Startup company

A startup or start-up is a company or project typically undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo-founder. At the early stages, startups face significant uncertainty and high rates of failure. However, a minority achieve notable success and influence, with some growing into unicorns- private companies valued at over US$1 billion. It is typically characterized by an innovative stance, a potential for rapid growth, external funding, and vulnerability.

Actions

Startups typically begin by a founder or co-founders who have a way to solve a problem. The founder of a startup will do the market validation by problem interview, solution interview, and building a minimum viable product, i.e. a prototype, to develop and validate their business models. The startup process can take a long period of time; hence, sustaining effort is required. Over the long term, sustaining effort is especially challenging because of the high failure rates and uncertain outcomes. Having a business plan in place outlines what to do and how to plan and achieve an idea in the future. Typically, these plans outline the first three to five years of your business strategy.

Design principles

Models behind startups presenting as ventures are usually associated with design science. Design science uses design principles considered to be a coherent set of normative ideas and propositions to design and construct the company's backbone. For example, one of the initial design principles is affordable loss.

Heuristics and biases in startup actions

Because of the lack of information, high uncertainty, and the need to make decisions quickly, founders usually use many heuristics and exhibit biases in their leadership decisions.
Entrepreneurs often become overconfident about their startups and their influence on an outcome. Below are some of the most critical decision biases of entrepreneurs to start up a new business.

Overconfidence: Perceive a subjective certainty higher than the objective accuracy.The gap often leads individuals to overestimate their understanding of complex situations, resulting in decisions that are based more on subjective certainty than on objective facts or accurate information
Illusion of control: Overemphasize how much skills, instead of chance, improve performance.
The law of small numbers: Reach conclusions about a larger population using a limited sample.
Availability bias: Make judgments about the probability of events based on how easy it is to think of examples.
Escalation of commitment: Persist unduly with unsuccessful initiatives or courses of action.

Startups use several action principles to generate evidence as quickly as possible to reduce the downside effect of decision biases such as an escalation of commitment, overconfidence, and the illusion of control.

Mentoring

Many entrepreneurs seek feedback from mentors in creating their startups. Mentors guide founders and impart entrepreneurial skills and may increase the self-efficacy of nascent entrepreneurs. Mentoring offers direction for entrepreneurs to enhance their knowledge of how to sustain their assets relating to their status and identity and strengthen their real-time skills.

Principles

There are many principles in creating a startup. Some of the principles needed are listed below:

Lean startup

Lean startup is a clear set of principles to create and design startups under limited resources and tremendous uncertainty to build their ventures more flexibly and at a lower cost. It is based on the idea that entrepreneurs can make their implicit assumptions about how their venture works explicit and empirically testing it. The empirical test is to de/validate these assumptions and to get an engaged understanding of the business model of the new ventures, and in doing so, the new ventures are created iteratively in a build–measure–learn loop. Hence, lean startup is a set of principles for entrepreneurial learning and business model design. More precisely, it is a set of design principles aimed for iteratively experiential learning under uncertainty in an engaged empirical manner. Typically, a lean startup focuses on a few lean principles:

find a problem worth solving, then define a solution
engage early adopters for market validation
continually test with smaller, faster iterations
build a function, measure customer response, and verify/refute the idea
evidence-based decisions on when to pivot by changing your plan's course
maximize the efforts for speed, learning, and focus
Market validation

A key principle of startup is to validate the market need before providing a customer-centric product or service to avoid business ideas with weak demand. Market validation can be done in a number of ways, including surveys, cold calling, email responses, word of mouth or through sample research.

Design thinking

Design thinking is a human-centered approach to problem-solving that emphasizes empathy, collaboration, and experimentation. It is widely used to deeply understand customers' needs, behaviors, and pain points through immersive engagement and iterative feedback. By placing users at the center of the innovation process, design thinking seeks to uncover insights that can lead to more effective, relevant, and impactful solutions.
However, while design thinking—and its complementary methodology, customer development—aim to reduce assumptions and promote evidence-based innovation, they are not immune to cognitive biases. In fact, both processes can inadvertently reinforce existing biases at multiple stages. For instance, the way problems are framed, the sources of information selected, the questions posed during interviews, and the interpretation of qualitative data can all be influenced by the facilitator’s or team’s preconceived notions.
These biases can subtly shape what is observed and how it is understood, potentially leading to solutions that reflect the designers' perspectives more than the users’. As a result, the promise of achieving "customer empathy" can be compromised if critical reflection and bias-checking mechanisms are not embedded throughout the process. Therefore, while design thinking is a powerful tool for innovation, its effectiveness depends heavily on the rigor, objectivity, and self-awareness of the individuals applying it. Encouraging people to consider the opposite of whatever decision they are about to make tends to reduce biases such as overconfidence, the hindsight bias, and anchoring.

Decision-making under uncertainty

In startups, many decisions are made under uncertainty, and hence a key principle for startups is to be agile and flexible. Founders can embed options to design startups in flexible manners, so that the startups can change easily in future.
Uncertainty can vary within-person and between-person. A study found that when entrepreneurs feel more uncertain, they identify more opportunities, but entrepreneurs who perceive more uncertainties than others do not identify more opportunities than others do.

Partnering

Startups may form partnerships with other firms to enable their business model to operate. To become attractive to other businesses, startups need to align their internal features, such as management style and products with the market situation. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or archetypes, for startups that are commercializing inventions. The inheritor profile calls for a management style that is not too entrepreneurial and the startup should have an incremental invention. This profile is set out to be more successful in a market with a dominant design. In contrast to this, profile is the originator which has a management style that is highly entrepreneurial and in which a radical invention or a disruptive innovation is being developed. This profile is set out to be more successful in a market that does not have a dominant design. New startups should align themselves to one of the profiles when commercializing an invention to be able to find and be attractive to a business partner. By finding a business partner, a startup has greater chances of success.
Startups usually need many different partners to realize their business idea. The commercialization process is often a bumpy road with iterations and new insights during the process. Hasche and Linton argue that startups can learn from their relationships with other firms, and even if the relationship ends, the startup will have gained valuable knowledge about how it should move on going forward. When a relationship is failing for a startup it needs to make changes. Three types of changes can be identified according to Hasche and Linton:

Change of business concept for the start up
Change of collaboration constellation
Change of characteristic of business relationship
Entrepreneurial learning

Startups need to learn at a huge speed before running out of resources. Proactive actions enhance a founder's learning to start a company. To learn effectively, founders often formulate falsifiable hypotheses, build a minimum viable product, and conduct A/B testing.

Business model design

With the key learnings from market validation, design thinking, and lean startup, founders can design a business model. However it is important not to dive into business models too early before there is sufficient learning on market validation. Paul Graham said: "What I tell founders is not to sweat the business model too much at first. The most important task at first is to build something people want. If you don't do that, it won't matter how clever your business model is."