Building a sustainable Startup
Julius Pankoke | June 23, 2016
The startup scene is accelerating. More and more startups are created. With this increase we also see a rising number of exits. News of these million-dollar startup sales have led to an increasing number of entrepreneurs, who only found companies to make a monetary beneficial exit. When one creates a startup solely for the purpose of selling it, a less than sustainable startup and subsequent failures are the result.
To fight this decline in quality, startup entrepreneurs are searching for more sustainable ways to lead a startup to success. The road to a real sustainable startup is long and hard, but also offers great rewards. We are going to take a look at what sustainability means and wherein the challenges and benefits for entrepreneurs lie.
What is Sustainability?
The Oxford Dictionary defines sustainability as “the avoidance of depletion of natural resources to maintain an ecological balance”. That is the classic environmental definition of sustainability. When looked at in a business/company focus it would be the creation of a system that uses the needed resources in a way that can be kept up indefinitely. Instead of maximum growth and going from one source to the next, the design allows the startup to function and be successful while naturally growing. By using mainly profits as a source of investment the startup development is based on a recurring resource. This eliminates the danger of a sudden failure in the case of missing external funding.
Sustainability can also have a less production and investment driven aspect. People are the most important resource of a company. As such, it is in the best interest of the entrepreneur if they are happy, because happy employees work better. Burning them out with impossible deadlines and constant pressure will yield short term results, but lead to long-term catastrophic failure. If an employee quits due to poor company culture, the company loses an important resource and has to find a suitable replacement. That costs, both time and money. So to be sustainable means to offer employees a positive ecosystem to work in and to keep an eye on their work-life balance.
What does it take to build a sustainable startup?
Even though the idea of a self-supporting business sounds great, there are some challenges you will have to face.
Sustainability is a long-term project. Since its very definition is not cutting corners, you are in for quite some time. Startups of this kind can take more than 5 years until they reach comfortable success. Be sure you are aware of that when you decide to go the sustainable route.
You will be pressed for money, especially in the initial months. While hyper growing, VC-backed ventures have access to big piles of money, you will have to think twice about investing a single cent. This can mean that even though you spot a great opportunity, you don’t have the funds to realise it right away. In times like these you will have to bite the bullet and keep on growing, so the next time an opportunity comes along, you will have the required capital to realise it without going bankrupt. Though this is tough, it also provides you with a clear advantage over your money-boosted competitor. Hardship is the mother of invention. Because your resources are already slim, you will find creative ways to solve challenges. This motivation for innovation leads to entrepreneurs discovering new solutions to their problems.
David vs Goliath
This only applies if you try to establish yourself in the same market as a VC-funded startup. They will naturally have more marketing power at their disposal than you. More capital and more people. If you try to beat them at their own game you will most definitely lose. There are two main approaches that will help you to come out on top. The first is focus. VC-startups usually try to cover as much of the market and its neighbouring sectors. They will have to establish and sustain several totally different marketing campaigns to achieve that objective. Herein lies your chance. By stretching both their financial and creative resources to thin you can get ahead of them by being just that little bit better, that little bit more engaging with your customers. Even if they notice your actions, they would have to pull resources from other projects to get on your level.
The second approach is being tough. Why should you risk fighting them when you can just wait for them to fail. VC-startups are usually under a lot of external pressure. Their investors expect them to meet certain goals in ambitious timeframes. Since they are completely dependent on the investors’ money, failing to meet those goals can mean complete disaster. If even one of the investors backs out, because – you guessed it – the company is not sustainable. You don’t have these problems. You already know how to survive on little to no external money. You can weather the storm. They can’t.
Why would anyone want to build a sustainable startup?
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Long Term Success
Because it makes sense. Building a fast growing startup with the sole goal to sell it at the first opportunity is a terrible motivator to create the best company you can. It is like planting an apple tree, caring for it year after year and then cut it down to get some firewood. Instead, you could let the tree mature, harvest the apples, use some to plant new trees, sell the rest and buy firewood. In the long run you will have a steadily growing supply of income, firewood and apples.
Realising your Dream
Building a startup is a terribly hard thing to do. As it requires years and years of hard work, you will need to love what you do and do what you love. It’s the only way to keep at it. Assuming you are fulfilling your dream with your startup, there is no way you are going to sell it to the first person that comes along with an offer. You will want to see your dreams come to fruition and you can only do that properly by staying in charge. Accepting some venture capital to finance important projects doesn’t mean your startup is unsustainable, just make sure you stay in charge and use the money where it is most efficient.
Better Company Culture
Entrepreneurship is not solely about money. As a CEO you will have people working and depending on you at some point. They put their trust in you and help you to do things you could not do alone. As such, they are entitled to a healthy company culture. Fast growing unsustainable companies have a tendency to burn out their talent, due to immense pressure and tight deadlines.
Sustainable startups allow you to build actual relationships with your team. You and your team are going to work tightly together for what will probably be a long time. Facing challenges as a unit will inspire both loyalty to you and your employees.
Knowing they are working in a sustainable startup, they don’t have to be afraid of your business failing in a spectacular fashion due to an investor jumping ship. An employee who isn’t constantly afraid of being let go will do better work and identify with the startup.
There is the longstanding misconception that only companies working in energy production or directly with the environment need to go green. Every single entity – nation, enterprise or person – is responsible to do their part. Reducing energy consumption, setting up a paper free office and encouraging others to follow suit can have a significant impact on the environment. In most cases only a small initial investment will be required. Yes, you will have to digitise your existing documents, but after you have done that you will save on ink, paper and manpower. Going sustainable shouldn’t be seen as an exhausting necessity, but a chance to improve old and rusty processes.
Although it should never be the sole motivation for building a sustainable startup, green companies make for great marketing.