Managers in Startups

by Krishna on January 7, 2008

There was a comment from the author of Martian Geek to my last post on the necessity of project management asking, “How would you justify the success of start-ups which might be running well with very less ppl with managerial expertise? There also the person with the idea is not always the coder/implementer.” A very valid question and I thought I would answer it through a post instead of by another comment.

Start-ups are, by definition, very different from regular companies. In the software industry particularly, start-ups are very small, often consisting of a handful of people, maybe even just 1 or 2 people. Very often, they have very limited capital and considerable unpaid effort is spent by the founders. Start-ups have a high rate of failure, not surprising considering that every start-up is trying something new and untested.

A start-up can succeed if and only if it meets an unmet and substantial market need. If there are many start-ups in the same space, the one with the best overall value or the one with the criterion most useful to customers will succeed. But this is much easier said than done. For one thing, how does a startup know what the market needs?

The reality is that a startup doesn’t have the resources to extensively study the market needs before committing to building a product. For the most part, a startup possesses an idea that finds some acceptance among a limited sample of people. This is not to say that the idea is right or wrong. It is just that most startups don’t have a lot of information about the broader market and have to make assumptions.

And it doesn’t end there. However beautiful the idea, a startup has to take up the hard work of informing people about it, and getting them to try, purchase and use it. This requires heavy investment (time and money) in marketing, customer service and product updates. Finally, many external factors can affect customer decisions – the economy, technology infrastructure, the competition, etc.

As you can see, start-ups are risky. The point about risk is that managers are ill-suited to take on risk. One of the first things that a manager learns is to establish greater control and reduce as much risk as possible. That is why a manager talks about planning, documentation and processes. Managers would rather opt for a sub-optimal, risk-free solution than an optimum solution that carries the possibility of heavy loss. This is not necessarily a bad thing, but a startup is about extremes, not the happy medium.

Many start-up development practices would be frowned upon in a process-based company because they are not repeatable and sustainable in the long-term. But from a start-up’s point of view, they are perfectly valid, because the reasoning goes: If the start-up fails, then nobody cares. If the start-up succeeds, there will be enough resources and money to fix the problem.

The tight-knit nature of a start-up also makes many project management activities less relevant. Startups don’t manage time – they spend as many waking hours as possible on getting the product out. They don’t manage cost – they try not spending any dime if they can help it. They don’t manage quality and scope – they stick to an initial feature set and get out a working version as quickly as possible. They don’t manage communication – people just walk over and talk to each other. And so on.

This does not mean that if you have a lot of management experience, you cannot succeed in a start-up. It just means that you have to be more a producer than a manager. You have to accept more risks and downsides when there is the promise of greater rewards. You need a greater willingness to accept ideas and change your own views if it meets the greater needs. And importantly, you have to keep holding back on creating new processes that may introduce bottlenecks until you have reached your potential.

Now, as the start-up finds success, a new element is introduced – the startup now has something to lose. Since it is still growing, it has more to win than it has to lose, but it does have to protect what it has gained. And that is how a start-up morphs into a regular company. That is the beginning of process-based practices in a company, something that can potentially turn into bureaucracy, red-tape and inflexibility, if handled badly.

But that is how it starts and that is part of the evolution of any company. A start-up founder can continue to be successful if they can manage the increasing demands on the company. However, inexperienced founders find it difficult to relinquish past habits and learn new tricks. They have to hire or make way for more professional and experienced management at different levels in the company to take the company to greater success.

Summary: Start-ups succeed through taking on more risk and practicing less conventional management. As the start-up gains success and those gains need to be protected, more professional management must be introduced gradually, balancing both growth and security needs.

{ 6 comments }

cOOL_aLIEN_fRM_mARS January 9, 2008 at 12:15 am

very informative article…happy to think that I was one of the gears that worked in putting such a good article on the net..

Me and my friend always keep on going over startup plans and hes the “manager” guy and me the “techie” so your article just gave him a lot more share in our non-existent company 😛

Krish January 9, 2008 at 2:41 pm

Thanks for the comment!

Your “manager” friend will definitely have to step in to help on the technology side. But there is a still a lot of work necessary in areas of legal issues, accounting, marketing, purchasing, etc. One of you has to take care of that!

cOOL_aLIEN_fRM_mARS January 9, 2008 at 10:53 pm

🙂

Just so you know, we are always discussing things and not really on the verge of anything solid….yet

Krish January 10, 2008 at 7:50 am

Start with something, even if it is small. You will learn a lot along the way. This is a good time to start something. Best luck with whichever path you guys take!

cOOL_aLIEN_fRM_mARS January 10, 2008 at 10:13 pm

thanks 🙂

already working on something small.

prototype @ incubator.martiangeek.com

Krish January 11, 2008 at 2:24 pm

That looks pretty cool. Once again, best wishes with turning this into a commercial success.

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