The flavour of the past few decades has been entrepreneurial
ventures as the core of new business generation, and the most visible form of
not only self-employment but also generating employment for scores of people.
However, over the last few years, the word startup has been in increasing
circulation in business and social media. The last decade and this decade
clearly belong to startup as the more profound form of entrepreneurship. Strictly
from a dictionary point of view, a startup company or a startup is an
entrepreneurial venture or a new business in the form of a company, partnership
or temporary organization designed to search for a scalable and repeatable
business model. This definition hardly provides a distinctive or
differentiating colour to startups. A more practical and true-to-the-ground
definition of startup provides a different and relevant perspective.
From a real life point of view, a startup is a company
working to solve a problem where the solution is not obvious and success is not
guaranteed. This is the fundamental characteristic of a startup, as
differentiated from any other venture that may be established by normal
entrepreneurs or existing companies. An example or two would make the concept
clear. The concept of exclusive retirement homes for senior citizens, usually
located in outer suburbs as gated communities, is gaining ground. An
entrepreneur may set up such a project in a new city or in the same city in a
different format. A startup, however, would try to find a way in which such
senior citizen services could be offered in the current mixed neighbourhoods,
without moving senior citizens out of their current homes. The former, while it
has its entrepreneurial risk, largely works on a proven business model. The
latter, a true startup, seeks to create a new business model out of the idea of
serving senior citizens creatively.
More fuzzy, more valued
Startups usually have a fuzzy or unclear texture. One can
certainly make out the shape of a fuzzy object but would find the edges hard to
describe. A startup is also like that; it is indeed easy to synchronize with
the startup idea but difficult to understand the details. It is this fuzziness
that makes startups attractive for investors looking for the next breakthrough
business opportunity to cash in on. In fact, the more fuzzy a start-up is the
more attractive the valuation could be, provided that the fundamental basis of
the idea has been validated in a pilot. Another example could make things
clearer. Providing microfinance to the underprivileged is by now a proven
concept. However, providing microfinance exclusively for drinking water and
sanitation purposes could be an idea that connects current governmental missions
with focussed needs of rural population. The concept could be understandable
but the business model by which the concept could be workable and viable is
fuzzy.
The skill and passion as well as the diligence and
determination of a startup founder make such fuzzy ideas work. To be realistic,
while they may work in most cases, they could also fail in certain cases. Once
the fuzzy idea is workable the market opportunity could be enormous. Unlike an
entrepreneurial venture which relies on a superior competitive strategy or
execution, the startup, once successful as an idea writes its own rules and
develops its own industry structure. The incentives to investors and employees,
in a successful start-up, are therefore more exciting compared to a normal
entrepreneurial venture. The incentives are compounded because a start-up tends
to pass on its ownership from time to time based on scale up investment
requirements and investor appetite opening up opportunities for founders and
employees (who have been issued stock options) to cash out periodically.
Ten Sustainable
Principles
While the theory of start-ups is, no doubt, exciting there
tends to be many a slip between the cup and the lip. The margin for error in a
startup is low while the temptation to err is high. This blog post summarizes
ten principles which could help start-ups be successful, and in a sustainable
manner.
Ideas from environment
Startups do not necessarily require product discoveries or
process innovations. Startups, however,
surely require an inventive mind to understand the latent needs of
socio-economic environment and provide creative products and services. This has
been accomplished through either digital aggregation or disintermediation until
recently but could entail artificial intelligence and internet of things in
future. Startups succeed when they understand creative use of new technologies.
Strength through partnership
Startups are usually based on certain singular ideas and
unique core competencies of founders; competencies are, no doubt, critical in
converting ideas into reality. However, converting an inventive idea into a
successful business requires more than technical competence, organization
building or external interface, for example. Co-founders who work together,
share and synergize responsibilities have tasted higher levels of success.
Differentiated employees
Just as founders of startups are different, employees of
startups are also different. They are not solely motivated by monthly salaries
or career progressions as understood in large organizations. They are also
willing to commit their efforts and time in advance to see the success of the
startup ideas. Heart of heart, some of them could be nurturing the idea of
becoming founders of future startups too. Selection of the first employees for
a startup with this zeal rather than with the comfort of prior association is
important to create the right startup culture in the organization.
Funding needs to be humbling
The high point of startup ecosystem is the excitement of
exponentially escalating serial funding. Responsible startups view such funding
as a humbling reminder and positive reinforcement of their commitment to the
ideas, investors and consumers. There are, however, some not so responsible
startups which, carried away by such funding, expand operations adventurously;
some even splurge irresponsibly. Such startups fold up sooner than later.
Recent experience suggests that ‘down-rounds’ (current valuations being lower
than earlier valuations) would increase if spending out of funding is not
prudent.
Capitalism through socialism
Startup is, in essence, capitalism in intellectual form. The
objective of making money is certainly a visible trigger for all startups.
However, they also need to have a socialistic fabric in that founders and
employees should be willing to put their ideas, efforts and time in advance
with low remuneration and are willing to wait for future wealth. The system
encourages sharing of wealth (or, the pain of lack of it) until at least a
particular stage is reached. Some startup founders also live a relatively spartan
life as their co-founders or their employees lead. Although the startup system
is capitalistic, the pathway is a trifle socialistic; to that extent it is
appropriate for emerging economies such as India.
More sunrises than sunsets
Startup ecosystem is inherently optimistic. It tends to take
failures in its stride and move on. Established businesses are influenced by
analytical data of successes and failures while startups believe in the success
potential of their ideas rather than the failures encountered by their peers.
What is unique is that entry into the startup ecosystem is not governed by
conventional strategic analysis of entry and exit barriers. It would,
therefore, be somewhat antithetical for a startup to work on a business plan of
classical mode; rather it needs a business plan that is idea-execution centric,
with no frills.
Sustainability, rather than shareholding
Startups founder mindsets tend to be somewhat paradoxical;
they are at one level extremely passionate about their creative ideas but at
the same time they are willing to let go of their firms if sustainability is
better assured in new better endowed and more powerful hands. While cashing out
is, no doubt, a driver, startups have a more practical, and if one may say so
wiser, approach to sustainability than typical large scale entrepreneurs. The
ability of a startup founder to manage the paradox is a vital ingredient.
Self-promotion is vital
Self-promotion is seen often as a narcissistic trend in
structured organizations, and even in broader social interface. For a start-up,
however, self-promotion is critical as usually there is none other than the
startup who believes in the story of the startup. An ability to conceptualize
and articulate the startup value proposition and the competencies of the
founders is an essential requirement for startup success. If a startup founder
is introvert and unlikely to enjoy such self- promotion, partnership with a
co-founder who is an extrovert and a persuasive communicator could be a way of
overcoming the limitation.
A sense of urgency
Startups, unlike more structured entrepreneurial ventures, do
not have all the time in the world to bring their ideas to fruition. Cash
burnout is one issue in the initial stages; and even after the first success
the need to generate surplus cash is another. In a market waiting for ideas, if
an idea takes time to become feasible and commercial, there could be superior
ideas floating in with superior execution. A sense of urgency is vital;
however, it is not to be confused with a sense of recklessness or doing things
without thinking through.
Serialization
A startup is never a startup for ever; it fades or blooms.
Successful startups who stay on have a responsibility to steer themselves
seamlessly into a structured corporation. Those who cash out have an even more
primal responsibility to keep utilizing their core competences to establish new
startups serially. In both the cases, managements have a responsibility to
encourage startups in domains or activities that can be outsourced.
Disruption but not
self-disruption
One of the important factors for start-up success is their
ability to disrupt existing products and services as well as industry
structures. In this quest, start-ups also go in for maverick leaders and
leadership styles. The urge to be different and disruptive should not be
allowed to result in self-disruption. There are unfortunately many examples of
brilliant ideas and emerging models getting derailed by disruption. A positive
mix of the above ten principles could be a robust insurance against such
trends.
Startups also must be cognizant of the fact that disruption
could be a competitive tool in the hands of other competitors, startup or
established. Although not comparable, the manner in which tablets have
disrupted the laptop market but are now finding potential disruption from
convertibles illustrates that disruption is a good entry strategy for a
start-up but it also needs to guard against complacency, an in fact develop competitive
shields to protect itself through the proof-of-concept and growth phases.
Posted by Dr CB Rao on May 11, 2016
