Startups Are Not Smaller Versions of Big Companies!

30th May 2012
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Startups are not smaller versions of big companies though they sure are the starting points. Today’s large behemoths too were once startups – J P Morgan was started as a sole entity by John Pierpont Morgan as an independent financier and banker;Facebook started in a college dorm; Apple started in a garage and Google too started in a garage.

But do startups need to be managed the same way as large companies? Heck, no! Steve Blank, the co-founder of E.piphany (also a professor of entrepreneurship at U.C. Berkeley, Stanford University, Columbia University and the Joint Berkeley/Columbia Executive MBA program), postulated that a startup is not a smaller version of a large company. According to him business practices that make sense for large companies are not appropriate for startups.

Startups evolve and go through different stages to finally arrive at the stage of a large enterprise. Every stage differs in goals and challenges. Steve Blank lists these stages as:

  1. The Scalable startup stage
  2. Metamorphosis – the Transition stage
  3. The Large Company stage

Steve’s postulation also indicates that each of these stages requires different combinations and flavours of:

  1. Management Style
  2. Work Culture
  3. Sales & Marketing Strategies
  4. Technical Skills

Think of a situation where you want to hire the best tech talents for your startup. Would you go through the regular route that either Microsoft or Google would take? People would strive to join the larger established companies as they can provide an employee practically everything that she wants – the culture, the salary, the bonus, the exposure etc. But as a startup you will have to go the unconventional way to attract the best developers. The prospective employees and the co-founders must possess different sets of managerial skills in order to traverse into the next stage successfully.

But why is it necessary to define what a startup is? It is for the simple reason that 99% of startups fail and have life expectancy of five years only (being optimistic here). Therefore, if you understand the anatomy of a startup you will be able to take care of it and nurture it with the right set of nutrients – the people, the skills and the processes. In his dissection of a startup, Steve Blank has conceptually explained it well.

You can infer from his explanation that startups are the ventures that are designed with intent to grow big but being at the startup stage means being on the lookout for scalable and sustainable business model. Co-founders go through a variety of versions of the initial idea to arrive at the one that best fits the market over a span of one or two years. Once the business model is found and the repeated revenues flow in, (you can say that your startup has reached the tipping point), the startup is ready to grow and transform into the next stage – the transition stage.

Here is another reason why it is necessary to define a startup. This one is very important and needs to be understood in order to turn into a billion dollar business. In an ideal situation you would want a VC (Venture Capitalist) or an external investor to invest in your startup. So, here’s a little secret pulled out from some of Steve’s wisdom: VCs view startups as an organization used to search for a scalable business model. Once the scalable business model is found, the VCs pitch in and the startup usually grows big. With external investors this scalable startup undergoes a metamorphosis. It progresses into the transition stage and finally into a large company. It is also often at this stage that the co-founders are fired. The reason is that as the startup progresses into the next stage, it needs different set of managerial skills.

If you want to start up on your own then you must evaluate whether you have the kick to thrash out various ideas, work obscene hours and ultimately evolve into a scalable startup, so that you can seek external funds to grow really big. If not, then you may not want to leave your professional job career. Instead look for more entrepreneurial job opportunities. Many companies have the startup culture and offer entrepreneurial work opportunities that are equally challenging.

The post was originally posted at BootStrapToday. Read their story here.

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