Some time back I worked for an organisation which was a startup but it was actually incubated out of a large well established business. There are definitely benefits to being a “seedling” from a large tree like this but there are some deep deep pitfalls as well.
The business model for this organisation was an unusual one in that there were essentially 2 parties at opposite ends of a supply chain which we were connecting together. An additional complication was that this organisation was attempting to create their market instead of entering or attempting to disrupt a current one.
The supplier end of the chain was the paying customer but the value proposition to them of the product was based on cost-reduction. This is almost never as sexy and easy to sell as revenue generation but is still big bucks if you have billions of dollars locked up in your supply chain.
The consumer at the client end of the supply chain were being sold the product on an even more amorphous”ethical” grounding and fundamentally they were the ones which made the proposition appealing to the customer (if you had a critical mass of these consumer clients, the suppliers were interested in talking to you but not before). In other words, you had to sell to them to sell to the money.
An incredibly difficult and finely balanced sell all around as I’m sure you’ll agree.
The initial idea behind all this was great, the technology was excellent, the team were superb but the organisation as a whole was a total nightmare.
The problem was that this startup was actually modeled on the mature enterprise it had sprouted from. That meant heavyweight processes, draconian policies, a massively top-loaded managerial hierarchy, top down management style, top-down decision making and overbearing Board demanding “results” pretty much off the blocks from an infant organisation attempting to establish it’s market.
All of this engendered a rigid operating model for a company which was trying to carve itself a niche under highly risky conditions.
In a startup one of the ways we manage risk is by being flexible and agile. Until a startup is at the point of executing an established operational business model, it needs to embrace (rapid) change as key fact of it’s existence. The only real risk that the organisation has any sort of control over (illusory as it may be) is the risk of total failure. Determining and engaging it’s market and executing it’s product(s) should be the sole focus and it must be prepared to pivot to meet the markets it uncovers in order to mitigate that risk.
In this situation the organisation was defined much more by it’s process and it’s structure than it’s product or its potential market. Fundamenally this locked it into a business and operating model which prevented it from pivoting and eventually pushed it into a holding pattern waiting either for the environment to change to suit it’s (single unalterable) model, or for the money to run out, whichever came first.
The irony here was that the customers (both ends) proffered to us a pivot which would make the company work, establish the market and although it would have gone against some of the initial principles, particularly that the “ethical” aspect would have to take a back seat, it would have opened the door to a future where the dominant player (the organisation I worked for) could start to lay the groundwork for that idealistic future state.
Needless to say, that pivot proved to be impossible for the organisation to undertake.
When I read articles by Eric Reis on Lean Startup and by Steve Blank on Business Model Generation and Customer Development, this experience comes back to mind and I think that if only that organisation had started up Lean, as a “real” startup and had focused not on trying to operationalise an initial idea but on generating and iterating over it’s business model, developing it’s customers and pivoting to find the right fit, then it could be a hugely successful business and one I would have been immensely proud of being part of.
The organisation is still plodding along but has reduced it’s workforce somewhat and is really in that holding-pattern. As it stands right now, I hope for it’s survival (I still have great friends there) and ultimately it’s success but am hard pressed to see where such success can come from as it’s future is essentially based on the wager that the necessary conditions will appear or be created before the funding ceases.
This is an example where process and top-down decision making has gone mad. In a startup (or any organisation) you need your processes, technologies, structures and cultures to be just enough to serve your current business model and just enough to allow you to pivot. It’s utter madness to lumber 20 year old mature “enterprise” processes on an organisation at this stage of it’s lifecycle. Instead the organisations needs to be rapidly iterating, evolving and pivoting to find the emergent behaviours, processes, market and product mix which will give it the best chance of success.
In a startup, perfect operation of a risk free single operating model is not possible or necessary. Just enough is enough. Try, Learn, Evolve.