Why Startups Shouldn’t Act Like Big Companies : Lessons from Steve Blank

I had an experience working in a startup called Yobi, which builds AI Agent products for companies to enhance productivity and automate less cognitively demanding tasks. As someone who had previously worked exclusively in large corporations, I gained a new perspective on how startups operate, a chaotic process that may seem inefficient but is necessary for companies that need to adapt quickly and make reversible decisions to find a stable and scalable business model.

I wanted to start a series on startups and share my insights from working in a Silicon Valley startup. Even though it may seem chaotic, there is some academic foundation behind it! This will be the first article in a short series related to that.

Like always, if you find my articles interesting, don’t forget to like and follow ????, these articles take times and effort to do!

Let’s start with the fundamental question ; What is a Startup ?

According to Steve Blank, an American entrepreneur, educator, author, speaker and creator of the customer development method that launched the lean startup movement, a startup is a temporary organization in search of a scalable, repeatable, profitable business model.

For Steve Blank, to be successful, startups shouldn’t just try to be a scaled-down version of a larger company.

What is the customer development method?

All startups face the risk of not finding customers for their product or service. To mitigate these risks, Steve Blank introduced the customer development method, a process that helps startups systematically search for a successful business model (Image below)

According to Steve Blank’s customer development method, the process is divided into two phases: “Search” and “Execution”. Each phase has also two stages

Search : Focus on finding and testing a business model

• Customer Discovery : Translates the founder’s vision into business model hypotheses and tests them as soon as possible to get feedback in the next step !
• Customer Validation : Evaluates the resulting business model for repeatability and scalability (if it’s successful, else the startup should pivot and find new business model)

Execution : Focus on executing and scaling the business

• Customer Creation : Establishes the market, positions the product, and builds customer demand
• Company Building : Expands the organization to support the execution of the business model

In the early stages, a startup operates in Search Mode, where its business model is just a collection of hypotheses. During these first two phases, it is necessary to test these hypotheses by engaging with customers early and often. It is also important to limit spending until the execution mode (when the business model is known)

If a hypothesis fails, it doesn’t mean the startup is doomed; it can pivot or radically change its focus.

For instance, Twitter was originally a podcast-subscription network called Odeo. When iTunes entered the market and Odeo couldn’t compete, the team shifted focus to build a microblogging platform and history was made :)

Some of you might be wondering how to reduce the risk of pivoting. While there’s no secret formula, being efficient and delivering an MVP quickly can help, and you can follow Steve Blank’s Build-Measure-Learn loop to guide this process.

What is the Build-Measure-Learn loop ?

It’s a core concept in Lean Startup methodology speeding up the development of the product/service

a — Build: This step involves creating an MVP (the simplest version of your product) that addresses the core problem you’re solving.

The goal is to build something quickly with minimal resources to test your ideas and gather funding (in case of fundraising)

b — Measure: Launch the MVP and gather feedback from real users/investors.

Measure how they interact with the product, what they like, and what issues they encounter. (This data helps you understand whether your assumptions about the product and market are correct)

c — Learn: Analyze the feedback and data collected to understand what works and what doesn’t.

Startups use these insights to make informed decisions about the product ; determine whether you need to make adjustments, pivot (change direction), or continue with the current strategy.

Hiring at a startup

When choosing your startup team, it’s crucial to select traits that will maximize the company’s chances for success. Essential traits to look for include:

• Curiosity: Helps in the search for a repeatable and scalable business model.
• Comfort with Failure: Essential for iterating the process and finding a scalable model.
• Quick, Reversible Decision-Making: Necessary for pivoting if needed.
• Passion: Critical to keep going and drive the startup forward.

When a startup is no longer a startup ?

You might already know the answer! A startup transitions out of its startup phase when it has found a scalable, repeatable business model and has proven customer demand ! At this point, it shifts its focus toward execution, administration, and growth

Large company vs Startups, as a recap

Why Startups Shouldn’t Act Like Big Companies ?

a — Different Stages, Different Needs: Startups are in a different phase compared to big companies; they are still in an embryonic stage where they need to find their business model. To do this, they must be agile, innovative, and flexible, focusing on rapid experimentation and learning.

Big companies, in contrast, rely on established processes and scale, especially in industries like healthcare, where there are many regulations and procedures to follow before moving forward.

• Dropbox started with a simple MVP — a video demo of their file-sharing service — before fully developing their platform. (Allowing them to gauge interest and refine their offering based on early feedback)
• Kodak struggled to adapt to the digital photography revolution because they clung to their traditional film business model, leading to their eventual bankruptcy ??

b- Customer Discovery: Startups should prioritize customer discovery and validation to find a product-market fit, rather than relying on traditional market research methods used by larger firms.

• Airbnb is a very good example of successful startup from Y Combinator, initially rented out air mattresses in their own apartment to test their concept, adjusting their service based on user feedback before scaling up to what we know today
• New Coke was developed without sufficient customer testing (based on internal assumptions) led to a backlash from customers, resulting in a quick return to the original formula !

c — Lean Approach: Startups should adopt a lean approach, focusing on building a minimum viable product and iterating based on feedback. This contrasts with big companies tendency to spend significant resources on planning and executing fully developed products from the start since they already invested in their Brand, failing would cost them a lot

An example of it would be Windows Vista, it was as far as I can remember “The next big thing” with extensive development and planning. However, Vista faced numerous issues upon release, including performance problems and compatibility issues (it was a disaster).

The heavy investment in development made it difficult for Microsoft to quickly address these problems, leading to a less favorable reception and a quick move to improve with Windows 7.

For startups, let’s take Instagram as an example, began as a simple app called Burbn that allowed users to check in at locations and share photos. They quickly pivoted (based on user feedback and minimal initial investment) to focus solely on photo sharing, which led to the successful Instagram we know today.

d- Resource Constraints: Startups often operate under resource constraints. They need to be resourceful and efficient, avoiding the unnecessary overhead and bureaucracy that can come with larger organizations.

• WhatsApp grew rapidly with a lean team and minimal resources, focusing on building a simple, efficient messaging app.
• IBM’s Lotus Notes faced challenges because of its complex and resource-intensive approach (The substantial investment and complexity made it difficult for IBM to pivot or adapt quickly in response to market shifts)

e- Culture and Structure: Startups benefit from a flat organizational structure that fosters communication and collaboration essential to adopt lean methodology. Big companies often have hierarchical structures well documented that can hinder quick decision-making.

• GitHub maintained a flat organizational structure, encouraging open communication and rapid decision-making.
• General Motors often struggled with slow decision-making and innovation due to its hierarchical structure.

If there’s a specific subject you’d like us to cover, please don’t hesitate to let me know! Your input will help shape the direction of my content and ensure it remains relevant and engaging??

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