Don't Forget How to Think Like a Startup

Brand-new businesses thrive on what's known as the "startup mentality." It's the drive to innovate and grow at all costs, even if that means changing directions. It's the persistence and dedication that keeps an entrepreneur working around the clock. It's the refusal to let obstacles stand in the way of success.

But somewhere along the way, something changes. When a business finally makes it over those initial hurdles and starts to see steady growth and profitability, it's no longer in the "startup" phase, and therefore starts to leave the startup mentality behind. But forgetting your innovation-based roots could actually be detrimental to your business's future. [6 Ways to Keep Control of a Fast-Growing Startup]

"Every product crosses the chasm from new and next-generation to legacy," said Andrew Goldberg, senior vice president of marketing and strategy at communications company Dialogic. "Customer needs evolve, and competitors enter with innovations that leapfrog the status quo. Companies have to maintain a startup mentality to make the necessary investments, take calculated and blue-sky risks, learn from the failures, and reap the rewards."

Goldberg named three major mistakes that companies make as they transition from startup to established business:

They think their growth will continue. Startups generally cannot maintain the growth rate of their early years, Goldberg said. They believe that growth rates of 50 to 500 percent are somehow sustainable over the long term. Management sets unrealistic expectations for the business that ultimately disappoint investors and employees, or promotes a massive ramp up in operating expenses to try to live up to those expectations. Startups need to build and execute on forecasts that are balanced, provide for contingency and are sustainable from a cash perspective.

They hire the wrong managers. Successful startups often prosper at the hands of an astute and dynamic management team.As a business moves from startup to mid-stage to mature, a smart founding team will often hire managers better suited for that particular stage of the company. Goldberg warned entrepreneurs to be careful when making these hiring decisions, because outside management may be used to larger budgets or unable to internalize the founder's passion. This can lead to decisions that are too expensive for the business or ones that cause cultural clashes with the team. Founders should be mindful of the need to support and meld with new management.

They stop fundraising after they get the amount they need. Startups live and die by their ability to fund operations. There will always be unexpected expenses, delays in revenue ramp up, or some new project that demands resources. Entrepreneurs need to be mindful of fundraising and raise money whenever they can, not just when they need it, Goldberg said. Some businesses wait too long to raise capital because they're afraid of giving up too much equity, and then find themselves in tough economic conditions. While raising capital is a time-consuming process that can distract management from running the business, Goldberg reminded entrepreneurs that, at the end of the day, cash is king.

After 20 years in business, Dialogic recently rebranded to embrace its original startup identity and bring a culture of creativity, flexibility and innovation back to the company. This is an important step for all mid-stage and mature businesses that feel they're starting to stray from thinking like a startup.

"Management, especially in rapidly growing firms, needs to ensure that the culture that bred success retains many of its key attributes even as the number of new hires begins to dilute the original chemistry," Goldberg told Business News Daily. "New employees need to feel that the culture supports risk-taking and the bilateral exchange of ideas and feedback. They also need an understanding of the company's origins and what has contributed to its success. Focusing on lessons learned ensures that employees keep in mind the challenges faced at an early stage, so that customer needs can continue to fuel innovation."

Originally published on Business News Daily