What kind of startup is your company?
A bad startup is an exercise in applied greed, where its principals construct a series of sophisticated simulacra of market excitement all the while grooming foolhardy buyers to misvalue it at each stage (seed, Series A/B, exit). In fact, many startups set out on this path, though a fair few subsequently redeem themselves by accidentally connecting with a real market somwhere along the way.
An OK startup moves directly to customers, fitting products and services around their (generally quite limited) aspirations, trying to fit nicely into their world without obviously rocking any boats. This is generally an exercise in satisfaction optimization, working within a very constrained conceptual and financial business environment. Even so, this is arguably how most real-world startups play out.
A good startup is an exercise in incremental social ambition, building shared dreams as astonishing and satisfying as your capabilities and finances allow. However, most failure-to-even-begin “beermat startups” follow this path: their flashes of dotcom-style brilliance appear unstoppable after a pint of beer, yet make no sense at all once sober. The paradox is that this is how business schools appear to think that startups operate.
You might pragmatically characterize these three as investor-facing, customer-facing, and production-facing respectively; or usefully satirize them as the virtual IP strategy, the we-do-what-you-want strategy, and the if-we-build-it-they-will-come strategy. Even so, which one should entrepreneurs choose? The Path of Needles or the Path of Pins?
You know, I think this is one of those false choices where attempting to answer doesn’t really help you much. Basically, the three parts all relate to different activities / roles / thinking hats that entepreneurs have to do / perform / wear at different times. Sometimes you need to be a bit greedy (in order not to roll over in negotiations); sometimes you need to be a bit responsive (in order to put your company’s social revolution into practice); while sometimes you need to have some kind of vision of where you’re going (in order to lead your market, rather than being perpetually led by it).
Probably a more useful way of looking at this is that companies inevitably have a production aspect (what do they create?), a service aspect (how do their relationships with their customers work?), and a financier aspect (who is exposed to the company’s success or failure?) Only someone hugely idealistic – such as, say, a person writing a course text for an entrepreneurship module at a business school, or possibly a person who believes that customer development kills all known germs, etc – would think that you could get away with focusing on any one rather than (if at all possible) all three.
What I find a bit sad is that a lot of startups I’ve seen over the last few years have such a dominant service angle (probably because London has made so much money out of financial services over recent decades) that it is almost as if many entrepreneurs have no notion of what it means to dream up a social revolution.
Yet ‘production’ in this context doesn’t mean anything so tangible as ‘manufacturing’ so much as simply “taking a view on what’s wrong or missing in your particular market and trying to plug the gap”.
What many entrepreneurs seem to have forgotten is that the innate marginality of service is usually only a worthwhile business proposition at large scale: in fact, in a competitive service marketplace, reducing service margins is arguably a ‘value-subtract’ rather than a ‘value-add’. By way of comparison, building towards a vision (rather than constraining activity to customer survey results) is what gives winning companies a real value-add. The issue is simply whether what you’re doing will lead to any kind of win.
Aiming at the stars is, then, not some risky and hallucinatory aberration to avoid, but a necessary production step: the stars are our friends, for though we never reach them, the process of shooting in their direction helps us develop and shape the dreams of our customers. And that is the place where social revolutions really take hold.