Founding a Startup Company: Considerations, Process & Pitfalls

Embarking on the journey of founding a startup in Switzerland is a challenge that demands clarity, strategy, and foresight. In this blog, we explore all the various considerations, processes, and pitfalls of startup creation. This includes defining what truly constitutes a startup, outlining the most important steps to founding a startup company, and understanding its various life phases. We also discuss the pitfalls to avoid and essential tips for success.

What exactly is a startup?

The term “startup” is often misused to describe any type of new business that appears modern and edgy in some way. However, a true startup is generally defined as a newly established business venture designed to develop innovative products, services, or business models that address unique market needs or create entirely new markets.

Opening a new café bakery in your neighborhood is therefore not a startup, irrespective of its quirky décor and tasty treats.

Startups are known for their agility, scalability, and disruptive potential, often driven by motivated and ambitious founders with a vision for growth and impact. Founders of startups identify key market gaps or untapped market segments and fill them in entirely new ways.

It is a culture characterized by innovation, eagerness to learn, an openness to experiment and make mistakes, and the willingness to question and revise one’s own ideas until success is achieved.

Steps to founding a startup company

Now that we are clearer on what a startup is and isn’t, let’s dive in and explore the 10 key steps to founding a successful startup:

Step 1: Business idea

The foundation of any successful startup is a compelling business idea. Identify a problem or opportunity in the market that your startup can address uniquely.

Many entrepreneurs looking to found a startup already have a great business idea in mind. Often it comes in a flash of inspiration which precedes even the thought of starting a business. If that is the case for you, the next step is to refine and clarify the business idea by conducting market research, gathering feedback, and validating your idea to ensure its viability and relevance.

Another route is to begin with the plan of setting up a business and then search for a gap in the market to fill. This can be your own idea generated by identifying unsolved consumer problems, exploring trends in customer interests, brainstorming sessions, and considering your own unique skills and strengths.

You can also seek inspiration from other countries. Often, you may be able to find a new successful business idea abroad that has not yet made it to the Swiss market. Being the first to implement the idea in Switzerland can give you the first-mover’s edge over the competition and lead to lasting success.

When taking this “copy-cat” approach, you need to be careful to not infringe on any trademark protection, as well as conduct careful market research to ensure that the same business model is viable in the Swiss market.

Step 2: Business model

The next stage of refinement of your business idea is to construct a clear business model. With your idea as a starting point, determine how your startup will generate revenue, acquire customers, and deliver real value. Consider factors such as pricing strategy, distribution channels, and revenue streams to create a sustainable and scalable business model.

Developing a business model will help you gain a clearer picture of whether your idea is genuinely feasible and can be practically implemented. This type of critical appraisal can save you a lot of time and money by identifying flaws in your business early on.

It is less detailed than a full business plan but is also less time-consuming to draw up and can give you a broad overview that will be used later as the foundation of your business plan.

Step 3: Founding team

Assembling a talented and diverse founding team is the most decisive factor to successfully bring your business vision to life. While this is listed as “step 3”, it can really take place earlier or later, and may even evolve slowly during the early stages as your business idea comes to life and more key founders join the party.

You may brainstorm the initial business idea with a fellow entrepreneurial friend, meaning that the founding team was already partially formed before even generating the business idea.

As your idea is refined and developed, you may see the need to bring in additional team members, each with their own unique skills and approach.

When putting together the founding team, look for individuals with complementary skills, shared values, and a passion for your startup’s mission. A strong founding team is essential for overcoming challenges, fostering innovation, and driving growth.

Step 4: Business plan

Once you have finalized your business idea, drawn up a business model and put together the ultimate founding team, it’s time to develop a comprehensive business plan outlining your startup’s goals, strategies, and financial projections.

Your business plan should describe your market opportunity, competitive advantage, target audience, and growth strategy.

A well-crafted business plan not only serves as an internal roadmap for your startup but also demonstrates credibility to investors and stakeholders. It is therefore an essential tool for acquiring much-needed funding for your startup and forms the backbone of your business during the formative period.

For more information on how to construct the ultimate business plan that will convince investors, read our blog on the topic.

Step 5: Pitch your business and secure financing

With your compelling business plan at the ready, you can now go out and pitch your business to potential investors, accelerators, venture capitalists, or credit institutions to secure financing.

Prepare a compelling pitch deck that highlights your startup’s value proposition, market opportunity, traction, and financial projections.

Be prepared to negotiate terms and navigate the fundraising process to secure the necessary capital to fuel your startup’s growth.

Acquiring the funding needed to start and grow your business is a critical step in the process but is also one of the most delicate and complex issues to navigate. With so many options to explore and various traditional and alternative financing models to consider, it helps to have the right expert guidance during this stage of your startup’s formation.

Step 6: Legal form

Before beginning the process of registering your new company, you must decide on the appropriate legal form for your startup, considering factors such as liability, capital requirements, scalability, taxation, and governance structure.

In Switzerland, common legal forms for startups include sole proprietorship, limited liability company (GmbH), and stock corporation (AG). Consult with Nexova’s legal and tax experts to determine the most suitable legal form for your startup.

Step 7: Company name and IP rights

Finding the perfect name for your startup is an extremely important step, as it is your primary identifier for customers going forward. The name should be unique, recognizable and memorable. You must also ensure that the name you choose doesn’t conflict with existing business names in your industry.

For this, you will have to conduct a thorough search to check the name’s availability and make sure it meets the legal requirements of a trademark in Switzerland.

Of equal importance is securing intellectual property rights for your brand, products, and any technological innovations you have created. It’s crucial to acquire patent protection for any new inventions that your start-up is based on.

Protecting your intellectual property is paramount for safeguarding your startup’s competitive advantage and mitigating risks.

Step 8: Formal founding procedures

Once you have all the basic foundations in order, including a solid business plan, a founding team, financing, and a company name, you can proceed with the formal incorporation process. Many entrepreneurs understandably don’t want to have to think about the boring bureaucracy, but it is a necessary part of starting and running a business in Switzerland.

If you don’t want to spend countless hours of struggle going through this process on your own, consider outsourcing the incorporation procedure to a fiduciary partner you can trust like Nexova AG.

The precise incorporation procedures vary depending on the legal form of your business and the industry you are in. If you are planning to incorporate a distinct corporate entity such as a GmbH or AG, the founding process will include drafting articles of association, obtaining notarization, and registering your company with the commercial register.

It’s important to adhere to all legal requirements and compliance obligations to ensure a smooth and legitimate founding process.

Step 9: Hire employees

To support the rapid growth of your startup, you will need to recruit talented employees who share the company’s vision and contribute to its success. The requirements for the size and type of workforce vary greatly depending on your specific industry and business model, but every successful startup needs the right employees for the job.

One of the best ways to attract top employees is to offer a competitive compensation package; however, it can be difficult for startups on a limited budget to compete with large corporations in offering their employees high salaries.

You may, therefore, have to rely on other forms of attractive compensation and benefits, such as offering employee shares in the company and performance-related bonuses. This also helps motivate your employees to work towards the success of the startup.

As an innovative new startup, you can offer employees a positive and exciting work environment and provide ample opportunities for professional growth and development. Hiring the right team is crucial for scaling your startup and achieving your business objectives.

Step 10: Launch your business!

With the necessary groundwork in place, it’s finally time to launch your startup and introduce your products or services to the market. This involves executing your marketing strategy, engaging with the public and winning your first customers, and undergoing iterations based on feedback and market insights.

During the launch phase, it’s vital to stay agile, adaptable, and focused on delivering value to your customers as you navigate the challenges and opportunities of building your startup into a successful business.

Tips to building a successful startup

Building a successful startup requires more than just a great idea and funding. Here are some essential tips to help you increase your chances of success:

1. Focus on solving a real problem: The most successful startups always help solve a tangible, verifiable need with their offering. Ensure that your startup addresses a genuine pain point or need in the market and prioritize delivering value to your customers. The easiest way to find such a need is to identify your own pain points and difficulties in your everyday life and find a solution to solve them which hasn’t yet been tapped into.
2. Build a strong team: Surround yourself with talented individuals who complement your skills and share your passion for your startup’s mission. In most cases, it is not just the best business idea that leads to lasting success but having the right individuals behind it. This is also something that investors know and look for.
3. Network and market your startup from day 1: Many budding entrepreneurs make the mistake of working in silence, thinking that they can start marketing their product when it comes time to launch and customers will all flock their way. Unfortunately, it doesn’t work that way. You need to dive into the start-up scene and create a hype around your product from the very beginning. This involves networking with peers and potential investors, putting out rumors of your upcoming launch on social media, and engaging with your target audience from an early stage.
4. Stay lean and agile: Adopt a “lean” startup approach, iterate quickly, and validate your assumptions through experimentation and feedback. It’s crucial that you are open to learn from your mistakes and remain flexible. You are trying to solve a specific problem, so don’t get attached to the solution you have come up with for it. If it isn’t working as you expected, scrap it or change it in favor of something which works better.
5. Prioritize customer experience: Put your customers at the center of everything you do, and strive to exceed their expectations through exceptional products, services, and support.
6. Embrace failure and learn from setbacks: Failure is an inevitable part of the startup journey. Embrace failure as an opportunity to learn, adapt, and grow stronger as a founder and as a startup.
7. Seek mentorship and advice: Founding a startup is by no means easy, and failure is always knocking at the door. It’s vital to surround yourself with experienced mentors, advisors, and peers who can provide guidance, support, and valuable insights to help you navigate the challenges of entrepreneurship.
8. Persistence is key: Building a startup is a marathon, not a sprint. Stay resilient in the face of challenges, setbacks, and uncertainty, and remain persistent in pursuing your vision and goals, even after countless mistakes and failures.
9. Only risk what you can afford to lose: Uncertainty and risk is a fundamental aspect of the startup scene, but that doesn’t entail recklessness. Don’t just dive in blindly and risk everything on your idea working out. Be realistic about the very real chance of failure too, and only risk what you can afford to lose. Be confident but prudent in taking each step once you have carefully considered whether it is the right move.

Life phases of a startup

Startups typically go through several distinct life phases as they evolve from inception to maturity. Understanding the development cycle of startups is useful to be able to better prepare for your changing needs and circumstances and plan your financing according to the capital required at each phase.

These phases may vary slightly depending on the industry, business model, and specific circumstances, but they generally include the following:

1. Idea generation

The journey of a startup begins with the generation of a breakthrough idea or innovation that has the potential to disrupt industries or create new markets.

2. Seed stage

The seed phase includes the early planning of the startup. This is where you take your initial business idea and refine and develop it through a business model, business plan, and the development of your minimum viable product (MVP).

In the seed stage, capital requirements are usually still low, and so founders bootstrap their startup, and secure initial funding from friends, family, angel investors, or crowdfunding campaigns.

3. Startup formation

During the startup formation stage, founders formalize their business structure, establish a legal entity, and continue building onto their founding team to execute their vision and scale their operations.

At this stage, you should already be presenting a customer-ready product, building a distribution network, and establishing a brand presence through marketing and networking. During the startup formation phase, capital requirements increase significantly, and you may need to secure additional funding through venture capitalists and credit institutions.

Fortunately, you may also see your sales begin to climb, allowing you to start covering your own expansion costs. However, it is likely that expenses outweigh revenue during these first steps of your business.

4. Early development

Congratulations! If you’ve reached this point, you’ve managed to navigate the tumultuous formation phases of your startup and can really start focusing on developing it into a profitable and scalable business.

During this phase, startups work on refining their product-market fit, acquiring early adopters, and iterating based on customer feedback and market insights. The focus is on optimizing your company processes, expanding by hiring your first employees outside of the founding team, and ideally reaching break-even where you transition to a profitable company.

5. Growth and scaling

As your startup gains traction and validation, it enters the growth and scaling phase, where the focus is on expanding your customer base, scaling operations, and capturing a greater market share. Adequate financing is key to assert your position against the emerging competition, and so you may raise additional capital through loans or issuing shares and equity to achieve your goals.

Having successfully reached this point and proved that you have a legitimate product offering and scalable business, investors and banks are far more likely to support your company with the capital you need.

6. Maturity or exit

If you’ve reached the maturation phase, you have officially made it as a successful startup. This is the point where the so-called “startup” becomes an established company. Here is where growth slows down and your business stabilizes. New investments or expansions are typically financed from accumulated profits, but additional loans and investments are still an option at this point.

This is also the phase where startups may choose to pursue various exit strategies, such as acquisition, merger, or initial public offering (IPO), to realize value for founders, investors, and other stakeholders.

Opportunities and risks: the thin line between success and failure

Entrepreneurship is inherently risky, and success is never guaranteed. Recognize that failure is a natural part of the entrepreneurial journey and focus on learning from your experiences, pivoting when necessary, and persevering in the face of adversity. There is a very thin line between success and failure, and sometimes all it takes is a little luck and the right timing.

What if it just isn’t working? Consider a complete pivot

Despite your best efforts, not all startups succeed. If your startup’s current business model or strategy simply isn’t gaining traction, consider pivoting in a new direction or looking for a new market opportunity. Evaluate alternative approaches, iterate based on feedback, and pivot decisively to position your startup for success.

Remember, the time and money you have spent on making your current business model work are sunk costs, so if it becomes clear that it’s time for a complete change in direction, there is no time to hesitate.