Interview with Don Hatch, Global Head of Startup Incubation at Demium
When you have a brilliant idea and enough energy to start a business, the range of issues you might face at the outset is massive. How can you build your own enterprise and omit numerous mistakes? How should you gather the right team and prevent your startup from losing money? This week we had the opportunity to interview Don Hatch, Global Head of Startup Incubation at Demium. Don helps startups who are willing to put their all into building their own enterprise. In this interview, Don shared his answers to frequently asked questions, and added some tips for startups about how they should start off.
Tell us about yourself and your experience.
My current role is the Global Head of Incubation at Demium. This role is a perfect intersection between my passion for business creation, business development and for global culture. I started my first business in 1997 and I have built 6 companies in my more than 22 years of entrepreneurial experience. My role at Demium utilizes the full range of skills and experiences. I have a solid understanding of the levers for growth and constraints through the whole of an organization which helps me create synergy and make improvements to process operations.
What is most relevant to you in understanding a project’s potential?
The meetings I have with numerous young entrepreneurs are either about running a business or working with their ideas. Most don’t know how to form a company and are willing to learn the best methodologies. Before we can help guide them through the process of developing their project, we ask the startups to explain their target customer and expected strategy for approaching them. A minor change in a customer segment can force changes to every other aspect of their planned business. Once the teams have validated their product market fit, then we give startups some tools and resources so that they can see what we see and make the decision to adjust or go fully in another direction.
When you see a new project at first, what questions do you usually ask founders?
Typically what I want to ask is “Who’s your customer? Are they willing to pay for your product? Is your solution truly better than what they currently use?” Unfortunately, too many founders move along for several weeks or even months before finally realizing who they’ve been targeting this whole time will never use or buy their solution. I also often use the approach of asking the founders “the five Why’s”. By the time they ask the second or the third “Why” they realize that they haven’t bothered to think that deeply when exploring their target audience.
The other thing I usually want to know is a general cost breakdown. How much does it cost to make the product, or support the existing one? Most founders don’t understand their cost structure and general business costs well enough so once they compare their total costs against what they expect for revenue, it’s clear. There’s just absolutely no way this business will ever work.
So basically customer and cost are the two biggest questions I have when I’m talking to project founders.
Does the number of founders influence on the startup success rate?
Typically a minimum of three people in a founding startup team is ideal, – for instance a CEO, a CMO, and then something else depending upon the project. If you’re trying to do it all by yourself, it’s extremely difficult for people, especially when dealing with later stage teams. That said, Demium does work with a lot of solo founders who we see as having high potential, but we work very hard to find them co-founders so they are not solopreneurs for long. Size also depends on the stage of the project. Most companies in the world started with just a few people, but a startup has to grow or it will die.
How much capital should a founder start with?
It depends. Generally speaking, when a team gets a first-round investment worth a ton of money, it’s almost worse than when they had no money at all. They lose the emotional fuel that they need to move forward. When teams have almost nothing, they have to be very strategic with what they work on, what they focus on, and this is actually a lot more helpful. So I would almost rather see somebody come in to the game with a small pool of resources than somebody saying “I’ve got an uncle that’s going to bankroll our project.” So, deciding whether a team needs to gather €10,000 or €200,000 shouldn’t be the limiting factor for beginning founders.
Could you share five of the top mistakes that founders commonly make?
The first mistake I would add to that list is that there’s a lot of startups that are confusing a hobby for a business. They’re passionate about something they’re interested in. But is it really a business, or Is it really just a blog or a way for them to spend free time? If there is no way that their idea can be scaled and monetized then they are not being honest with themselves. It’s not only about returning money back to an investor, their business needs to be able to support them financially as well as the families of their employees.
The second mistake is failing to completely define a focus on the target customer. That changes literally everything: how you market, your pricing strategy, and many other things. A lot of teams just don’t understand this well enough; they start working with the “what” and forget about the “who” and the “why”.
The third deals with unrealistic ideas regarding the cost and time required. For example, “Well, we’re going to put X product on the market; it costs €5 to make and we’re going to sell it for €10. So, we are going to make a profit of 50%”. But they are not thinking about the cost to store the product in a warehouse, ship the product, packaging, taxes, general business costs and all manner of other factors. And once they start counting this they realize that their complete cost is closer to €15 and they will be in the red. Unfortunately, most founders don’t realize this until they’re actually selling. So, keep in mind that you need a realistic and holistic idea of cost and time.
The fourth mistake is setting only one target for their metrics instead of multiple. Startups are constantly having to decide to keep going forward, pivot, or kill their project. If a team decides that they need 1000 customers by the end of the month or they stop, and at the end of the month they have 962, almost no one is going to say, we missed our target, “let’s kill the project.” For this example, it would be best to say “if we get less than 700 we pivot, 701 to 999 we go one more month with adjustments, and 1000 or more we go forward full steam.” Agree on a range of short milestones to test and evaluate more possibilities. With that approach, founders can feel comfortable that they tried their best, they did valid tests and they are taking thoughtful actions for valid reasons.
The fifth and final mistake is that founders don’t create a panel of advisors who can help them throughout the project. In a perfect world I want to see an entrepreneur surrounded by competent people who know their strengths and weaknesses. They know what they’ve been through. Ideally most of these advisors have business experience and can share feedback at various points. I recommend forming an advisory at the very earliest stages when the idea is still being defined. I often see that if teams do form advisories, they don’t do it until they’re very far along, by which point they’ve probably made 100 mistakes that could have been avoided. They could have created a panel of advisors from their friends, colleagues, network, from Demium. It’s an amazingly helpful resource. People are usually very interested and willing to help especially if you have a relationship with them.
Finally, we spoke with founders who are now developing their first project, and they have a huge problem: how to find the right technology team when none of them is a technical guy. What would you recommend for them?
It’s much easier to attract a tech team once a basic team has already been formed. Once they’ve already started working on a project, we can plug tech guys in later. We can connect startups with “tech-light” resources that they can use to get some things done until they get to that point. In the early stages we promote a no-code approach to MVPs, so teams can validate their project and move forward without having to rely on having a tech co-founder. Using Lean Startup methodologies any team can get that validation without having to build whatever the actual product is.