The startup model of undertaking
How the startup creation processes have become a beacon for large companies, simplifying management and making them more agile and competitive.
In this century people and organizations live in an increasingly unpredictable, dynamic, uninterrupted and accelerated environment. Leading in this new environment is not an easy task because management includes volatility, uncertainty, complexity and ambiguity. Such an environment causes leaders a deep sense of urgency for organizational transformations, whether in strategy, culture, structure, processes, technology, or customer relationships. They want to avoid major disruptions and to thrive in a sustainable way.
As a result, many leaders are looking for digital transformation — an organizational change that uses digital technologies and new business models to improve customer performance and experience. In this transformation, the focus is on a better strategy where digital technologies can be used to implement it. This starts with a mindset change that focuses on people: providing more autonomy, collaboration, and customer / user experience; changing the business model and operational processes; improving and innovating in products and services using new technologies.
On the other hand, many companies face the dilemma between: (1) the efficiency of exploiting their resources to the fullest, including the use of process improvements and incremental innovations; versus (2) the quest to create products and services with radical and disruptive innovations. Due to increased competition and due to greater specialization and convergence of technologies, these companies are under pressure to accelerate their innovation processes and balance the simultaneous use of these two approaches.
Learning with Startups
Then the question arises: How to simplify the business world? Perhaps the answer lies in seeking an enterprising spirit in the methods, techniques, and tools that startups use to leverage opportunities, test ideas, prototype experiments, and launch innovative products, even if they bring some uncertainties. The important thing is to maintain a continuous transformation.
Startups seek a repeatable, scalable and profitable business model, working to deliver products and / or services in conditions of extreme uncertainty. They try to turn the “idea” into something more concrete because they do not have a business yet, but something that needs to be structured, tested, and validated. They start by validating the problem, then the solution, and finally the business model as a whole. To adjust the problem to the solution they make use of prototypes, then a minimum viable product next to the market and gradually they obtain traction. This is demonstrated by revenue growth, profit, customers, pilot customers, non-paying users, and even verified assumptions about customer issues. It is clear that the startup business will only achieve this if the product has value and enchant the client in such a way that it becomes, of course, a partner in the disclosure of it.
Initially there are uncertainties about technology, market, external environment and resources. They need to be identified, worked out and reduced. During this process, the business model is getting more mature — including possible strategic adjustments (pivot); partners and first collaborators are consolidated; the “dating” with investors is happening, thus, the first investments.
Many of the biggest companies in the new economy were born as startups. They are agile, lean and grow amazingly, generating high returns on investments. In addition to Google, Facebook, Uber, Airbnb, Amazon and thousands more, we can mention the Brazilian 99taxi, Nubank and PagSeguro who have become unicorns (companies valued at over one billion dollars), and so many other startups. On the other hand, many traditional companies have started to use concepts, methods, techniques and tools of startups to accelerate their businesses, such as Apple, GE, Nike and many others, including the Brazilian TOTVS, which is being digitally transformed and applying in its a new way of doing business and connecting with the market — seeking to be, according to Flávio Balestrin (VP of Marketing and Business Models), more agile, simpler and more essential in the life of the client.
The Startup model of undertaking
The startup model of undertaking established organizations has as its core a small team of internal startup, ie a multifunctional group focused on testing assumptions about new potential products using agile methodologies, lean resources and minimum viable products. The model uses a repeated cycle of tests, leading to an iterative process in which failure becomes a key component in validated learning. Multiple projects can be carried out by using growth charts and measured funding to learn to persevere, cancel or “pivot”, that is, by changing some element of your business model or strategy along the way.
Each startup will have two main assumptions to test: (1) the value hypothesis (if a product or service really delights customers as soon as they start using it); and (2) growth assumptions (taking some customers if they will be able to get more).
The value hypothesis can be tested with prototypes and a minimally viable product, which quickly transforms the idea into something real, using scientific thinking that includes several experiments. The data collected can generate a report, which should be: actionable, demonstrating a clear cause and effect related to changes in the product itself; accessible, where everyone involved in the project should be able to understand it; and auditable.
We know that not everything that a modern company faces can be managed by an internal startup unit, but it is the best way to respond to uncertainty. Such units mix research and development, sales, marketing and engineering elements; and generally do not have a fixed position in a traditional organization chart.
Traditional management tools are focused on planning and forecasting. Identifying and managing entrepreneurs requires a new leadership style. It is particularly important to realize that entrepreneurship is not a special quality possessed by only a few people. In fact, you never know who the entrepreneurs will be; and even non-entrepreneurs will benefit from this new way of working.
To harness the latent potential of enterprising talents, the organization needs to educate the entire employee base about the possibilities of entrepreneurship as a career path. This means meeting a number of challenges such as: helping people become better entrepreneurs and entrepreneurs, facilitating professional development and providing coaching; create space for experiments; make investments based on evidence, experiments and vision, not just ROI; create milestones that can work even without accurate prediction; use of internal and external support networks; create new incentive and promotion systems.
The mental model of an ecosystem of startups
You can learn a lot from startups ecosystems, venture capitalists, and a mental model that includes the beliefs and values of hundreds of startups around the world.
Startup investors make their decisions largely based on the quality of the team, looking first at people and then at the idea. They see the team’s ability to work out a good plan as an indicator of future success, even if the plan itself changes. What counts is the ability of the team to execute.
Each team is small but powerful because its members form an intense bond and communicate easily; flexible and concentrated because it works with scarce resources; because everyone has to come in and solve the problems that arise. In addition, it articulates the problem to be solved from the client’s point of view, aiming to enchant it with a dramatic improvement.
The investment can be used by a startup team as it should, under minimal supervision. On the other hand, if there is no progress, there is probably no other round of funding. The board or investors will need at some point a progress report, which shows the responsibility of the team, while allowing the freedom to pursue its goal.
Concluding
When the ability to experiment, learn and scale is embedded in company culture, problems can be solved more quickly and efficiently, resulting in more profit for the company.
Related article
Beyond corporate venture capital: new ways corporations can engage with startups
Books
Ries, Eric. The Startups Way: How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive Long-Term Growth, 2017.
Denning, Stephen. The Age of Agile: How Smart Companies Are Transforming the Way Work Gets Done, 2018.
Weil, Peter; Woerner, Stephanie . What’s your Digital Business Model: Six questions to help you build the next-generation enterprise, 2018.
