Why Startups Are Not King Leonardis

No, I’m not telling a Sparta story. In fact, the Spartan king’s name will only be mentioned in the title. But you’ll get the drift.

So this piece is about startups. Not in the general sense of it, but an interesting strain that is the rave of the moment in Nigeria. The type that has created the wonder product/app/service that everyone is saying will “disrupt” the players in the industry and should have those players quaking in their boots as they lose market share rapidly to the blitzkrieg from our startup. Of course, this is what startups do by their very nature — create products/services that either did not exist before or existed but didn’t have a market and deploy a high growth model awash with investor $$$ (with nice names like Series A, B and co) and catch the established players totally unawares till you become a behemoth.

So I was having a conversation with one of the top guys in an established and perhaps dominant player in an area many new startups like to disrupt — payments — and I asked him which of the new sharp startups in the payment space they considered most likely to pose real problems for them as competition. He mentioned a company that I’d never seen a news article about or read about some funding even or user numbers. I reeled out all the names with humongous hype and he smiled and asked me if I’d heard of the Greiner Curve. I had read of it in passing but never really paid close attention to it. So he shared this graph with me and explained

“Businesses, whether startups which means growth rate is really fast, or traditional businesses where growth rate are usually less breathtaking, go through a series of existential crisis. Businesses that are able to evolve and overcome these crises go into a new phase of growth while those who are unable to evolve die or get bought up. Larry Greiner was able to propose a model for these crises and put them on something called the Greiner Curve. For most of our business areas, we’ve gone through 4 of the 5 crises and while for some we’ve gone through all 5 and are in the 6th phase of company life. Most of the startups you’re mentioning and that you hear about have either not gone through any of the existential crises yet or have gone through at most one. The company I mentioned has successfully crossed the 2nd and are now inching towards the 3rd crisis point.”

Old Greiner Curve. You See, Fast or Slow growth doesn’t matter, it’s Valar Crisislis

The first curve came out in 1972. Greiner eventually updated the curve in 1998, just when tech startups were becoming a thing. Here’s the updated Greiner Curve

Yup, much nicer to look at. Well done Greiner.

I’ll explain only the first phase and the first crisis in this piece. In this phase, the entrepreneurs who founded the firm are busy creating products and opening new markets. Growth is through creativity and there’s usually the star product or service that the startup is disrupting with. Communication and culture is informal and work hours are long. Incentives are usually stock options and profit share type with low salaries. As the business grows and more people join, the company faces a Leadership Crisis and it can be solved in two ways

· A professional manager is brought in, think Eric Schmidt at Google

· The entrepreneur evolves into the professional manager role — think Mark Zuckerberg at Facebook.

So question to ask, how many of the very vocal startups have even gone through the Leadership Crisis and managed to come out tops? And that’s the very first of the crises.

Second point. A single brilliant product/service is not strategy. That’s tactics, and good strategy plus execution will win everyday over a single brilliant product/service. Products/Services can be replicated fairly quickly; solid strategy is a lot harder to copy.

Final point — we can play the user numbers game for a while and it is even necessary at some point. But as Twitter for example is finding out, eventually, the numbers that will matter are revenue, profitability and ROI.

Conclusion — I commend our entrepreneurs and many are doing brilliant things. But there’s a long road ahead and the best approach is not to carry shoulder but to prepare for the crises and evolve with each new one, while keeping an eye on the numbers that will eventually matter.

A Beautiful Mind