An entrepreneur lives and breathes their business in a way that very few corporate managers ever would. Ask people to go through their New Year resolutions and most will segregate their personal goals from their professional goals. Not the entrepreneur, the personal and professional are intertwined and inseparable. The business rarely stops for them. Whatever they’re doing, watching a film or taking a stroll through the park, their sub-conscience is grinding away on the business. This is in my opinion what defines ‘the secret sauce’ of start-ups. And there’s a lesson in here for big business.
The ‘secret sauce’ boils down to the psychological sense of ownership. Ownership completely changes the way you view yourself, the way others view you, and how you behave. It’s very obvious to me when a corporate salesman comes in and pitches to me versus the owner of a business. The sense of ownership also makes the customer experience much more enjoyable. Customers by nature gravitate toward businesses that have personality, values, and vision, which owners exude with an ingenuity that’s not easy to foster in employees. But this intangible (passion and how people in business view themselves) can also be created, and herein lie some of the key lessons that bigger companies can learn from start-ups. Very few big companies have managed to hold on to small company principles, but those that have (for example Apple and Southwest Airlines) have reaped the rewards.
Passion is rooted in a sense of ownership, which can be created through entrepreneurial remuneration structures. It’s hard to imagine why a corporate guy would feel passionate about pursuing ideas when there’s such a definable glass ceiling in terms of how much they can earn. For this employee morale issue, it is the start-up world where some of the most innovative remuneration structures can be found. As an owner, you know that your ideas and hard work will bring you closer to the ultimate exit, what many refer to as the ‘life changing event’, and that spurs you on to succeed. Your motivation is also rooted in the ‘fear factor’. You know that if you don’t create value, your income is directly affected and that could have serious implications for you or your family. These ‘owner principles’ can, with some creative thinking, be woven into a corporate manager’s pay scheme, where they effectively share the risk and own the income and capital value they create above and beyond what was there when they joined.
Start-ups, perhaps due to sheer lack of management knowhow, tend to organise teams in a fluid and unstructured way, allowing ideas to flow freely and rapidly. Join a corporate and you’re placed within an uninspiring, predictable category. You’re either graduate level, associate level, or director level, and you pretty much know what you’re going to earn. Entrepreneurs look at the org chart from a different lens – and they often allow prospective joiners to get tied into the company’s performance. Entrepreneurs may ask a new joiner to invest in the company, or if they’re going to lead a particular business stream they can become MD of that division and own part of it. There’s a myriad of different structures that can be played around with to tailor the package to that individual. We live in times of mass customisation, and the rigidity of corporate remuneration structures may not be fit for the times. Start-ups offer a repository of knowledge on this subject.
The secret sauce of start-ups goes beyond shaping employee self-image, fostering passion, and remuneration structures, however. Start-ups also tend to be the ‘hot beds’ of ‘frugal innovation’ – innovation that is born out of constraints. In a start-up, R&D budgets and processes are non-existent and you’re free to unleash your creativity in a fairly opportunistic, bottom-up, and unstrategic fashion. You can pursue any projects or initiatives you like. It doesn’t matter how whacky they are; you have the freedom to trial and error them. And with each trial and iteration, start-ups get closer to breaking new ground. Skype, Spotify, Halo, and Wonga are great examples of innovative global services that were created in a start-up environment. Corporates may have wells of creative talent but they often remain unmined because of the focused KPIs that managers have to follow. Big company structures rarely afford employees the opportunity to explore ‘off the cuff’ ideas that they’re passionate about. The fearlessness to try new things – and the fluidity with which bad ideas are weeded out and good ones propagated – is an important lesson for corporates – and one that requires a structural and cultural shift if they aspire to be ‘idea engines’ themselves.
Like a meal prepared by a Michelin star chef, the secret sauce of start-ups has many ingredients, and the complex flavours rarely reveal themselves altogether. Perhaps the most critical ingredient of start-ups is their ability to attract entrepreneurial talent. Corporates are great at attracting your run of the mill university graduate who goes on to do an MBA and follows a pretty linear career path – but entrepreneurs attract other entrepreneurs – so in my opinion smaller founder-run businesses are much more likely to attract the ‘future game changers’. They’re much more willing to give opportunities to the creative, rebellious types that are seen in the corporate world as unemployable.
I’m a prime example. Five years ago, I was told by a career counsellor at Oxford that I was “unemployable”. Today, I lead a dynamic platform of entrepreneurs that is rapidly growing and making waves in each sector that it enters. And now I’m looking for ‘unemployable’ people that have a bit of the ‘secret sauce’. In all the businesses I invest in, I look at the workforce as a network of entrepreneurs rather than your typical organisational structure where you have owners at the top and employees at the bottom. My strategy is to attract other entrepreneurs to join my companies – and often I give them stakes in the business. No matter how big the company gets, I’ll retain those small company principles, which I believe scales the business a lot faster.
Working closely with start-ups, I’m immersed in the wisdom of this ‘creative ecosystem’. I think that there is a lot that big companies can learn from the start-up world. If you’re a senior corporate manager reading this, maybe you’ll start to think about how you can add some ‘secret sauce’ within your own organisation. Creating an owner mentality by aligning one’s earnings to business performance, hiring entrepreneurial people, and innovating through trial and error are all principles worth considering. It seems that the ‘secret sauce’ of start-ups isn’t such a secret after all. Like all these things, however, the secret lies not in the ingredients but in the preparation and delivery.
About Faisal Butt
Faisal Butt is Co-founder and Managing Director of Hamilton Bradshaw Real Estate, a venture capital firm he founded with James Caan to invest in entrepreneurs with property related ventures. He is a former winner of Shell Livewire’s “Young Entrepreneur of the Year”, a recipient of the much-acclaimed Skoll Scholarship, and holds an MBA with Distinction from Oxford University. Faisal is known for his unrelenting focus on ventures he embarks upon and his partnership approach to doing business.