All businesses start from the same point: an idea. It is what happens to that idea that determines business success. According to Entrepreneur magazine, nearly half of all new start-ups fail within the first three years. Beating the odds at start-up is tough. First and foremost an idea, no matter how good, must be combined with entrepreneurial spirit, defined as the willingness to take risk. Without entrepreneurial spirit a great idea might never be pursued. Not all ideas are good ones though; it would be a foolish entrepreneur who rushed a product to market without careful thought, research, and detailed planning. Risk might be inherent in business enterprise, but successful entrepreneurs are those who are not only willing to take risks, but are also able to manage risk.
Having an idea is the first step – the next hurdle is finance. Some start-ups require very little capital, and a few require none at all. However, many require significant backing, and most will need to seek funding at some stage in the growth process. An entrepreneur must be able to convince financial backers that the concept is valid and that they have the skills and knowledge to turn the original concept into a successful business.
It follows that the idea must be profitable. Sometimes, an idea may look great on paper, but turn out to be uncommercial when put into practice. Determining whether an idea has potential requires a study of the competition and the relevant market. Who is competing for customers’ time and money? Are these competitors selling directly competitive products or possible substitutes? How are competitors perceived in the market? How big is the market? Most markets are increasingly global, crowded, and competitive. Few firms are lucky enough to find a profitable niche – to succeed, firms need to do something different in order to stand out in the market. The strategy for most firms is to differentiate; this means demonstrating to customers that they offer something that is not available from competitors – a Unique or Emotional Selling Proposition (USP or ESP).
Such attempts to stand out are everywhere. Every business, and at every stage of production, from raw-material extraction to after-sales service, tries to distinguish its products or services from all others. Walk into any bookshop, for instance, and you will see countless examples of books, often on the same topic, using design, style, and even size (large or small) to stand out from the competition.
Gaining an edge often depends on one of two things: being first into a new market niche, or being different from the competition. For example, in 1995 eBay was first into the online auction market, and has dominated it ever since. Similarly, Volvo was first to identify the opportunity for luxury bus sales in India, and has enjoyed healthy sales. In contrast, Facebook was by no means the first social network, but it is the most successful; its edge was having a better product.
Once a firm is established, the challenge shifts: the objective now is to maintain sales and grow in the short- and long-term.
Long-term business survival depends upon the firm constantly reinventing and adapting itself in order to remain ahead of the competition. In dynamic markets, which are growing and evolving all the time, the idea on which the firm was originally founded may become irrelevant over time, and competitors will almost certainly copy it. The ecosystem in which a business operates is rarely, if ever, static. Corporations exist in these ecosystems as living organisms that must adapt to survive. In their 2013 book, Reinventing Giants, Bill Fischer, Umberto Lago, and Fang Liu noted that the Chinese home appliances firm Haier had reinvented itself at least three times in the past 30 years. In contrast, Kodak, a US giant of the 20th century, was slow to react to the rise of digital photography, and went bankrupt.
Moreover, just as the enterprise must adapt, so too must the owner. Most businesses start small, and remain small. Few entrepreneurs are willing or know how to take the second step of employing people who are neither family nor previously known friends. This is the start of a move from entrepreneur to leader, and it requires a new set of skills, as new demands are placed on the business founders. Where once energy, ideas, and passion were enough, evolving businesses require the development of formal systems, procedures, and processes. In short, they require management. Founders must develop delegation, communication, and coordination skills, or they must employ people who have them.
As Larry Greiner described in his 1972 paper, “Evolution and Revolution as Organizations Grow”, as a business grows, the demands on it change. The Greiner Curve is a graphic that shows how the initial stages of growth rely on individual initiative, and that evolving ad-hoc business practice into sustainable and successful growth can only be achieved by experienced people and rigorous systems. Professional management, as opposed to entrepreneurial spirit, becomes essential to business evolution.
Some leaders, such as Bill Gates and Steve Jobs, for example, are able to make the transition from entrepreneurial founder to corporate leader. Many others, however, struggle to make the necessary changes; some try and fail, while others decide to remain small.
Determining how fast to grow is, therefore, a balance of the founder’s skills and desires. But in order to survive, the idea must be unique enough to define its own niche, and the individual or group behind it must demonstrate entrepreneurial spirit. They need the flexibility to adapt the idea – and themselves – as business and market pressures demand. Luck will play a part, but it is the balance of these factors that determines whether a small start-up becomes a giant.