How does running a startup differ from running an established company?

At a startup, the highs are higher and the lows are lower than what you will see at an established company. That has a significant impact on how you manage:

1. The business - Should you hire more sales people, stock up on inventories, sign a new lease on that bigger office space...? Or do the exact opposite?

2. Your team - How do you keep everyone focused on managing the business in a steady, predictable fashion even when the information you're receiving is great one day and terrible the next?

3. Yourself - Founders and startup CEOs like to think of themselves as superhumans who are impervious to the up and down challenges of a young business. Some are, but most aren't so how will you manage your own emotions to cope with the highs and lows.

Scott

When you are running a startup...

Your top priorities are raising capital, recruiting talent, building systems and creating big brand exposure.

Your fears are - running out of capital, having a major operational setback, finding an unanticipated (and better positioned) competitor, losing control of your IP.

You are typically working 12-18 hour days in a "dorm room" style environment and trying to be as efficient as way possible in everything you do.

When you are running an established company...

Your top priorities are the P&L, cash flow, customer satisfaction, HR and risk management.

Your fears are - legal challenges, profit leaks and employee productivity problems.

You are typically working an 8-10 hour day in a structured office environment and are primarily focused on putting out fires while keeping the ship pointed in the right direction.

Paul's answer holds true for the other team members as well. A start up is often staffed by several people but everyone wears multiple hats. A startup also relies on outside consultants almost exclusively. PR, marketing, legal, and accounting services are all provided by professionals.

When these functions move inside you are starting to become an established company!

Where to begin, right? Beyond what's been touched on already, I'd like to distinguish between starting and startup and running one. The best entrepreneurs are good at both, but that's not always the case. I know lots of people who have enough great ideas to get a startup going, but can't take it much further. These are usually engineer-types with a deep understanding of the technical aspects of a problem set. However, the practical realities of turning this into a profitable product and building a business around that are often beyond them.

If others keep this thread going, I'm happy to add a few more thoughts!

One of two things happens in these cases. If this type of person remains in charge, the startup will flounder and stay in a state of perpetual near misses until he/she runs out of money, energy or both. The better scenario is one where this person recognizes their limitations and finds a partner who can run the startup like a business. Now you have a chance to survive and maybe even thrive.

How long is a piece of string?

I've had the good fortune to be involved in four start up operations in the last four years including a small supplier of leased services in China, a small operation for a multi-national software house, and two major telecoms start ups in the Gulf.

The big differences to me are often around expectation and reality. I have seen man months poured down the drain, building plans for delivery for ridiculous expectations.

In fact I once sat in a meeting where a highly paid consultant announced a timeline for delivery for a new project where the deliver date was a week prior to the meeting. On questioning this nonsense, it turned out that that was the date the CEO had specified previously and no-one had, had the courage to talk to the chap and tell him the deadline was long past.

There were over 20 people in that meeting, it lasted all day, to discuss a nonsense timeline.

Clear communication is a must. Good managers in start ups should be very precise about what can be achieved, when it can be achieved and what the pre-conditions for a project are. Otherwise you find that what kills start ups is constant overrun and a cycle of finger-pointing and blame culture.

Tactically/Operationally, I think one of the biggest differences is the complete lack of infrastructure in a start-up vs. a more established company. You want the company policy for travel? Make it up. You want standard image and provider for laptops? Make it up. You want some insurance? Make it up. You want to establish a management bonus pool set-aside? Make it up. You want a corporate Powerpoint template? Make it up. You want to get on a GS schedule? Make it up. It's all a blank piece of paper. Some thrive with this, many flounder. It takes a certain type...

If I could add to all the good and accurate advise and observations that have been presented so far...
Let's assume we're talking about a small startup with limited funds verses a well funded startup where they hire 100+ people within the first 90 days
In my opinion, one of the main aspects that are crucially different in the way one runs a startup and the way one runs an established company is FOCUS.
When you are starting up a new small company, the key personnel MUST stay focused on the task at hand with an eye and 6th sense on what the long term goals are and how you plan on getting there. It's a bit of a balancing act. You are forced to make decisions that are overwhelming influenced by the immediate results as opposed to more of a long term outlook. This unfortunately is necessary unless you want to become one of the many statistics of the majority of startup businesses that fail in the first year of operation.
Having said that, one can, and MUST, be able to make the decisions that enable you to stay in business yet don’t handicap your company’s future because of the short term gains acquired as a result of the immediate decisions that need to be made.
For example, let’s assume that you need to choose a phone system for your new company. Let’s pretend that you have an opportunity to get a screaming deal on a phone system that will easily expand to accommodate hundreds phone stations for your company as it grows over the next 5 years. You also have the opportunity to select a phone system that is one tenth the price but will probably have to be replaced in a year or two if the growth of your company unfolds as projected. And what about a hosted phone system solution that requires little to no capital expenditure; yet is the most expensive overall solution if you look at it from the long term cost. Or maybe you decide to do a combination of these options, such as use a hosted solution for the first 12 months, with the intention to invest in a phone system that you own outright if the business is growing on schedule as projected.
My point is that there isn’t any one answer to this question that will apply accurately to all startups in this situation. Each situation is different. Many other factors must be considered in order to make this decision. However for the sake of this discussion, I suggest that this example demonstrates the need to FOCUS on the immediate consequences of each decision, yet when possible, and when you can safely afford it, one should strive to choose the options that make good business sense for your company long term. The fact is, as business leaders, we are often forced to sacrifice the best long terms solution the immediate needs and survivability of the startup company. It’s a balancing act that never ends. Yet the goal is that as the company grows and becomes more profitable, the dicision makers will eventually no longer have to sacrifice survivability for long terms goals.
The wisdom to recognize the difference and to make the RIGHT decisions for the company at this most crucial time in a company’s history comes in a large part from experience. Leaders of startup companies are faced with potentially company-ending-decisions on a daily basis. The inability to make the right decisions and see it through is one of the main reasons most startups fail. There is no shortcut to experience and experience is always the best teacher. That is, as long as the candidate is also a good learner! If we refuse to learn from our mistakes, we will be forced to repeat them!

Startup founders should read Kawasaki's Art of the Start.

Established company CEOs should read The Innovator's Dilemma by Clayton M. Christensen

:-)

I cannot improve upon what my colleagues have written. So, here is my "story."

You can skip reading the rest after I say, when it's our own creation, when we experience the successes and the mistakes, nothing diminishes the excitement of being in the middle of the action; putting ideas into play and making the ideas real.

After one year into our new venture, I find the one big difference is our unwavering passion for what we are creating. The other principals and I know exactly what we want our business to look like.

In a corporate environment, there are the requisite restarints, especially when there are investors to please.

We decided to be a virtual organization, yet we find ourselves more connected than we ever were with our office neighbors. This is what a shared vision creates.

When our business plan got us to profitability within thirty days, we knew we were doing the right thing.

Start-up CEO are motivate to be free and to live their passion.
@Richard - I am reading that book "Art of the Start" it is a blueprint that all new Start-Up CEO should read imo.

This is a great article and I am loving the answers.

Running a startup has different challenges than running an established company. Just as creating a function from scratch requires different skills than re-engineering an existing function. In a startup, each decision has the potential to make or break the enterprise. From hiring to training to process mapping to marketing to product development. Generally, in exisiting organizations, a mistake in any area can be absorbed and corrected primarily due to the advantages that scale brings to the table, and the existence of skills that can be redirected to the issue, from almost anywhere in the organization. Startups do not have that luxury, generally. The skills that exist in a startup must remain focused, clearly understand the objective and plans to reach that objective, and communicate effectively progress and issues. It is not that existing organizations are not also required to do these things, it's just that the criticality and impact is different.

I think running a startup is much harder than an established business. It is not a time thing as much as it is that you are inventing everything as you go and it is very hard to be right on all decisions you make. It is easy to make decisions; you are in charge and why not just go with what seems right. More established companies have process for making decisions and it is this structured way that can prevent waste of valuable resources.

In my CFO consulting practice in Silicon Vally, I have worked with dozens of entrepreneurs in various areas of technology, Internet and life sciences. A frequent error that I find in young companies is actually believing what they are telling customers and investors without grounding themselves in what is really going on in their company. As an example, I frequently hear the capabilities of products described when in reality the engineering department knows that the product is not done, may not yet have all the features that the literature says it does and certainly has bugs and errors that could cripple a customer's use of it. To effectively manage a business, everyone needs to tell the truth and be on the same page. The greater process in a larger company make this kind of error less likely.

A large company has established products and services with a recognized market demand. A startup may think there is a market, but it is not proved until the new products are actually sold. Getting those first few customers is often the hardest thing a startup can do, and cash flow projections should recognize this.

All great answers that I won't "redo". To the comments I'd add that...

Startups usually try doing everything on their own or on the cheap. They don't look at "time" as a having a price to it. Consistancy of message, planning and the like aren't given much thought. The name of the company is usually chosen emotionally. And control freeks abound. (hey I've been a start up, too! been there, done that)

Established business owners look at how all their efforts will effect the bottom line, they hire employees or teams of consultants, are more apt to get help and willing to give up control for the good of the company. Often in year 2 the company gets a name change to something that relates more with prospects.

Excellent discussion this, with many valid points for all who face the dilemma of moving from start-up to established business. I would like to highlight what I see as one of the critical issues faced by the Entrepreneur.

That is, knowing when your business has become established. This is a point at which many new businesses fail or struggle. Your start-up team will be passionate about what they are doing and will be very involved in all aspects of the business. The difficulty comes when the evolving organisation needs to start developing specialist functions or departments.

At this point, the Entrepreneur, who has but so much into the business and has been so involved in everything, eating, sleeping and drinking the business, needs to begin to let go. If you have picked the right people for the key roles, then you must begin to give them their due autonomy. A bit like bringing up teenagers.

Entrepreneurs who fail to cross this hurdle can tear their business apart by interfeering in the best laid plans of others. The business no longer functions and changes on a day by day or week by week basis. It no longer can respond to the changing whims of the leader, no matter how good their intuition has been in the past. They are no longer sailing a yacht, but are master of a large ship. You need more space and time to manoeuver. You must restrict your span of control and trust your first officers.

Of course, that can be another problem for the skipper, you develop a strong personal loyalty to your start-up colleagues and like to reward them for their committment. Don't just promote them to their level of incompetence, make sure that they are truly capable and competent, because they too need to learn that managing a business and running a start-up calls for different skills or the same skills but at a much higher level of competence.

I have seen Entrepreneurs with the best of ideas fail because they failed to manage this transition. I have seen them successfully start up several businesses and fail at the same place. I know one person who describes himself as a multi millionaire, but rarely has even a few coins in his pocket. He claims the title, because on several occasions he has built million dollar businesses, only to see them die.

Now he has learned his lesson and sells off the business when he reaches the point where he will begin to self destruct to company. Now he really is a multi-millionaire. He had the sense to let go. Interestingly, he has also kept some of his businesses, but hired a GM to run them and he keeps out of their way. He has only recently attained this level of maturity and I suppose that Maturity is the real difference between the two types of business.

That bounce back, childish curiosity and energy is what makes the start-up so exciting and so successful, but as with adulthood, your business must mature some time if it is to survive and so must the leadership team.