What startups should not learn from enterprises
Every startup wants to grow to become an enterprise, provided it survives the journey. With upwards of 95 percent mortality rate, very few ideas actually see the light of the day, in a viable and feasible manner, and yet there is no dearth of dreamers. Rightly so, for entrepreneurs are the agents of creation and economic revival. Imagine how stagnant economy and our lives would be for the lack of new alternatives. Startups offer such choices, and in the bargain make money.
If you spend enough time with senior leaders at any enterprise, it won’t be long before they talk about bringing the agility of a startup to their setup. They want their troops to embrace the pace of upstarts and be Davids in the body of Goliath, and yet to little avail. Equally adamant are the founders at a nascent company wanting more discipline, scale, and predictability in their operations. They would like a personality and a cult based setup to be morphed into a process driven, system based structure. Such talks mostly remain pipedreams. Most startups die as startups.
Let’s understand that in the pursuit of becoming a proper company what must a startup eschew in terms of vicarious learning from an enterprise.
Don’t chase pedigree
One of the sure ways of raising your valuation is to harbour founding talent with pedigree. If you amass enough critical talent with recognizable academic identifiers and relevant work experience, you can certainly offer a robust signal to the investors and others in the market. It’s a different matter altogether as to how much of value such talent really offers to the setup. They certainly would eagerly take their pound of flesh from the spoils.
Take for instance ISRO, the poster boy of innovation in India. You would seldom spot ISRO queueing up during the placement seasons at the coveted IITs or even NITs. They mostly settle with engineering and majors in sciences from tier-2, or even tier-3 institutions. It’s not now, but since the very inception of ISRO that they have focused on hiring locally, mostly from colleges in and around their establishments in Kerala, Karnataka, Andhra Pradesh, and other locations. The same could be said for DRDO and HAL which have very open and standard recruitment processes, and pay no particular attention in luring folks from premier colleges. Perhaps they have understood that such talent brings with it moral hazard, a vice low-budget setups are ill suited to afford. They would rather have people who work than those who are known to work.
By eschewing pedigree, as a startup you not only keep your bills low, but also retain talent for longer. It doesn’t mean that you settle for B-talent. You still seek A-talent, but you don’t base your entire hiring judgement on the school the person attended. Instead of lazily trusting the dominant signal, you devise your own rubric for hiring decisions.
Stick to your knitting
It’s often seen that once a startup tastes success in a domain it doesn’t take long for it to explore adjacencies. The excuse here is to accrue sufficient economies of scale or economies of scope in an attempt to accelerate profitability. What’s often ignored, always to the company’s peril, is that with scale first comes cost and then benefits, if any. Most successful startups, especially in the technology space, have grown by pruning rather than augmenting. Intel famously closed down its profitable memory business to focus on microprocessors, Qualcomm did the same with CDMA technology, Nvidia with graphics processors, and Cisco with communication devices. They remain fiercely competitive in their niche, never to get dislodged. The splitting up of HP into devices and enterprise services is a case in point, and so is the jettisoning of commodity business by IBM.
As demonstrated by the ill-fated GE, by amassing a host of unrelated businesses under your empire you not only diffuse management attention but also open multiple fronts of competition. Even the venerable Tata Group enjoys market leadership in only five or six of its 90+ businesses. Very few companies are disciplined enough to stick to well defined market segments and product categories. This urge of proliferation is surprisingly more acute in startups who want to ride the growth wave, whereby eroding their credibility and bank balance.
The disciplined pursuit of a few well identified opportunities and then exploiting those to the hilt is what makes and sustains a business. I needn’t invoke Apple to drive home the point, but the success of this enterprise is because of its ability to say ‘no’, a thousand times.
Mistaking operational excellence for strategy
Most enterprise managers are busy reorganising the chairs on the deck of Titanic. Now, what’s wrong with that? Afterall, they are performing their job description. But then who is watching for the iceberg? At companies assume size operational excellence becomes a religion. The bean counters and people managers become in-charge, easing out the creators and the risk takers. Checks and balances, which were innocuously meant to ‘help’ the system, become the system. They hi-jack thinking, even common sense, and soon everyone is dragging their feet lest they break a rule. This is commonly referred to as ‘bureaucracy’.
It doesn’t take a startup too much time and size before it becomes bureaucratic. Where people are in a perennial state of fear and busy second-guessing others’ intents. Very few enterprises avoid such a fate, and this takes a lot of effort, starting at the very top. But enterprises can avoid it by keeping rules few and clear. By empowering individuals and maintaining a ‘living’ portfolio of routines and processes. They do it by posing questions that can’t be answered than holding on to answers that can’t be questioned. Netflix, for all its size and age, maintains a nimble setup, precisely because of the culture of accountability and by refreshing its already minimal set of policies on an ongoing basis.
If you mistake operational excellence for strategy, you would implode and become irrelevant. The fate that befall most public enterprises. Remember, most firms go bankrupt not because of a lack of operational excellence but because of lack of directional clarity.
I hope your startup grows while retaining the sole of a startup. For that you must look beyond resume while hiring talent, be disciplined to stick to basics, and not getting carrier away from the bean counters and people managers while losing the big picture. Hope this helps.