A journey of a thousand miles begins with a single step. Lao-tzu
If you read the academic literature or business press, you might believe that large companies and their business models are brought by the stork.
This series of posts are going to offer a new three-stage model of how startups grow into large companies. And I’ll end with some thoughts about a new approach to entrepreneurial education using this model.
Children, Adolescents and Adults
In the Middle Ages children were considered to be smaller versions of adults. We now know that the human life cycle is more complex; children aren’t just small adults, and adolescents are not simply large children. Instead each is a unique stage of development with distinctive behavior, modes of thinking, physiology and more.
The same is true for startups and companies.
In the past, most business literature has treated the life cycle of corporation as if the practices that make sense for a large corporation were equally appropriate for a startup. They only differed by timing or scale.
I argue that as a scalable startup grows from a garage into a Google, it progresses through three distinct stages – each presenting a unique set of challenges and decisions – and each requiring vastly different resources, skills and strategy.
Let’s take a closer look at the first two of these stages.
Stage 1: The Scalable Startup
A scalable startup is designed by intent from day one to become a large company. The founders believe they have a big idea – one that can grow to $100 million or more in annual revenue—by either disrupting an existing market and taking customers from existing companies or creating a new market. Scalable startups aim to provide an obscene return to their founders and investors using all available outside resources.
Entrepreneurs who have run a startup know that startups are not small versions of big companies. Rather they are different in every possible way – from goals, to measurements, from employees to culture. Very few skills, process, people or strategies that work in a startup are successful in a large established company and vice versa because a startup is a different organizational entity than a large established company.
Therefore, it follows that:
a) Startups need different management principles, people and strategies than large established companies
b) Any advice that’s targeted to large established companies is irrelevant, distracting and potentially damaging in growing and managing a startup
Getting From Here to There
If you would ask a startup CEO to create a diagram showing how their startup will become a large company, you’d probably get a simple line extending from “here’s where we are” to “here’s where we’re going.”
All the activities of a scalable startup such as Customer Development, Agile Development, Pivots, search for a repeatability, scale, business model, team building etc. would be inside the box to the left. In this simplistic model, on the day a startup achieves product/market fit, they would stop doing all the startup activities and magically become a “large company” – somehow acquiring a completely new set of skills, executing a known business model, generating profits and achieving liquidity for its founders and investors.
Since we know the world doesn’t work like this, the question is, “what is the process that transforms a a startup into a large company?”
Stage 2: Metamorphosis – the Transition
Any entrepreneur who has been successful (lucky) enough to grow their startup into a large company knows that this process is not a simple linear transition – it’s a metamorphosis. Startups traverse a clearly defined and chaotic stage before they become a large enterprise.
And once again, very few skills, processes, people or strategies that work in a scalable startup or in a large established company are successful in this transitional stage.
The transitional period between a startup and a company is a different organizational entity than either a startup or a large enterprise. While it is no longer an early stage scalable startup, it is not yet a large company.
This is the “they fired the founders and took away the free sodas” stage.
The new taxonomy for understanding how startups differ and grow into large company’s looks like this:
Each stage is an entirely different business entity with different management needs and requirements. In the next few posts I will explore how they differ in:
Then I’ll propose why this three step model calls for a new approach to entrepreneurial education—Durant School of Entrepreneurship™.
Filed under: Big Companies versus Startups: Durant versus Sloan