Entries RSS · Status, Signals, and the Startup
Starting a business, just like anything else, really is defined through personal contexts. For instance, I’m a first-time entrepreneur and my partner is a 4-5-6th (hard to keep count) entrepreneur—for him, he views starting a business very differently than me. There are other differences as well, such as age, type of education, culture, marital status, all of which affect how one views the starting of a company. I aim to not pronounce these differences, rather this is a blog post about the generalities of sending out positive signals and raising the status of a startup.
Here’s a list of signals a startup might want to send out (I will discuss these further below):
- The quality of your idea/prototype/product (the whole range of what your startup is centred around)
- The quality of the team
- The quality of your associations
- Your legal status as a company
- Your financial situation
- The satisfaction-quotient of your customers
- The speed of growth, which is really a component of ‘quality’
- Your location & office
I kind of threw a few in there, as you can perhaps tell, because for instance some signals can be bundled together into tangible vs. intangible signals, as well as technology, people, financial, legal, etc. You can of course also split op signals into external—to the outside world—and internal—to your co-workers or board.
Why does any of this matter? On a basic level, because we all care about showing signs of being good at something (and starting a business is a highly personal thing in which individuals determine the direction such a venture takes), and more practically, because startups are about bringing ideas to the world that do not exist yet.
Signals are about increasing your worth in the eyes of someone else. To go back to the list, the first one, product, should be obvious: either create a kick-ass product or find a kick-ass customer that really needs your product (the latter is more realistic).
No. 2, the team, is trickier, though still crucial. It’s about getting the right mix of people in a company; people that have different educational backgrounds, possibly different genders, different ages, different networks, etc. It’s tricky because any relationship risks becoming a liability if people don’t match (that’s a big IF). And because getting quality people doesn’t always come easy, either because you can’t afford them or because the type of quality you need cannot be measured on paper or elsewhere.
Three, associations are pretty straightforward. If I have a board-member that has a good reputation, that opens doors. If I have partners in a market that is my target market, that kicks ass. If I can stamp logos of companies on my product that already have a name, that’s great marketing. It’s not rocket-science and the only thing that is required is to make these kinds of connections happen, usually through the quality of your pitch, your product, and your team-members, each of which comes with their own network.
Four, legal status, is not so straightforward. For many companies, having LTD written next to their name is a sign that they reached a certain stage. But in of itself it means nothing, only if it actually makes sense from an accounting point of view. So this is actually something that I don’t think should be up to the entrepreneur, but to an accountant and tax-lawyer. Having LTD or equivalent next to your name is still sweet of course (though not if it costs you 1000s of dollars/euros to set up and you haven’t written your business-plan yet…). Another legal status symbol is having a patent or a trademark. Both are valuable only in certain situations and require a serious strategic analysis beforehand, not least because it is so expensive to maintain (between 6000 – 100,000s for a patent & that doesn’t include the legal cost of going to court over a dispute), but because if you haven’t done your homework, you could be spending money on protection that isn’t worth a damn. Legal signals always require the help of experts, which is why lawyers will, for better or worse, always be around.
Five, the finances, has consequences on so many things that it’s impossible to summarise it well. What kind of company do you have if you can’t pay your employees, if the effort you put into it isn’t generating any cash-flow, etc.? The answer is simply a bad one. Other positive signals here are having a high profile investor on board or, preferred by most companies, a high paying customer or 100.
Six, your customer, should really be number one. Again, what kind of company do you have if you don’t have happy customers? It’s not impossible that this is the case at the start, but there should always be room for making customers happy—interesting story about how Zappos decided to sell to Amazon because its stakeholders thought Zappos was investing too much time/money in increasing customer satisfaction. There will always be conflicts in regards to customer satisfaction vs. financial satisfaction. Another often underestimated problem is that one happy customer doesn’t translate to another. This is the topic of a little book called ‘Crossing the Chasm,’ which is about going from early adopters to the mainstream, different types of customers with very different values and expectations!
Seven, speed, is one that I don’t like, but became aware of through my studies of entrepreneurship. It’s crazy how much media-attention fast growing companies get, as well as how much government-attention. If you can grow to 20+ employees in 2-3 years, it wouldn’t surprise me if politician X gives you a call to thank you for the good you’re doing the economy. If you grow to 1000, the queen/president will probably shake your hand. On the other hand, there are plenty of situations, the internet boom & bust comes to mind, where speed is actually a detriment and it would’ve been better for the entrepreneur(s) to take better care of the foundations of the company (you know, building a profitable business), rather than focussing on the status of having a ginormous team. A debatable point, I know…
Finally, location, well who doesn’t want an office looking out at Manhattan or, in my case, some tropical beach somewhere (I don’t really need the office…)? Who doesn’t want to be able to invite clients and show them your shiny office, with plants, fountains, and beautiful people everywhere? As I hopefully made clear, sending out signals is fine and good, but it should always be weighed against what you give up and if you actually need it. Kind of the same thinking that should be employed when deciding whether to get a new Apple product or Aston Martin—will those shiny objects really make you more desirable to the opposite sex? Well, maybe a little 
That was a little braindump. Hope you enjoyed it.
3 people like this post.
Related posts:
- My biggest nightmare if I ran a startup, and what I would probably do about it
- 37 Signals : Digital Natives Leadership in action
- "The knowledge-creating company" — does it work in practice?
- An e’diary part 2: what are the responsibilities of an entrepreneur
- The Dynamics of Blogging and the Dynamics of Doing Business
Business intelligence, Business strategy, Economics, Entrepreneurship, Human resources, Public policy, innovation, marketing
Interesting post. One comment though: in my experience early funding is more important than it seems to be addressed here. And although it's true – condition presently offered by PE and VC firms are indeed applaing – there are other options if one is willing to look beyond the pale (in this case: in Europe). There are a couple of firms that I know of and where I know they have been able to procure some funding wth highly desirable conditions. Here are 2 of them: SO Ventures and eSolve Capital in Luxembourg.