TechBeat: Starting from scratch: 'Every startup has a runway ... leading to a cliff'

'This is our work room, and this is my bedroom'

Most startup companies begin with some version of the same story. There are many paths, many different types of funding and support, and many types of companies, but most start out as one person with a unique idea.

Reda, who was born in Ethiopia, grew up in northern Virginia, received his undergrad degree in Kansas, and had an idea to create a LinkedIn-type network for high school students.

“High school students are online every day, and they’re generating a lot of content that might not be entirely helpful to them,” he said.

“With Meritful, we will give them a platform to actually talk about the things they are proud of, not the party they went to or what they ate for lunch.”

Reda and Jack Schultz, a third year undergraduate computer engineering student at Michigan, sit back to back from each other in the converted living or dining room. Reda said the apartment, with the office, a “nap room” (a sparse room with a TV and a sleeping bag on the floor), a small kitchen, and his bedroom, are being paid for with money he raised from family and friends.

“It’s what I live on, it’s what pays for the apartment, and it’s how I was able to bring on Jack,” he said.

“Luckily I was able to get enough money to start off so that we don’t have the banks breathing down our neck.”

'Every startup has a runway, and it’s leading right to a cliff'

The issue of money is a touchy subject for startups. Learning the ins and outs of different types of funding can be daunting, and many startups resist funding that comes with too many strings attached.

“Every startup has a runway,” Reda said. “And that runway is leading to a cliff. Any bit of funding you can find extends that runway, but at a certain point you will either fly or fall.”

That runway is different for every company. Toby Brzoznowski co-founded LLamasoft, a supply chain design software company that now employs more than 120 people, in a small office on Washington Street in Ann Arbor.

“Trying to compare startups is not like comparing apples to apples. They have the same name but no two are going to be the same,” he said. “We were able to bring a product to market with no funding, but that does not work for everyone.”

Reda said he hopes to develop Meritful more before he seeks venture capital for the project.

“If people invest very early, they are investing in just you and an idea. That’s a very, very risky investment,” Reda explained.

“The risk involved means they will have more leverage and will demand more for their investment. If we have a product that we can show that has been tested, we take out some of the that risk and we can get a better deal.”

'Suck less every day'

Starting a company is not easy. There have already been ups and downs for Reda and Schultz, and they only started in April. Reda said it can be frustrating because he and Schultz are technical founders, but so much of what goes in to founding a company is not on the technical side.

“We know how to build a software system. Michigan is a great school, and it taught us how to do that,” he said.

“But if it was just building software you could outsource it and we’d have a lot more successful companies than we do now. The hard part comes in getting our user base together, finding our clients and our customers, acquiring funding, and building out the whole package.”

Reda and Schultz have a long way to go before they have the whole package put together. They hope to release a version in August that Reda calls the “minimum viable product.” Once they have a small group of real high schoolers trying out the site, they will start to talk to interested parties about a first round of investment.

After that, the product might take off, or it might crash.

“For now we’re just taking it slow and trying to suck less every day,” Reda said. “We want to learn one thing every day.”

“Hopefully more than one thing,” Schultz chimed in.