I have been working on a book on entrepreneurs and startups with Jay Abraham and Daymond John, star of the ABC TV reality show Shark Tank. If you haven’t seen the show, it is where entrepreneurs pitch their ideas to Sharks (Angel Invests) who give a thumbs up or thumbs down vote, and decide whether and how much to invest.
Even though I have been an entrepreneur all my life and been involved with many startups, writing about the topic made me much more aware of what I knew and didn’t know about it, which I admit what I didn’t know was in greater proportion. I learned a lot about the topic in the process of writing about it, which I think is worth sharing.
It seems like entrepreneurship and startups are the Zeitgeist, or spirit of the age. CEOs are increasingly talking about entrepreneurship and lean startups to grow their business and to head off disruption by competitors.
Entrepreneurship, according to Clyde Prestowitz in his book 3 Billion New Capitalists, is increasingly the path taken by people all over the world. As Gary Vaynerchuk points out in his book Crush It: Why Now is the Time to Cash in on Your Passion, today with a website and social media anyone can start a business.
It’s been said that we live in an advisory century and today, every consultant that I know is involved in some kind of new venture.
That said, one of the things I discovered in writing about this topic of startups is that there is a lot of ignorance about it, despite all the articles you can find on the web, things life “the seven steps to start up success.”
One of the most important lessons to learn is that a startup you can take two paths, as Steve Blank points out. One path is called the Path to Disaster, the other the Path to Epiphany.
The path to disaster is the one which views startups as a smaller version of a big company. It’s taught in business schools and is favored by the venture capitalists and most high tech entrepreneurs. It involves coming up with a formal business plan, seeking funding, and formal product launches.
Today, according to a Harvard Study of 3300 companies by researcher Shikar Ghosh, 75% of startups that take this path go bankrupt, the primary reason being too much money. He cites Webvan (online grocery) as an example, a company that received $850 million in venture capital and went around the USA building warehouses before they realized there was no market for buying food on the web.
The path to epiphany starts with a whole new definition of being a startup. It’s based on the idea of a startup being a temporary organization in search of an innovative business model that is repeatable, profitable, and scalable.
The notion is that, once you get your idea, you need to leave the office building and guesswork behind and go out and talk to customers to see if what you are working on is a problem worth solving, and secondly whether there is a good problem/solution fit, how to create demand, and so on.
The path to epiphany is not about trying to figure out the business model in advance, but about discovering the business model in the process of creating some kind of Demo, interacting with customers, and tweaking it until people are ready to buy the stuff you are making.
For example, if you are trying to market a gourmet dog food, and dogs don’t want to eat the food, you will keep tweaking the formula until dogs love it, and then focus on how to create a demand. The approach that is all too often taken, especially by venture funded companies, is to try to convince the dog owner to get the dog to eat the food, because it’s nutritionally good for the dog’s health.
More blogs on startups to come.