Tuesday, May 01, 2007

Lesson #13 - Running a Startup is a Marathon, not a 100-yard Dash

I think everyone has read or heard the tale of the Tortoise and the Hare. The famous conclusion Aesop makes...

"Slow and steady wins the race”

Despite the fast-paced, every-changing world of a startup company - this fable holds true. For some reason startups (especially technology startups) are expected to have explosive growth, and almost overnight become a multi-million dollar business skyrocketing to an IPO in less than five years. Sometimes I wonder who is writing the rules for building new companies - the entrepreneurs or the capitalists?

Either way - its wrong to have a mind-set of quick and speedy growth. For one, it is not healthy for a company to grow quickly, and two the faster you grow, the more mistakes you make, and the quicker (and more likely) you fall. Remember, slow and steady.

I know what you are thinking - "My company/market is different, I need to go 100 mph to keep up with competition". Wrong. You don't need to keep up with competition - you need to keep up with the customer - and last time I checked customers are never on the bleeding edge (only blood is).

The further you distance yourself ahead of the market, the more mistakes you will make. And mistakes cost money and time - and ultimately can cost you the business. The key to winning the marathon is holding a constant, steady pace - and plot your course wisely. There will be plenty of time to sprint to the finish line when you get to the last 1/4 mile.

Here are some common mistakes made by the "Hare" and avoided by the "Tortoise".

1. Over extending R&D - So many startups continue to innovate beyond the customers needs, and beyond any real market demand - just to be "ahead". There is no reason to invest significant time and money into future products that won't be sold in 2-3 years. Don't get me wrong - you need to continue to innovate - but don't out-innovate your customer. (Plus, I bet marketing would really like some of that budget, so we can increase sales)

2. Don't grow Fast - A lot of companies (especially ones that get VC funding) think they need to grow the company in order to grow revenue. As soon as they have capital in the bank, they start hiring 2-3 sales people (even though their current sales guy still has capacity) - and they start hiring full-time operations guys - just because they need to manage all the new employees they are hiring. Just because you have a million bucks in the bank from a new investor, or just collected on a big purchase order- doesn't mean you need to turn around and spend it.

Keep your capital for survival down the road, and if you are going to invest in growth - make each dollar count. Don't add to fixed overhead unless you are bursting at the seams. If you want to boost revenue - try investing in variable overhead - like advertising, or attending a trade show or even hiring a part-time telesales guy to bring in leads. There is a certain pace to growth, and the idea of "spending more money, will increase growth" is not entirely true. It can have an inverse effect as well.

3. Work smart, not hard - As an entrepreneur have had my share of 100 hour work weeks, spending the holidays on my laptop. Sometimes, work calls and you have to answer - but make sure you are working smart. Just because you spend 100 hours a week working - doesn't mean you will achieve your goals twice as fast. Time (like money) is not a catalyst - unless it is spent wisely.

The key question - is who sets the pace? If you are running a 100-yard dash, then you know you need to beat 10 seconds if you want to place. However, if its a marathon, you know you have a longer road ahead, and need to be patient, pace yourself, and conserve energy for the right time. A startup is no different. Pace yourself, make smart decisions and don't run in every direction - just run straight ahead.

4. Take breaks, and take them often - If you are like I was when I was running my first few companies - I never took a vacations. If I did, I was online 90% of the time. Big mistake. Not because I wasn't able to relax - it was because I was not able to think. When you get so focused on your work, you start to build blinders - and become disconnected to opportunities that could be critical to your success.

This is why it is important to take breaks - (30 minute breaks in the day to brain storm, 3 hour breaks during the weekend, and 3 day breaks every month, and finally 3 weeks of breaks per year). What is a break? It is taking your mind off work, and focusing it on something completely different. It doesn't have to be completely unrelated, but it needs to be outside the box. For example, if I was running a software company - I might take a 30 minute break one day to read some blogs by well-know software innovators. You may spend some time on a hobby, or with your kids - the important thing if you are fueling creativity and innovation more by stepping out of the office - then you would be knee-deep in the conference room.

All of the points I make above is not just about avoiding "burn out" or minimizing dumb mistakes - it is about winning the race. Building a great company is not just about management, product and market. It is about timing, pace and management of time and money.

Here are some common "Myths" I hear from entrepreneurs all the time (some of which - I believed when I was building my first company)

1. "My window is 6-12 months to build the product and beat the competition" - First of all, anyone who says their is a finite window of opportunity - is not building something that is innovative, and certainly is not addressing a dynamic market. Any market over 50M in size takes years to mature, and 500M size markets take decades. Nothing real, and sustainable has tight dead lines.

2. "We can grow the company from 1-2M in revenue next year to 20M in year 3" - Sure, this is what VC's want to hear - but give me a break - this is ridiculous growth. Even if a company achieves this type of growth, it doesn't not set a healthy pace for the company. If the CEO has committed to building a 20M run-rate in 3 years, then he will over-invest sales and marketing an an immature market, and potentially waste 50% of his budget just trying to reach his goals.

3. "I need a staff of 10 sales people around the US to meet my first year projections" - Sure, we would all like to have a large, untrained staff walking the earth - but its not a realistic plan. It takes time to train sales people. Once they are trained you need to feed them leads, so they can close and make a living. Hiring a bunch of people as a prerequisite for growth is not a good plan.

In summary, just remember to keep a slow and steady pace toward your objective, and try not to get distracted by what the market says or the competition is doing - focus on what you need to do to get customers and keep customers.

No comments: