Think Like a Startup

Many companies practice zero-based budgeting. The idea is that you do NOT start with last year’s budget. You don’t say, “We spent $xx in this category last year, so how much more or less do we spend this year?” You start with a clean sheet. This has the effect of getting rid of those costs that have always been there just because…well just because they have always been there. And that frees you to spend on what you really need, not on what you needed or thought you needed several years ago.

You can take the same approach to IT. Think like a startup, even if you have been in business for decades. Startups do almost all their IT in the cloud and using software as a service (SAAS). That is the default. A startup would think really, really hard about doing anything in-house or custom. Unless something is absolutely core (which means you should be the best in the world at doing it) it is best outsourced to a firm that does that as a core competency.

It is agility that really matters today. Huge companies are crumbling before our eyes. Watch Citigroup and General Motors and your daily newspaper as they go from invincible to suffering or dead. Huge companies have huge overhead. But medium-sized companies cannot afford that overhead.

In 1955, Fortune 500 companies accounted for one-third of the GDP in the US. In 2000, that had doubled to two-thirds. Within that cold statistic lies thousands of human stories of family farms, Mom & Pop stores and other small businesses trampled by Wal-Mart, Agribusiness and other large companies.

That is a massive shift. But it is not written in stone that large companies should control two-thirds of the economy. We may have seen the high water mark of this trend. It maybe reversing. The demise of huge companies is a massive, historical opportunity for smaller companies.

Mid-sized companies need to decide: Are you are agile like a startup or a smaller version of a large company? The latter may give you all the problems of a large company without their advantages of scale.

So, think like a startup. Only do some IT functions internally if you are really (no, really) convinced that those functions are totally core to your mission and you can be the best in the world at them.

That is easier said than done. You do have legacy IT and processes. The most important thing to recognize is that people’s jobs are at stake. If you make the process of moving to cloud/SAAS a genuine win for your people, those objections (”It’s OK for some companies, but its way too risky for us for this reason and this and oh this one as well.”) will disappear like morning mist.

Somebody who is maintaining/managing in-house systems needs to see one of two future career paths:

1. Within your company, moving from context to core, from cost center to profit center.

2. Outside your company, working for cloud/SAAS vendors, trading on the success of the migration of your systems.

Either is a good result, and it will vary by individual.

Once your people are on your side, you can set business objectives and create a project team. When you select cloud/SAAS vendors, keep in mind that you want agility/flexibility. Don’t do business with any cloud/SAAS vendor who cannot show you these three things:

1. A month-to-month plan with no penalty for cancellation. You should stay with them because you want to and not because you have to.

2. Data portability. You (yes you, not an IT expert) need to see how you can export your data from their system. It has to be as easy as exporting say credit card transactions from your bank into a spreadsheet.

3. An open API, so that other vendors that you use can integrate with them as needed.

Many years ago, there was a small startup called Digital Equipment Company (DEC). They sold minicomputers, a simpler/cheaper form of IT than the mainframes sold by IBM. They were hugely successful and grew and grew and grew. They always dreamed of becoming IBM. Then one day they woke up and they were IBM, and it was a nightmare. They had become a slow moving bureaucracy. When the PC came along it destroyed DEC. (It nearly destroyed IBM, but they were transformed by Lou Gerstner as described in the epic “Who Says Elephants Can’t Dance.”)

The waves of change are bigger than ever today. There is a perfect storm of change driven by four big waves of change all happening at once:

1. Demographics: Baby boomers are in their retirement phase. They have mastered the rules of the traditional company, and, with only a few years to retirement, they tend to resist fundamental change. When they leave, they take with them accumulated decades of experience, knowledge that is not easily codified for handing down to the next generation. Generation Y has grown up in the fluid world of digital economics and social media. GenY is not enticed by rigid command and control structures controlled by a generation that does not want to hand over power.

2. Social media: Companies have historically been all about secrecy, structure and control. Social Media is exactly the opposite. Secrecy, structure and control have served real needs for a long time; they work. When the irresistible force of social media hits the immovable force of traditional companies, it makes a loud noise. The strategies are not obvious. “We will make social media technology bend to our rules” will lose a lot of the real value. “Blow up all the rule books, let self-organizing networks evolve” may work out brilliantly, or it may blow up catastrophically; the risks are unlikely to be easily contemplated by existing management and investors.

3. Globalization: Power and wealth is shifting east, to China and India. Massive new markets are opening up as billions move from subsistence to consumer economies. The Internet makes these global markets accessible to even small companies. True micro-national firms — tiny but global — are thriving today. This also creates unprecedented competition, as people and companies in these markets can compete in what you consider your home market.

4. Digital economics: Doing business online is fundamentally, totally different from doing business offline. This is like Alice down the rabbit hole or Dorothy in Kansas, everything is crazily different. What Fred Wilson (a VC) calls “bits of destruction” are hitting every industry and market. This is massive opportunity and massive threat.

This is not an environment to be saddled with legacy technology and processes. You need to think and act like an agile startup every day. Challenge every assumption in your IT systems and processes with a zero-based IT planning process.