Prior to starting a business, it’s important to understand what makes a startup and startup. Starting a business does not always equate to founding a startup, as not all businesses share the same goals as startups business as far as growth.
What does this mean?
When someone opens a restaurant, a barber shop, or a boutique, they probably don’t do so with the goal of making billions of dollars. Sure, chain businesses can bring in millions each year, but realistically, thousands of businesses are founded with the intent of achieving only moderate growth, while startups are founded with the goal of achieving rapid and consistent growth, making them a very special niche of businesses.
Startups must achieve significant growth in order to continue functioning, as many startups will fail within their first couple of years without the right kind of growth. These businesses are often started in niches with very large audiences, as this allows them to reach many markets, achieving growth along the way. Startups are founded with far different intentions than normal businesses, and in turn they face different challenges and rewards.
Great startups have a large audience needing their product or service, and they have an efficient and reliable way to reach that audience. For example, local coffee houses may attract many customers, as many people enjoy a cup of joe before facing the morning rush, but in turn they must serve customers in person, limiting their audience. This separates startups from regular businesses because startups reach a very large audience, and can serve them as needed. In the case of most, this means through the internet, but other companies can serve their large audience by opening stores in many locations, opening themselves up to new markets.
While startups face much larger potential than normal businesses, they also face much more competition. Imagine a company trying to develop a new smartphone: many people will purchase a smartphone, but how is a new company going to compete with already established companies such as Apple or LG for the business of smartphone owners? This is a much larger undertaking than competing only with other local coffeehouses, as it operates on a global, multi-billion dollar scale.
Startups must be founded on an original and marketable idea, which can prove difficult for many. Novel ideas are not easy to come by, and even seemingly great ideas still have the potential for failure with the wrong management or funding. In essence, startups must be founded using a novel, never before seen idea, and must be able to serve a global audience – otherwise, a normal business may be the way to go.
We’ve already mentioned that startups grow faster than normal businesses, but just how fast is fast? Well, not overnight – any startup founder can tell you growth doesn’t happen within days or weeks of putting a product or service on the market. Rather, every startup sees a period of little to no growth as they are figuring out exactly what their audience needs. Once a startup identifies the needs and wants of their audience, they can begin adjusting their marketing plans as needed, which will eventually lead to growth.
When startups begin to see substantial growth, the growth is often rapid and explosive, as their product or service goes viral in today’s market. Once this explosive growth has slowed, the startup becomes an established company, and can begin pursuing further growth from that point.
Each startup should set goals for growth as they optimize their business. Goals such as achieving 7 percent growth each week are incredibly useful for startup founders, as it gives them a guideline to reach each and every week. If that goal is not met, it means that something needs to be changed to meet it.
Unfortunately, not all ideas are capable of achieving this kind of growth. Those that are should be considered highly valuable, as most companies will find themselves struggling to grow more than one or two percent each week, leading to little growth over the course of a year. Find a valuable idea that can achieve substantial growth each week, as this is the foundation of any successful and rapidly growing startup.
Many startup founders believe that investor interest in their idea equates to value, but this is not always the case. In fact, many investors will throw small amounts of money at many startups in hopes of finding one that will show them a large return over time. Because of this, it’s very important to consider the advantages of settling for slower growth while raising your own funds, as accepting funds from VCs is not always the best choice. Work only with investors when your idea has proven valuable, as accepting money for an idea with little potential will lead only to future problems down the road.
The same can be said for acquisition offers, which will happen to any startup with enough time. This is a judgement call, and largely depends on the startup founder’s preference to make the right decision. A larger company may offer hundreds of thousands for a startup, but that will pale in comparison to the millions it may have made if the company were not sold.
Founders should understand the value of their company, as well as its potential for growth, and use these factors to determine the best course of action with regard to growth goals, acceptance of investments, and acquisition requests. Each of these elements plays a key role in operating a startup, and are simply part of the process. For those unsure of how to handle each of these factors, it may be best to consider starting a normal business, but for those truly looking to establish a startup, it’s important to understand which challenges will be met along the way.
Read Paul Graham’s full article here…
