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A startup is not a small company One might think that a startup is just a small version of a large company. However, the characteristics of a startup are very different from those of an established company. Consequently, startups need to adopt a diffe-rent management and a different set of work processes than those that are generally accepted and used within the management of established companies.

Startups operate in extreme uncertaintyThe main difference between a startup and an established company is the level of uncertainty. While established companies work in known territory with a proven business model, startups operate in conditions of extreme uncerta-inty and a high degree of unknowns. Matters that consti-tute key basic knowledge within an established company, such as who your customers are and what your product is, are not always known in a startup. This renders conventio-nal planning and forecasting ineffective, and opens up for alternative methods that are better suited for operating in an unknown and highly dynamic environment.

Then, how to navigate in an unknown sea towards an unknown destination? Navigating in an unknown sea towards an unknown destination is very different from navigating in a known sea towards a known destination. When choosing tactics for navigating in the unknown, consider that the longer you sail before you make a stop to verify if your course is right, the longer you risk to have to go back if it turns out that you are headed in the wrong direction. This will most likely be costly, time-consuming and drain your motivation. Better tactics is to sail a short distance at a time, making frequent stops to test if the direction cho-sen seems to be right, and adjust the course as soon as you realize that you need to do so.

HOW TO NAVIGATE

VENTUREIN THE UNKNOWN SEA OF

LET UNCERTAINTIES SINK IN – DON’T LET THEM SINK YOUR VENTURE

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CREATIONNew venture creation is considered to be a

key factor to national economic growth.

Unfortunately, most ideas never reach com-

mercial success; statistics show that 75 per-

cent of new ventures fail to achieve return

on investment. This dull figure implies that

running a startup is difficult and a highly

risky business, with unfavorable odds for the

entrepreneur.

This newsletter aims at providing an introduc-

tion to the main difference between a startup

and an established company, the implications

of this difference, and why new venture crea-

tion can be such a challenging endeavor. The

newsletter concludes by presenting five key

principles for how to increase the chances of

turning startups into successful companies

and make the journey less risky.

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The learning that takes place in this process is what builds the foundation of the business. With a strong foundation you increase the likelihood of success, and you will be able to sleep at night. Additionally, adopting a highly iterative pro-cess tends to move focus from the product itself, to capturing and delivering value to your customers.

Understanding your customers does not take place at your officeTo explore who your customers are, you need to get out of the office building to where the customers are. Just like all hypotheses, the hypotheses that you have about your custo-mers and their preferences must be tested and validated before your business model can be fact-based instead of faith-based. Normally, a desktop business model does not survive its first meeting with a customer. Early testing of the business model with several customers will increase the probability of success. The better you know your customers, the more likely you are to identify what you can sell to them.

Structuring a growing crewAs the entrepreneur reaches the execution phase, the startup is evolving into a company. More people will be hired, an increased number of orders need to be handled, and new demands will be placed on the structure of the organization. A transformation is needed to enable efficient processes and quality assurance, and the agility will need to be balanced with increased robustness.

The explorative journey requires a flexible plan A common recommendation to entrepreneurs is to write a solid business plan before starting the business. Unfortunately, business plans tend to assume that the path will be smooth and flawless – leaving little room for iterations, errors, feedback, and learning. The business plan is indeed an important tool for defining the direction and structuring the work, and it can be an efficient com-municative tool for describing the business potential, which is necessary to receive funding. However, it should be emp-hasized that initially, the business plan should be a plan for how to test hypotheses. Plenty of room should be left for uncertainties, and the business plan should be updated continuously as new discoveries are made and market feed-back is received. As the business model gradually starts to become better known, more detailed planning for how to realize the business model should be done. Consequently, the business plan will gradually become more solid.

An iterative process enables the learning that will build the foundation of your businessThe ability to learn is perhaps the most important characteris-tic for an entrepreneur to be successful. The startup starts out by having a 100% hypothesis-based business model, and the entrepreneur will gradually reduce this percentage through testing and validating hypotheses in an iterative manner. Learning that your hypothesis was wrong is not a failure, but a fact you should be happy to face sooner rather than later.

The main purpose of a startup is to search for a profitable and scalable business model. The key challenge is to find a solu-tion to a problem that someone is willing to pay for. An establis-hed company on the other hand, already executes a business model, with a well established offer and customer base.

As the basis of a startup is a new idea, that no one can have any previous experience of, the characteristics and implica-tions of the new idea must be searched for and explored. How the idea will be received by customers, how to make money off the idea, or which sales channels to use for the idea, are examples of aspects that are unknown and must be learned through development and testing of hypotheses. This is where many get it wrong. Instead of engaging in months of planning and desktop analysis, the entrepreneur should start testing hypotheses about components of the business model as soon as possible. Once the hypotheses have been validated and a scalable business model is at hand, it is time to move from the explorative phase into execution phase.

Naturally, financing the startup’s activities is a challenge while sales figures are low, and raising venture capital is usually not an alternative as long as the business model is not verified. Public funding alternatives - regional, national and international – play an important role here and the many different opportunities should be considered.

THE SEARCH FOR A SCALABLE BUSINESS MODEL

The main purpose of a startup is to search for a profitable and scalable business model

Business model not known

Profitable and scalable business model known

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be sold to someone in order to generate income. Make an inventory of the startup’s assets and see if there is something which could be interesting enough for a custo-mer to pay for. Several temporary business models can be applied in parallel along the way, as a way to finance the realization of the final business model. Naturally, startups are often R&D-intensive and run by “techies”, but it is usually a good investment to reinforce the team with sales capacity.

There is no lack of capitalA common misconception among entrepreneurs and the general public is that there is a lack of capital. Our expe-rience is that a validated business model with a strong business case is very likely to be attractive to investors. Poor validation on the other hand will raise doubts, among private as well as public actors. Further, poor communi-cation of the business model, validated or not, is another showstopper when it comes to fund-raising. With an effectively communicated funding proposal and access to someone who can provide guidance in the extensive supply of funding opportunities, you are likely to be suc-cessful in raising capital.

Build a balanced organization as the company growsManaging a small venture consisting of a small team is significantly different from managing a larger organization of 50+ employees. Companies that have grown fast are often challenged to re-align their business to the new size. As the company grows, it is important to start building necessary structures and processes to ensure efficiency in the organi-zation. However, it is highly important to develop a balanced organization that is both robust and ensures flexibility and responsiveness to changing market needs.

Adopting the principles above will contribute to making the process of venture creation less risky and improve the chances for success. The principles described in this newsletter are by no means restricted to startups only. Small or large, all organizations can benefit from utilizing the prin-ciples when exploring new initiatives.

Running a startup is significantly different from running an

established company. There is no magic formula that will

ensure success. However, much can be done by the entre-

preneurs and by the surrounding support system to signi-

ficantly increase the chances for developing a successful

company. Based on the experience that Triathlon has col-

lected over the years, five key principles have emerged for

how to increase the chances of success for new ventures.

Get out of the office building and validateIn order to validate vital hypotheses in the business model,

entrepreneurs should interact with customers as early as

possible. Guesswork should be left behind and validations

should be based upon empirical data gathered from real

customer interaction. In that way, you make sure that deci-

sions are fact-based and not faith-based.

Iterate rapidly and change course if neededIt should be acknowledged that the business model most

often needs to be iterated and changed several times, to

eventually address real customer needs, be profitable, and

be scalable. It is therefore important to ensure flexibility by

taking small, rapid steps instead of leaps. Do not get stuck

in an initial hypothesis if it is proven to be wrong. Note that

the iterative approach should be applied both in the busi-

ness development and the product development, which

should be tightly paired.

Make sales a key activityJust because you can not yet deliver a final product offer, it

is not an excuse for postponing sales activities. Surprisingly

and unfortunately, customer revenue tends to be underes-

timated as a potential source of income for startups. If you

are creative enough, there is always something which can

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FIVE PRINCIPLES FOR HOW TO INCREASE THE SUCCESS RATE OF NEW VENTURES

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