The Real Meaning Of A Startup
If you are thinking of starting a new business, you need to consider a number of factors to ensure the best chance of success. As well as your product or service, you will need to think about what you will call your business, what sort of structure it will have and how you are going to run it. You should also think about how you are going to attract customers and where the money will come from for setting up while the business finds its feet. However, as a founder you only start out first with an idea. If you do not have an idea, you do not have a starting point, as nothing can be done without an idea first.
The general understanding of a start-up is that it is just any new business that someone starts. But this is not so as defining a startup is not that easy nowadays as it goes beyond just launching a business. The Business Dictionary defines a start-up as “Early stage in the life cycle of an enterprise where the entrepreneur moves from the idea stage to securing financing, laying down the basis structure of the business, and initiating operations or trading”. The US Small Business Administration associates a startup “with a business that is typically technology oriented and has high growth potential” In India, the government has made it easier by defining a startup as any entity that satisfies the following conditions:
- Is not more than 5 years since incorporation
- Its turnover does not exceed 25 Crores in the last 5 financial years, which is about $5,000,000, depending on the prevailing exchange rate.
- It is working towards innovation, development, deployment and commercialisation of products, processes or services that are driven by technology or intellectual property.
A Temporary Organisation Searching For A Repeatable And Scalable Business Model
A start-up is defined by Steve Blank as “a temporary organisation designed to search for a repeatable and scalable business model”. According to him, this definition consists of four important components; temporary, repeatable, scalable and searching for business model:
- Temporary – which means that a start-up is looking for ways to become a company. It is temporary and will become a lasting organisation after doing what it needs to do to make it survive.
- Repeatable – means that a start-up is searching for ways so that what it does will repeat itself and turn into repeated revenue e.g. repeated customers.
- Scalable – which means that if I put £1.00 into the business, it will turn into £2.00 or more and son on. It should not be losing money but rather be generating income.
- Searching for the business model – which is the ultimate aim of a start-up before it can become a company.
- The Customer Development Process
Source: The Four Steps to the Epiphany: Successful Strategies for Products that Win
According to Noam Bardin, Chief Wazer at Google, “This means that at its birth, a start-up is in a unique position – having zero constraints. There is no product, market, revenue, employees, HR, legal issues etc”. In other words, a start-up can be contrasted with an already established business in that a start-up has no product, no market, no structure, no customer, no profit etc as it has not yet come up with a suitable business model. An existing business or company is a business that is already established and has structure and customers that it sells its products or services to in exchange for revenue.
As already pointed out, the strategy when starting a business is to traditionally produce a business plan, which mainly contains estimates of products/services, revenues and expenditure typically for a period of between 1-5 years. Such plans, even though they are merely estimates, assumes that the start-up already have customers, whereas, in reality a start-up is very unpredictable as it does not have customers and an established structure. A business plan is only suitable for managing processes where the structure has already been established.
The Main Problem That A Start-up Faces Is Lack Of Customers
We are not saying here that a business plan has no value. A business plan has to be based on facts and not mere guesses before committing time, efforts and scarce resources. The main problem that a start-up faces is lack of customers and many researches have shown that lack of customers is a major course of start-up failure. According to a research by CB Insights reported on Fortune in 2014, the number one reason for start-up failure is lack of market for products, accounting for 42% based on a study of 101 Start-up Postmortems.
Fortunately, Steve Blank, a serial-entrepreneur and associate professor of entrepreneurship at Stanford University, has developed the Customer Development methodology, which is a framework for start-ups to use to discover and validate the market for their products. The Customer Development framework pioneered the Lean Start-up movement.
It Is Imperative To Get Out Of The Building And Speak To Potential Customers
We are not going to discuss this process here. The main idea is to go out and test their idea with potential customers to be sure that market exists for the products or services. The time that people used to decide what product or service to offer and wait in the office or shop expecting customers to find them has long gone. That was the seller’s market era where consumers had to look for sellers to get what they wanted. The sellers take all the decision regarding how the goods are produced and services are provided. In other words, the consumers have no say. We now live in a “customer – pampered” era where every opinion of the customer is vital in the face of growing competition. The consumers have all the power and authority to decide what they want and what they do not want and where to buy from. They have a lot of choices and can even decide to get the sellers to come to them by purchasing online. So, it has become imperative to get out of the building and speak to potential customers in order to understand what they want. It is even beneficial to do so as you may even discover things that you may never have thought of that will enrich or refine your idea.