Launching a startup is exciting. Billionaire companies like Airbnb, Uber and Amazon that once were startups inspire entrepreneurs with great ideas to take this journey. However, a picture of success is idealized and often misleading. You will find a plethora of advice on starting a business, but nobody will tell you how to run it once you get the desired investments. The reality is that a startup—in this particular case, an IT startup—is essentially two businesses in one.
The Investment Approach: The Tip Of The Iceberg
Launching an IT startup is like a quest for gold. Full of enthusiasm, you set off to the mountains with a backpack, some equipment and a few companions. You have the approximate route, a compass and an understanding of how gold mining works.
Similarly, you start with a business model, funding and budgeting. Determining the product/market fit, finding your consumer and hypothesis testing are the equipment you have in your backpack. It’s your starting point, the investment approach. However, it’s only the beginning of your journey.
The Operational Approach: Expect The Unexpected
Passing the initial stage and entering the market is like reaching the destination in the gold quest. Suddenly, you realize you have very little knowledge of how to actually mine gold. Now you need more than just metal detectors and digging tools. You need to set up camp, get slurry pumps, higher bankers and maybe even hire an excavator.
Similarly, you find yourself trying to make the whole thing work by managing the people and internal processes. It is the unexpected, the operational model, that many founders don’t recognize at first. It includes HR, people and financial management, proper planning and employee training.
My and my co-founder’s main expertise is process building. After the first 100-plus projects, we found the investment model philosophy inoperative for establishing internal processes. Challenging projects and complex custom software (marketplaces, games, online services or SaaS) require a holistic approach considering all elements function as a cohesive unit.
We also realized that agile practices are comprehensively applicable not only to the development process but also to daily operations setup and company scaling. The framework Scrum establishes actively organized and structured communication that has a distinct vector.
At the same time, your business interacts with the outside world, ever-changing market and multiple stakeholders. Here are the five core elements involved in the process: market; end users; investors and other stakeholders; tech stack; and internal decision-making: management autonomy or the employees’ voice.
And Scrum harmonizes the relations between the five elements advantageously. However, calibrating operations management also involves combining frameworks, methods, practices and their parts.
For example, we based our recruiting process on the method Kanban as it lets you set precise objectives and program the desired outcome. Recruiting is where a successful and productive team starts. Getting your team together is more than just a side process. Today, software products focused on recruiting automation, including candidate screening and reference checks, raise millions-worth of investments. Job interviews, test challenges and psychological evaluations—every task is systematic and dedicated to choosing the right people to form the team.
HR and people management take care of your employees’ well-being after hiring. According to the “State of Employee Engagement Q3 2021” (registration required) by TINYpulse, HR and remote employees have distinctly different views on the level of exhaustion (80.8% and 37.9%, respectively). Meticulously built HR operations help you fine-tune all internal processes, including onboarding and offboarding. Company culture code, corporate blog, one-to-one meetings with founders and team-building events are essential for creating and maintaining a good climate.
Training employees requires extra resources but shows that the company cares. While language courses and continuing education are standard for many companies, Amazon has just gone further and announced college tuition payments for its “front-line employees.” Similar to the recruiting process, I believe training works best following the Kanban method. It creates a functional sequence of operations and helps the team advance as one.
Effective financial management goes beyond standard procedures like salaries and taxes. The key is feature planning. Using advanced-level analytics helps you organize the process and allocate resources to develop one product feature after another. You have better control over finances and can accurately predict the project’s outcome. This approach also defines pricing. This way, you set the prices for your services according to the cost of a story point but not according to average market rates. And that’s what creates product differentiation on the market to stand out from the competitors.
Ultimately, this organizational model should enable decentralized decision-making, greater transparency, coherence and, as a result, a faster and more effective development process. In such a system, every part has clear objectives and regulated operations. Scaling your startup is not simply hiring new people but also reaching maximum efficiency with available resources.
The Two Approaches: To Merge Or Not To Merge?
Here’s what you have in reality. On the one hand, you start with the investment approach by choosing the correct business model, finding your niche and defining your target market. On the other hand, you have a running operational business, or building and managing a happy and dynamic team. While only one out of 10 hypotheses works in the investment model, your operational side must be 90% working. And everything you do must increase the percentage.
The investment approach is the solid first step to your startup capitalization. But here’s the catch: You are expected to have a fully functional, well-structured operational business already after the first investment round. In many cases, it means a rapid transition from one model to the other and being ready to get your excavator to reach your gold. The situation duality here is balancing between the two approaches. You maintain and increase quality (operational) and develop new features or services (investment) simultaneously. And it’s an ongoing process.