When I was working as a group manager at a mid-sized startup near Seattle years ago, a fellow manager said it was the fifth startup he had worked in. Of the other four, only one survived. That one had stopped work for two months to get its processes in order.
Our current startup was a disorganized mess, with no departmental budgets or project management. Eventually it went through three rounds of layoffs. (But I had created a budget and used project management, and my group survived the first two intact.) The company was finally acquired for a fraction of the original investment.
Now that I am marketing Agile coaching for startups, I wanted to find scientific evidence that taking time to get organized helps a startup succeed, or at least move faster within the existing burn rate—a desire expressed by every entrepreneur I’ve known! For any of you involved in startups, especially ones debating whether it’s time to get organized, I figured I would share what I learned. Some of it will get repetitive, but you may have to persuade teammates on the answer, so extra evidence could help.
My research into high-performance teams made clear that a degree of process formalization improves team-level performance.[1] Example studies covered in The Truth about Teambuilding found that creating a structure and plans improved team performance, and formal policies reduced nonprofit board conflict. Without wading into the debate about how much formalization helps rather than hurts, some definitely helps. In Full Scale agile™ I recommend the “80/80 Rule”: “do procedures covering 80% of the team’s labor time, and only make them detailed enough to cover 80% of the times the process is used (allowing people to flex when circumstances warrant it).” Per the Pareto Rule, this would only be around 20% of the potential procedures you could write.
In few moments’ searching I found nine blog posts telling startups why and/or how to put business processes in place, not one of which offered any evidence for the “why” (see “Sources” below). Unfortunately, I couldn’t find scientific proof either. Nor could I find any that getting organized doesn’t help. Simply put, scientists don’t seem to have asked the question. Several study articles stated that little research has been done into operations and teamwork in startups.[2] A 2007 article, “Success Factors of New Ventures,” analyzed 31 studies.[3] Organizational factors were not found at all, negative or positive; that is, none of those studies covered internal processes or organizational structure, other than the process of creating a startup.
Furthermore, a 2010 Handbook of Entrepreneur Research complained the “number of research studies that have compared entrepreneurs who have successfully created new firms with entrepreneurs who have failed at this process, is very small.”[4] You should bear this in mind when you read a magazine article about successful startups: unless they have been compared to equivalent failures, the author has no idea what made the difference.
Still, there are hints about process worth considering. Many studies indicate, as you might expect, that the founder’s previous experience as a manager, in prior startups, and in the startup’s industry are linked to the likelihood of a startup surviving and growing. (How to define startup “success” is debated, but two common themes are survival past three years and growth in the number of employees.) Getting help from outside professionals, not just kith and kin[5], was helpful as well. A meta-analysis of 40 studies on startups in lower-income countries found that technical assistance had an impact on success, though small relative to matching grants.[6] More specifically, it concluded that training programs “should contribute… to firm productivity (for example, through the adoption of more efficient management practices).”
In a small study based on interviews with two dozen design and technology entrepreneurs, process was not directly addressed. Two items seemed relevant, though: “Entrepreneur’s competence” came in at #5 out of 20, and “Self-development” was #10.[7] Drawing from a longitudinal study (the kind that better indicates causality) of 2,000 startups in the Netherlands, researchers concluded three factors involving organizational expertise were critical to surviving three years[8]:
- “The importance of work experience. Especially the young, inexperienced potential starters ought to be advised to obtain some work experience before they take the step of setting up their own firms, preferably in a paid job.”
- “The importance of a business partner… preferably an experienced entrepreneur who actively guides the new entrepreneur and may also help to solve the (growth) problems in the first years.”
- “The importance of a thorough preparation,” defined not only as having a well-developed business plan, but also “market orientation” and taking and following the guidance of courses on entrepreneurship.
After reviewing studies available by 1987, two management professors said, “Effective action also requires a detailed knowledge both of the startup process and of the key success factors of the industry to be entered…”[9] A survey of 79 Serbian startups found among the top six success factors three touching on organization and process[10]:
- “Ability to manage personnel”
- “Good management skills”
- “Maintenance of accurate records”
More examples come from a systematic literature review of 74 studies published after 2003 in highly regarded journals. Of 21 success factors the authors found, none specifically call out organizational development. Six seem indirectly related, around the education and experience of the leader or team, including “business capabilities,” and, “Experience in management of the entrepreneur.”[11] The researcher comments, “The lack of experience in management is often the main reason for the failure of new ventures. The entrepreneurs of startups rely on their previous experience and… don’t want nor try to expand their knowledge in order to achieve a bigger business range.”
A 1994 dissertation[12] found that “positive organizational behaviors affected the firm’s overall performance, employee productivity, and employee commitment,” based on survey responses from top leaders of 328 successful startups, with sales growth an indicator of performance. Almost all of the 11 skills most of these leaders called “very important” related to internal processes: “developing a vision for the future, improving quality, team building, strategic planning, leadership development… managing innovation (and) implementing business plans, employee selection, effective delegation, managing change, and problem solving.”
In case you’re wondering, it seems writing a detailed business plan does improve the odds of success.[13] Solid evidence comes from a long-term study that sampled the business plans of 585 German companies and compared their content to survival rates.[14] The scientists concluded, “Initial planning is an important requirement of success, but cannot lift it, until certain minimum constraints are met.” Those constraints include issues like sales and funding.
Time to hit the books. North Carolina State University has respected engineering and business schools. Since most startups involve tech these days, I went to their library to look through the HB615 section, entrepreneurship books. I pulled each “how-to” book, as opposed to theory or specific-issue texts. Nine of the 12 (75%) discussed structure and process decisions, many of them extensively. For example, 35 of the 50 Steps To Business Success[15] relate to strategic planning, leadership, and operations. Two are “Identify Business Processes to Be Improved,” and “Appoint a Leader of Business Improvement.” Section titles in Mastering Entrepreneurship[16] include “Building and maintaining the entrepreneurial team—a critical competence for venture growth,” and, “Distilling a strong team spirit.”
Entrepreneurship[17] doesn’t get to “Developing Internal Processes” until Chapter 8, but it points out there is a “Malcom Baldridge Award for small firms that show exceptional skills at operational performance.” The authors make a compelling argument for focusing on operations just in the way they define it: “Operations are the internal processes that create the value… (which) distinguishes the firm from competitors, and it is the kind of value customers are prepared to pay for.”
Some data from these books suggest when to focus on operations. A textbook reported on a 1993 study in which the “dominant problems at start-up were sales/marketing (38 percent), obtaining external financing (17 percent), and internal financial management problems (16 percent).” That last is a process issue, and in the “growth” stage, its importance rose to 21 percent. It was joined then by the process issues “human resource management problems (17 percent) and general management problems (14 percent).” Problems with “organizational structure/design” entered there at 6 percent.[18] So in the growth stage, 58 percent of startup problems were process problems.
I feel compelled to push out process and structure improvement from where I thought they were needed. The research consensus is that creating a business plan, sales growth, and funding at all stages are more critical. Organizational development still seems important earlier than most startups get to it, though. Based on the current evidence, my recommendations to entrepreneurs for maximizing their chances of survival and growth are to:
- Do some market research before you invest more time or money.
- Especially if you don’t have much business and startup experience, attend some free Small Business Development Center (SBDC) classes, if not more formal business training.
- Earlier than you want to, create a detailed business plan even if you don’t intend to seek funding, and run it past SBDC volunteers.
- Emphasize developing the product, sales/marketing, and funding initially (the classic startup experience).
- Once you have four people, create a team charter and implement some work planning and tracking, even if just a spreadsheet of action items with names and report-back dates.
- Once you are too large for a single team, between 12 and 15 people, that is the time to implement formal work processes like kaizen or Full Scale agile™, but with a lot of input from workers on specifics.
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[1] See for example Robbins and Finley 1995
[2] Lopez Hernandez, Fernandez-Mesa, and Edwards-Schachter 2018
[3] Song et al. 2007
[4] Gartner, Carter, and Reynolds 2010
[5] Mas-Tur et al. 2015
[6] Piza 2016
[7] Kim, Kim, and Jeon 2018
[8] Schutjens and Wever 2000
[9] Hofer and Sandberg 1987
[10] Stefanovic, Prokic, and Rankovic 2010
[11] Santisteban and Mauricio 2017
[12] Carlock 1994
[13] Schutjens and Wever 2000; Tarres, Melendez, and Obra 2006
[14] Schulte 2007
[15] Cleveland 2009
[16] Birley and Muzyka 2000
[17] Carsrud and Brännback 2007
[18] Kuratko and Hodgetts 1998
Sources (books appear only if they were cited above):
Aldrich, Howard, and Martha Martinez. “Entrepreneurship as Social Construction:A Multilevel Evolutionary Approach.” In Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, edited by Zoltán J. Ács and Audretsch, 2nd ed. International Handbook Series on Entrepreneurship 5. New York: Springer, 2010.
Anderson, Mary Ann, Edward Anderson, and Geoffrey Parker. “How to Manage a Start-up Operation.” Dummies (blog). Accessed May 6, 2019. https://www.dummies.com/business/operations-management/how-to-manage-a-start-up-operation/.
Audet, Josée, and Paul Couteret. “Coaching the Entrepreneur: Features and Success Factors.” Edited by Harry Matlay. Journal of Small Business and Enterprise Development 19, no. 3 (August 3, 2012): 515–31. https://doi.org/10.1108/14626001211250207.
Birley, Sue, and Daniel F. Muzyka. Mastering Entrepreneurship. Harlow: Financial Times Prentice Hall, 2000.
Bozward, David. “Developing a Business Process Diagram for Your Startup.” Dr David Bozward (blog), January 16, 2017. http://david.bozward.com/2017/01/developing-business-process-diagram-startup/.
Brandall, Benjamin. “How to Build a Minimum Viable Process Pack for Your Startup.” Business 2 Community. Accessed May 6, 2019. https://www.business2community.com/startups/build-minimum-viable-process-pack-startup-01779333.
Bussgang, Jeff. “Why ‘Ops’ Is Taking Over Startup Land.” SEEING BOTH SIDES (blog), January 29, 2017. https://seeingbothsides.com/2017/01/29/why-ops-is-taking-over-startup-land/.
Butlion, Justin. “The Business Operations Playbook: How to Implement Ops in Your Startup.” Project BI – The Business Intelligence (BI) Blog (blog), October 19, 2018. https://www.projectbi.net/business-operations-playbook-how-implement-ops-startup/.
Carlock, Randel S. The Need for Organization Development in Successful Entrepreneurial Firms. New York: Garland, 1994.
Carsrud, Alan L., and Malin E. Brännback. Entrepreneurship. Greenwood Guides to Business and Economics. Westport, Conn.: Greenwood Press, 2007.
Carter, Nancy. “The Social Psychology of Entrepreneurial Behavior.” In Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, edited by Zoltán J. Ács and Audretsch, 2nd ed. International Handbook Series on Entrepreneurship 5. New York: Springer, 2010.
Cleveland, Peter M. 50 Steps to Business Success Entrepreneurial Leadership in Manageable Bites. Toronto: ECW Press, 2009. http://site.ebrary.com/id/10173250.
Fulham, Liz. “10 Key Reasons Why a Business Process Is Critical for a Startup.” SalesOptimize (blog), August 25, 2016. https://www.salesoptimize.com/business-processes/.
Gartner, William, Nancy Carter, and Paul Reynolds. “Entrepreneurial Behavior: Firm Organizing Processes.” In Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, edited by Zoltán J. Ács and Audretsch, 2nd ed. International Handbook Series on Entrepreneurship 5. New York: Springer, 2010.
Hofer, Charles W., and William R. Sandberg. “Improving New Venture Performance: Some Guidelines for Success.” American Journal of Small Business 12, no. 1 (July 1987): 11–26. https://doi.org/10.1177/104225878701200101.
Joshi, Neeraj. “Starting up a Business? Focus on the Business Process.” Medium (blog), March 6, 2017. https://medium.com/startupsco/6-steps-to-designing-a-business-process-a3e3830484b9.
Kim, Boyoung, Hyojin Kim, and Youngok Jeon. “Critical Success Factors of a Design Startup Business.” Sustainability 10, no. 9 (August 21, 2018): 2981. https://doi.org/10.3390/su10092981.
Kuratko, Donald F, and Richard M Hodgetts. Entrepreneurship: A Contemporary Approach. Fort Worth: Dryden Press, 1998.
Liao, Jianwen (Jon), and Harold Welsch. “Patterns of Venture Gestation Process: Exploring the Differences between Tech and Non-Tech Nascent Entrepreneurs.” The Journal of High Technology Management Research 19, no. 2 (January 2008): 103–13. https://doi.org/10.1016/j.hitech.2008.10.003.
Lopez Hernandez, Anna K., Anabel Fernandez-Mesa, and Monica Edwards-Schachter. “Team Collaboration Capabilities as a Factor in Startup Success.” Journal of Technology Management & Innovation 13, no. 4 (December 2018): 13–23. https://doi.org/10.4067/S0718-27242018000400013.
Mas-Tur, Alicia, Pablo Pinazo, Ana María Tur-Porcar, and Manuel Sánchez-Masferrer. “What to Avoid to Succeed as an Entrepreneur.” Journal of Business Research 68, no. 11 (November 2015): 2279–84. https://doi.org/10.1016/j.jbusres.2015.06.011.
Piza, C. “The Impacts of Business Support Services for Small and Medium Enterprises on Firm Performance in Low-and Middle-Income Countries: A Systematic Review.” The Campbell Collaboration, January 4, 2016. https://campbellcollaboration.org/library/business-support-services-for-sme-low-and-middle-income-countries.
Quora. “How to Create a Business Process for Your Startup Business? Is There a Book – Quora.” Accessed May 6, 2019. https://www.quora.com/How-do-you-create-a-business-process-for-your-startup-business-Is-there-a-book.
Robbins, H., and M. Finley (1995), Why Teams Don’t Work. Peterson’s/Pacesetter Books: Princeton, NJ.
Santisteban, José, and David Mauricio. “Systematic Literature Review of Critical Success Factors of Information Technology Startups” 23, no. 2 (2017): 24.
Schulte, R. “Pre-Startup Planning Sophistication and Its Impact on New Venture Performance in Germany,” 21. 295. International Conference for Small Business, 2007.
Schutjens, Veronique, and Egbert Wever. “Determinants of New Firm Success.” Papers in Regional Science 79 (2000): 135.
Sommer, Svenja C., Christoph H. Loch, and Jing Dong. “Managing Complexity and Unforeseeable Uncertainty in Startup Companies: An Empirical Study.” Organization Science 20, no. 1 (February 2009): 118–33. https://doi.org/10.1287/orsc.1080.0369.
Song, Michael, Ksenia Podoynitsyna, Hans Van Der Bij, and Johannes I. M. Halman. “Success Factors in New Ventures: A Meta-Analysis.” Journal of Product Innovation Management 25, no. 1 (December 7, 2007): 7–27. https://doi.org/10.1111/j.1540-5885.2007.00280.x.
Stefanovic, Ivan, Sloboda Prokic, and Ljubodrag Rankovic. “Motivational and Success Factors of Entrepreneurs: The Evidence from a Developing Country.” Zb. Rad. Ekon. Fak. Rij. 28 (2010): 20.
Tarres, Christian Serarols, Antonio Padilla Melendez, and Ana Rosa Del Aguila Obra. “The Influence of Entrepreneur Characteristics on the Success of Pure Dot.Com Firms.” International Journal of Technology Management 33, no. 4 (2006): 373. https://doi.org/10.1504/IJTM.2006.009250.
Zwilling, Martin. “8 Basic Business Processes Your Startup Can’t Survive Without.” Business Insider. Accessed May 6, 2019. https://www.businessinsider.com/8-business-processes-your-startup-needs-to-have-2010-8.