Building a Startup is Like Building a House

Imagine, if you Will, a contractor who comes to you with a twinkle in his eye and a plan so vague it might as well have been written in invisible ink. “Trust me,” he says, “I will work at your house for three months. I would spend 30% of the money on plumbing, 30% on framing and construction of walls and ceiling, 10% on electrical work and the rest on paint and so on. When you ask if the house will end up being livable, he shrugs. “Who knows? But isn’t this trip exciting?”

This scenario is so absurd that you’ll have the contractor laughing out your not-yet-installed front door. But this example is exactly like the pitch that many startup founders make to potential investors. My research indicates this More than half of founders don’t have a decent “use of funds” slide, This is not good. Founders, you can do better.

When you are building a house, of course you will demand a blueprint, a timeline, and a clear picture of how your future home will look. You don’t want to settle with a contractor whose only plan is to “wing it.” However, in startup land, founders often expect investors to buy into a dream woven with threads of ambiguity.

Investors, like homeowners, don’t want to put their money into a foundation that leads nowhere. They want to invest in a “home” that is not only still standing at the end of the construction period, but is also ready for the next step, whether living in it or selling.

For a startup, the “ready house” is not bricks, mortar and those shiny USB power sockets, rather it is built with milestones and achievements.

Will the startup have filed any patents? How many customers will it attract? What revenue figures will it claim? These are the “rooms” and “fixtures” that investors are looking for in a startup house. If these milestones are in line with what investors expect for the startup’s next funding round, the startup has a very good chance of a successful fund raise.

The house analogy works in more ways than one: mistakes happen, and estimates that are completely wrong are very common. No one expects the contractor to predict the future with absolute certainty; Weather delays, supply issues, and other unexpected events can always hinder work. However, a good contractor will have a plan, a schedule, and contingency measures.

When it comes to startups, looking at plans and poking holes in them is called “due diligence.” Startup founders can’t foresee every market fluctuation or challenge, but they should outline their goals, strategies, and a plan to overcome potential obstacles. This plan is their blueprint for success, and the plan should at least be within the scope of what is achievable.

Look, I understand. Perhaps out of fear of failure or criticism, founders may shy away from providing detailed plans. Perhaps this is his first startup. Or maybe there are huge holes of unknowns in their future. That’s fine, that’s fair, but show that you know how to plan for it too.

The journey of building a startup is an adventure full of unexpected twists and turns, just like building a dream house. Anyone who has taken a house under the roof has at one time or another sat in the middle of a cluttered living room and bawled their eyes out when another curveball came their way. This is the startup life: You roll with the punches.

But you need a plan, and you need to be able to present that plan as part of your pitch. No one will give you a pickup truck, a blank check, and directions to your nearest Lowe’s. You need to curb your “use of money”.