What is the difference between a startup and an established business? Is a startup simply a small company – a small version of a big company or are they fundamentally different?
Steve Blank thinks so.
Steve is the author of Four steps to the epiphany and writes extensively about startups, their characteristics and the strategies they follow.
Among these characteristics are three crucial ones – and successful startups do these very differently from big companies.
The first characteristic has to do with what they do.
Big companies are good at execution.
They create a vision, agree a mission, set goals and targets, allocate resources and set the machine in motion.
All the parts of the company work in a hierarchy, following what they are programmed to do to head towards the targets they have set.
A startup, on the other hand, searches for opportunities.
It has its eyes wide open, scanning the environment for signs that something is missing, someplace where it can add value through innovating, adapting and creating something new and different.
The second characteristic has to do with how companies do what they do.
The purpose of a company, according to Drucker, is to create a customer.
Big companies already have customers or believe they know what a customer wants – either because they know the market or because they have done studies of some kind.
This means that they can sit at their desks and get on with creating product following their usual process, which is some form of plan-do.
A plan-do approach means that we follow a structured approach to developing a product – starting with understanding requirements, gathering information, developing the product and finally shipping it to customers.
Startups recognise that no plan survives first contact with the enemy.
Instead, they follow a test-learn approach.
This means getting out of the building, going and finding potential customers and talking to them about what they need and testing whether what they say they need matches what our product does.
This matching exercise – sometimes called validation – tells us if we are on the right track or whether we need to change something.
As Gary Halbert wrote, what we need to succeed is a starving crowd – a group of people that are desperate, starving for a particular product or service.
Lastly, the two approach who they recruit differently.
Big companies have lots of roles that they fill with specialists.
A specialist is someone who is good at one thing – sales, marketing, operations.
They do what they do well and competently, but they often don’t have the capacity or ability to do more than they can with their two hands.
Startups need generalists, people comfortable with doing everything and with the ability to do much much more with very little.
Startups eventually want to become big companies, so will recruit specialists, but only later on when the product is more mature and its time to scale up.
In summary, the way to tell whether we act like a startup or an established corporate is to look hard at what we do, how we do it and who we recruit.