Thoughts on Paul Graham's : Startup = Growth

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The one thing that defines every aspiring or working entrepreneur is that they like to talk about it with passion & conviction. Their belief in the problem they want to solve and change they want to bring defines them.On a Saturday evening, I had an intense conversation with one of my colleagues at SLP Mumbai - on "What exactly is a Startup?" or "Who should be qualified enough to call itself one?" Its just not a matter of vocabulary, call yourself whatever you want to - Startup, SME, Business, Product, Services et all - until you are making money and building something that someone is willing to pay for.
 
But its not just vocabulary, its really deep, insightful & practical. It defines how you would define and run your business in the coming years. 
Or your Company Lifestyle.
 
My colleague's contention was based on an iconic article by Paul Graham from Y-Combinator titled STARTUP = GROWTH. Those who haven't read it should immediately go and read it right away and then maybe come back to this article.What Paul basically says is "A Startup a company deigned to grow  fast.  Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth....."
He encouraged founders to constantly measure their growth rates. For Y Combinator companies, he notes that a good growth rate is 5 to 7 percent per week, while an exceptional growth rate is 10 percent per week.
This thought rang few questions in my mind. Off-course I looked it with the biased canvas of my own startup in the edu-tech space and experiences I have had. I am sharing these questions with the fellow entrepreneurs and hope it would allow some further deeper introspection about their own business.
 

1. Lifestyle vs Institutional money backed company? Who you are & want to be?

  • Is a design studio running for past 6 years making INR 30,00,000 (around 50000 USD) in revenue every year on year a good business? Off-course it is.
  • What's the growth rate? Around 1-2%.
  • Does this studio needs institutional money? No, it manages from customers upfront payments.
  • How many employees need to be hired? Proportional to number of clients it handles.
  • Can it scale to a few million dollar business in next two years? No, its difficult, due to the point above.
  • Are these designers and folks less entrepreneurial than anyones else? No, they too are great entrepreneurs.
  • Are these folks have a decent lifestyle and draw handsome salaries? Off-course. Yes.
Is this design studio a Startup? NO Sir.
  • A product company running past 2 years in making gamified enterprise learning solution for Fortune 500 companies. Its going to change the way/disrupt trainings happen in corporate. Is this a good business? Maybe or Maybe Not
  • Right now revenues are just over INR 5,00,000 (around 8000 USD). But in the next 2 year the revenue shot up to INR 50,00,000 (around 8000 USD). A growth rate of around 9-10% year on year.
  • Does this product company needs institutional money? Off-course. Upfront investment is required to build product and pay a limited but highly cross-functional & kickass team a big salary.
  • Can it scale to a few million dollar business in next two years? Absolutely Yes
  • How many employees need to be hired? Few kickass cross-functional teams is optimal.
  • Are these folks less entrepreneurial than anyones else? No, they too are great entrepreneurs.
  • Are these folks have a decent lifestyle and draw handsome salaries? At start they have to grind it out. Co-Founders for years do not even draw single penny from their company. Its more harder and a grind. Sleepless nights, state of urgency and fear looms. Sales cycles are long and they see money with time.
Is this product company a startup? Yes Sir.
 
Its a basic honest question, both these business are equally viable, but the rules of the game are different. An entrepreneur needs to understand this.

2. Can your business be all of these at some point: MASS - SCALE - REACH - SERVE

Paul Graham says there are two traits that always define a startup. They are making something many people want and they will be able to reach and serve these many people at the same time.
 
A barber serves a mass need. Everyone needs a haircut, once a while. But can it serve twenty people at same time. Maybe yes, but then he has to employ twenty barbers to do this. Every-time the effort is same or more for a new customer. This has mass but not scale & reach. Serving is limited.But, in our product company with gamified enterprise learning solution for Fortune 500 not only serves a mass need of training in corporates but also through its SaaS based product can serve many at once.
It just incurs cost/efforts in acquiring them and then providing a service post deployment. This too can be templatise & optimized by learning from many deployments in future.This has mass, scale as well as reach. Serving is not limited.
 

3. ZERO-SUM Game: How long you/founding team commit

Its a personal question, some call it exit-startegy etc and many other complicated terms. Its very simple - how many of my working youthful & energetic years can I give to this? Its a questions with no perfect answer, but then a bachelor at 27 has time his/her hands, but a married professional at 34 with two kids is in a different boat.
Both can be great entrepreneurs and business leaders, but the environment variables do change the settings.
 
You see I am 34 & Can I do a stable design studio for 10 years with a stable  INR 30,00,000 (around 50000 USD) in revenue every year. That' great. I can devote more time at home, with kids and also go to vacation twice a year in Hawaii!
 
But u see I am 28 & I have plans to grow fast in just 5 years. I want to take my gamified enterprise learning startup to revenue in INR 30,00,00,000 (around 5 million USD) after 4 years at a growth of 10% each year. This may lead to an acquistion offer for say USD 100 million by another major enterprise learning player in Europe.Off-course there's another side to this. I may not meet this expectation and can end up with almost a broke company which has reached some sort of glass ceiling and impediment. But this how a startup story generally unfolds. 
It becomes a ZERO-SUM game.
 
4. Passion & Vision : To solve a fundamental problem and bring a change how things work 
 
Most successful startups have made some fundamental change in how things were done previously and how they were done using their products and solutions. The drive to solve a problem has no limits. They won't stop and work all in to get it done.When thing change at a mass level it leads to great opportunities to make money and enforce better ways doing things.
 
That's what defines a good startup - someone like PayPal who solved internet payments, a Red Bus who solved bus bookings & locations, a Flipkart who solved lack of trust & belief in online buying and our gamified enterprise learning solution which will solve how people fundamentally learn in enterprises.
 

Closing Thoughts

I believe that entrepreneurs who have answers to these questions and have thought about these can decide for themselves whether they fall in the STARTUP = GROWTH category or not. Its a journey where you figure this out over time. But this can be the most important questions you may ask and can govern your life & lifetsyle when you do your own business.
 
The author thanks Mr Paul Graham for his great insights on startup & buisness as well as Mr Saptarishi Chatterjee for his thoughts on this very topic.
 
Hope Entrepreneurs find it useful and would love to hear your views on this.

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Tags: Entrepreneurship, Execution, Graham, Growth, Hustle, Paul, SLP, Start, Startup, The

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Comment by Abhishek Ballabh on July 1, 2014 at 1:57am

Hello Saket

Its not about tech or non-tech space. Any enterprise which grows fast qualifies to be a startup. Software due to its nature of replication & ease of distribution is one of the easiest ways to accomplish this.

In 1976 a biotech company called Genetech took USA by storm and pioneered one of the most successful biotech innovations & bringing them to market. It was VC backed and a darling of investors back then. However, business like consultancy, design studios, website design, graphic studio etc all are services by nature and dependent on associate count to serve many customers.

That's why you do not hear them raising money as they get paid from Day1 from customers as they provide services. Hope this answered your question.

Comment by Saket Deshmukh on June 26, 2014 at 12:21pm

Thanks for sharing this article, This will help young entrepreneurs to distinguish between Start up & just a business.

Would like to know your thoughts on companies from non-tech space , How  they decide if they are start-up or not ! as 'Growth=Start-up' equation will fail in non tech companies (Retail, Manufacturing,Consultancy business),    

Awaiting your thoughts! 

 

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