What’s A Startup

Topics: HRExaminer, John Sumser, by John Sumser

example of HR Tech startupA startup is a venture focused on discovering a scalable business model. An enterprise is the execution of a scalable business model. You manage the two differently

The life cycle of a successful high tech company goes:

  • Startup
    The beauty of venture funding is that it allows operations that don’t have a reliable business model to experiment until they discover something that works. Without Venture Financing, it’s virtually impossible to grow a company that delivers SaaS products/services.
  • Discovery of the Working Model
    This happens much later in the trajectory of a company than it would seem. There are a number of public companies with over one hundred million dollars in annual revenue who have not figured this out yet. It’s confusing because contemporary accounting makes it seem like a company is losing money even though it can perfectly predict its financial performance.
  • Scaling the Working Model
    If you get this part right, amazing things can happen. In the case of Workday today, they can buy customers by paying $6 for every dollar in revenue in the first year. That means astonishing marketing and sales budgets. As long as the stock is valued at a multiple of revenue and the company can reasonably predict performance 18 months out, an amazing game can be played.
  • Organic Growth Plateau / Growth Through Acquisition
    Every organization’s ability to grow through organic initiatives falters at some point. Early triple digit growth becomes low double digit growth in a matter of months. If the stock multiple holds, the next best way to build revenue (and therefore company valuation) is by buying the growth.
  • Divesture of Acquisitions/Lawsuit Euphoria
    At some point, the stock price multiple deteriorates and the organization can no longer print money. Filing lawsuits, selling under utilized assets and layoffs are the ways that a company adjusts to maturity.
  • Milking the Cash Cow
    Once the spoils have been shared, the company will run best if investment is reduced to zero. It’s unpleasant to work in an operation where investment is constrained.
  • Shuttering
    The end is rarely a ‘closed for business’ sign. Shuttering usually means selling the pieces.

You manage innovation and growth differently, with different emphases in each phase.

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HRExaminer Radio: Episode #117: Dr. David Kippen

Dr. David Kippen is an internationally recognized leader in brand strategy and the founder and CEO of Evviva Brands.