This paper presents a way of visualizing the important aspects of a business. These are the bases you need to cover to get one started.
by Eric Armstrong
What makes a successful company? How do you set one up? How do you get it funded and make it operational? This paper answers the first half of those questions. It provides a mental model, a way about thinking about businesses in general. The next paper, Investor Models, shows how they get funded.
To be successful, you need a picture of the goal--of what it is that you're trying to achieve. This paper provides that picture and gives you a framework for thinking about the process of starting a company to pursue your goals.
When I started my first company, it seemed to me that there were the three primary functions that make the company run:
It was quite clear that all three of these bases had to be covered in order to have a successful company. If you build a great product (technology), but no one buys it (marketing), then you'll go nowhere. Similarly, if you have great sales people (marketing) but no one can build what they sell (technology), then you have a company founded on the infamous "vaporware" that was so prevalent in the 1980's.
Even a service company (one that doesn't build a product, but instead delivers a service) has a technology that consists of the service they deliver.
Marketing and technology are two sides of an important coin. Without both, there is no viable company. And clearly, finance is an important part of the equation -- otherwise the marketing and technology people won't have the wherewithal (the means) to get anything done.What we have so far, then, is in the form of a triangle:
As we go on, we'll add two points to that triangle, and eventually form a tetrahedron.
Before going on, however, I want to share some important lessons I learned in that first aborted attempt to start a company. The first was that marketing not only helps to sell a product, it also helps to define a product.
That first company consisted solely of technocrats. There three of us, all developers, with an idea that was going to shake the world (a great outliner). I had had some exposure to marketing, having assisted in field sales for a major computer company. So I knew what a customer was. But even so, I didn't fully understand how important it was for the product to fill a need.
I thought I knew what the customers needed. They needed this cool technology that would let them do things easily, in far less time! How could that be wrong? But what I neglected, in my enthusiasm for the technology, was to identify a specific problem that the technology could solve, to produce a solution a customer would pay for.
As a result, at the end of two years' development, we had indeed produced a superb outliner. But guess what? No one was buying outliners! There just wasn't a strong demand for such a thing. And although it was a great general purpose outliner, it did not solve any particular problem sufficiently well that it had a market of people willing to cough up cash to use it. It wasn't great for building business plans, or for writing articles, or for producing specifications. It would help you organize your thoughts and print them, but it couldn't produce the nicely formatted documents that are the normal result of such efforts.
Two important lessons emerged from that experience:
By extension, it seems clear that a third lesson can be derived from the previous two:
Hopefully, this series of papers will give you some strong insights into the kind of things you need, and why you need them. There is no substitute for experience, though. The ideal startup will have reasonably experienced people covering all three bases. Otherwise, the odds are its going to be very hard to get it off the ground.
I originally visualized the areas of marketing, finance, and technology as three legs of a tripod. But as we started operating, it was clear that there was a fourth function overarching the others:
Since this function interacts with and affects every other function, it is the "over arching" principle, or the peak of the pyramid:
The picture of a pyramid is rather apt, since organizations typically consist of a hierarchical management structure.
The organizational function is vital, because it is fundamentally people that make you successful. The people need to know what they're doing so, as always, there is no substitute for experience. For that reason, investors prefer an experienced management team above all else! That team may not have a product, or financing, or a marketing staff. But they will know how to identify a need (marketing), find a way to satisfy it (technology), acquire the people they need to go about it (organization), and make a profit doing it (finance).
As important as organizational skills are to the success of the company, however, there is one even more fundamental requirement for success:
Underlying every organization is a purpose, whether stated or unstated. That purpose is the fundamental motivating force, not only for the company, but for all the individuals in it and, frequently, for those who invest in it.
Turning the tetrahedron on its side and adding "purpose" to the picture produces this double tetrahedron, or diamond shape (you need to use your imagination on this one, given my artistic capabilities):
Note that the organizational structure of the company is a "reflection" of the company's purpose. It is fascinating that at the highest levels of a large company, the focus is most purely on goals -- on what the company wants to achieve. At the base of the organizational pyramid, in most companies, the focus is primarily on mechanics -- on how to get things done.
But in really high-performance companies, there is a strong sense of purpose throughout the organization. In fact, it could be said that the most important function of management is imbue the organization with the same sense of purpose that provided the initial impetus for the organization. Even if the focus has changed since the organization's initial inception, the quality and the power of that purpose may well be the most significant determinant of the organization's effectiveness!
Under the "lessons learned" category came a recognition of the extraordinary power of a positive purpose.
When my first company was doing badly, and I was paying my own salary out of savings, I continued working away at it (despite my highly flawed knowledge of the process) because I was committed to the advancement of human intelligence and improvements in productivity that outlining could bring. I was committed to that cause, and it kept me devoted to the attempt long after any rational human being would have called it quits.
But a strong, positive purpose is a powerful draw for others, as well. It motivates people to join the organization, even when salaries are not all they could be. (For example, when they are zero.) In my case, it helped to motivate marketing consultants and even venture capitalists to help me whenever they could -- because they wanted to see me succeed! (I, in my turn, now help others whenever and wherever I can, in the spirit of "Pay it Forward".)
A strong purpose can even motivate investors, because they want you to succeed, even if you don't have everything you need to do so, at the outset. (Still, its important to make it as real as possible that you will succeed. That's covered in the next essay.)
Finally, it must be noted that a purpose may appeal at multiple levels, not just one. The ideal purpose probably has two significant aspects:
People differ on which motivation is most important. For me, its (a). But for more hard-headed business types, its (b). You can get funding with either approach. With (a) you can get philanthropic contributions, government grants, or do the equivalent of selling stock to individuals and start a religion that runs on donations.
With (b), you can get investors to commit, and you can hire employees. And you can make money. On the other hand, going through life in a way that doesn't really help others (by selling tobacco or adulterated food products, for example) is at best a waste of time and energy that could have been spent really making a difference in the world. At worst, it is simply a criminal activity that has a shroud of legality to hide behind.
For a really high performance, truly effective company, you need both (a) and (b). That produces a race horse of a company that gets around the track in style!
At this point, you have a mental model for a company -- one that helps you identify the areas you need to cover, so you can start thinking about making sure that all the important elements are in place at the outset. The next step is to get that company funded. The requirements for that process are covered in the next essay in this series: Investor Models.
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