Thursday, February 14, 2008

Startup reflections

As I watch a former employer of mine wind down its existence as an independent entity, I am struck by the commentary from those who claimed to have been involved with the company, particularly when they cite corporate incompetence as the reason for a lackluster exit. It’s easy to dismiss uninformed claims made by people not directly involved in the process, but more remarkable are claims made by people who had every opportunity to voice their opinion or affect change during the formative stages of the company. And it seems this is a pretty common occurrence—if you read the comments (mostly anonymous) on any techcrunch article describing a bankruptcy or acquisition, they are filled with insiders sniping at the people who somehow, singlehandedly, got in the way of success. It’s pretty rare that an individual has that much control over the situation in a corporate environment.

I’ve been through this a couple of times, and I take time to reflect on the experience to gain as much positive learning from it as I can. Here are some observations I’ve made that are consistent with my experience in multiple startups.

Startups are generally made up of smart people. These people have their strengths and weaknesses, and their past experience shapes their perspective on things, for better or for worse. They are often very good at something, and that’s what got them where they are.

At the early stages, the core team may fluctuate as aggregate competency gaps are filled and an individual’s strengths are matched up to the needs of the company. Someone who is very good in a particular area might struggle because that area of strength is already filled, and another need is left uncovered. Sometimes this process of reaching equilibrium is later interpreted as thrashing or management chaos.

Companies are formed based on a hypothesis. Sometimes this hypothesis is established by seeing a market opportunity and imagining a business that can capitalize on that opportunity. The implementation of the solution is a detail that must be worked out. Other times, the hypothesis is based on a working solution to a small problem, or a perceived problem, and then growing a business around that—expanding the existing solution to new problems and new markets. Both approaches can work, but each has its own risks and issues. The management team makes a series of guesses—experiments—observes the results, and modifies the hypothesis accordingly. Mistakes are made when the results of the experiments are not factored back into the plan, but these are easy mistakes to make.

Even when the hypothesis is modified based on the result of experiments, it is still just a hypothesis until proven valid by the market. I’ve seen smart people make informed, well-considered, decisions about the direction of the company. I’ve participated in those decisions and agreed that they were the best course of action given all the factors in play. Sometimes they lead to success—experiments supported the new hypothesis—but they don’t necessarily result in a sustainable business. There are only so many experiments you can afford.

I feel somewhat qualified to second-guess decisions that were made in the start-ups with which I’ve been involved. Faced with the same conditions in the future, I will use the body of experimental results I’ve observed to inform the current hypothesis, whatever it may be. But I realize that with the sheer number of variables involved, I will likely not see the same conditions as I’ve seen in the past. I know I will find myself in the midst of a team of smart people, each with our strengths and weaknesses, interpreting the experimental evidence and striving to make the adjustments that lead to success.

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