For the last 100 years, if you want to learn how to go from an idea to a business, the answer from educators and investors has simply been, “Well, go out and research and then write a business plan and then you will know everything possible to actually start and run your business.”
We now know that that advice was simply wrong – not a little wrong, but very wrong. We now know something we didn’t know before. We now know the right way to build startups. Gritd’s StartupFramework is about that right way, but let’s also reflect on how we got it wrong.
The corporate as we know it was first formed in 1602 with the Dutch United East India Company (VOC). This is pretty much the first modern corporation with shareholders and organisations that, if you squint your eyes, resemble anything modern companies have today.
By the 1850s, the United States had railways across the country, so they needed more sophisticated organisations. It is a not for nothing that the first organisation chart was drawn in 1856 to manage large companies. At the beginning of the 20th century, educators began to realise that there was a need for a trained management class to manage and execute these corporates as they moved from local economies to regional economies and eventually to a national economy, but they had no trained management class and so, with brilliant insight, Harvard launched the first Master of Business Administration (MBA) programme with the first graduating class in 1910.
The MBA curriculum is designed to give managers the tools they need to lead existing and growing companies. Accounting, strategy, operations, leadership, business administration, human resources, etc. This stack of tools were just incredibly important for the growth of these large companies. But what is interesting is that this curriculum really did not include tools for starting new businesses.
One of the things we didn’t understand for 100 years is that start-ups are not smaller versions of big companies. It follows that all the traditional tools taught and learned in an MBA curriculum are irrelevant in the first chaotic years of an early-stage venture. Eventually you will need these tools, but in the beginning they really get in your way.
What we used to believe is that in any business, strategy starts with a business plan, development roadmap and a financial model. And the belief was that all I had to do was spend a lot of time writing these documents, and then all I have to do is execute it. If only I thought hard enough, and if I was smart enough to do all the market research and then put together a forecast, the magic 5-year plan at the back of the business plan would somehow magically work, and all I had to do was hire the people to execute that plan.
If that doesn’t sound crazy to you now, don’t worry, because for 100 years it didn’t sound crazy either, but what we know now is that that sounds pretty ridiculous. What we know now is that no business plan survives the first contact with customers. The first years of a start-up are totally unpredictable. Yet investors and educators thought we might just teach you how to put it all into a nice spreadsheet.
The good news is that we now know that business plans and financial projections are unnecessary in the early stages. No business plan survives first contact with clients. This does not mean we should not have planning, but it actually means we need a proven methodology to research and discover before you start writing a business plan.
So I am not suggesting that we never want to make a business plan and I am not suggesting that we never want to make a forecast, but you need facts rather than assumptions before you can do that. In summary, you need to look for a scalable and repeatable business model and once you have found it, only then do you start writing the business plan.
To conclude, one of the biggest misconceptions was believing that everything you do in a big company, you also do on day one of a start-up. What we know now is something very different. The main difference is that start-ups do something called “search” while big companies spend their time, at least their core time, “executing”. One of the questions I will answer is searching for what and executing what. And so later in the follow-up article, you will see the difference and then you will in fact get a better understanding of contemporary entrepreneurship. See you then!
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