Economic growth requires more than bright ideas and risk taking, by Carl Erickson
Carl Erickson is the President of Atomic Object and SoftwareGR. He's recently started blogging about building and running software product development firms at Great Not Big.
West Michigan is missing critical ingredients common in more entrepreneurial communities -- or at least so I keep hearing. According to this line of thinking, our major shortcomings are a lack of ideas, intolerance of failure and an unwillingness to take risks. If there were more ideas, if it were more socially acceptable to fail, or if people were more willing to risk success than to avoid failure, we'd have a more diverse and vibrant regional economy.
Sometimes I think this complaint is taken too far. It can easily become an excuse for inaction ("our culture doesn't accept failure, so I'm not going to try") or a contrarian emphasis on risk taking versus risk mitigation.
One of my formative experiences as an entrepreneur was hearing Fred Keller of Cascade Engineering in 2002 describe entrepreneurs not as gamblers, but as people who understand and mitigate risk. I don't believe we should venerate failure, but rather the ability to observe, adapt and persevere in the face of a lack of success. Successful entrepreneurs learn their way to success.
Right now, in communities all across the country, the startup is king. While economic studies indicate 2/3 of new jobs come from small companies (young, dynamic startups in particular), it's good to remember startups are only a means to an end. The end itself is successful and sustainable companies contributing to the local economy through jobs and wealth creation. Churning out startups which don't survive to become sustainable businesses destroys more capital, creativity and value than they can ever generate.
Steve Blank points out startups are inherently unstable. He describes a startup as an organization formed to search for a repeatable and scaleable business model. Applying the ideas of customer development
helps you in your search. Once found, the startup has served its purpose and run its course.
I believe there are three things you need to get right to have a successful, sustainable company: idea, execution and culture.
Idea is the golden calf of business creation. As such, too many people worship their idea. The classic "better mousetrap" type of idea might be a good place to start a business, but it's never enough. This is actually good news for those who might feel disinclined to start a company because they don't have an idea worthy of a patent or a PhD. A better place to start is with a belief or shared value, a common enemy, a hard problem, or something needing improvement -- in other words, an inspiring idea.
When we founded Atomic Object
we believed in a simple idea: there are better ways to build software. That idea, the "why" of Atomic, has remained constant in our 10 years even as the details of our service offering have evolved substantially (the "what" and "how"). Simon Sinek
has written a book about "why" versus "what" and "how," and the power of communicating your "why."
Execution is roll-up-your-sleeves-and-get-to-work time. Execution means delivering your product or service consistently and profitably. It means understanding your business model, then knowing and controlling things like cost, pricing, scheduling, and customers. It means telling the good stories that come naturally from delivering value to customers (marketing). It means creating internal structures and processes, as well as recruiting the right people to keep them running smoothly. Execution is putting in place everything necessary to take advantage of the idea your startup has validated.
If you used a tool like a business model canvas
to understand your business, then execution is about keeping an eye on the model and possibly refining and extending it. The startup's core cycle is hypothesis, experiment and pivot. Similarly, execution involves making small, non-fatal mistakes and learning from them. Execution requires discipline.
Culture is the most overlooked component of successful, sustainable companies. By itself, culture doesn't make a business. After all, you can form a club and have a culture. Culture is a vital ingredient to creating a great place to work. Every company does better with good people; some, like mine, have few assets besides their people. Culture determines whether you can recruit and retain great people.
Culture should be a catalyst for idea and execution, unchanged by them, yet amplifying their reaction. Culture can hold things together when times are tough, evolve or resist change to your business model, and drive improvements in execution. A strong culture works like a positive feedback loop, reinforcing and protecting itself.
Culture is created around what you value. It supports your inspiring "why" and reflects how you treat employees, customers and vendors. As a product of the interactions between individuals, it is inherently special and unique to each company. An interesting aspect of culture is that you have one whether you've given it much thought or not. Culture is ballast in stormy seas and the hardest thing you'll ever try to change. Great ideas and top-notch execution get you only so far. I believe culture determines whether or not your success will be sustainable.
We should by all means encourage entrepreneurs and startup activity in West Michigan. After all, every successful company was once a startup. But startups are a means to an end, and that end requires more than a great idea and a willingness to take risk.