A cold start refers to starting a new business without any previous revenue or customers to base it’s inception on.
A lot of businesses are started this way with the basis of it’s creation coming from a hunch that the founder has about a market, product or service.
While no one can guarantee the success of a business, having previous turnover to indicate the response of the market or having previous customers who can provide constructive feedback can go a long way in deciding whether a business is worth starting.
Even the biggest corporations in the world can start new spin-off businesses and fail miserably. And they usually start them with data to back up their decisions in the first place.
Cold starting makes it even more risky for a new business as they are starting from scratch. Especially when a lot of capital is involved.
There are no previous customers to market to and no revenue to sustain operations.
All the funding for the cold start business would be the founders’ own money, financing from lenders, or funding from investors and venture capitalists.
Cold start vs warm start
Most business people would instinctively realize the value of not appearing like a cold startup.
The best examples are internet portals, forums and communities.
When a guest visits one of these places to find like-minded people, seeing a forum void of user activity can deter a gardening hobbyist for example, from signing up as a member and move on to the next discussion forum.
This is why it is common practice for founders of such communities to start the business with fake users to make the place look like anything but a cold start website.
This would be termed as a warm start.
The more online activity such as comments, answers and replies are observed, the more a guest would think that a forum is not a cold start. Yet the truth might be that a forum just went online yesterday. But hired users, fake users or robots are making the place look like a space hiving with activity.
People will then be more inclined to sign up and become a member to contribute to the activity going on.
When the number of real users hit a critical mass, then the business would take on a life of it’s own and become self-sustaining.
Minimizing the risks associated with cold start
The moment a company is incorporated, it should mean that the rocket has fired-up and that the only way the ship would come down is with the failure of the business.
So an entrepreneur should be careful with making decisions like that.
There would still be a lot of room to change minds and strategy before starting a business. Even the decision not to start a business can often be a good business decision.
To minimize the risks of cold starts, it is best to test the market by maybe marketing to a small targeted group of prospects, gather feedback and improve on the product and delivery.
Then repeat this process a few times to refine the product.
Only go ahead with starting the business when traction can be observed.
It must be added that some of the biggest and most successful companies today kicked-off their businesses as cold starts.
