I recently ran a couple of meetups focusing on problem validation. The idea was to help entrepreneurs who are just getting started. By my best estimate, 85% of attendees are working for established companies in a corporate environment. They have aspirations to create their first startup. Some have good ideas and are passionate about them. Others believe the grass may be greener in startupland because they are working at a job they hate.
I made several observations from the meetups and there is one I'd like to focus on in this post - corporate experience and how it relates to entrepreneurship.
Startups Vs. Existing Companies
Let's consider Startups versus Existing Companies. I've worked at both so I have a perspective based on experience.
Steve Blank said it best when he said, "Startups are not smaller versions of big companies. Startups are something fundamentally different." I completely agree. The illustration below highlights the difference.
Existing companies have a defined, proven business model. The mission of the organization in an existing company is to IMPROVE business performance within the construct of the existing business model. Written corporate policies in every function serve to further define the "standard operating procedures" for how to run the company. These policies and best practices are the playbook for how to run the company.
Managers are tasked with defining the "strategy" of how they can incrementally improve business performance to delivery higher revenues and profits, typically by 10 to 20% year-over-year. They typically provide this improvement within the framework of the existing business model.
People who do well in existing companies tend to be good at following the rules, sticking to a script, and finding ways to do things just a little bit better than last year. They tend to value stability, well-crafted plans and above all professional execution. What turns them on is leveraging their "core competency" and doing their special thing very, very well.
"This is what we do. This is what we are good at. And we do it very, very well. We are best in the world at doing this special thing," says the corporate manager and leader.
Existing companies leverage their assets, which are substantial and are exclusively focused on supporting the current business model.
Existing companies are commonly run by professional managers, who are not normally the individuals who started the company.
Strategic planning focuses around developing a financial forecast, which details how revenues, expenses and profits will flow through the business every month for the next three to five years. Managers are rewarded for "hitting the plan" or for being "on plan." If you hit your plan, you are rewarded with a bonus and maybe a promotion.
However, if you miss your plan, you are toast. The organization will spit you out like the loser that you are! Bad, incompetent manager can't even hit his own forecast! What a dope!
Not surprisingly, investors in existing companies look for consistency, stability and predictability, and reward those managers who can provide it.
Startups are a very, very different animal. Startups are searching for a business model. They are trying to INVENT one. Their task is to define hypotheses and execute experiments. When they run experiments, they have expectations of what might happen, but they really have no idea of what is going to happen. That's why they run the experiment! They are trying to find out what happens to B when we do A. They are ok with the uncertainty that they don't know what will happen. That's what makes it exciting!
Startups actively seek out new problems to solve, and new ways of solving them. They like to do new things. There is no standard operating procedure because they are forging new territory.
Basically, Startups have no idea what they are doing, and whatever it is, it's going to change. I realize this isn't comforting for early-stage investors, but it's true. But it's critically important not to fear the fundamental nature of a startup. The strength of a startup is its willingness to seek out the truth and to dramatically transform itself, often times overnight, in an attempt to find product-market fit.
This is why I roll my eyes every time an early-stage investor asks for a forecast. How can I model a five year forecast for a business when I haven't even defined or validated the business model? Any forecast at this early stage is nothing more than a fantasy, a natural extension of my unvalidated reality distortion field.
When I am forced to produce a forecast, I do. And I include this disclaimer.
"This business is a startup. It is nothing more than a highly speculative venture based on unvalidated assumptions. In this venture, as with all startup ventures, I am certain of only one thing: that almost all of the numbers above are going to be proven wrong as we get more experience with customers."
It is precisely the nebulous nature of the startup that gives the startup its competitive advantage. When a startup goes up against an existing business, all of the biggerco's "standard operating procedures" create tremendous rigidity within the business and organization. If the market is changing, and almost all markets are these days, then the "established" business is severely inhibited. The established business is trying to walk in cement shoes why the startup is running around the playing field in bare feet!
To call Existing Businesses and Startups "business" is a dramatic oversimplification. Thinking they are the same is like thinking a 1-month old embryo is the same as a 45 year old man. They may be of the same species, but they think, act, need and behave in completely different ways.
The people who love startups, love doing new things. They like novelty. They are explorers. They are curious. They have many interests: they love to learn, and they regularly seek adventure. Moreover, people who thrive in startups are likely to be impulsive, high energy, flexible and irreverent. They are rebels, mavericks and pirates.
The people who love existing companies are builders. They tend to be calm, precise, managerial and social. They are modest, civic-minded and often popular. They are rarely impulsive, especially with their money, actions or feelings. Security is important to them. They value duty, loyalty, patience, persistence and service. They are pillars in their communities.
These tendencies are created by different systems in the human brain.
It is possible for one person to thrive at an Existing Business and at a Startup, but it is rare.
Corporate Employee To Startup Entrepreneur
So what are the implications for the vast majority of corporate employees to come to the FounderSensei meetups to learn how to be an entrepreneur?
1. Understand that if you create a startup, you are deciding to change careers, quite dramatically.
I worked at an email marketing company. When we sold the company, I created an email marketing startup the next day. It was the same business model, in the same market, with the same customers and the same suppliers. Still, that fact that it was a startup meant that I was in a completely different league. It wasn't even the same sport!
Making the leap from Corporate to Startup is a completely different career. You must approach the Startup opportunity with humility and with an empty cup.
If this is troubling to you, perhaps you should stay where you are.
2. Very little of what you've learned at your job is going to be helpful to you and your Startup.
In an Existing Business, a lot of manager's energy is focused internally. How do I get this approved? What is the process? Who do I need to talk to to convince of this? What is my role? Who has authority for this or that? Who's in my network that can help me?
None of this means jack shit to a Startup. It's totally irrelevant.
In a Startup, almost all of your energy is focused outside the company.
Stop making slide decks to explain your strategy to some hypothetical executive that doesn't exist.
Start talking directly to your customers. You are playing a different game now.
If this is unsettling to you, perhaps you should stay where you are.
3. Almost everything you take with you from your job will be toxic to your Startup.
Competitive advantage, core competency, buyer power, supplier power, competitive landscape, rivalry...these are the words used by strategy consultants and big company executives. If you talk in this way in an Existing Business, people will think you are smart. If you talk this way in a Startup, people will think you are an idiot.
Thinking this way is toxic for your startup. At best, it's completely irrelevant to what you have to do to be successful. At worst, it will crush your good ideas before they get a chance to breathe.
Michael Porter is a brillant man who works at Harvard Business School. The invented the Five Forces Framework that defines almost everything that corporate strategists revolve around.
Here's my question for Mr. Porter. How do you analyze an industry that doesn't exist?
The answer is, you can't. If you decide to be an entrepreneur, you'll realize another valid answer to this question is, why would you want to? By the time the industry has taken shape, you've missed your opportunity!
I don't have anything against Michael Porter's framework. I just think it is most useful for companies who compete in existing, well-defined industries that can be analyzed. It's most useful for Existing Companies. This is rarely the case in an innovative startup that is doing something completely new.
Stop thinking about your competitive advantage. You don't have one yet. You need to find one by running customer experiments, search for a business model, and then validate it with more customer experiments. When it's all over, then you can make a pretty slide deck!
Instead, start talking to customers. Study their behavior. Find meaningful problems to solve. Solve them using awesome solutions that serve these customers. Figure out how to do this in a profitable, scalable way. That is your mission, should you choose to accept it.
If this is disturbing to you, perhaps you should stay where you are.
If you think I'm discouraging you from creating a new startup, I am. If it's working, then you aren't cut out to be a successful, startup entrepreneur.