Startups That Work

Startups That Work By Joel Kurzman and Glen Rifkin Penguin Group: New York, 2005 Reviewed by Thomas Nelson University of Louisville Startups That Work (Penguin Group: New York, 2005) by Joel Kurtzman and Glen Rifkin offers a thorough and instructive analysis of 350 startup companies that were tracked from 2001 to 2003. Specifically, the authors analyze "the ten critical factors that will make or break a new company." They are, in brief: planning, management, the board, cash flow, the market, competition, the business model, the product, customers, and alliances. This is a pretty straightforward list and it is easy to see how excellence in each area would lead a company to success. The title of Chapter 2 is "To Get Where You're Going You've Got to Have a Map." One of the key findings is that for a company to create value, it must have (and follow) a plan. To create this plan, the authors determined that, first, everyone in the company must be a marketer and, second, the plan, or map if you will, should be built on nine drivers: market size, competitive position, business model, cash flow, investor value contributed, strength of the management team, product development, channel/alliances, and customer acquisition. For a startup to progress, there needs to be growth along all of these axes simultaneously. The authors point out that what typically happens is that some areas are focused on for a time then, other areas receive emphasis later. In startups, the squeaky wheel gets the oil, just as in life. The next topic covered is management. Great people are the key to funding and eventually success. The authors state that the first rule for business might be summed up as "It's the people, stupid." This is the conventional wisdom as well. Kurtzman and Rifkin depart from the conventional wisdom, however, by warning against putting together a high powered and, thus, highly compensated team too early. In the early stages, the benefit of having all the pieces of a great management team in place is far outweighed by the increase in the bum rate necessitated by paying for all that talent. That talent will be needed later on to develop the company and to bolster the chances of obtaining additional financing. So entrepreneurs should have the talent identified but not necessarily hired in the earliest stages. What is most important, both early on and later is to have a team. It is suggested that the best teams work well together and have successfully worked well together before, perhaps at a previous employer. Teams should have a leader, the members should have diverse skill sets, and all should understand the marketing function. Two observations about the management team seemed particularly instructive. First, being smart does nothing other than open the door. The management team must have value adding skills in addition to intelligence or they are wasting their time and money. Second, the decision about when to bring in a professional management team is one of the most critical decisions a company can make. Too early and the company wastes money; too late and the company wastes opportunity. The management team consists of the entrepreneurs, the financers, the eventual professional management staff, and the board. In addition to their traditional role as watchdogs, the authors suggest that, if a person doesn't bring something of value to the company other than oversight, they have no reason to be on the board. The author's research indicates that the role of the board in startups is evolving towards being part of the value creation equation. A good board can provide strategic assistance, customer introduction, help in forming strategic alliances, and (whether it is desired by the founding entrepreneurs or not) hands-on assistance. Kurtzman and Rifkin also found that companies that had angel investors on their boards had more-developed strategies than those that did not, or those that had venture capitalists on their boards. …