How Start-ups Start Up

February 21, 2017
Written By John Lai

I want to write about start-up companies since our team has worked with many of them. I want to share our observations on how some start-ups evolve past the start up phase and why others do not.

It is the objective of every start-up company to complete the start-up phase as soon as possible so it can enter the growth phase. The start-up company may also terminate the business if the market place provides sufficient information to invalidate the business model and all subsequent revisions to the business model. Regardless of whether the start-up grows or terminates, staying in the start-up phase wastes the effort invested in the start up. For the start-up that has real potential, staying in the start-up phase for too long depreciates the company's relevance in the market place and gives competitors the advantage of more time, which is an advantage no start-up can afford to give away.

When we look at what a start-up that evolves does differently from a start-up that remains a start-up, we notice two things:

  • Realistic Expectation of Return on Investment - The start-ups that complete their start-up phase are the ones that have realistic expectations of return on investment. Many successful start-up businesses will hypothesize an expected return for their venture and frequently validate their hypothesis against the market place. They will concurrently consult numerous sources to thoroughly understand the capital investment required and time investment required to achieve business goals. The successful start-ups will continually validate their ROI through out the start-up phase. On the opposite end, many start-ups remain as start-ups because they do not know or they do not acknowledge their true value proposition or they perpetually underestimate the cost of investment. A start-up that fails to determine a realistic ROI is fundamentally flawed and does not take off.
  • Feedback from Market Place - The successful start-ups constantly revise their business model, value proposition and operations based on feedback from the market place. Initially, start-ups do this via small focus groups or small group of alpha customers, and as they gain confidence, they expand their offering to larger groups of early adopters. The successful start-ups realize that many of their original beliefs about the business and the eventual market place were not accurate, and they evolve to become more relevant. The successful start-ups know how to navigate and act on user feedback, constantly deciding between what may cause scope creep and when their offering may be underdeveloped. Many start-ups remain in the start-up phase because they react to every request of their early adopters, which stretches the company's resources too thin to accomplish anything well. Some start-ups do not bring their offering early enough (if ever) to a meaningful group of early adopters because they never took the time to build those channels.

We constantly remind our clients of the importance of a realistic ROI and managing feedback from the market place. If you're working on a start-up, keep these two things in mind.