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Big Bang or Steady Growth – which is the right approach for your Startup?

The Entrepreneurship Summit in Mumbai is an annual conference hosted by the Indian Institute of Technology, one of India’s most prestigious technical universities. I was fortunate enough to be a guest speaker there this year giving talks on lateral thinking and on open innovation. There was a range of other distinguished speakers and two of them gave starkly contrasting advice on how to start a new business.

Archit Gupta
Archit Gupta

Archit Gupta is the founder and CEO of Cleartax, a successful software start-up company which provides an automated service to help people in India complete and file their personal tax returns. He had taken his innovative idea to a Y Combinator camp in the USA and had undergone the intensive full-time grilling which that entails. At ‘demo day’ Gupta showed his budding software project to potential investors and he was able to secure the investment needed to launch his grand scheme. His approach to start-ups is to develop a big idea and then to launch version one quickly – even if it is ‘embarrassing’.  Next you should raise enough external finance to go for ambitious growth.  An example of big ambition is Angry Birds, a Finnish startup that aimed to go global from day one.

Gupta’s key advice was as follows:

1. Have a huge vision.
2. Make something that people want.
3. Get the right team.
4. Launch quickly and iterate.
5. Rejection is the norm.
6. Persist and succeed
7. If you are a first mover then seize the opportunity and grow aggressively

Jim Beach
Jim Beach

Jim Beach is an American serial entrepreneur who has started and sold many businesses. He hosts a radio show for small business owners. He takes a more prosaic, ‘kitchen sink’ approach. He is a believer in starting small with something safe. His advice included:

1. Don’t quit your job to start your business. Start the business in your spare time.
2. Avoid creativity; the more innovative the idea the greater the risk.
3. Minimise risk by doing something you know or can copy.
4. Passion is for the bedroom and not for your business.
5. Bootstrap your business using your own resources.
6. Start selling products or services before you try to raise finance.
7. Never start a business if you do not know how to exit.

He says that he meets many entrepreneurs who are passionate about their business idea but he believes they would be more successful if they were dispassionate, level headed and business-like. He advises entrepreneurs to avoid raising early finance from external investors if possible and instead to bootstrap the business using savings, loans from family and friends etc. even if this means a slower growth trajectory. He gives two prime reasons for this. First, while the CEO and CFO are out making pitches to investors they are not running the business or making sales. Secondly the early dilution of equity means that when the company is eventually sold the founder gets a much smaller percentage (typically less than 10%) of the sale value than a founder who did not take an early external investment.

Which approach is right? It seems that that depends on the entrepreneur and the nature of their idea. If it is a high-tech product which requires considerable investment and support then the first approach is needed though it is loaded with risk. The potential rewards are high if you can get it right. The second approach is better for simpler ideas and service innovations. It is safer and would suit many a person who does not want to conquer the world but just wants to run their own business – and maybe become a regular run of the mill millionaire.

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