Starting a Business
Key to Success of Startups - Expertise
Written by Malarvizhi K for Gaebler Ventures
Fundamentally, what determines the success of an organization? What impacts the transition of a start-up into a successful business? We hone in on the ultimate success factor for startups.
What determines the success of an organization?
It's a difficult question.
For starters, success means different things to different people.
However, if you own a business with strong demand and decent market opportunity, there are three important success parameters to focus on:
- Financial Success
- Operational excellence
- The Sustainability Factor of the Venture.
Insights from a Real-Life Experience
A lot has been written on these lines but experiences keep offering us newer perspectives and insights.
Management students the world over learn from several real-world business cases to understand how to effectively handle various business situations.
Recently, as a part of a project for my MBA program at the Indian Institute of Management (IIM) in Bangalore, I had the chance to study a startup company that is about three years old and is doing extremely well in its business area.
The company operates in the field of Electronic Design. For confidentiality reasons, I can't provide the name of the company, but the insights it offers are profound and that's what matters.
There are a few things about the company that simply amazed me and here they are:
- The company's revenues have been growing at a phenomenal rate and have a 'Return on Capital employed' of nearly 200 percent.
- The company has so far not pumped in any outside capital at all. Their debt to equity ratio is Zero.
- Very little time and money is spent in recruiting and training new employees. Despite paying just about the industry compensation, they comfortably manage to attract very good talent from the best institutes in the country and abroad. Attrition is totally unheard of in the company.
- The 80-person strong company has no Human Resource personnel at all!
Key Lesson Learned
What is that one thing an entrepreneur can bet his bottom dollar on? The key lesson learned for me in working with this company is that, all managerial jargon aside, a good idea and expertise that can be converted into a product or a service is sometimes all that it takes to make a venture enormously successful.
This company is in the right place at the right time with the right offerings.
The Human Resource Perspective
This compay has a set of founders who have unique designing skills.
When the "Credibility Quotient" is high for the founders, it's not much of a problem attracting similar talent. Once we have a bunch of extremely talented people who keep constantly innovating, the result is an immensely successful startup and enviable financials.
The differentiating factor is attracting the right people and inspiring the staff to do more than is expected of them. Building human capital was never an issue for this company as there are people willing to toil day in and day out for even less than normal industry level compensation.
The reason is simple - the kind of work they do is very enriching and hence people join them merely for the pleasure of working there. The employees need no motivation or counseling, and there is no need for a formalized review process or monitoring mechanism either.
The company just has to provide an environment with no constraints to maximize the creative energies and crystallize the innovative ideas. This explains why there is no need for HR personnel at this particular company.
Let the Numbers Speak
The feedback loop on a new business is very quick and revenue growth is the first sign of whether the company will become successful.
Initially, entrepreneurs should develop the ability to leverage whatever skills and financial backing they have and bootstrap their companies on small budgets. Distinct expertise will overcome the difficulty to generate initial revenue growth and compete with entrenched big players.
In the company being discussed, employees constantly churn out newer designs that are better (i.e. products that are unique and inimitable) and faster than the competition (i.e. their time to market is faster).
Interestingly, their expenditure on advertising and marketing is very minimal. If we keenly observe several B2B and B2C scenarios, we cannot miss the fact that word of mouth advertising plays a crucial role in increasing the top line. Haven't we learned somewhere that good things sell themselves?
There are no great efforts on the brand building front either. As one keeps delivering consistently superior products, brand building and positioning happen naturally. Consequently, the revenues have been growing impressively and this particular company has been able to fund its capital requirements from its internal accruals.
As you look at how to grow your business, continually examine how to access other people's skill, resources and money more effectively. It's all about capitalizing on the not-so-obvious high-value items or skills within the company, which come at a lower cost.
The cost cutting steps undertaken by the company in question are worth pondering upon as they seemed to me to be very adept at value maximization.
Most of the equipment in the company is leased. They use the Internet to effectively market the products in a few markets and contracted sales representatives in the remaining markets. Products are extensively cross-promoted and no resource is wasted or unproductive.
The company, because of the nature of the business it is in, invests heavily in R&D but at the same time mitigates the risk and minimizes the costs by leveraging the knowledge in one domain to create another.
You can do something similar with your business to maximize value and keep costs reasonable. With a clear model in place, monitoring systems, resources and assets will all be a cake walk.
How to Write Your Own Success Story
Of course, a lot things mentioned here are very context-specific to this company and not universally applicable but the point being driven home is that the knowledge factor (skills and ideas) influence the ability to mobilize resources more than anything else.
An entrepreneur's years of business experience in the same industry perhaps has the strongest impact on the transition from a start-up to a successful business.
Managing a company can actually be very easy and simple: eliminate the value drains, get the right process/people, and everything else will fall in place.
Keeping that simple plan in mind and with a focus on leveraging your expertise, you should be able to achieve all the key elements of business success: financial rewards, operational excellence and organizational sustainability.
Malarvizhi K is a student at the Indian Institute of Management, Bangalore(IIMB). Most recently, Malarvizhi worked at Macquarie Capital Advisers.
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