Sunday, February 21, 2016

8 Big Business Tenets That Don't Work For Startups

big-company-tenetsAs an advisor to many startups, I often see business principles espoused that may make sense for a large and established business trying to foster innovation but won’t work for a new startup. I’m a strong proponent of new entrepreneurs starting with a big vision, and believing anything is possible -- but I’m also a pragmatist who believes in factoring some realism into any plan.

The fact that entrepreneurs tend to think outside the box with passion and persistence is a big positive, and it's clearly the reason many large companies now fund or buy successful startups for new innovations rather than depend on internal projects. On the other hand, large companies with existing resources and qualified people have different rules for innovative efforts.
  1. Great ideas will have no trouble getting funded. Big businesses fund internal ideas with the money and people they already have. Startups don’t typically find any funding from investors until they prove they can execute, have a proven model and are ready to scale. Entrepreneurs who expect funding at the idea stage are usually disappointed.

  2. First-to-market is a key competitive advantage. Too many startups are proud of being the first-mover in a new market -- only to be overrun by big gorillas with more resources who see the startup traction. First-to-market is only a sustainable advantage for a large company, like Apple or Google, with the resources to back up their first move.

  3. Always start with a Big Hairy Audacious Goal (BHAG). This approach works for big companies who struggle to think outside the box and need a long-term goal for evolving their business. Startups are better served by attacking an existing painful problem or unmet need with near-term as well as long-term potential, placing smaller bets faster.

  4. Don’t start until you know the risks are minimized. Large companies have lawyers and executives who get paid to reduce risk to near zero. Entrepreneurs have learned that there are no rewards without risk. If they want growth and sustainability, they often increase the smart risks, meaning more risk for growth or competitive advantage.

  5. Successful projects are well-staffed and methodically executed. This is a business axiom that works well when the scope of a project is well known. For a startup, nothing is well-known, and staffing is non-existent. Entrepreneurs must assume that initial iterations will require several pivots, and money and people will always be a struggle.

  6. Hire or train a specialist for each of the key elements. Big companies depend on specialists and experts, while startups need more generalists. Startups can only afford a few people, so each is expected to do several or almost any role. An entrepreneur founder may be a technology expert, but successful ones are also good businessmen.

  7. If we build a great product, customers will find it and us. Great companies, like Apple or IBM, have a large customer base and quality products, so new technology along the same lines will be found. A startup has no brand, so new products, no matter how great, need real marketing, social-media advocates and education efforts to attract customers.

  8. Keep innovations in stealth mode until ready to ship. Hiding new solutions makes sense for large companies who can be sued for “pre-announcing” a new product to stall the market or kill a competitor. Smart startups make their intentions visible at the idea stage to test customer interest and make corrections before spending real money.
As an entrepreneur, if you are a recent graduate from the corporate world, or have just acquired a prestigious master of business administration degree, be careful when applying the tenets from the business world textbooks to your first startup. The principles of business are critical to both, but startups are more of an adventure into the unknown. It’s a fun journey -- but don’t blindly follow all big company tenets.

Marty Zwilling

*** First published on on 02/10/2016 ***


1 comment:

  1. Thanks Martin, all of them ring so true. I have been mentoring many startups disappointed that their idea doesn't get funded from day one. I think we need more stories that tell how hard people have had to work before any funding at all could be gained.