Jan 10 2007

Startups That Work

Published by Mike

The 10 Critical Factors That Will Make or Break a New Company
Joel Kurtzmann & Glenn Rifkin

After studying and analyzing 350 different startup companies over a five-year period, a research team from PriceWaterhouseCoopers found there are ten rules of thumb that increase the chances of long-term success for a new company.

1. Founders: Start with a group of at least three or four founders.
2. Marketing Personnel: Get a marketing person on your founder’s team.
3. Talented People: Build a network of talented people around you.
4. Creating Value: Concentrate on creating value, not your exit strategy.
5. Cash Flow: Manage your cash with financial discipline.
6. Targeting Market: Target a market that already exists.
7. First Customer: Find a great first customer you can leverage.
8. Building a Board: Build a board who actually solve problems.
9. Unique Offering: Make your offering unique and then brand it.
10. Passion: Be passionate and enjoy the ride.

While it is true that startups are not generally as complex as an established company to run, there are several attributes of startups that attract a certain type of personality:

  • Startups are always a work in progress and it isn’t uncommon for startups to review their business strategies and every other element on a week-to-week basis rather than on an annual planning cycle. A high degree of adaptability is essential.
  • Startups are usually offensive rather than defensive — there is an ongoing attempt to wrestle market share from the established incumbents in the startups. Entrepreneurial CEOs love the thrill of attack and the challenge of trying to wrestle market share away from incumbents.
  • Startups are all about doing something new and many entrepreneurial CEOs get bored when they are required to keep on optimizing what already exists.
  • People in startups are bombarded with information and offers from every direction and the CEO has to sift through these pieces to develop a workable business model. This is a different intellectual challenge to that faced by the maanger of a company that is attempting to increase its market share by one or two percentage points every year.
  • Time moves quickly in a startup because the company has to get its products into the marketplace before it exhausts its funding. That brings all kinds of pressues and trade-offs into the way the management thinks.This last point highlights the trade-off every startup faces — speed versus perfection. Leaders of established companies often place a premium on quality and feel confident this will pay off. The startup CEO does not have that luxury. He or she knows that if a product does not ship soon and start generating revenue, problems lie ahead. For that reason, worrying about finding the quickest route to profitability is the constant concern of the startup CEO. This may require wrestling the product away from the technologists who want to keep improving it and getting it into production. In the world of startups, speed to market trumps perfectionism almost every time, but this dynamic can generate an awful lot of internal tension that the CEO has to manage.

    Leaders of startups also have to motivate people using a strikingly different set of tools to those available in more mature companies. Instead of rewarding those who find new ways to cut costs, the bulk of the rewards need to flow to those who can think outside the box. Strong individual personalities have to be molded around a common purpose, often using nothing more than the possibility of vast wealth in the future should everything go to plan. Startup leaders have to articulate their vision of the future in such a way that the best talent is inspired to stay involved rather than seek more immediate rewards. Startup CEOs constantly describe what is possible, not what exists at the moment.

    For these and other reasons, it’s extremely rare for a startup CEO to continue running their company once it grows big. It’s more common for the founder to step aside and remain in some other business development role while someone else focuses on optimizing the company’s ability to generate profits. It also isn’t uncommon for a highly successful startup CEO to put together a new team of investors and talent to do the same thing over again in a different industry or setting. For them, it’s the thrill of the ride that counts and no thte money that awaits at the end.

    If you aspire to being a successful startup CEO yourself, have fun and enjoy the ride for what it is.

    Startups That Work

    • 10 Responses to “Startups That Work”

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