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Why Adopting a Startup Mentality Needs To Be Done With Caution

When a novice entrepreneur starts their first business, they can expect to do many tasks themselves. For instance, if it’s a bakery, they need to leverage personal skill in baking products that sell. Eventually, as the business proves profitable, they can invest in a piston depositor and hire staff to handle sales and accounting so that they can focus on other areas.

But where do you reinvest your profits and focus your newfound bandwidth? Serial entrepreneurs, guided by experience, will feel confident about expanding into a new market or even launching a new venture. Such risks may be too much for a newcomer, especially if it’s their personal capital that’s on the line.

For this reason, many entrepreneurs are turning to the methods used by startup companies. The so-called ‘startup mentality’ promises to quickly find what works, leading to the next growth opportunity. But it’s a mindset you need to adopt with caution.

Embracing failure and flaws

In business, information is often imperfect, and opportunities fleeting. You’re constantly grappling with complex systems, multiple actors, and variables that frequently change without warning.

There’s a natural tendency to gather a lot of data, engage in research and testing, and strive for a perfect product before releasing it to the audience. Yet that’s actually not a feasible goal given the complexities surrounding most business scenarios. Wait too long, and the opportunity will have passed you by.

Startups embrace this imperfection. They focus on developing a minimum viable product, or MVP, as fast as possible. It will have flaws, but releasing it early will give you valuable audience feedback.

When executed properly, MVP development is both times- and budget-friendly. It focuses on testing one idea, putting out something with a minimum level of usability, reliability, functionality, and emotional design. There’s a high risk of failure, but you’re also guaranteed to gather useful information about what works and doesn’t.

Avoiding survivorship bias

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The problem with mirroring the success of startups is one of survivorship bias. 

There’s a commonly cited yet unverified statistic that says 90% of startups fail. Regardless of how accurate that is, the premise is true. Startups are an ecosystem. The power of embracing failure ultimately benefits the collective, but it’s a small consolation for the founders and employees of most startups that failed.

Using lean principles and developing an MVP through an iterative process can be applied to any industry, not just tech. But tech developers are operating largely in a virtual world, which minimizes costs. Other small businesses aren’t so lucky.

They incur slightly more expenses in sourcing materials, building prototypes, and distributing physical products to initial audiences. Those costs add up over each loop, reducing the margin for error, increasing the chances of comprehensive failure.

Using a risk management strategy

The lesson of survivorship bias is not to bet everything on principles derived from a narrow sample of success stories. You have to learn from the numerous, often far less publicized, stories of failure among startups. Reinforce the areas where the missing bullet holes might be found, that have sunk them.

The practice of risk management can offer a lot in this regard. Novice entrepreneurs running an SME can seek to become antifragile instead of going all-in on a startup mentality.

Commit to a startup approach with one project for minimal investment. Keep the remainder of your processes unchanged. See if you can pre-sell the MVP that’s being developed to recoup costs while gathering feedback. This way, you can afford to fail fast and frequently, while in other operations, you stick to a model that’s been proven to work.

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