LESSONS FROM STARTUPS

Recently we have been working with businesses in start-up mode.  These are not necessarily new businesses – some are still in their infancy, but others have been operating for many years.

There has been so much focus on new start-ups: the inspiring success stories such as enterprise software company, Atlassian, which in twelve years has grown from two founders who met while studying at the University of New South Wales to its 2014 $3.5 billion company valuation; the ‘disruptive’ start-ups such as Airbnb, the social networking service which has connected over 15 million people to accommodation since being founded in 2008; and those such as Better Place, the famous start-up you have probably never heard of, that took almost $1 billion in funding to fail to convert the world to electric cars.

Nobody wanted the telephone – at first

With all the publicity about start-ups and their ability to attract billions in venture funding, many established businesses view them as exotic creatures to be observed safely from behind the glass.  However established businesses should take note of start-ups, not just for their potential to change the nature of the competition and expectations of consumers, but also to improve our performance as a business.  Consider how the innovation of these start-ups transformed the way we do business:

• Microsoft Office led the way to reduce the cost and efficiency of administration and documentation to a fraction of its previous levels;
• Google provides instant access to information about anything and in the process levelling the playing field for businesses of any size in practically any country;
• The Bell Company for the telephone.  Famously in 1877 they offered all rights of their invention to The Telegraph Company (now Western Union) for $100,000. The committee appointed to investigate the offer reported back, ”The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?”

Unfortunately for Western Union, it did not take long for the error of their decision to become apparent and they wasted many years and and thousands of dollars trying fruitlessly to make up for their mistake including hiring Thomas Edison to invent devices and systems that would hand Western Union control the burgeoning telephone industry.

In hindsight Western Union’s decision looks spectacularly stupid, yet in context of the company at the time, it was a good decision.  They assessed the market and correctly identified there was no demand for distance voice-to-voice communication.  They conducted a feasibility study and concluded the costs of producing the individual devices required and the infrastructure to connect them would be prohibitive.  They evaluated the product on its face and determined that the tinny, static-ridden sound quality was no match for the clarity of the telegraph.

Western Union was an innovator in telegraph technology and developed and controlled most of the US telegraph system.  Against such expertise the company’s decision to reject Bell’s offer was sound.  It is only when you compare the before and after pictures that the extent of the error is obvious.

Don’t make decisions using what you know

Established companies consistently make decisions based on their current knowledge and expertise.  Whether they are a fledgling company where the founder is on a course to turn a particular skill or know-how into a business or a multi-national corporation, existing ability provides the frame for on-going decisions.  Rather than looking at opportunities and change from a new perspective, the established company looks for improvements it can make to keep up with change.

‘Continuous improvement’ has become such a persuasive approach that it is used by companies even when change, like the telephone over 100 years ago and mobile technology this century, creates a whole new environment.  In fact most companies have become masters at the tweak: new spin on old programs, new policies that allow the status quo to be preserved, brand refreshes and publicity campaigns, position shuffles and restructures, and product and service modifications, are examples of tactics that allow us to believe we are keeping in step with the environment.  Film photography, retailers, unions, travel agents, video rental stores, record labels, print media are just a fraction of the industries where the options for tweaking have, or will soon, run out.

That is why we have been working with businesses that deliberately place themselves back in start-up mode.  A start-up can be differentiated from established businesses in several ways.  The most fundamental is the assumption that resources are scarce while established businesses have the luxury of funding their change programs.

A startup makes the unknown known

An established business assumes it must adapt to changes and its foundation question is “how” it will achieve change.  A start-up assumes finite resources and its foundation question is “if” it should even begin.  The recognition that change today has the potential to outpace any company’s ability to keep up through traditional management messages is behind the rise in the adoption of Lean Startup and Agile methodology across all facets of business management.

By placing itself in start-up mode, a business states its intention to question all existing assumptions and its willingness to abandon standard and accepted practices if they do not fit.  Here are three important lessons from start-ups that established businesses can use to avoid their own Western Union moments.

1. Ask if anyone wants the company’s product, whether that is an existing product or a future one.

Avoid evaluating this question in light of the company’s current expertise.  If you were a highly proficient retailer that has invested heavily in store layout and training store staff, you would understandably have found it difficult to understand how online stores with no staff interaction, no ability to inspect the product and a delay before the items were received could ever succeed.

Keep in mind it does not matter if YOU know how much the market SHOULD want your product.  The market has a tendency to be stubbornly resistant to ideas they cannot integrate with their current experience of existing problems.  For instance you may be able to show how your app will save them time, but if they do not have a perception that the time you are saving is time they are wasting, you will find it difficult to engage customers in enough numbers to make the offering viable.

2. Understand the difference between management of existing businesses and new business opportunities.

Most companies are structured for business maintenance.  The management hierarchy, position specifications and structured work environments are all designed to ensure that existing customers will be served and operational processes do not collapse.  People are selected because they have the skills to meet the needs of the existing business.

New opportunities will have a critical point of difference somewhere.  It may be in how an existing product can serve a different market, for instance, or how it might be used to solve a different problem in the same market.  Asking the in-place management and team structure to accurately assess these opportunities is impossible because they can only do so from the perspective of that which makes them good at their jobs now.

3. Adapt specific methodologies for innovation.

Most companies welcome innovation.  They come up with or ask employees for new ideas, sometimes even allow them time to work on them.  The employee pitches the developed concept to management who then make the decision on what happens next (see point 2).

New ideas need to be validated then commercialised.  Concepts do not sell and even well-executed concepts can fail.  Concepts do not have the ability to be viable until there has been an opportunity to validate them.

Lean startup uses a specific process to achieve this including developing the Minimum Viable Product (MVP), Learn-Measure-Build and Customer Validation.  Engaging the customer is integral.  This is why many start-ups deliberately create work environments that are completely different to the traditional workplace: no set hours, no set positions, no set hierarchy, mobile workstations and unlimited leave.  They want their employees to have only one thing in mind: what the customer wants and how to get it to them.

Even innovative companies can miss this step.  Google could have developed Twitter, Instagram and Foursquare, instead its employees Ev Wiliams, Kevin Systrom and Dennis Crowley respectively all left to realise their ideas elsewhere.

Think of ‘startup’ as a process, a mindset or an approach – not a type of organisation

Copying these three steps from start-ups has the possibility that the company could look very different to its current state, and this can be enough to stop many (if not most) companies.  Bringing on external assistance to help facilitate the change could be all that is needed to overcome the barriers to your next innovation.

Of course Bell Company-type opportunities are a one-in-a-million that our companies are unlikely to ever see, but that means there are 999,999 other opportunities that are so small we will probably never even realise we missed them.  Rather we could be writing the history where our company makes the sort of inspired decision that changes the course of its success for many years to come.

I hope your company is one of them.