Understand a Startup Better

The startup is a phase in the business life cycle which has its own characteristics different from the other phases. In a startup, practically everything is unknown; the market, business model, product-market fit, etc. are all unpredictable. This is  because the business, brand, people, and services are new and without a “business model”. So predicting, researching hypothetical customers and creating a business plan  are of very little help to ensure the success of a startup.  Therefore a startup should look for patterns in the market behavior  and  uncover a business model that can be duplicated for growth.

Webvan is a US based company. Their business is online grocery, you buy the products and they will deliver. This company spent months doing their business plan and gathered money from investors, Even with its plan and huge amount of money, the business failed months after its launch.   During the 80’s, Coke wanted to come up with a  new softdrink formula. They did several blind taste tests and a convincing number of people said that the new Coke tastes better than the old formula. Because of this, Coke was very confident that they will hit a jackpot. So they launched and distributed the new Coke. Weeks after, it was recalled. When they did a follow up study, they found out that people still wanted the old formula better because of their emotional connection to the original formula. This is something that was missed during the plan. The whole point of telling the two stories is to show that business plans are not always a formula for startup success.

A good understanding of startup behavior, objectives, entrepreneur’s role and startup accounting is key to creating a great startup. But before I continue, let me make it clear that startup is both for high tech and low tech business, and also for new business ventures and companies who are to create a new business.

Startup Objective

Since many things are unknown and unpredictable in the startup phase, the objective is learning and discovering the best product-market fit, business model and market behaviour. This is done by creating assumptions putting them to tests, evaluate and iterate.

Startup & Entrepreneur

The person with entrepreneurial quality  is best  to handle a startup. The reason is that an entrepreneur is fit to work in a disruptive environment since they are resilient, audacious and self-motivated. Within a startup,  the role of the entrepreneur  is to test the assumptions and find a business model that can be duplicated for growth.

Startup, cash and accounting

To keep the business startup alive, the entrepreneur must focus on one important thing and that is preserving and reinvesting the cash. This is because cash makes the business go and grow. To make sure the entrepreneur saves on cash, he or she must employ bootstrapping. A bootstrapped business means the money to be used for growth comes from its own income, while bootstrapping means being conscious with the expenses of the business. One of the techniques of bootstrapping is finding alternatives to achieve a certain objective before spending the cash. If for example you goal is to create awareness, instead of paying newspaper ads, you can choose to create a free Facebook page and spend a little on ads to get noticed.



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