May 22, 2019•1214 words
There is a tendency in the MBA-led, VC-fuelled startup community to take a ruthless, grow-at-all-costs attitude that focuses more on the acquisition of funds and vanity growth metrics to validate a valuation than to build a sustainable business.
The most extreme examples of this have been evident in the IPOs of two unicorns: Uber and Lyft, two businesses that have skyrocketed growth but burn cash and haven’t made any significant profit since inception. While everyone hopes that Uber will do an about-face like Facebook did, it is still a significant gamble for any investor looking for a return.
Is a startup a real business?
Now you could say that this should be expected, after all, a “startup” by definition is designed to grow quickly, increase in value-related metrics quickly, move through multiple funding rounds to define a market price and then sell-up in some way to generate a return for the investors and ultimately the founders of the startup.
However, a startup is also a business, and for a business to be truly successful, it needs to be self-sustaining. Like a power station, it needs to generate more output than the cost of materials going into it.
Remember, this is only my opinion, but a good business shouldn’t have to focus exclusively on growth. It should be possible to reach a stable equilibrium that can generate a consistent income for those working for the business (I include founders in this definition). This is essentially the very definition and appeal of a small to medium sized enterprise, and is also what most businesses are.
So why and when should a business focus on growth? Well, when it needs to compete, it needs to dominate and carve out a share of the market that it owns and controls, and the more of that market position is sustainable and controllable, the better the business is. Competition forces the business into growth phases, since revenue may be lost in an existing market, growth outwards geographically into more markets is the only way for the business to keep it’s equilibrium.
Of course, ambition is also a major factor in why a business should grow - it is in and of itself deeply exciting and fulfilling seeing something that you created flourish into a place that you could ever imagine, and the feeling of that high is incredible, and it’s something that many founders want to maintain.
You are complicit and have a responsibility
But I digress, the reason for this ramble is because ultimately, when you start a business, you have a responsibility, and I feel that many startups do not take that responsibility seriously.
Startups garner employees, all that sweat equity that founders put in eventually turns into other people helping to do the work and helping with the lifting. The difference is, you are paying them for their time. As a left-leaning friend argued: an employee is selling you their time and knowledge for money.
To him, it’s a value exchange: they could spend their time elsewhere - it’s the need for a roof over our heads and the food in our (and our families) belly, that creates demand to take on work.
That’s a pretty socialist perspective, from a capitalist perspective, an employer is creating opportunity for work, and therefore providing a service to the labourer by giving them a job so that they can live.
However, taking for granted the understanding of the motivations for why people work has also slightly perverted the understanding of what it means to take on staff. Society as it stands in the west is extremely focussed on the perception - and system - of education leading to work, and the extended focus for young adults to gain employment and join the workforce. In many ways, the underlying demand is taken for granted and getting hired is an expected value judgement to maintain our social status quo.
Now I’m not going to rant about how worrying that particular trend is, what I will say is that the expectation to work is a major factor in the capitalist view on labour in general, and easily distorts how we see our employees when we start recruiting for growth: as cogs, or, in that desperately inhuman term: human resources.
Founders aren’t as important as they think they are
As a business grows, the input and value of the founders should diminish, otherwise they are not doing their job properly. The best kind of business is a self-sustaining machine, that can ramp-up and grow, but also continue to generate value at an equilibrium state.
As soon as a business can do this, the value exchange is no longer between founder and staff, or between company and staff. It is between staff and other members of staff. Ultimately a company, especially a knowledge or service-based one, relies on the people inside it to generate value.
So as a founder, the real responsibility is to make sure that your team are happy, and that they are working for themselves as much as they are working for you. That your team have lives that they live outside of work, and you should be helping them achieve their own long-term goals, not just those that increase your potential wealth.
You must invest in their lives as much as they are investing their lives in your company, and that goes far beyond paying a salary.
The sooner you can reach value equilibrium as a business, the sooner the founder can make themselves obsolete. A business that relies on personalities or heavy-lifters cannot sustain itself when that dependency leaves. That means a team should be mutually inclusive, mutually beneficial and should be able to withstand churn without impact. To do that requires trust, faith and a human bond with the organisation, not just a pay check.
Business continuity can be solved through process, and I can’t argue more highly for having good processes in place that can help people do their jobs when they are a new hire! However what is missing is the underlying value that is generated by those people only really comes about once there is trust and interactivity between them while they work through a process. Good process is a gateway to value, the people working through that gateway are the ones that generate it.
So, I have rambled for a while here, where am I trying to get to?
A business for humans
I’d like to propose some simple ideas that founders can follow to build “a business for humans”, and here’s my first stab at them:
- The team is precious, nurture it
- A business is a garden for generating exceptional people, help them become the best they can be
- A team that is valued generates more value together than an individual
- Build good process, but not to generate value, trust in people to generate value
- Founders are important, but they should aim to become obsolete
- Grow in the face of competition, but always grow to equilibrium
- Equilibrium generates sustainable value
- Sustainable value ensures long-term investor happiness
All opinions expressed in this blog post are those of the author and are in no way endorsed or connected to their employer