Is Your Small Business Really a Start-up?

Andy Pruitt Opploans - Startup tech companiesAndy Pruitt is currently the CTO at OppLoans and has had the experience of founding and cofounding three technologies companies. He recently participated in a TechDebate in Chicago, Illinois, where the panel discussed the challenges of building a tech start-up to scale. Andy and I had the opportunity to discuss the topic in greater detail.

What is your definition of a start-up company, and have you observed or experienced companies that stay in the start-up phase too long?

ANDY: A start-up is solving new problems. With that said, start-up companies are operating without a playbook, without defined approaches and procedures because they are venturing into new territory. 

Generally, I don’t see companies remain in a start-up phase too long and sometimes they should not rush out of it. They often face the opposite problem. They push forward because they have the playbook that appears to work, but they end up falling into routines and established processes too early in their growth journey. When a company establishes formal processes and approaches too early, it can easily end up spending a lot of time, money, and energy solving the wrong problems. People tend to feel more comfortable with predictability and like to have the situation under control. They want to have answers to the challenges quickly.

In the technology space, everything moves very quickly, and too often leaders don’t prioritize digging into the one or two issues that are truly important and could meaningfully advance the company. You can fall into the trap of defining problems to be solved too quickly, and never dig in to understand what’s really going on. 

How can technology leaders avoid the trap of focusing company resources to solve the wrong problems?

ANDY: It all comes back to metrics. Leaders need to determine the numbers that matter for their business. Determining the right metrics to monitor is a huge safety net. If you start focusing on things that don’t move your core performance metrics, you should notice, start asking new questions, and hopefully get back on track. If key performance metrics are not improving, it needs to be a wakeup call to you that you’re overinvesting in areas that aren’t helping the business move forward.

How do you know that you’re evaluating the right metrics?

ANDY: If we end the period, and our numbers look good, but we feel bad, or if we have numbers that are not supporting each other, then there is probably an issue. If system uptime is great, but revenue does not meet expectations, are we overinvesting in reliability at the expense of building the things our users need? 

Or maybe revenue and user adoption completely blow away our projections, but our system uptime metrics are not great. This should beg the question, is system uptime defined correctly? People don’t usually like products that they can’t use. Maybe we need to rethink the trade-off between uptime and new sales. You need to ensure that you understand how elements contribute to the overall goal. This isn’t to say that uptime isn’t a critical metric, but it can be easy to overemphasize a metric when the reality could be that as long as it is within a certain range, the business is fine.

Are there misconceptions about the nature of tech start-ups?

ANDY: Absolutely. The number of employees and revenue levels are not good indications of the lifecycle of the company. A business with only ten employees that has become set in its processes and approaches is not a start-up, it is simply a very small business.

A start-up company is operating without a playbook and is solving new problems. For example, OppLoans still operates like a start-up even with more than 500 employees and hundreds of millions of dollars in revenue. We’re constantly tackling new problems, addressing new challenges, and making new playbooks.

If you are going to give an aspiring tech entrepreneur a couple pieces of advice, what advice would you give them?

ANDY: Don’t do it. I’ve started three different software companies; it is an enormous amount of risk and a huge amount of work. If there’s something else that would make you happy, do that instead. If you’ve completely exhausted all your options, and you still have that burning desire to be the founder of a technology company, understand that it’s going to take more time than you thought. It’s going to be a ton of work, and statistically, it’s probably not going to work out. I think people should understand that even if they are one of the best and smartest people, it’s okay for the start-up to not work out. Be honest when the business is not working and move on.

How do you know when the business isn’t working, and it’s time to move on?

ANDY: Your gut feelings are somewhat helpful in this situation, but your gut can also be misleading. Even when the business does work, there’s always a part of you that says that it won’t. I have never been part of a business that I was 100 percent positive was going to work out.

The decisions to move forward or not are often complicated because you’re not the only one at the table. You have investors, employees, family members, and customers to consider. Every situation is going to be different. When you need to pull the plug, there is going to be a  combination of stakeholders arriving at the point where the business just doesn’t make sense.

What drives people to start tech companies?

ANDY: It is usually some mixture of insanity and unemployment. At one point, I was working as a consultant, and even though there are many good things about me, I am not the most patient consultant in the world. I wanted to do work that had a bigger impact than the work I was doing.

Every day I went to a consulting project where I was unhappy, but I was paid very well. I ended up meeting my future partner. We started a company called Backstop because at the time I wanted something where I had more control over what I was doing and could make the right decisions in the right way, even if I didn’t make a lot of money.

A lot of start-ups are founded when the job market isn’t very good. One of the good things about recessions is that a lot of interesting companies and technologies emerge because great jobs aren’t abundant.

What are some of the more difficult aspects of scaling a technology company?

ANDY: One of the hardest aspects is understanding that there are different things that matter at different scales. As the company grows, you are not going to be in the code base yourself. You must be focused on creating and rolling out policies to make sure that everyone has similar beliefs and assumptions about how we get our work done.

As a leader, you also must work really hard to make sure policies and procedures exist for good reasons. It’s all too easy to have team members doing something because it’s in the policy or is an established procedure, but it doesn’t make any sense at all. I have found that keeping policies and procedures to the minimum is the way to go. But the policies you do have need to be real and not just suggestions that team members ignore.  

Most importantly, you want to build a culture that encourages team members to speak up and voice their complaints when they believe a policy or procedure needs to be eliminated or changed.

 

Sphere Software (https://sphereinc.com), is the sponsor and organizer of Techdebates.org and also finds great value in these follow-up discussions with industry experts. Sphere is a technology consulting and solutions company. Everything we do is designed to accelerate your business, remove technical constraints and eliminate staffing bottlenecks.

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