How to Start a Tech Company

Every day, new entrepreneurs start tech businesses, hoping to become the next Steve Jobs or Bill Gates. The reality is that over 90 percent of such businesses fail. But some smart business owners do live to realize their dreams. Among successful high-tech business owners, there are some commonalities as to how they started their empires.

Do a Little Research

Call your target customers using your contact list – put them under NDA (non-disclosure agreement) if required – and find out if they think your idea is as good as you think it is. You must be confident that your great idea has a market!

Most research firms charge a great deal for their reports, but if you read their press releases and the press releases of competitive firms, you can often extrapolate to find the Total Available Market (TAM) and Served Available Market (SAM). The difference between the two is that the TAM covers every way a customer can currently meet this need, and the SAM is the portion of this TAM that your product will cover. This is a good way to do your market research for free.

Glean each data point from your research for relevant supporting quotations. Keep them in a computer file to be inserted into your investor pitch and business plan.

Start Planning

Create a go-to-market plan that covers how you are going to market your product or service such as web-based advertising, use of PR, sales channels and others. Write a comprehensive plan, and make sure it can be inserted easily into the business plan you will write.

Build a Sales Forecast

Create a comprehensive first-year sales forecast based on the customers you spoke with previously, and extrapolate it over five years based on who you think you can sell to and their potential dollar volume.

Be conservative in your sales forecast, but not too conservative. Most investors want to see a company become a $100 million business in three years. If you are not working toward venture capitalist funding, this forecast is much more lenient.

Create a Tech Business Plan

Create your business plan outline. It should look something like this:

  • Summary and Overview 
  • Mission Statement and Value Proposition 
  • Market Snapshot 
  • The Product and Key Defensible Advantages (This should include information on any patentable intellectual property and roadmaps with credible timelines.) 
  • Go-to-Market Plan 
  • Operations Plan 
  • The Team 
  • Financials 
  • Addendum: Comparable companies as case studies; include IPO date and current market valuation

Fill in each section from what you learned through research. Add key quotations reserved from your research, and use tables and graphs whenever possible. Make sure the overall document is relatively thin.

Develop an Executive Summary

Create your executive summary from the business plan with a paragraph for each of the major headings in your business plan. This document must be no more than two pages.

Create a Company Pitch

Create a comprehensive Microsoft PowerPoint presentation using both the business plan and executive summary as guides. Use pictures to convey key concepts whenever necessary, and try to make each slide readable, keeping text to a minimum.

Assemble Your Team

Recruit your team members from the best engineering and business talent you know. Offer them equity in the firm; for example, a VP should have between 1-and-2-percent of the company, a director between 1/2-and-1-percent and a senior manager between 1/4-and-1/2-percent. Keep your team lean and mean, and shoot for no more than 15-to-20 million outstanding shares at your exit event, which will be an M&A (merger and acquisition) or an IPO (initial public offering).

Choose trusted business and technical gurus to serve as your advisory board and board of directors. These people can help you solidify strategy, win funding and gain bank approval if you need short-term credit.

Choose your CFO or CFO firm to help truth-test your sales forecast and create a set of balance sheets for your business plan, as well as a capital structure for the issuance of stock. The CFO can be the most important person in the company. Also, get a corporate attorney and keep him on the back burner.

Figure Out Logistics

Figure out where you to incorporate and where your office space will be located. If you need offshore manufacturing, get quotations and choose your partner. Write a comprehensive operations plan with this information.

Reach Out to Investors

Talk to everyone you know in your contacts database, and see who can give you recommendations for venture capitalists. Alternatively, you may want to consider "angel" investors who contribute a smaller amount of capital but take a smaller portion of your equity. Make a list of these companies, and visit each website to see who is the best fit.

Approach no more than three investors after receiving an introduction; give them a strong cover letter that highlights your key value proposition and attach your executive summary. If you get no response from these three in a week, try three more investors, all with introductions. If you mail an executive summary to a venture capitalist without an introduction, the chances are slim that you will get a response.

Prepare for Investor Meetings

Brainstorm a list of potential questions that investors will probably ask, and be prepared to answer them succinctly. Bring your key technical people, since much of the validation investors do revolve around determining how strong a technical team is.

Prep your potential customers for the questions potential investors will ask them and prepare yourself for what investors will ask of you. You may be asked to prepare spreadsheets with very little turnaround time; they are testing you, so be sure to meet the deadline.

Review Term Sheets

If you pass these phases, you will be given a "term sheet" that spells out what the venture capitalist expects from you regarding equity and milestones. Engage your attorney on retainer, and have him or her review this document for fairness and ability to comply.

Build Your Brand

Establish your initial branding by hiring a good firm to create a color palette and logo for your business. Create a corporate identity package with letterhead and business cards. Good branding is critical when starting a tech startup as it can help you stand out from the crowd.

Develop Your Website

Create a website with compelling content. Divide the content per vertical market you are serving, and have a good navigation system so that potential customers can find the content specific to them easily and quickly. Use the same color scheme to maintain branding and identity, and tie in social networking tools such as Twitter and blogs to increase traffic to the site.

Define Milestones

Refine engineering tasks, timelines and deliverables. Stay on schedule even if you have to outsource.

Prepare for Launch

Set up sales channels and create collateral to win business. This step may not take place right away, depending on the time it takes to develop the initial product. Sign up a few beta customers who can help work out the kinks and bugs, if possible.

Set up solid financial milestones to measure your success. Don't get discouraged if it doesn't happen overnight, remember that if starting a tech company that succeeds in the long run was easy, everyone would do it.

Have a Backup Plan

Make sure that you plan for any possible design flaw, and have a contingency plan. Many a company has failed over lack of careful contingency planning!