Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision
“Congruent with the style he advocates, Peter Cohan’s book is pragmatic and personalized, . . .”
There is growing evidence that the intellectual leadership of the strategy discipline has migrated from Soldiers Field, the place of Harvard Business School (HBS), to other places. HBS promulgates certain “currently useful generalizations,” which are more useful to the large corporate enterprise than to the entrepreneurial, emerging companies that disrupt the status quo, drive economic growth, and create jobs.
If the HBS strategy paradigm is of diminishing relevance to the new venture and therefore a growing share of the economy, what is the replacement? Peter Cohan provides his answer to this question in Hungry Start-up Strategy.
While HSB’s Porter advocates a highly structured, even dispassionate approach to an already established business, Mr. Cohan promotes personal passion and customer connection to creating the business. His focus is on the “six key start-up choices—setting goals, picking markets, raising capital, building teams, gaining market share, and adapting to change.”
Whereas in the Porter view of the world marketing, finance, and human resources are generic staff support functions, the entrepreneurial style that Peter Cohan chronicles recognizes these as critical, creative, and customized.
Goals should be important, relatable, and stimulate value creation. The author advocates a real options approach to goals, embracing defining the opportunity, proving business viability, and expanding business scope, with subsequent steps pursued only after the prior has been successfully completed.
His book is based on his own experience as a strategy consultant, including a stint working with the esteemed Michael Porter’s company, plus involvement as a venture investor, with a 50-50 track record: the successful ventures’ $2 billion market value creation offsetting the losses; research re factors causing some internet ventures to fail and others to succeed; and extensive field interviews with entrepreneurs and financiers.
His target is the individual drawn to do something personally fulfilling and intrinsically rewarding, as exemplified by the observation by James Watt, who after just two weeks at his first law firm job, quit and shortly thereafter cofounded BrewDog, because “The last thing I wanted to do with the next forty years of my life was to sit behind a desk, sorting out paperwork and other people’s problems, constrained by a nine-to-five and a smart casual wardrobe.”
By my own research, advisory experience, and entrepreneurial involvements, I have gained first person insight into the veracity of the very premise of the Hungry Start-up Strategy.
Indicative of the importance of the start-up to the economy, is that all new jobs are created by new and growing companies—500,000 are started each year in the US, while larger corporations added no new net jobs—those start-ups derive 97% to as much as 99% of their capital from sources other than venture capital.
In application, the capital-raising sequence involves bootstrap/friends and family sources to pay for the prototype; next, angel investors to finance building the customer base; and finally, venture capital to fund the expansion.
Considering the many facets of and factors influencing the capital raising process, the essential teaching is that the entrepreneur should “figure out which skills your start-up needs from a capital provider and pick the one that best delivers those skills.”
Exemplifying the advocated approach supports how the founders of Oyster, which “sends investigators out to hotels around the world, to evaluate and rate them so travelers can make informed decisions about where to stay,” supported their goal to build a billion dollar market value company by referencing the total market capitalization of online travel companies of $50 billion and reasoning that if Oyster could capture a small slice, say 2%, it could be worth a billion dollars.
This book aspires to equip its readers to optimize how to balance sleep and time, a topic not customarily addressed in business schools such as HBS: “For a hungry start-up’s founders the most pressing daily tradeoff is between sleeping and getting stuff done. And if that start-up is bootstrapping itself, odds are good that they’re burning through their own cash.
“This means that unless these founders are spending their almost continuous awake-time getting the right stuff done, then their venture will never reach the point where it can raise the capital needed to hire help so the founders can get a bit more sleep.
“Simply put, the people sitting around the start-up’s table must produce more than they consume, otherwise the start-up will perish. This means that an entrepreneur has an insatiable hunger to invite only the right people to the start-up table - and make sure that no wrong people slip in.”
Substitute place for start-up and you have in the author’s words an eloquent expression of the essence of place excellence in a highly competitive environment: the value added imperative to be viable in the Darwinian survival-of-the-fittest 21st century times that compress economic species survival determinations from generations to what can seem to be nanoseconds.
While the hungry start-up mindset is the antithesis of the corporate mentality, the author includes a helpful discussion of guidelines for big companies that would engage in entrepreneurial endeavors—or at least might aspire to be more entrepreneurial in their mindset. Further, he provides counsel to individuals working in large organizations who might have wish to more creative in their work.
Especially informative is the straight talk from capital sources and a most useful compendium of resources, including key questions to guide decisions. In evaluating a founder, an investor wants an industry thought leader, will to win, high clock speed, risk manager, and A-team builder. Market potential is tested by unrelieved customer pain, viable business model, strong supporting trends, and passionate pioneers.
This is not a rigorous study, complemented by comprehensive literature review and data analytics intended to be statistically significant representations of the attributes of what is studied. Rather, is his personalized distillation of how the start-up world really works. Key points are reinforced by case studies of and extracts from interviews with start-up entrepreneurs.
Congruent with the style he advocates, Peter Cohan’s book is pragmatic and personalized, more compressed than comprehensive, sufficiently succinct that the would-be entrepreneur can read and digest it in an afternoon, then pull an all nighter crafting the strategy to launch the hungry start-up.