Steps to launching your New Zealand startup

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Contents Leaping 4

+ Making ideas happen 4

Planning 5

+ Business plan 6

+ Registrations 7

Learning 8

+ Minimal viable product 8

+ The art of pivoting 9

Experimenting 10

+ Mentors matter 11

+ Startup programs, incubators & co-working spaces 12

+ Secure funding 14

+ Pitching to investors 16

Key takeaways 19The information provided within this document is of a general nature and is intended to be a guide only, in accordance with our Legal Disclaimer. For specific advice regarding your particular circumstances, please consult your tax agent or the Inland Revenue Department as appropriate.

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Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.Steve JobsApple

Do what you love and the rest will come.Dennis CrowleyFoursquare Labs, Inc.

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So you had a brilliant brainwave and came up with an idea for a startup.

Leaping

Making ideas happenDeveloping and documenting an effective vision is one of the most important steps for anyone planning a successful startup.

We’d be remiss not to point out that the startup industry is an inconsistent, competitive beast. And whether it be due to poor product market fit, insufficient cash flow or not having the right team – unfortunately many startups fail.

But don’t let that scare you. Thorough planning, a smart build and the right business development will drastically improve your chances of success.

This eBook will give you practical steps to help you develop your startup in its early stages, and give it the best chance of success.

It’s not about ideas. It’s about making ideas happen.Scott BelskyBenchmark

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The leading cause of startup failure is a lack of adequate planning.

Planning

Your vision

Plan your vision on a ‘perfect world’ scenario, where everything goes to plan. The following five tips create an effective vision:

Inspiration

Create an inspirational vision to motivate and engage you employees; the vision ‘sells’ your ultimate objectives, and gets everyone pulling in the same direction.

Passion and energy

It must be able to drive you and your people through the tough times you might experience along your journey.

Action-oriented

Without action, your vision remains as a dream.

Memorable

Keep it short, sharp and punchy so it can be recited from memory.

Live it

Prove that it’s more than just words – where possible, link achieving key aspects of the vision to rewards.

Sadly, many startups fail to validate their business idea or vision. Determine whether your business idea is viable. At a more simplistic level, you need to determine the core purpose of your product or service and the value you want it to bring to the market. Ask yourself the following:

+ What industry trends does your idea incorporate?

+ Who are your target users?

+ What gap in the market is your product filling?

+ How many benefits does your product offer?

+ Who’s your competition and what are they doing?

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A business plan will ensure you’re not caught out by tricky surprises down the line. And if done well, it will inform you to take immediate actions. Now, don’t feel like you have to tackle a business plan in one go; split it out. Give each section its due diligence.

The 12 components of a business plan

1 Executive summary

2 Startup description

3 Industry analysis

4 Market and competition

5 Strategies and goals

6 Product and services

7 Marketing and sales

8 Management and organisation

9 Operations

10 Financial pro formas

11 Financial requirements

12 Supporting material

Outline your business plan for the next year as well as the next 1 to 3 years. Describe your business objectives and goals – ensure they are specific, measurable, achievable, realistic and when they might happen.

Outline the gap between where you are now and where you want to be. Cover the main practical steps you have to take to get your business from where it is now to where you want it to go.

Describe the core values that underpin your business. Explain why these core values are crucial to your long-term business success, how they will affect customers (the benefits) and how they will help to motivate both you and your staff.

Free business plan templates are available at business.govt.nz

Business plan

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Goods and Services Tax (GST)

By now, you’ll most likely already know whether you’re running your startup as a sole trader or a partnership. And you might have already reserved a company name with the Companies Office and received your NZ Business Number.

Once your turnover is $60,000 or more, you’ll also need to register for GST. As a GST-registered business, you collect GST on behalf of the Government by building it into the prices of your products and services, and then claim GST back on the products or services you’ve bought as business expenses.

Pay as you go (PAYE)

As an employer, you are required to register with the Inland Revenue Department, and you also have tax responsibilities relating to your staff. This includes ensuring new employees complete a tax code declaration, making correct salary deductions and filing employer returns.

You must also:

+ Work out whether your staff should be enrolled in KiwiSaver, make PAYE deductions, complete appropriate employer returns and account for any Fringe Benefits you provide to your employees.

+ Keep records for 7 years.

Secure intellectual property

Protecting intellectual property (IP) rights is one of the most common legal issues startups face.

IP is a complicated area and it’s easy to get caught out. For instance, did you know that most companies will have the right to any idea that is developed on company time or with company tools? If you didn’t, not to worry, it’s not something employers readily advertise.

Find yourself a qualified IP rights lawyer so you can move forward quickly and confidently. They’ll identify your rights and ensure you’re protected if, and when, you decide to leave your job and when you start hiring employees.

Registrations

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Learning

Building your minimum viable product (MVP)An MVP is the first version of software that’s fit for release to customers.

There are two lessons to follow when developing your MVP.

Lesson 1: Keep it simple

MVPs need to have just enough functionality for users to consider it useful. Strip everything back to the core purpose of your product. Ask yourself, what is the essential functionality you need to provide in order to deliver value?

The great thing about MVPs is that they don’t need to be perfect. In fact, MVPs very rarely are. When Facebook first launched in 2004, for instance, it only had eight features – today it has 35. Facebook’s MVP had no messaging, pokes, notifications, walls or status updates. These additional features were added after testing and feedback.

While it’s tempting to add the bells and whistles, you have to be brutal regarding development and the allocation of time. When building your MVP always ask yourself, do users need this feature to get the job done, or is it a novelty?

The biggest risk is not taking any risk. In a world that is changing very quickly, the only strategy that is guaranteed to fail is not taking risk.Mark ZuckerbergFacebook

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Lesson 2: Test, test, test

Testing will help you improve your product. Not to mention it will impress potential investors, as you have already worked to validate your feature set.

Once you have developed your MVP, release it to users to collect feedback. The feedback that you gather here will guide the future development of your product’s features and functionality. Find out what’s working, what’s not and what users would like to see from the product next.

The art of pivotSuccessful entrepreneurs have found that the introduction of a new product or service generally requires many course corrections or “pivots” to find a successful product formula. Sometimes a startup discovers a way to achieve the same solution by using a completely different technology. And early user testing could help you decide on where efforts should be spent.

Learn by doing. Theory is nice, but nothing replaces actual experience.Tony HsiehZappos

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People don’t buy what you do; they buy why you do it. And what you do simply proves what you believe.Simon SinekMotivational speaker and author

Build relationships

Start networking early on to build yourself a professional support system. Networking from the get-go will also improve your chances of securing revenue. Investors often say they invest in people first, so if they’re familiar with you it will make them more receptive to your idea.

Experimenting

Where do you turn to build your relationships? The options are endless, you can:

+ Attend networking events like Hackathons

+ Work from a shared space – visit bizDojo

+ Sign-up to entrepreneurial groups online

+ Consult developer forums

+ Reach out to prior employers/colleagues

+ Contact influencers in the space via social media

It’s also useful to find a mentor.

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We’re going to let you in on a little known secret to entrepreneurial success. Mentors are valuable additions to your support network, because they have first hand experience to back their advice.

Here are three guiding principles founders should bear in mind when picking and utilising a mentor.

+ No two mentors are created equal

+ Lower quality mentors yield fewer benefits so turn to someone with a proven track record of success

+ You want a mentor to guide you through every stage of the journey

For more information visit Business Mentors New Zealand.

You don’t learn to walk by following rules. You learn by doing and falling over.Richard BransonVirgin Group

Mentors matter

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CreativeHQ CreativeHQ offers a number of programmes to enable people to build brilliant businesses by driving startup innovation.

+ Global Growth Programme – for startups that dream big. Provide startups with access to the knowledge, networks and capital needed to take a new company global.

+ Acceleration – provides a structure that brings focused support at the right time for the business and prepares companies for investors.

+ Lightning Lab – Lightning Lab takes in up to 12 digital startups and provides them with structure, startup methodologies, business skills and focused support so they can successfully prove, build and launch their ideas into market.

BizDojo Life at BizDojo is more than a desk; with spaces, places, people and programs that help you and your business grow. They are passionate about creating communities of talented, interesting and clever humans that are following their passions.

+ Coworking and workspaces – where like-minded people and businesses work together in a space that allows them to collaborate, learn, share their journey, and encourage each other along the way.

+ Startup hubs – specialise in activating spaces by curating robust, diverse communities and implementing activation programmes and events.

+ Build communities – the BizDojo network is a thriving community who share meetups, lunches, workshops, events, and social activities of all types.

Callaghan Innovation Their purpose is to help New Zealand businesses succeed through technology

+ Access to experts – connecting you with the right advisor, partner, mentor or technology partner.

+ Technology and product development – taking an idea from concept to commercial reality with tailored R&D solutions.

+ Innovation skills – building your inhouse skills and capability so your business is innovation-ready.

+ Business collaborations – collaborative projects to reduce R&D costs and share industry knowledge.

Startup programs, incubators and co-working spaces

Learn more Learn more Learn more

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Create cash flow forecasts to carefully monitor your financial position. It can forecast future cash flow difficulties, so you can plan ahead to deal with these challenges. If you plan to pitch your startup to investors, they will want to know the financial ins and outs of your business.

Raising money is always a daunting prospect, but it is essential to ensure your startup’s longevity.

Build something 100 people love, not something one million people kind of like.Brian CheskyAirbnb

Short-term Loans

As a general rule, short-term financing will have a lower total cost, but will likely have a higher periodic payment when compared to a longer-term loan, which could have an impact your immediate cash flow.

Secure funding

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When looking for an online business loan, it’s important to ask these four questions:

What is my loan purpose?

This will not only help you determine whether or not the cost of the loan and the loan term make sense, it will point you in the direction of the lenders who are best able to help you meet your needs.

How much money do I really need?

Your loan amount will also help you determine where to look. If you know exactly what you need, it tells any potential lender that you’re taking a thoughtful approach to borrowing to meet a specific need, rather than looking for a blank check.

What does my credit profile look like?

Many lenders evaluate potential borrowers by looking at not only the strength of the business, but also the personal credit profiles of its key stakeholders. So make sure yours is as good as it can be.

Do I have the information I need to apply?

Before you apply, make sure you have the right documents and information at your fingertips.

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When it comes to pitching to investors, it all comes down to a simple premise – make a connection.

Follow these 6 easy steps.

1 Elevator pitch

Your opening statement should identify a problem and highlight how your product solves it. Keep it concise and compelling. Getting it right comes down to practice.

2 Sell yourself

Don’t be afraid to highlight your professional history, as this builds your credibility. Additionally, every team member who is present at a pitch must contribute, otherwise they’ll be seen as weak links by investors.

3 Supplemental information

Your investors decide whether they want to hear more. Supplement your pitch with a presentation. However, don’t rely on it to guide the meeting. It’s essential that you know the key points you want to make as investors are known to interrupt half way through to judge whether you know your stuff. You need to be able to go wherever the conversation takes you.

Pitching to investors

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4 Know your financials

Ensure you have a solid understanding of:

Cost per acquisition (CPA) or Cost to acquire a customer (CAC).

Marketing can get expensive and can quickly diminish profit margins. To avoid this, track the cost per acquisition of campaigns.

CAC = sum of all marketing expenses

the number of new customers added

Monthly Recurring Revenue (MRR)

Monthly recurring revenue and monthly revenue may be different month on month. If you have a subscription based product, you’ll have a steady cash flow from your monthly subscriptions. Monthly recurring revenue is the amount of revenue you’re adding from your subscriptions. Whilst one off sales will assist in providing monthly revenue, it may not see repeat business. Accordingly, you’ll need to consider units required per month to satisfy your cost base, seasonality of those sales and any potential external factors that could affect timing of revenue.

Active users vs. Churn

Be clear on what you define as active users. Some startups exclude first time users such as product trials.

Churn measures the percentage of recurring customers who leave every month.

Monthly churn = customers lost in a period

average number of customers at

the beginning and end of the period

Annual Run Rate (ARR)

Annual run rate is used to determine annualised revenue over a year. For example, if a startup has revenues of $1 million in its latest quarter and performs at the same level for the next year, the annual run rate is $4 million.

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Life time value (LTV)

LTV helps you make important business decisions like investment on marketing, product development, and customer support. LTV is the projected revenue that a customer will generate during their lifetime. LTV for recurring customers is calculated as

LTV = (monthly revenue * (1-monthly churn rate)^n) * (monthly price growth)^n

where (n) = number of months

Month on month growth (MoM)

Basic growth rates are simply expressed as the difference between two values in time in terms of a percentage of the first value. For example: if your business was worth $1,000 at the beginning of the month and it’s worth $1,200 today, the monthly growth rate is 20%.

MoM Growth = present value – past value

past value

Return on Investment (ROI)

Calculating your return on investment (ROI) assesses the profitability of the startup by analysing returns versus investments. For example: total all expenses associated with the start-up business ie. mortgages, utilities, licenses, insurance and salaries, and subtract from the total gross profit. Divide this number by the total costs.

ROI = expenses – gross profits

total costs

Burn rate

Burn rate is the rate at which cash is decreasing. It’s important to know your burn rate to allow for enough time left to raise funds or reduce expenses.

Monthly cash burn = cash balance at the beginning of the year – cash balance end of the year / 12

You need to fail quickly. If you think you know what’s going to work in any aspect of your startup, you are wrong.Chuck GordonSparefoot

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5 Know your investor

Much like you would prepare for a job interview, research your investors before the pitch. This will help you tailor your content to appeal to them.

6 Include an exit strategy

Prepare an exit strategy. This is of interest to investors as it’s how they will make their ROI. Highlight exit case studies made by similar companies, and what their respective payouts were. Planning your exit strategy shows that you’re not just thinking of your means but your investors’ too – everyone loves a bit of consideration.

If something is important enough to you, even if the odds are against you, you should still do it.Elon MuskSpaceX

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If there’s one thing you can bet on, it’s that the startup experience will be stressful at times.

Effective planning and strong relationships will help your business idea get ahead of the crowd.

The way to get started is to quit talking and begin doing.Walt Disney

Key takeaways

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