Secrets to STARTUP SUCCESS

Your Math Story

Charting a Path to Breakeven and Beyond

"Numbers rule the Universe."

—Pythagoras

Remember the tale of Icarus and his passionate flight toward the sun? Although the story ended in tragedy, it began as an example of en­trepreneurship at its best. Daedalus, the father, was the idea guy. He might have watched birds fly high above the prison walls for months before his eureka moment. He then devised a plan of escape and built wings of wax and feathers. When the time was right, he and Icarus launched themselves out over the sea, flapping their way to freedom. The exhilaration of that moment must have exceeded anything felt by passionate entrepreneurs before or since.

Underneath the courage and emotion, however, Icarus and Daedalus’s flight was a product of basic physics. As an engineer, Daedalus was dealing with the interplay of opposing forces: the up­ward lift created by his wings versus the downward pull of gravity, and the forward push of those wings against the resistant drag of in­

Coming wind. That flight was subject to the same set of physical laws that have governed every flight through the ages, whether by birds, planes, or winged mythological people.

In the same way, certain immutable laws of commerce will dictate whether or not your new venture makes it off the ground. You must convert your raw idea into something that will fly, a model that gen­erates lift and minimizes drag, one that is fast and light enough to be­come airborne before the runway ends. Liftoff will prove that your model is sound, that it’s aerodynamically suited to prevailing market conditions and financial realities, but it won’t guarantee that your craft will stay aloft over time or arrive at a favorable destination. At times, your startup experience will feel like flying through dense fog while sitting in a cockpit full of mysterious buttons and levers.

The best way to cut through this early fog is to plan and manage your startup with the right level of rigor and realism. This means grasping the basic math underlying your business concept—how your approach will lead to near-term profits and longer-term value cre­ation. Doing so will not only bring your immediate priorities into clear focus, but will help you accurately estimate how much starting capital you will need to reach breakeven and beyond.

As we saw in Chapter Two, entrepreneurial optimism can lead to rose-colored plans or no planning at all. Passion-trapped entrepre­neurs tend to manage by assumption, believing that if they charge for­ward with enough commitment and hard work, all will be well with the numbers. Some are bored or intimidated by financial matters or have grown tired of spreadsheets that mask important issues instead of clarifying them. As a result, these founders lose touch with the sharp clarity offered by the bottom line and develop a kind of dys­functional detachment from the economic factors that will make or break their business.

The solution is to balance your startup passion with dispassionate methods of planning and analysis. Passion and logic are complemen­tary forces, and the most effective entrepreneurs bring extremely high levels of both. Returning to the metaphor of your new venture as an aircraft, passion is the jet fuel that accelerates it forward. Logic and its close cousins (i. e., good data, sound math, intellectual rigor, and critical thinking skills) provide the engineering, direction, and steering so that you can aim yourself in the right direction and adjust your progress as you go.

In the sections that follow, I’ll address three areas of focus that will help you convert your idea and your passion into a business with tan­gible, enduring value:

1. Planning. What planning approach makes sense for your business, and what principles will help you make the most of your enthusiasm without getting trapped by it?

2. Math. What is your math story, the organizing logic of your venture, with numbers attached, and how will the elements of your business come together in a way that is profitable over time?

3. Funding. How will you bridge the gap between the amount of money your startup will need and what you currently have on hand?