How to Start a Successful Company in Silicon Valley?
According to a study by New York Times, Silicon Valley is the place expected to produce the maximum number of Unicorns in the future. Silicon Valley is the place to be for tech startups with exciting ideas. This is the place which has produced major tech behemoths like Facebook, Google, and Apple to name a few.
The Mecca of tech entrepreneurship is welcoming to those who are ready to grind it out in this highly competitive market. But to make it big in the Silicon Valley entrepreneurs will need a solid plan. In this write-up we shall discuss the exact steps that you as an entrepreneur will need to take to achieve success in Silicon Valley.
Why are Silicon Valley startups so successful?
Let us explore the reason why Silicon Valley has become a hot-bed for startup culture.
High Density of Wealthy Investors and Funding Institutions
Business growth is heavily dependent on the easy availability of capital. Silicon Valley is home to many first-generation IT entrepreneurs who have made it big in the technology sector. These successful entrepreneurs act as angel investors and venture capitalists for promising startups.
By investing in budding startups, the investors can not only remain in the game but also save some precious tax dollars.
The idea is to invest in a variety of different businesses with the hope that some of them will turn out to be supremely successful and will provide high returns in the coming future.
As most angel investors and venture capitalists have themselves been entrepreneurs, they do understand that the strike rate of success is hardly 5% in the highly competitive Silicon Valley startup industry. This fact does not deter them from investing in promising startups, ensuring easy availability of capital for budding entrepreneurs.
From a startup’s perspective, this situation proves to be a boon as there is an increased chance that they will be able to find financial support. In case the startup founders get turned down by dozens of investors, there are hundreds of other investors that are willing to listen to a new idea. This is the power of Silicon Valley, as the startups can pitch their ideas freely without worrying that this meeting can prove to be a make-or-break situation for their idea. This is a major reason why the Netflix and Uber’s of the world are born in Silicon Valley.
Apart from funding, the venture capitalists and angel investors provide support in the form of networking, technology, mentorship, and guidance to the budding startups.
Level-headed Approach to Failure
For every one successful Silicon Valley startup, there are hundreds of failure stories. This is the hard fact of Silicon Valley and experienced campaigners know that there is more to Silicon Valley than the glittering success stories promoted in the media.
For most Silicon Valley entrepreneurs, success is not overnight and is rarely achieved in the first startup. A wide majority of entrepreneurs in the Silicon Valley face failure multiple times before finally achieving success. The will to succeed despite near-constant failure is pervasive amongst Silicon Valley entrepreneurs.
The Silicon Valley entrepreneurs are level-headed about failure as they know that in Silicon Valley they are creating something new and it will take a lot of experimentation before they eventually reach the desired level of success.
The Silicon Valley startups are committed to assessing, refining, and reintroducing the systems that will make a particular thing work. The emphasis is on
execution in the Silicon Valley and not on the valuation of the business idea itself.
The startups understand that great ideas in themselves are worthless until executed with refinement. Bloomberg’s Elizabeth Charnrock says that the secret of Silicon Valley’s success as an entrepreneurial region lies in its unique approach towards failure.
“The Silicon Valley mantra is ‘fail fast’ and that of the rest of the world is ‘don’t fail,’” she says.
Emphasis on Platform over Product
A major reason for Silicon Valley’s success is the mindset of prioritizing platform development over product innovation. The Silicon Valley entrepreneurs understand that no matter how innovative a product is, it won’t last in the market if it isn’t supported by a robust platform that is easy to use.
A product is limited in its capability, while the value of a platform is determined by the users that populate the platform and it can easily change into something else down the road. Facebook, for instance, started as a social network and has now morphed into a social selling platform.
Access to world-class amenities
Silicon Valley entrepreneurs have access to great amenities in the area. The amenities include hotels at fair prices, large conference centers, great restaurants and bars and unique entertainment options.
Amenities are important for entrepreneurs as it means that it is easy to bring potential investors and clients to the city to wine and dine. Silicon Valley acts as a perfect test market. As the startup vibe is everywhere in Silicon Valley, most of the locals act as early adopters of new products and services, providing a robust test market for a startup.
Why is it so difficult to start a company in Silicon Valley?
Success in Silicon Valley is all about finding the right team and the right networks. The brightest minds come to Silicon Valley to make it big in the IT sector and to succeed in this highly competitive market, a startup needs to find the best engineers, investors and co founders.
Understand that the A-level talent either starts their own company or is hired by the best in the business like Google and Facebook. The B-level talent usually has a lot of options and will prefer to work with more established companies. This means that a budding startup entrepreneur is normally left to work with C-level talent, who although talented are years away from their peak.
Most startups make the mistake of building a team with C-level talent, which can’t compete at the highest level. This results in difficulties for the startup in terms of gaining traction and raising money. After struggling for a while the startup founders normally wind up their startup, quashing their Silicon Valley dreams.
What is the correct approach and roadmap for startups to flourish in Silicon Valley?
To succeed in Silicon Valley, the entrepreneurs must consider the below-mentioned factors.
Understand the commitment and challenges involved in starting a business
Startups should become ‘Camels’–not Unicorns. Most startups do not understand that starting a business from scratch is a huge commitment in itself. Entrepreneurs often underestimate the significant amount of time, resources, and energy needed to start and grow a business.
Here are some of the most common challenges that startups need to face –
☛ Having a clear vision and plan for the business
☛ Coming up with a good product or service
☛ Identifying and retaining great talent
☛ Have sufficient capital and cash flow
☛ Attract investors for funding
☛ Not getting discouraged from early setbacks
☛ Pivoting strategy whenever required
So, what is the correct roadmap for a startup struggling to find its feet in Silicon Valley?
Join another startup first
A great way to break into the Silicon Valley startup ecosystem would be to work with someone else for a year or two. The entrepreneurs should look for a growing startup which is well-funded and has a great traction along with a good founding team. The key here is to put one’s ego aside and learn the ropes of the trade by actually working on the ground instead of just hypothesizing in board rooms.
By working for a startup initially, the aspiring entrepreneurs can learn how things actually work out there, the challenges that a typical Silicon Valley startup faces, meet talented people, and build a network which will help them in their future endeavors.
Protect your personal assets by forming the business as a corporation or LLC
One of the biggest mistakes that startup owners make is to start the business as a “sole proprietorship”. Registering the business as a sole proprietorship puts it at risk against the debts and liabilities that can arise in the business. The best way to go forward is to form an S corporation, a C corporation or a LLC (limited liability Company).
Many Silicon Valley startups register their business as an S corporation and then convert it into a C corporation as they bring in investors and issue multiple stock options. It would be a mistake to assume that a startup is completely protected from personal liability just by filing a certificate of incorporation for a corporation.
Startup owners must use the full name of the corporation including Inc or Corp on all invoices, official documents, and contracts to indicate that the corporation is a separate entity. Startup owners should always use a proper signature to indicate they are signing on behalf of the corporation, using the name of the corporation and their title.
The startup owners must ensure to follow all corporate formalities like following bylaws, holding board meetings, recording the minutes of meetings and submitting it to the proper authority, issuing stocks properly, and so on.
The corporate funds and the funds of individual shareholders should never be combined. Separate tax returns should be filed for the corporations and all transactions made by the corporation should be separate from individual transactions.
The idea of this exercise is to make sure that the line between individuals and the corporation is never blurred under any circumstances, protecting the individuals from losses arising in the business.
Always be ready with a pitch
The Silicon Valley area is teeming with investors. Opportunities are everywhere for an exciting startup idea.
Investors are ready to talk with startups in bars, restaurants, discos, elevators, cafes at a barbeque event or even a rock concert. The startup owners have to be ready with a business pitch to convince the investors for another meeting.
Make the deal clear with co-founders
People starting a company with co-founders need to be absolutely clear about every detail of the deal. Lack of clarity in the deal might lead to potential legal problems when the startup starts making some real good money. A prime example of such a case would be the Facebook litigation between co-founders Zuckerberg and Winklevoss.
Here are some of the key points that the founders need to be clear upon.
☛ What will be the equity split among the founders?
☛ Buy the shares of the leaving co-founder?
☛ How much time commitment to the business is expected of each founder?
☛ Roles and responsibilities of each co-founder
☛ If one co-founder decides to leave the company, will the other co-founder have a first right to
☛ What will be the salaries of the co-founders?
☛ How will the sale of the business be decided?
☛ What assets or cash does each founder contribute or invest into the business?
☛ Under what circumstances can a founder be removed as an employee of the business?
Startup founders should iron out all the details with their co-founders before commencing on their startup journey.
Perform a comprehensive reference check before you hire an employee
People are the most important asset in a tech company. Many employers make the mistake of conducting a limited and incomplete reference check while hiring an employee. This mistake can prove to be costly as it can lead to hiring incompetent people or people who are not team players.
While hiring employees, a startup should conduct a comprehensive reference check which includes checking things like:
☛ Verifying job titles and dates of previous employment
☛ Verification of starting as well as ending salaries
☛ Verifying the prior job role and responsibilities
☛ A thorough inquiry into the reason why the applicant left the prior job
☛ Having conversations with the applicant’s prior supervisors
By checking these basic things, the startup owners will reduce their chances of hiring a wrong employee drastically.
Avail service of an experienced startup attorney
An experienced startup attorney will help a startup complete their journey smoothly. An experienced startup lawyer can help a startup to…
☛ complete the incorporation formalities of the startup
☛ prepare key agreements like contracts with co-founders and suppliers
☛ set up a stock option plan for employees
☛ help the startup negotiate terms with their prospective investors
☛ limit the startup’s potential legal liabilities
☛ protect the ideas and inventions of the startup through patents and copyrights
An experienced startup lawyer is a real asset in the Silicon Valley. In their quest for cutting costs, many startups make the mistake of hiring new and incompetent startup lawyers, a mistake that often proves very costly down the road.
Scalability is the most important trait that investors look into before investing in a business idea in the Silicon Valley. If the idea does not have the potential to be a billion dollar one, then it’s of no use as nobody will be interested in it.
The Silicon Valley investors are ready to invest in 10 ideas with an expectation that one of them would turn out to be a billion dollar one. Hence startups should always look to think big as nobody is interested in a moderately successful idea.
Understand about seeking venture capital financing
Venture capital (VC) firms are a great resource which can provide not only capital, but also strategic assistance, better employees and a robust network to the startup. It isn’t easy to obtain venture capital financing and startups can prepare themselves better to obtain VC financing if they understand the process better.
VC firms make their investment decisions based on the following criteria’s.
☛ Stage of the company(early-stage or Series A rounds or later-stage round companies that have demonstrated success ability)
☛ Companies working in emerging sectors like Artificial Intelligence, block chain and Internet of things, Biotech, VR&AR, space science and so on
Before approaching a venture capitalist the startup owners must try to learn whether the VC firm’s focus aligns with that of the startup. Startups must understand that VC firms typically get thousands of unsolicited emails, most of which are ignored.
To get the attention of a VC, the best way would be through a trusted source like a previous colleague the VC has worked with or a friendly lawyer. The startup owners must be ready with a great elevator pitch to attract the interest of the VC and fix a detailed meeting.
Startups should also understand that acquiring capital from a VC firm can take weeks if not months. It is a tedious process that starts with an elevator pitch and is followed up with more meetings, conversations, and presentations to all the partners and stakeholders of the VC fund.
The process culminated in the issuance of a contract which is drafted after detailed consultations by lawyers on both sides. VCs would normally like to make investments in businesses that have shown some progress. Angel investors would be more interested in early-stage ideas.
Most venture capitalists won’t agree to sign an NDA, so startup owners should not bother asking.
Build a solid network
There are countless examples of failed startups that focused only on perfecting the complex technology behind their product and not on actually taking the product out in the market. Even a great product won’t become successful if the product owners do not connect with people and promote their product.
Focusing on building a solid network will go a long way in ensuring that the startup becomes successful in Silicon Valley. A startup will require the right connections with people like VCs, lawyers, other entrepreneurs and great employees to acquire the resources needed to succeed in Silicon Valley.
As startup mentor, Bartchat puts it, “Leave the building! You won’t become successful by just working at your desk or meeting with mentors. Talk to potential customers, empathize with their needs, constantly rework your hypothesis, and above all ask for feedback,”
List of resources that one can tap in Silicon Valley
Here are some of the key resources that will aid a startup in its success journey.
Key places to network
☛ Founder’s Den
☛ Cuckoo’s Nest Club
Important tech events
☛ Tech in Motion
☛ Startup Grind
☛ RocketSpace Events
☛ Zurb Soapbox
☛ Silicon Valley Entrepreneurs
☛ Greylock Partners
☛ Founder’s Fund
☛ First Round Capital
☛ a16z (Andreessen Horowitz)
☛ Khosla Ventures
☛ Innovation Endeavors
☛ Alchemist Accelerator
☛ Y Combinator
☛ Founder Institute
☛ 106 Miles
☛ Silicon Valley NewTech
☛ BootStrapper’s Breakfast
☛ Girls In Tech (San Francisco)
☛ SF and Silicon Valley Web Performance Group
☛ DLA Piper
☛ Wilson Sonsini Goodrich & Rosati
☛ Jamae Immigration Law Group
Silicon Valley has become sort of Hollywood. Each year thousands of starry-eyed entrepreneurs come to Silicon Valley with a dream of making it big in the tech world. Entrepreneurs make the mistake of thinking that to make it big in the Silicon Valley, all they would need is a ground-breaking idea and investors will pound their doors the next morning with suitcases filled with cash.
Nothing can be farther from the truth as to become successful in Silicon Valley, startups will need a plan, ability to network, work with discipline, hire great employees and lawyers, apart from having a great product/service.
Startups not having the technical wherewithal to develop a product can get in touch with top business solutions development company to build their product. Getting technical expertise in the early stages of the startup can prove to be really helpful in approaching the market with a great product. The tech partners can help the startup in planning and designing every aspect of the product right from user experience to selecting the perfect tech stack for the product.