This weekend has seen an eruption of emotion in part of the blogosphere. It all started with Jason Calacanis posting some of his thoughts on how to run a start-up company here. This has resulted in many articles on the topic, including Duncan Riley from TechCrunch, and there was another follow-up article by Michael Arrington at TechCrunch.
All of these discussed various aspects of ‘how’ to run a start-up or a start-up business. Arrington says that the two most important aspects of a company are hiring the right people and managing your cash extremely well. I think these two aspects are important, but they are not everything.
For what it is worth, I believe there are three fundamental aspects that will determine the success of a company. They are what the company does, how it does it, and who actually does the work. The diagram below shows what I mean with this.
In my view, the founders of a company, and at a later stage the hired senior managers as well as the board, will determine the strategy of a company, its operational structures and processes as well as some of the tactical details on how things are done. They will also hire new staff into the company.
Let’s have a brief look at these three aspects.
Strategy -“The next bounce of the ball”
There are obviously many aspects of strategy, but this is a short blog post. If I had to pick one thought on strategy, it would be “the next bounce of the ball”.
I have borrowed this phrase from Ronald Cohen and his book: “The second bounce of the ball”. The concept behind this thought is very simple. Cohen explains this phrase using his personal history of founding Apax Partners, the private equity firm. He started out doing corporate finance work, managed to transition into venture capital when that became ‘hot’, then transitioned into buy-ins and then into leveraged buy-outs. Basically, Apax rode the subsequent waves of the European private equity industry and managed to grow very substantially with each of them. The point here is this: you need to be able to ride markets as they appear and expand; it is the easiest and fastest way to achieve substantial business growth. For Apax, that was the transitioning through the various phases of the private equity industry. For example, let’s say you create the best video-sharing site in the US right now, you would have a hard time to grow to a substantial size: you would be too late. If you set up the same company six years ago, you wouldn’t have been able to achieve growth either, Internet access was probably too slow and digital cameras not widely enough spread by then.
So, if you can predict the next bounce of the ball in a significant market and focus your company on that bounce, you will probably do well, provided you can execute.
Operations & Tactics – Execution: How to get it done
With operations, I mean both organizational design and the processes that flow along that design. For example, you will create different operational divisions in your company. These divisions will have different objectives and there will be ways in which they communicate with each other.
It is very easy to get this wrong. For example, should the marketing function be aligned with product management? Or with sales? Who manages customer support? How do does the sales staff interact with engineers? How do engineers interact with customers?
I have embedded a good podcast (audio only) where Andrew Frame, founder of Ooma describes, amongst other things, his thoughts on organizational design.
Overall, I find that there is very little good literature on organizational design out there. Each company will have different requirements, too. In my mind there are two important aspects here: Think it through and keep it very simple. As a start-up, don’t do the fancy stuff like matrix structures. They will slow you down and add little value at an early stage.
When Jason Calacanis talks about buying cheap tables and expensive chairs, he is describing tactical elements of how to run a company. Other such examples are going staff flexible working hours, buying them free coffee, etc. you could call these the tricks of the trade. Tactics essentially describe how small groups of people interact with each other and use their resource to achieve very specific goals. These tactics are useful for those ones that will make it happen, the people in your organization.
People – “Making it happen”
I fully agree with both Arrington and Calacanis on this point. People are the ones who will make it happen. Taken from Arrington’s post:
“The most important part of hiring correctly is to not hire the wrong people. The second most important part of hiring correctly is to hire the right people. What that means is that it is better to not hire anyone at all if you can’t find the right person. And if your startup fails, all the perks, time off and general coddling that many outraged commentators called for isn’t all that useful.
So who are the right people and who are the wrong people? It’s not that hard to tell. The right people are the ones that really, really want to work with you. You can tell they’re excited to be a part of the team. They actively look for problems to solve, and then solve them. This is a personality type that is very easy to spot once you know what to look for – they have fire in their eyes. They’re warriors.
I’ll take the fired up warrior any day over the more experienced but otherwise meek alternative. Skills can be learned quickly on the job (excluding certain specialized skills, which mostly means developers for a young [software] startup). But if you aren’t already the kind of person who’ll just get the job done no matter what, you’ll likely never be.”
A former boss and mentor of mine said to me that the people you want to hire in a start-up are the ones you would have wanted to have next to you in the trenches in Word War I. The ones you just trust to help you through this. I think that sums it up.
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6 thoughts on “Elements of a Successful Start-up”
Great! Clear and detailed. I just wonder why you do not name the end result – PROFIT or CASH. After all this is all about. Business exists to make money.
In the rest I fully agree with you. And namely that people is the moving force of any business.
Yes, money is important, agree.
I thought about what to put in the end box. I finally decided to leave it open. If I had to make it more specific, I would put “value” in it.
I think companies are there to create value for customers/users, for the people who own the company, for the people who work there, etc.
But then I thought that in most scenarios, start-ups don’t generate an awful lot of value and then the company goes out of business. So, end result in a sense makes that more clear.
You’re right. Value is better than cash or profit. After it is value that counts for the share holders, managers, workers and staff.
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