The atomic theory of entrepreneurship, according to Dr. Ron Mitchell, is to build from a single transaction, a scalable series of transactions. That seems easy enough. So why do some startups succeed while others cannot achieve a sustainable growth trajectory?
Are You an Architect, or DIY?
“Building a business is fundamentally really hard,” says Eric Jordan, CEO, Codename Entertainment. “A business is a system, and the people who know what they are doing — how to build the system — have a better shot at success. A business is an interlocking system of pieces that build value through a financially profitable relationship between a company and its customers. Startups are groups of people who are hoping to build one of those.” When Jordan transitioned his former company, PureEdge, to an external CEO, he was struck by how the new CEO ran his first sales retreat. “He had each salesperson pitch, and everyone both critiqued and learned from each pitch.” The new CEO had worked for larger companies and had innate knowledge not readily available to a startup founder without that experience.
Cinderella’s Shoe — Fit Matters
Beyond the system, the product-customer fit takes time to research, test and hone. Rob Bennett, founder of Municipal Software and now COO at VIATEC, knows this well. “At Municipal Software, it took 11 years before we finally figured out what the customers really wanted. What is essential to startup success is that customer relationship, communication and iteration cycle.”
Startups that are able to create a profitable transaction that delivers the right amount of value to a good-sized group of customers position themselves for success. In comparison, startups that fail often position themselves for a small group of customers — the innovators and early adopters — and fail to adapt the product or service to the larger market, as described in Geoffrey Moore’s classic book, Crossing the Chasm.
What Comes Next? Cash is King
Rajiv Khaneja, serial entrepreneur and investor, believes that math matters most: “Having invested in dozens of companies and built a few, the key to long-term viability is just basic financial sustainability. Companies that don’t turn a profit can only survive for so long before investors lose interest and stop funding them. Conversely, a company that turns a substantial profit can continue to exist until it ceases to do so,” he says.
“If a company is profitable, a founder losing interest or becoming fatigued is not an existential problem. There are options such as hiring a CEO or selling the company. The company will continue to exist. The reality is that some ideas work and some don’t. It’s a good thing; founders can move on to something else that may have a higher chance of success.”
So a founder might not be essential once a company has found its cash “flow.” Do founders matter?
The Entrepreneur-Founder as Goldilocks
It depends on the founder and their ability to get it “just right.” For example, they need to choose between humility or tenacity at different moments, something that Rob Fraser, founder of Outway, calls ego toggling. “A founder must reinvent themselves through each phase of the business. This requires a high level of self awareness and ability to toggle ego when it’s not serving them. This sometimes means getting out of their own way when the business no longer succeeds under their leadership. This also sometimes means pivoting the business away from the founder’s vision, to one that better serves the customer.”
Manfred Lotz, founder of AdOrganic, has worked with many founder clients and sees this “just right” challenge in micromanaging versus the big picture. Sometimes a focus on the details is required to deliver the quality that a customer requires, but the big picture is essential for long-term success. “Founders can get stuck in perfectionism and details, neglecting the big picture. For example, some founders often tend to spend too much of their focus on text fonts, colours and styles, while neglecting to focus on the message they are communicating with the text. That is usually a sign that the business will not succeed.”
Jordan concurs with the challenge of getting it just right: “You have got to be confident, but not so confident that you can’t listen to others. You have to be tenacious, but not so tenacious that you just can’t let it go.”
This challenge also shows up in the number of options that an entrepreneur is pursuing at any given time. Garth Wardle, principal of OnRock Advisory, puts it this way: “Initially, success or failure is about the entrepreneur. They can chase too many options, especially when things get tough.”
The Startup Dream Team
Wardle goes on to say, “When it comes to forming a startup team, opposites attract. Successful entrepreneurs attract organized people who need structure. When things get tough, the pursuit of too many options is hard on the team. That can lead to losing key people.”
Another common team-building challenge is recruiting people who are better than you to increase your own skills and capabilities. If you want to get better at something, you need people who are really good at that something, and you must engage with them as often as you can. Scott Phillips, CEO of StarFish Medical, goes further: “I have found that healthy conflict with my expert team members is critical to levelling up. It’s when we disagree that I am able to understand my own bias and learn something new.” This requires curiosity and the ability to create an environment where conflict is healthy and productive.
The Path Forward
Building a startup isn’t a linear process — it’s a constantly shifting landscape that demands an adaptable entrepreneur. A resilient, customer-centric entrepreneur is more likely to build a resilient, customer-centric business by:
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- Learning how to build a business system and its components, or hiring experts to do this work, i.e. building the team;
- Finding the fit between the company’s offering and a large group of customers;
- Charging toward profitability and managing cash through the growth stage;
- Managing self, i.e. ego toggling, and creating the opportunity for productive, healthy conflict in order to level up skills and knowledge.
It’s a tall order, but one that comes with substantial rewards, including a positive impact on our community.
Mia Maki is an associate dean, faculty outreach, at the Gustavson School of Business at UVic; a professor of finance, accounting and entrepreneurship; and a principal at Quimper Consulting. Maki has helped raise over $50 million for international initiatives, including acquisitions, strategic partnerships and joint subsidiary creation projects.
All images provided by: Getty Images
