAPLING
Only if necessary take money from either Angels/VCs. Negotiate term sheets, equity and exit
If have beta group, can your company go straight to market with first customer?? Skip funding!
Identify channel partners to launch product to larger paying customer group

Stage 4: SEQUOIA
Growing Pains: hire qualified team members to meet increased customer demands
Macro user feedback: is this different than beta group? Does product need to pivot or evolve
Are investors pleased, was the business model truly scalable?
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Grown up or gobbled up? What is your exit strategy – IPO/Sell. Are you a serial entrepreneur??

Stage 2: SPROUT
Business Development
Incorporate feedback, pivot/evolve product as data is looped into product
offering
Financing: Transition from Friends/Family to Angel/seed. Form VC relationship
Know what kindof company you are!

Founder Skill Development
Pitching Product: evolution needs to incorporate above feedback
Financial Projections: current burn rate vs. future burn needs; scalability focus
Team Management: product and feedback grows, need team players
Marketing: how to tell and sell your startup‟s story
Market Research: conferences, competitor SWOT analysis, national network build
Incubator/Accelerator Programs: hone variety of skills, receive mentorship,
understand the capital raising process; develop company culture; office space
**Ability to forecast future needs of company: growing the team, nimble product
seed2sequoia
development, capital infusion timeline, competitor analysis and exit strategy
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Stage 2: SPROUT
Valley of Death
Stage 2 is the riskiest stage due to:
•Company has progressed past Stage 1: Seed; still has unproven product
•Invested in prototype; needs to improve alpha to arrive at beta; may need to pivot
•Raised some capital; likely has a high burn rate – failure to include personal needs
•Need to raise more capital; long lead up time to institutional investor round
closing or longer than expected time until first customer contract brings in revenue

seed2sequoia
3 Stage2: Sprout

seed2sequoia
Source: The Capital Network 4 Stage2: Sprout

seed2sequoia

Stage1: Stage2: Stage2&3: Stage3: Stage4:
Seed Sprout Sprout--->Sapling Sapling Sequoia
seed2sequoia

seed2sequoia

Stage 2: SPROUT
offering

seed2sequoia
9 development, capital infusion timeline, competitor analysis and exit strategy

Stage 2: SPROUT

Step1: Product: beta, prototype, MVP (minimum viable product) creation
•Define Product: mobile application vs website. Former is traction, latter just a click
•Have working idea of how to define success for your product use!
•Obtain at least 3 quotes for service to do your build
•Understand contract negotiation – deferred payments, payments contingent upon
financing events, equity for product build etc.
•Estimate timeline for deliverables.
•Add 2 months.
•Reliability and trust is essential with customers/investors is crucial as you
build your company‟s presence
•Cost-benefit analysis. Which features are essential, which can wait for „Gen3‟

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Business Development Continued

Step 2: Understand Customer Market – needs vs acquisition costs
•Generate list of “friendlies” – customers you can speak with about product
•Fully understand pain point of customers – what problem are you solving
•What is the customer willing to pay for the solution
•Build this into forecasts – understand your cost to build product v.s the
potential revenue for solution
•Is the solution scalable?
•Do you have competitors?
•What are their rates?
•How do you products differ? Conduct PEST/SWOT analysis

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Step 3: Define Success of Beta User Group
•A website is a click, an application download is a transaction
•Important to show traction to both investors and future customers
•Brainstorm creative ways to show success: traction, first paying customer, feedback
loop generation, repeat visits/data logging, referrals to new customers

Step 4: Customers: create a small user group to generate feedback
•Keep the product/group private – do not accidentally want open portal to public
•Allow customers to “play independently” with product
•Customers may use product differently than you imagined. If this is the
case, track this user experience. It could help OR haunt you in a macro user
group…
•Delegate tasks when approaching customers.
•Internally create teams with set responsibility – need specific accountability. This
can be regional splicing or skill set splicing etc

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Step 5: Manage & Process Feedback
•Segment your user feedback
•Customer, Paying Customer, Channel Partner, Investor etc.
•Prioritize feedback “type”
•Know when to NOT take a users feedback. Objective vs. Subjective feedback
•Google Analytics decent tool to start; Consider novel ways to build inexpensive
proprietary feedback features or ways to specific track a problem/issue within beta

Step 6: Feedback Loop
•What did you learn from beta user group? How did you learn?
•Track it: SurveyMonkey.com; Qualaroo; Mixpanel; KISSmetrics;
•Does the product need to be retooled? What is the cost to iterate on the product
•Prioritize new features – understand the cost and benefit of each new feature as it
applies to the evolution of the product. Road Map Features: Gen3, Gen4, Gen5 etc
•How does the evolution affect success?
•Goal: meet “Success Metrics”
•Were you successful by the definition of success in Step2
•If not, how would you define success now?
•Market to make startup successful. Success is the perpetual goal for marketing,
business plan forecasting, customers and investors seed2sequoia
13 Stage2: Sprout


Step 7: Pivot (It‟s a buzz word) vs. Iterate.
•Is this change “cool” or is it absolutely essential?
•Will company/product fail without a change? Small, continuous iterations best test
•What is the cost to pivot? This is a major change!
•Is there a new potential revenue stream – proof/implementation of this
•Do not waste time or resources – don‟t jump to conclusion here.

Step 8: Market your Startup!
•Review pitch deck: incorporate new data, customer use case, success metrics
•Generate Buzz: Tweet, VSNAP video, Startup Journalists, Publicity
•Continually meet with investors – send meaningful updates

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Stage 2: SPROUT
offering

15 seed2sequoia
development, capital infusion timeline, competitor analysis and exit strategy


Step 1: Pitch
•Approach your pitch like you approach your product: alpha, beta, iterations etc.
•Begin by pitching to trusted entrepreneurs, investors.
•Know your “pitch audience;” Know your “pitch purpose”
•Focus on the pain point – “what problem are you solving”
•How did you come up with this idea?
•Know yourself as an entrepreneur, your skill set. Know what you need help with
•Short bio, include leadership experience, startup experience, qualifications etc

Step2: Market Research
•Build on knowledge from Stage1: Seed
•Move from online publications as research source to conferences
•Conferences are expensive – travel, hotel, event registration. Add to budget!
•Know competitive landscape. Track competitors – try to use their product if possible
•Research how have companies in this area launched previously:
•Is this a high growth area?
•Does it qualify for grant or research funding?
•What did the founding teams look like? How does your team look like?

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•Step3: “Pulse Check” - Team and Company Evaluation
•Does your team have the skills to succeed. Be honest.
•Understand your team needs. Is it a CTO, is it a CEO?
•What is the strategy for market entry – what does the company need to enter?
•Does your team need to bolster skills? Public speaking, PowerPoint?

Step 4: Growing the Team
•“Market Research”: E-Myth Revisted, by Michael Gerber; Founders Dilemma by
Noam Wasserman; Principles of Scientific Management by Frederick Winslow Taylor.
•FoundersConnect; FounderDating; FounderMatch; CoFounders Lab
•Fire the team if not performing.
•Entrepreneur intensity.
•Creating Culture important
•Investors care about TEAM…the product will come.

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Step 5: Incubator/Accelerators
•Pros:
•Hone variety of skills and receive mentorship
•Gain access to the Program‟s ecosystem
•Advisors are tailored to you
•Reputation for being admitted, access once graduate
•Understand the capital raising process
•Develop company culture
•Office space
•Cons:
•Be wary of a program that takes equity if your company. Carefully evaluate this.
Not all programs are equal – so Y Combinator equity stake better than….?
•Can be distracting. So many events, so many other „types‟ of startups in space
working on non-relevant projects
•Listening to right customers and right feedback. Don‟t lose touch of what your
product. Be more disciplined about feedback from experts not familiar with area

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Step 6: Hone Negotiation Skills
•Ultimately you will need to create an ask that will drive investors and/or a first
customer to work with your company.
•The first step is towards determining the price of the company – what is your value?
This is more an art than a science! Read these articles to learn more:
•http://www.entrepreneurs-journey.com/10571/how-to-value-your-startup-company-
when-looking-for-investment/
•http://mashable.com/2011/06/26/startup-value/
•http://www.seedstagecapital.com/2010/01/startup-valuation-how-much-is-your.html
•http://www.entrepreneur.com/article/72384
•http://www.forbes.com/2009/09/23/small-business-valuation-entrepreneurs-finance-
zwilling.html
•http://www.askthevc.com/wp/archives/2007/01/how-do-vcs-determine-company-
valuations.html
Bottom line: at all points in your company you will be negotiating. Your value, your
product, your vision, your strategy, your market entry must be defensible or you will
self-dilute with both customers and investors.

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Resources

Web design: swiftarcher; Elance; oDesk
App development: userbra.in; Startup Giraffe; Cultivated Solutions
Marketing: Ruckus; VSNAP; HubSpot
Major Technology Builds: Axispoint; Elm City Labs; DashFire Developers;
Founder Skill Development: The Capital Network; Greenhorn Connect; Venture
Café; MIT Enterprise Forum;
Incubators: Harvard i-Lab; Startup Leadership Program; UMASS Venture
Development Center
Competitive Accelerators: Lean Startup Challenge; MassChallenge; TechStars;
Startup Open; Y Combinator ; DreamIT;
General Resource: Hitchhiker’s Guide; MosaicHUB; Founders Space
Office Space: CIC; Dogpatch Labs; WorkBar; Geek Offices
Financing: Wefunder; Kickstarter; RocketHub; Indiegogo; SBA Loans; Petridish
Business Modeling: BusinessBall.com
Tracking/Analytics: SurveyMonkey; Qualaroo; Mixpanel; KISSmetrics; Google
Analytics
Other: Startup School; Storenvy Interview on VentureBeat.com;

Contact: seed2sequoia@gmail.com
www.seed2sequoia.com
@seed2sequoia seed2sequoia
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Stage2: Sprout

Stage 2 deep dive

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