At MarchFifteen we advise family owned and independent businesses. We are also an independent business ourselves and the MarchFifteen Consulting entity is one of several that our partners have started over the years. So here are some start-up tips from the hard won experience we have had at our own firm. The hope is that they get you thinking whether you are a Start Up, or a business that has to continue to remember to keep matters such as its costs and its nimbleness in mind.
Business Fundamentals That Apply to All Successful Businesses
We recognize the trend in business to encourage entrepreneurial behaviour, whether the business be big or small. What we do know from the hard won research of Arie de Geus in The Living Company; Survival in a Turbulent Business Environment, is that the average life expectancy of a multinational corporation – Fortune 500 or its equivalent – is between 40 and 50 years at most, with a few exceptions. Those few exceptions which last in some cases hundreds of years have some special features. And the four key things that these successful businesses do are as follows:
- They are Sensitive to Their Environment – which represents the company’s ability to learn and adapt.
- They have Cohesion and Identity – which are aspects of a company’s innate ability to build a community and a persona for itself
- They have Tolerance and its corollary, Decentralization – which are both symptoms of a company’s awareness of ecology: its ability to build constructive relationships with other entities, within or outside themselves.
- They have Conservative Financing – as one element in a very critical corporate attribute: the ability to governing their own growth and evolution effectively.
Most of these businesses, according to Arie de Geus, “are also very likely to speak about their company as if it is an organic, living creature with a mind and a character all its own” (p. 10, The Living Company). This use of the term living can be real or metaphorical to individuals, but it is in reference to the fact that when you build a business you create new entity, which acts in a certain way, and learns and forms relationships in its own unique way.
A Few Misperceptions about Start-Ups and Ramp-Ups
We at MarchFifteen are clear that there are many key messages for entrepreneurs that allow the journey to be a little less bumpy and a lot more successful, although as we all know there are no guarantees. Certainly every entrepreneur encounters thrilling peaks and stressful valleys. Here are a couple of misperceptions that we would like to correct:
That you have to spend money to make money – our finding is the opposite, it is better to start small and build at a reasonable rate to the size that is most manageable for your business at THIS point in time. Try not to spend money in your business that you don’t have – this is a maxim that will serve you well in the longer run. Positive cash flow and limited expenditures equal peace of mind for any entrepreneur, full stop.
That scaling up is imperative in the early stages iDoneThis bloggers would say that one tactic is the reason why 70% of new businesses fail. iDoneThis cites a study completed by Startup Genone which identified that “premature scaling is the number one cause of start-up failure. Surveying 3200 start-ups in 2011, the data shows that 70 percent failed because they tried to scale too early. This means that they expended their resources on add-ons like expensive marketing and hiring salespeople before they truly had a produce to satisfy a sufficiently large market.
Three ways to build a business organically (rather than scaling) are:
1. Do things that don’t scale
Get those first happy customers on board, “nail it and then scale it!” says Ryan Smith, founder of Qualtrics, a research firm in Provo, Utah. Smith claims that if your company does not go through that adolescent stage then it is difficult to grow to a mature company and experience the self-learning required to be successful later on.
2. Make something that people want
To find the right market you need to see what people will pay for, study and experiment with your product and see what customers actually want to buy.
3. Sell it before you build it
It is possible to know what you are capable of, and not have it fully baked and ready for market. This is a great tactic that entrepreneurs can use so that they don’t have to scale prematurely. Think about it. Would you order decorations or food for a wedding ahead if you were a wedding planner? No you would wait until you had the order, the specs and the scope of the wedding you were planning for in your sites and on the books as a client. This is a similar strategy for most businesses – even manufacturing can scale up, although the waits would be longer in certain business arenas.
MYTH: If you build a great product, a great company will follow – Basically it does not need to be the best product to sell. It can be a lesser product that is good enough for the market. It is important in any business that entrepreneurs realize that the perfect is often the enemy of the good. Sustainable culture and a strong business model are very important pieces in the puzzle that can lead to business success, and so it is not all about the product.
In a previous blog about Repeatability, what you do need is a tried and true method of production and processes that are easy to repeat for different kinds of customers and markets.
So there we have it, a bit of a primer on start-ups from the research. We hope this was helpful for you.