Two Defining Features of Startups

You are reading the Startup Lore - Deyan's guide to creating successful startups.

Table of Contents:
  1. Introduction to the Startup Lore
  2. Understanding Startups
  3. Building the Startup Organization
  4. Achieving Product/Market Fit
  5. Conclusion

Version 0.3 (alpha, i.e. still needs lots of work). Last update on 7/13/2014.

Summary: Startups are unique because they (1) lack resources, and (2) are characterized by extreme uncertainty since both product and customer are unknown.

Startups are unique in at least two crucial ways.

First, startups lack resources. I do not mean to imply that established companies have unlimited or all necessary resources - there are obviously resource constraints in any undertaking. However, startups often lack resources fundamental for the success of the venture. [1] Examples include cash, brand recognition, employees, market power, and just about anything else you can think of. The fact that startups lack resources has big implications for how to manage execution in a new venture, which I discuss in later chapters.

Second, startups are characterized by extreme uncertainty because they don't know what problem they are solving and which customer they are solving it for. Certainly, most startups have a first guess - a hypothesis that the entrepreneurs made about the customer/product mix. This hypothesis may turn out to be true, but more often than not startups change their core business dramatically before they are successful. [2]

Next, I talk about the implications of these two defining features of new ventures for evaluating startup ideas.

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Notes

[1] It is worth noting that there are a few examples where startups have been able to gather initial resources that help propel the organization into a world very similar to that of a company (for example, having a corporate sponsor that immediately buys the new product/service). These cases fall beyond the scope of this guide.

[2] After studying hundreds of cases, I have yet to encounter an example where the initial hypothesis was correct. For the most part, history is rewritten or retold to give the appearance that the startup was successful from day one.

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