What Changes when a Startup Transforms Into a Corporation
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Let’s take a fictitious character Mrs Sharma, who is also a founder of a startup in the automotive telematics space, were discussing the risks involved while going from 1 to n. Her company had started moving towards mainstream buyers and the numbers were taking a major upturn.
Her question seemed very interesting as a number of startup founders being “promoted” to the chairman’s position once the company started becoming big business. A new CEO would eventually be hired, usually from a “more” process driven company to take his place. In a nutshell, the question that required attention was – What changes when a startup transforms into a corporation? Let’s look at the answers.
The Shift in the Type of Customer
Thought it might seem linear and simple, but a firm’s transformation from a small startup to a larger company involves a lot more managerial efforts than just administering sales. The growing numbers require embracing an extensive customer base beyond the early adopters. Geoffrey Moore, a management consultant, in his seminal work on “Technology adoption life cycle” has elaborated on how early stage ventures need to “cross the chasm” and move towards the mainstream market.
Technology Adoption Life Cycle Curve by Geoffrey Moore
As Mrs Sharma’s startup aligns its minimum viable product and starts testing its model in the market, it meets the first set of customers called early adopters. These customers are technology enthusiasts and visionaries who believe in the potential of the product. Not only are they interested in an unfinished product, but these set of customers are also even willing to assemble the product based on their needs. These guys become evangelists of the product and help market it in their ecosystems. Typically, quality early adopters bring great value to a firm as they guide the founders towards mainstream customers.
The next sets of customers, the mainstream market, are high volume buyers that represent a real demand. This set will bring in the required sales numbers and scale to Mrs Sharma’s company. These people are extremely practical in their buying behaviour and compare you with the existing competition or alternatives before indulging further. Once you display a clear value proposal vis-à-vis the ownership costs, your product is good to go. But having said that, these buyers are extremely demanding and will push you to innovate and calibrate as you move towards a bigger pie of their attention.
The Evolving Style of Management
As Mrs Sharma’s company moves from early adoption to mainstream market, her entrepreneurial management style needs to be succeeded, by a process-oriented management style that brings in the necessary culture and organizational structure. But this step should not be confused with the ideology that everything needs to “go by the books.” The mainstream market has its own set of uncertainty and an innovative ethos will always follow suit.
Though both, Startup chaos and corporate rigidity, are very important in their scope of time for company building, the objective, here or rather now, is to create an organization that land exactly in between the chaos and the rigidity to bring predictable and repeatable success. Hence to bring in the optimized agility with a much larger group of people, it is imperative to embrace a process driven management that promotes innovation and synergy among departments bridging any bureaucratic outsets.
Building Fast-Response Teams
While dealing with early adopters, Mrs Sharma had created functional departments that would respond to customers, competitors and market opportunities. Moving ahead towards mainstream customers, she would have to turn those departments into fast-response teams to implement decisions consistently faster that would lead to a tremendous, often decisive, advantage. And to do that, her company needs to follow an agile-decentralized decision making management system.
Since, in most cases, the employees who are at the point of decision understand the true situation better than the “executive leader,” it is dangerous for a small company to go for a formal, upward centralized decision-making process. Speed, here, would mean reducing the time needed to make decisions and to incorporate feedback. And the aim would be to be faster than your competitors or cash burn rate, taking real advantage of timing.