A Startup Is Not A Business

I used to say I had worked in a number of startups. My first job ever, while still in high school, was with 5 guys making electronic navigation systems. Then there was a lifestyle company making cryptographic gear, a C-round electronic publishing firm and the ‘right at IPO’ workstation manufacturer. Throw in a few intrapreneurial ventures inside Fortune 500 companies, and I thought I had the whole startup/venture thing well in hand. I’d done business plans and managed scale in various functions pretty much focused on the transitions from quest to lifestyle to business, and even one exit. Then I started my own, with a couple of other guys. But the founding stage was totally different. In all the other cases, the companies had already attained a baseline business profile of revenue generating product, paid staff, established operational flow. With a startup, neither product, process nor people for the business are established. It’s all nothing more than an idea at this point. So, I started talking about having worked in innovative businesses rather than startups.

I came to realize that a startup is not a business. It is a hypothesis; a hypothesis with multiple levels of abstraction. The first level is that there exists a heretofore unaddressed problem that needs solving. The second level is that the startup’s product adequately addresses that problem at the right price/quality/timing. The final level is that there’s a business to be made from solving this problem. A business built with this product and related products. A business that can grow with the evolution of these products, addressing a large enough group of users to actually fund doing all this with enough left over to make it all worthwhile. Each level is an order magnitude more difficult to implement or even predict. While the final level of abstraction starts to address typical business plan topics, you need to have made it through the other two first to have any chance at credibly assessing the last.

Innovation Can’t Be Modeled

There is no recipe for the innovation that generates a startup. That’s why, despite all the analysis, books and blogs on the topic, a vast majority still fail. That’s why big companies that set up Innovation Departments are missing the whole point, and will likely be disappointed with the results. Innovation is, in it’s purist form, disruptive. That means it operates outside the established methods/metrics/norms. What makes one social media site take off while others founder? Who ever thought we needed social media sites in the first place? Where was the plan for that?

On Being Disruptive

Being disruptive is a behavior of opportunity, you can’t plan for it. Being disruptive means looking where no-one else is looking, seeing opportunity no-one else sees and pressing ahead with an idea before anyone even understands the original premise.  You can’t think of it as a business yet because you can’t even prove the concept until you’re well down the path. Once you’ve validated the need, and proven your product is viable, then you can start behaving like a business. Then you can plan the transition out of the Quest stage.

Preparing For Unplanned Events

But just because you can’t plan to innovate, doesn’t mean an established company can’t plan for innovation to take place. Just as you can’t set up a department to obtain ISO certification and leave it alone to do it’s thing, the same is true with innovation.  The whole company needs to be wired to support the effort. There needs to be a Culture of Curiosity amongst employees. There needs to be Acceptance of Failure from management.  Most importantly, there needs to be Risk Tolerance by investors.  Aligning those needs doesn’t come from a functional sub-department, it comes from senior leadership.

Culture Of Curiosity

Employees who’s curiosity is supported will innovate. That support can take many forms. One is a strong collaborative environment, where employees can raise questions and make suggestions regardless of departmental boundaries or role differences. Another is allowing time for free thinking, whether individually or in structured brainstorming sessions.  And these, in turn, must be supported by continual training as well as access to outside sources of information, e.g. trade shows, conferences, professional journals. These represent costs in both time and expenses.  Those costs can be budgeted – you can plan to support innovation.

Acceptance Of Failure

Nothing stifles innovation like fear of failure. If the leadership team can’t demonstrate an understanding of the difference between interest in progress and impatience for progress. If they show more concern for the fact that something isn’t working rather than interest in why it may not be working. Then the organization as a whole is not likely to extend itself into new ways of doing things. You can still set milestones that need to be achieved, and cancel projects that don’t meet them, but it must be done in way that doesn’t squash the creative thinking of the team so they and others are energized to continue to innovate towards new projects. You can plan to support some number of failures.

Risk Tolerance

Then there are the constituents who’s money is on the line – the investors. Unfortunately, more people are excited by the results of a successful venture than are willing to accept the risk that the venture may fail. Investor support must be consistent through the ups and downs, trials and errors. If the investors that were supportive and excited at the start of a project start getting squeamish as the first hiccup/roadblock/detour, then the innovators will shut down or the key entrepreneur will quit their job and form a startup. You can plan an acceptable level of risk and engage your investors in discussing the operating model going forward.

So, while innovation can’t be planned, and one department can’t drive innovation within a business, a business can plan to support innovation. And while a startup is not a business, a properly oriented business can innovate like a startup.

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