People interested in entrepreneurship, working to establish businesses, or considering investing in ventures need to understand the difference between an ordinary venture and a startup. A startup is not merely a recently incorporated legal entity or a team that has not yet established a company. The term refers to a venture with the potential for rapid growth and scaling if it achieves market fit. Its unit costs are also expected to decline as it expands. Investors seeking to multiply their capital therefore try to identify businesses with credible promises of this kind of growth. When searching for an idea, presenting it to investors, or assessing a business plan, it is essential to examine the growth potential, the factors limiting that growth, and the costs it will entail. In other words, merely starting a new business does not automatically make it a startup or qualify it to obtain investment from others. The venture must offer a credible perspective on rapid growth through its knowledge, business model, or distinctive know-how while meeting customer needs.<\/p>\n\n\n\n
Ventures without the potential for rapid growth are unattractive to venture investors. Those who fund businesses growing at ordinary, \u201corganic\u201d rates cannot generally exit by selling their shares at valuations that multiply their money at attractive rates relative to other investments. For that to happen, the company must grow quickly and sustain an expectation among relevant stakeholders that it will continue to do so. New investors are then attracted to the venture, which can push valuations substantially higher. Earlier investors may eventually sell their shares at those higher prices. When growth is slow, new investors lose interest. The only investors left to finance the company may be early backers whose capital is already trapped inside it. The company may shut down for lack of funding, or control may gradually shift toward those investors. Rather than discussing how many times they can grow the business together and how high its valuation might rise, founders and investors find themselves debating how to divide a pie that is growing slowly, stagnating, or even shrinking. Founders who lose control and a credible path to growth may lose motivation. Investors realize they cannot recover their capital in the foreseeable future. Gradually, the entrepreneur disengages from the venture.<\/p>\n\n\n\n
The way to avoid this discouraging scenario is to build into the business idea a formula, technology, or business model for rapid growth, and to operate in a market large enough that the venture will not exhaust it quickly. Only promising startups doing intelligent things in large markets can sustain high growth and continue attracting investors’ attention. The company can then grow and scale. Its increasing size and investor interest raise its valuation, and stakeholders benefit from the value created. When the pie grows, founders and investors who contribute to that growth have aligned interests.<\/p>\n\n\n\n
But what if your startup was growing quickly and growth unexpectedly stalled? For ventures offering technology-based products in particular, I recommend reading Geoffrey Moore’s Crossing the Chasm<\/em> carefully to understand the changing dynamics of markets and customers. Through examples, the book explains why companies in innovative markets must repeatedly rediscover their value propositions in relation to evolving customer profiles. During my years in Turkcell’s Business Development Department, S\u00fcreyya Ciliv practically made it required reading for the entire company. Although it is now a classic, the book still offers important insights into how a venture can rediscover itself, cross the chasm, and restart growth.<\/p>\n\n\n\n And what if that does not work? What should we do when a venture fails to grow at the desired rate? In mature entrepreneurial ecosystems, founders can close businesses that grow more slowly than expected and move on to their next ventures. Investors also regard the lessons as valuable experience for future efforts rather than as failures that should haunt the entrepreneur. One of the strongest indicators of an ecosystem’s effectiveness, therefore, is not the survival rate of startups but their average growth rate or the number of ventures growing rapidly.<\/p>\n\n\n\n When slow-growing startups are not closed by their founders and investors, more seed, angel, and fund capital may be poured into a venture that will never scale, in the hope that rapid growth will magically appear one day. More importantly, founders may spend their most precious resource\u2014the good years of their own lives\u2014on a venture without meaningful prospects for high growth. If we invest our time and valuable financial resources in a business, we should prefer one that creates substantial value and rewards the people working on it. Closing a startup that does not grow is therefore more sensible than keeping it artificially alive and turning it into a zombie. That is, unless you have fallen hopelessly in love with a venture that you now recognize is no longer much of a startup. When entrepreneurs in T\u00fcrkiye become comfortable closing unsatisfactory ventures to devote their attention and resources to new opportunities with better growth prospects, we may begin to speak of a healthy and effective entrepreneurial ecosystem. What matters is not whether startups survive, but whether they grow\u2014very\u2014quickly.<\/p>\n\n\n\n People interested in entrepreneurship, working to establish businesses, or considering investing in ventures need to understand the difference between an ordinary venture and a startup. A startup is not merely a recently incorporated legal entity or a team that has not yet established a company. The term refers to a venture with the potential for […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5718","post","type-post","status-publish","format-standard","hentry","category-general"],"yoast_head":"\n\n