Start-ups are a very small part of the start-up scene, but nevertheless on everyone’s lips. They are considered an important driver of economic development and social progress, because they not only create jobs, but also help new ideas and technologies to break through. With innovative business models, they challenge the established industry heavyweights and trigger a modernisation of the entire economy.
In Germany, we often look enviously at the USA, home to the most expensive and successful start-ups of all time. But before we freeze in awe, we should realise how lively and creative the start-up scene has long been in this country. Germany is also catching up in terms of funding opportunities. So if you’ve got a cool business idea in mind or you’re excited about launching something completely new, we see no reason not to turn your dreams into reality.
Definition: What is a start-up?
The term start-up is often used to describe any kind of business that seems fresh and modern. However, if you open a hair salon in your city, no matter how hip it is, it is not a start-up. One speaks of a startup when a company is founded with a novel business idea and high growth potential.
Apart from this definition, start-ups also stand for a certain, “disruptive” self-image: they question familiar processes and try out new things. In doing so, they demonstrate a keen sense for trends and for what people want and need. “Just do it and learn from mistakes” – that is the motto thanks to which start-ups pick up on new developments faster than the competition and turn them into innovative products.
The startup culture is therefore characterised by openness, a willingness to learn and a readiness to question every conviction. A foosball table in the hallway does not make a startup. Flat hierarchies, short decision-making processes, trust in the abilities of each individual team member and a relaxed atmosphere, on the other hand, do.
Steps to success
You find yourself in this mindset and can hardly wait to found your own start-up? Then you should get started right away. These steps lie ahead of you:
- business idea
It all starts with a business idea. Contrary to what many people think, it almost never falls from the sky, but is the result of intensive work. Most start-up founders have been working in an industry for a long time or have studied a certain topic before they formulate a business idea that is suitable for a start-up.
If you don’t have an idea yet, you should go through the world with your eyes open and look for problems that have not been solved or have not been solved enough.
Once you have a suitable idea, you should ask yourself whether something like this already exists and, if so, what you could do differently. How could your business idea be implemented in a new and exciting way? And in such a way that people’s needs are met even better than before?
- business model
With questions like these, you already start working on your business model. A business model is a rough description of how a company works: What does it offer? How does it reach its customers? And how does it make a profit?
The business model of a start-up must be innovative and scalable – otherwise it would not be a start-up. Scalable means that turnover can be increased without the financial and personnel costs growing at the same rate.
Innovations are possible at all levels of the business model. The recipe for success is to design the individual building blocks in such a way that they are all perfectly tailored to the needs of the clientele.
Proof of concept
Once you have identified market potential for your idea and created an initial business model from it, it is time to test whether it really works. Find out with as little effort as possible whether your solution will find favour. This step is called Proof of Concept (PoC) by start-up experts. It saves you from spending a lot of time and money on a product that becomes a slow seller just because you haven’t understood what your customers want. This is even more important the more innovative your business idea is.
The proof of concept for your start-up depends on your business model. Sometimes a simple website is enough to test demand.
The insights you gain from your proof of concept will help you refine your business model. Then it’s time for the next step:
- business plan
In order to be well prepared for the market, you need a business plan in addition to your business model. In it, you describe in detail what you plan to do and where, what is special about your idea and why you are the right person to implement it. In the financial plan, you show how your income, expenses and capital requirements will develop in the first three years after your start-up and where the capital you need for your project will come from.
The business plan is not only of interest to investors. It can also serve as a guide for yourself and help you to assess the risks and opportunities of your start-up.
Once your planning is largely complete, it’s time to raise the money you need for your start-up. To get investors and other supporters on your side, you should prepare a razor-sharp pitch. This is a short presentation of your business idea and its prospects for success that is as rousing as possible. The trick is to get your audience interested in your start-up in just a few minutes. Describe briefly and concisely who you are, what you intend to do, what is special about it, how big the market is and how much capital you need.
“The ‘problem slide’ is the slide in the pitch deck that is often the worst,” says Arnas Bräutigam in the webinar. Why? Because most startups think from the solution and then try to construct a problem to convince the investors. In the webinar you will learn how to avoid this mistake and how to convince with your presentation. Have fun!
Success factors: What makes a start-up profitable?
Everyone knows the famous success stories of the big start-ups that seemingly from nowhere have turned entire industries upside down and achieved almost unbelievable growth. And many ask themselves: How did they manage that? What is the secret of their success?
To put it in a nutshell: There is no universal recipe for success for start-ups. It always takes a great deal of luck and the right timing to land the big coup. Nevertheless, certain patterns can be derived from which start-up founders can learn.
First of all, super-successful start-ups almost always respond to a concrete, demonstrable need with their offer. If you encounter a nuisance in your everyday life and a compelling solution comes to mind, you are already on the right track.
Secondly, the solution should be innovative – this is more important than ever for economic success today. However, innovative technology is not necessarily required. A completely new way of selling or a new and extremely convenient payment system can also make the difference.
The third success factor of the top start-ups is: they do not tinker away in silence until their offer is fully developed, but seek permanent exchange with their target group at an early stage. A deep understanding of people’s needs is the be-all and end-all – not only for start-ups, of course, but especially there.
It follows that you must always remain adaptive and flexible. More important than the solution is the problem you promise to solve. If your first idea doesn’t work, say goodbye to it and look for a new solution.
Great uncertainty is typical for start-ups. Therefore, it is important to keep the risk as small as possible. “Just do it” does not mean rushing ahead blindly and putting all your eggs in one basket. On the contrary: successful start-ups only risk as much as they can afford. And they only ever take the next step when they are sure that the direction is right.
Start-up seminar: Pitch Deck
In our interactive online seminar, we support you in creating your pitch deck – together with Arnas Bräutigam from AddedVal.io, who passes on his valuable insider knowledge in video units. Afterwards you will receive a confirmation of participation. Let’s pitch!
The development and financing phases of a start-up
All start-ups go through the same development phases, each of which is characterised by specific tasks and risks. The financing needs and the available financing channels also change from phase to phase.
It helps to know the typical course of development of a start-up, because then you can better prepare for the changing requirements and plan the financing for your company more effectively.
- seed phase
The seed phase is the planning and preparation of your start-up. It is the time when you plant the seed for your start-up. Important milestones in this phase are the business idea, the business model, the business plan, but also the product development including proof of concept.
Most start-ups finance the expenses, which are still quite manageable in the seed phase compared to later ones, from their own savings or from loans from friends and family.
If the capital requirements are already so high that “real” outside capital has to be injected, you don’t even need to ask your bank for it. The risk is too high at this early stage for banks and savings banks to willingly make their money available. Instead, you should look for a business angel who is willing to invest in you and your idea this early. Alternatively, you can also start a crowdfunding or crowdinvesting campaign. The advantage: If you succeed in convincing the crowd to support you, you would also have a proof of concept in hand that you could present to the investors in the next financing round.
- start-up phase
The start-up phase begins with the actual founding, i.e. with the registration of your company with the relevant trade office. Your tasks now include presenting a market-ready product, organising market entry, building up the distribution network and pushing marketing.
The biggest challenge in this phase is that not only do you have to make the initial investments, but you also have running costs (for rent, electricity, insurance, staff and your private living expenses) – but your turnover only increases slowly. Securing your solvency now has top priority!
For many start-ups, financing in this phase comes from their own resources, supplemented by equity capital from investors (e.g. venture capital companies). Public funding programmes provided by the Landesbanken or the KfW Bank also play an important role in supporting start-ups in Germany. They are often linked to classic bank loans, which you should consider as a further component of financing in the start-up phase.
How do German start-ups actually finance themselves?
We have prepared the data from the Startup Monitor 2020 for you.
Click here for the list!
- start-up phase
Once the business of your start-up has taken off, it has reached the so-called build-up phase. After the turbulent initial period, something like routine sets in: The processes in the company are optimised and the entire organisation is professionalised. Often, the first employees are hired to relieve the founding team.
The start-up phase is – not always, but often – characterised by a start-up reaching break-even (transition to the profit zone), so that at least part of the financial requirements for the establishment of the business can be covered by the revenues.
However, it is equally possible that your company will not break even until the next phase. But even in this case, the willingness of investors and banks to provide financing is higher in the start-up phase, simply because your prospects for success are more predictable than in the seed and start-up phases.
- growth phase
As soon as your start-up has established itself on the market, the first major expansion phase is upon you. The products are developed further, new target groups are addressed and the distribution system is expanded. All this costs a lot of money, which is why the capital required for the growth phase is significantly higher than in the previous phases. On the other hand, the risk is no longer as high because your start-up has already proven that its business model is marketable.
In this phase, financing plays a decisive role in determining whether your start-up can prevail over the competition in the long term and maintain its pioneering role in the market. Therefore, depending on the size of the company and its goals, it may make sense to think about an IPO. If that seems a bit too big, you can continue to rely on equity capital, loans and funding programmes to achieve your goals.
5 Maturity phase
If your start-up has made it to the fifth phase, you can pat yourself on the back. From now on, it can be considered an established company and officially leaves start-up status behind.
In the maturity phase, growth usually slows down to a “normal” level and profits stabilise. Upcoming investments can be financed from the revenues generated, but loans and money from the investors also come into question for financing.
In the maturity phase, it is important to keep the start-up thinking of the early days in order not to fall behind. Remember: Innovation comes from radically questioning familiar processes. A close link to the customers and their needs is the best protection against expensive mistakes and bad investments.