Launching A Successful Startup: Insights from Michael Houlihan and Bonnie Harvey

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Most start-ups fail. Two recent articles, one by Forbes one by Fortune, cited a 90% failure rate of start-ups. And top Harvard Business School lecturer, Shikhar Ghosh, confirms that 75% of U.S. venture-backed firms don't even return investors' capital.

In search of understanding best practices for start-ups, I recently spoke with Michael Houlihan and Bonnie Harvey the co-founders of the world’s largest wine brand, Barefoot Wines. They told me, “Every Business that sinks was first launched!” They are also authors of the New York Times best selling book, “The Barefoot Spirit.” Below are their answers along with the five keys to launching a successful startup:

Robert Reiss: What do you think is the most important factor in startup success?

Michael Houlihan and Bonnie Harvey: Ask yourself why you are going into business in the first place. Is it your passion or is it the lifestyle? Would you be a sole proprietor or merchant with no interest in expansion or being acquired? Or would you intend to build brand equity that you want to monetize through an acquisition or merger? Depending on the answers, you are on very different paths. The later involves growth, reinvestment, and strategic planning. So-called serial entrepreneurs are ultimately brand builders. They build equity in the brand of their goods and services with the intent of being acquired. Then they take the profits and start a new business. This involves constant reinvestment in growth.

Key # 1: Why are you doing it?

Reiss: How big does your startup have to be to attract an acquirer?

Houlihan and Harvey: If you are a brand building entrepreneur, we recommend that you take an investment broker to lunch, but not just any investment broker, one who is familiar with the acquisition of a businesses like the one you are contemplating or have started. Ask him how big in terms of sales, gross income, rate of growth, market share, and geographical area that business was at the time of acquisition. Also ask him who is on the short list of potential acquirers for your business and why. This will give you a good basis for financial planning, product configuration, rate of growth and strategic positioning.

Key # 2: What’s the number?

Reiss: How do you grow your startup on limited capital?

Houlihan and Harvey: It’s not going to happen overnight. Get a cost accountant right away. Know the cost of your product, the cost of sales, and the cost of overhead. Know how long it will take a new territory or initiative to ROI. And more importantly, know how fast you can afford to cash flow your way into yet another new territory! Also, start with what the consumer pays and work backward to set your wholesale price. Start small to discover the true cost of sales, the most overlooked cost by most start-ups. If you are relying on an investor, he or she will be more likely to support a conservative and thoughtful grow plan that can help finance itself with measured returns.

Key # 3: All ahead slow!

Reiss: Why do so many start-ups fail?

Houlihan and Harvey: They start their business before they fully understand the distribution system. They fall in love with their product and branding without realizing all the hands that their product has to pass through to make it to the downstream consumer. We tell startups to talk to people on every level of their distribution chain including wholesaler or jobber ownership, sales managers, salespersons, warehouse managers and workers, store buyers, managers and clerks - and find out what they need to do their job. It may surprise you and it usually has nothing to do with your product, pricing, logo or catchphrase. It might require you to revise your package, label, or even your product design in order to work within their established systems and parameters. Understand these requirements before you finish designing your product or finalizing your budget.

Key # 4: Make friends in “low” places.

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Reiss: How can startups avoid fatal mistakes?

Houlihan and Harvey: Mistakes are inevitable, and a valuable part of the learning process. That’s why we suggest you start in a small, manageable area or with a beta group so you can run around, hat in hand, and apologize to everyone you have offended by your mistake. But when you do make a mistake, do it “write,” not just “right.” Write down the mistake and the assumptions that led to it. Then identify all the documents that need to be changed to make the mistake less likely to reoccur. These may include signs, labels, policies, procedures, checklists, job descriptions, sign-off sheets or even contract clauses. But there’s a document somewhere that needs to be written or improved. Aim at your documents. Don’t disempower yourself by blaming others. Starting small and get your act together before you take your show on the road.

Key # 5: Aim, don’t blame.

Original article: www.forbes.com

Written by: Robert Reiss

Shana Grossman