Lessons for Entrepreneurs From the Corporate World
Why do any of us set out to become entrepreneurs? There are always easier, tried and true paths to making a living than starting your own business. Those of us who have shirked the road traveled more often share one commonality: The desire to create instead of replicate. As a species, most entrepreneurs are visionaries first and businespeople second.
But here is the harsh reality for startup entrepreneurs: statistically speaking, most will fail. Out of all startups -- including venture-backed and non-venture-backed companies – 60 percent make it until their third year and only 35 percent make it to year 10, according to separate studies by the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation. At a conservative estimate, three out of four venture-backed start-ups don’t return investors’ capital.
The challenge for most entrepreneurs isn’t coming up with great ideas but creating value, and this in turn means bringing their ideas to scale. The reason so many entrepreneurs struggle with value creation is they don’t incorporate the basic business lessons that the corporate world takes for granted.
Here is what startups can learn from corporate America:
Put the customer -- not the technology -- first.
When thinking about starting a new business or introducing a new technology, it’s not a chicken-or-the-egg scenario. To succeed, startups need to solve a problem for an existing customer base. Don’t make the mistake of trying to fit a technology to the market, instead of the other way around. The customer drives business growth; technology is just a means to an end.
De-risk your business.
We become entrepreneurs because we have an appetite for risk and navigating unchartered territory. But that doesn’t mean startups can’t take the same measures the corporate world does to de-risk propositions related to growth and come to market with a greater degree of certainty.
Too often, the startup world and its funders view simply putting the offering in the market and then “iterating” based on results as sufficient. Often, mistakes here don’t allow a second chance.
At Joinem, a social commerce startup I head as executive chairman, the proprietary consumer research we conducted validated our decision to take the company’s business model in an entirely new direction. That insight was invaluable to shaping our platform and understanding the potential size of the market.
Define your success metrics and assign accountability.
Entrepreneurs need to be able to clearly define what makes their business successful upfront and hold themselves and their people accountable. The ability to assign accountability -- to predict, measure and assess the results of each metric with reliability and regularity -- is key.
Keep in mind that success metrics are only as good as management’s ability to identify the right ones. One of the biggest mistakes a startup can make is failing to link the metrics they are measuring to what it really takes to be successful.
When I took over as CEO of online grocer FreshDirect, the chief measure of success was new customer acquisition activity. While new customers were joining in droves, growth had stagnated and customer turnover (churn) was high. What we should have been looking at first and foremost was our customer service metrics. I actually halted all marketing aimed at customer acquisition to focus on analyzing and addressing areas for improvement in our customer service. Only once we fixed these business-critical issues did we devote time and resources to marketing.
Develop a feedback loop.
To make sure that progress is fluid and constant, startups need to implement a system that collects feedback, analyzes that data against a specific metric and enables the business to react accordingly. And in today’s online and mobile world, there needs to be a real-time rhythm built into the feedback loop so that there is an opportunity to turn insights into noticeable and timely improvement, daily.
Keep scaling simple.
The most viable business models are those that simply and systematically support growth. An overly complex business model is not only difficult to explain to potential investors and customers, it’s hard to execute.
If a business model isn’t scaling, that’s doesn’t necessarily spell the end of the company. Startups have the flexibility to transition to a more effective, streamlined business model.
When I came on board at Joinem, the original reverse auction business model had a powerful value proposition and embodied the trends I believe will define the next decade of business: mobile commerce and social media. However, execution was too complicated. In order to fully monetize its potential, the company shifted its business model to a collaborative buying platform powered by social networking.
This, admittedly, isn’t a lesson I learned until I joined my first startup in 1998. Enjoy the relative freedom and flexibility of the startup environment to make rapid changes and pivot towards opportunities.