7 Principles for Propelling Your Startup to Success
Want a venture to succeed?
I developed seven principles that can help a startup improve its odds at success based on analysis of more than 1,500 public companies that I did for my book Value Leadership.
Companies that followed these principles the most closely (I call them value leaders) grew sales 35 percent faster and generated 109 percent higher net margins than their peers and increased shareholder value almost five times faster than the market in the 10 years before 2003. Companies that do a better job of creating value for key stakeholders, such as employees, customers and communities, also happen to generate more value for shareholders.
The organizations that apply all these principles will outperform those that skimp on some. For example, one of Google's glaring weaknesses today is its inability to create a significant new source of revenue beyond advertising. That does not seem to hurt the company too much now but it could in the future.
Although I developed the following seven principles years ago, I believe they can help a startup succeed today as has been borne out by recent company history:
1. Value human relationships.
Entrepreneurs can't do it all themselves, which means they need to hire talented people. Treat talented people with respect and be sure they are a good fit with the values of the company.
For example, Google hires very smart people who fit with its unconventional approach to problem solving. Google has used its famous data-driven approach to decision making to identify traits associated with effective management. And it has used those insights to hire and promote peope who demonstrate these skills.
2. Foster teamwork.
If an entrepreneur hires talented people, he or she should demand that they debate solutions. Ask them to use their skills to develop better solutions from working together than they would by toiling on their own.
In the last few years, Google has encouraged more teamwork, which has helped the company bring new ideas like Google Glass to fruition.
3. Experiment frugally.
Startup CEOs must resist the urge to perfect their products before launching them. Instead, they should build fast, inexpensive versions of their products, receive feedback from the market and improve the product in response.
Google encouraged this kind of frugal experimentation by letting its employees spend 20 percent of their time working on projects of personal interest.
In 2011 new CEO, Larry Page, decided he wanted to “put more wood behind fewer arrows” and phased out 20 percent time while phasing in the Google X lab to work on innovations, Quartz reported.
4. Fulfill commitments.
A startup will not succeed unless the team knows the management's intentions and then leaders act accordingly. And leaders who tell their people they'll do one thing but do the opposite will lose trust.
Google has certainly tried to follow through on its oft-stated value "don't be evil." Sadly, it has not always succeeded, such as when it decided to censor search results in China in 2006. It stopped in 2010.
Don't make the same mistake. It's better for a startup to give up on a business opportunity than to violate its core values.
5. Fight complacency.
Don't let the success of a particular product or service keep the company from searching for better ways to meet customers' needs. Remember Blockbuster? To fight complacency, maintain a healthy paranoia and always be on the lookout for how to adopt new technologies that will give customers superior value.
Consider how Netflix transformed itself from a DVD-by-mail service to an online streaming provider. Not only has Netflix managed the transition masterfully, it has also added new capabilities like creating popular shows and managing relationships with high-bandwidth service providers.
6. Win through multiple means.
Don't let the startup become dependent on one product that competitors can copy. Protect sources of revenue and profit by being good at a few key skills that are difficult for rivals to copy.
Under Steve Jobs, Apple could enter into existing businesses (like MP3 players, smartphones and tablets) and cut itself a big slice of the profit pie. Apple won through multiple means: It had great product design, superb marketing and customer service, an efficient supply chain and the ability to motivate third-party providers as evidenced by the success of iTunes and the App Store.
7. Give to the community.
Running a startup is especially challenging because business owners can't pay enough to attract top talent. But they can make up for the smaller pay packet by developing a meaningful mission.
Consider the case of Embrace Innovations, whose CEO, Jane Chen, I interviewed in June 2011. The social enterprise was started in an attempt to save the lives of premature babies in developing countries. In India, many premature babies died after not being kept warm during a four-hour journey to the hospital.
Because of its inspiring mission, the company attracted talented employers, who developed a tiny sleeping bag of special materials able to keep infants at the right temperature. This saved many lives.
This week my class of 30 Babson College undergraduates explored how Google has applied these seven principles: The students concluded that despite some flaws, notably in its privacy policies, Google is a value leader. The students concluded that Google excels at valuing human relationships, winning through multiple means, experimenting frugally and fighting complacency.
Ready to try these principles? In my book I listed 24 specific activities that companies should perform to follow the seven principles as well as 107 more detailed tactics to accomplish these activities.