Weighing the pros and cons of startup v/s established companies

Prepared for

Dr. Saptorshi Das

Professor

KSOM

Prepared by

Abhilas Panda

MBA-1

KSOM

Date- 27/09/2021
 Executive Summary

The purpose of this study was to determine the pros and cons of startups and
established companies. The differences in both are found on the basis of risk
associated, salary of employees, leadership quality, free to innovation, organized
workforce.
 Introduction

‘Start up’ company is a company in the first stages of its operation. Start ups are
founded by one or more entrepreneur who has a belief that they can develope a
product or service which is in demand. These companies look for investors, who
can invest their money in the startup.

Where as an established company is a company which exists there already and

has gained a lots of growth in the market. These companies have experienced
their products and provided value to the customers. These companies are already
there in the market and have good knowledge about it.

Statement of the problem

The problem of this study was to determine what are the various problems and
advantages the startups and established companies face during their period of
operation. Also to know about the reality, some real cases of startups and
established companies were added.

Scope

The scope of the project is to let the readers know about the pros and cons
startup companies and established companies have and to let them know what
are the factors involved in it which makes their company a successful or a failure
one.
 Findings and Analysis

Startups

Startups are companies or ventures that are focused on a single product or

service that the founders want to bring to market. These companies typically
don't have a fully developed business model and, more crucially, lack adequate
capital to move onto the next phase of business. Most of these companies are
initially funded by their founders. Startups can use seed capital to invest in
research and to develop their business plans. Market research helps determine
the demand for a product or service, while a comprehensive business plan
outlines the company's mission statement, vision, and goals, as well as
management and marketing strategies.

Start up companies need to look on to some key areas.

Location

Startups must decide whether their business is conducted online, in an office or

home office, or in a store. The location depends on the product or service being
offered. They have to choose their place of operation which can give them the
best result in minimizing cost of input and gaining the maximum output. For
example, a new software company providing website service need not to have a
physical building, where it’s potential customer base is. But if a startup is dealing
with a new product or service which is needed by customers then it has to locate
its place of
operation or stores nearer to the customer base which can be accessible for the
customers.

Legal Structure
Startups need to consider what legal structure best fits their entity. A sole
proprietorship is suited for a founder who is also the key employee of a business.
Partnerships are a viable legal structure for businesses that consist of several
people who have joint ownership, and they're also fairly straightforward to
establish. For example, if a person is opening a mobile store then he need not to
go for partnership business if he has enough source of money to make the start
up. Here he is the only owner of the firm. But if a person wants to go for a private
limited company then he need to go through some basic procedures like having
one or more than one partners and board of directors.

Funding
Startups often raise funds by turning to family and friends or by using venture
capitalists. This is a group of professional investors that specialize in funding
startups. Crowdfunding has become a viable way for many people to get access to
the cash they need to move forward in the business process. The entrepreneur
sets up a crowdfunding page online, allowing people who believe in the company
to donate money.

Startups may use credit to commence their operations. A perfect credit may allow
the startup to use a line of credit as funding. This option carries the most risk,
particularly if the startup is unsuccessful. Other companies choose small business
loans to help fuel growth. Banks typically have several specialized options
available
for small businesses -a microloan is a short-term, low-interest product tailored for
startups. A detailed business plan is often required in order to qualify.

Examples of Startups
‘Dotcoms’ were a common startup in the 1990s. Venture capital was extremely
easy to obtain during this time due to a frenzy among investors to speculate on
the emergence of these new businesses. Unfortunately, most of these Internet
startups eventually went bust due to major flaws in their business plans, such as
lacking a path to sustainable revenue. However, a handful of companies survived
when the dotcom bubble burst. Both Amazon and eBay are examples.

Many startups fail within the first few years. That's why this initial period is
important. Entrepreneurs need to find money, create a business model and
business plan, hire key personnel, work out intricate details such as equity stakes
for partners and investors, and plan for the long run. Many of today's most
successful companies—Microsoft, Apple, and Facebook, to name a few—began as
startups and ended up becoming publicly traded companies.

The first few years are very important for startups—a period during which
entrepreneurs should concentrate on raising capital and developing a business
model.

Advantages and Disadvantages of Startups

There are a variety of advantages to working for a startup. More responsibility
and opportunities to learn are two. As startups have fewer employees than large,
established companies, employees tend to wear many hats, working in a variety
of roles, which leads to more responsibility as well as opportunities to learn.
Startups tend to be more relaxed in nature, making the workplace more of a
communal experience, with flexible hours, increased employee interaction, and
flexibility. Startups tend to also have better workplace benefits, such as nurseries
for children, free food, and shorter workweeks.

Some startup employees start their job in one position and quickly move to
others’ roles because of their high working capabilities. One day, they’re learning
about content writing, and the next, they are working on SEO. There is room to
grow and flourish with the startup as. Eventually, a startup could turn into a
valuable business that can pay its employees.

When there are fewer employees in the company, your initiative and the
innovation you bring to the workplace are valued and appreciated. This is not
possible in large companies where the work process is strict and should be
followed daily. With no procedures in place, you’re able to work as you see fit,
which is freeing.

The work at startups can also be more rewarding as innovation is welcomed and
managers allow talented employees to run with ideas with little supervision.

One of the primary disadvantages of a startup is increased risk. This primarily

applies to the success and longevity of a startup. New businesses need to prove
themselves and raise capital before they can start turning a profit. Keeping
investors happy with the startup's progress is critical. The risk of shutting down or
not having enough capital to continue operations before turning a profit is ever-
present.
Startups usually have long hours as everyone is working towards the same goal:
to see the startup succeed. This can lead to high-stress moments and sometimes
compensation that isn't commensurate with the hours worked. Competition is
also always high as there tend to be a handful of startups working on the same
idea.

Established Companies

An established company is a company which already has an existence and gained

a lots of growth in the market. These companies have experienced their products
and provided value to the customers. These companies are already there in the
market and have good knowledge about it. They have developed products or
services which were very much in demand. Now a days established companies are
focused on more than one product or service and based on diverse products.

Before going into a new directions these companies need not to think about the
capital they need. They also have managers and leaders who are well acquainted
about the procedures to look after when developing a new product or service.
They have different people from different specialization to carry out the task.

Advantages of an established company

The Company is Established

When you enter an established company, you are pretty much sure about the
company name and how big the brand is in the market. When you work for a
company that’s been around for more than a year, you know that there will be
immense work pressure from seniors and bosses. There is less chance of failure
when you’re part of an established company.
Processes in Place

It is true when you step into a well-established company, everything is well-

placed, and the work is systematically allotted to employees. They have a good
training session for 2-3 months approximately, depending on the company’s rules
and regulations.

There will be someone to train you in the business’s culture and rules as well as
the processes required for your particular job description.

Better Pay

Everyone knows an established company keeps a good backup when it comes to

financial position. With an established large company, you will be paid better than
you would at a startup. Established businesses have customers in place with funds
coming in to pay their employees. They also provide competitive benefits
packages to high performers.

Disadvantages

In a startup there is usually less layers to the top and so individual people can feel
more autonomy and make decisions that impact the business. Part of that is
because there is less to lose. For a larger company, decisions are often made at a
level above your pay grade and that can take time to get used to, especially if you
come from more of a startup background.
Startups are often very fluid. There isn’t a process for everything because there
doesn’t need to be. This is not true of a large company. At scale, you need process
to ensure things run smoothly across a large employee and customer base. This
does introduce red tape and things can seem like they’re moving slowly.

Examples of established companies

There are many examples of established companies such as, Microsoft, Apple,
Amazon, Flipkart, Godreg. These companies have started as startups long back
and now they have acquired a strong position in the market with diverse
segments of operations. The market growth these companies have are very high.

Employee factors in startups and established companies

How leadership plays a role

When considering a new job, you must look at the leadership in place within that
organization. This is very important information to know because it determines how
that company is run and the expectations that will be placed upon you. Serial
entrepreneurs will approach operations differently than someone who is learning
how to build a business for the first time. What often comes with an established
company are leaders who are stuck on doing things a certain way. The tradeoffs
between a startup and mature company must be factored into your decision-making
process if you want to place yourself in the environment where you can function
best.
Serial entrepreneurs as leaders

If you want to work within a startup where the leader knows how to pivot and adjust
according to the circumstances, a serial entrepreneur is a leader you want. They
understand how to raise funding since they know what information investors like to
hear. These individuals are very selective about who they allow investing in their
business and who sits on their company’s board. Due to past mistakes or failures,
they know how to set a clear strategy and implement the right approach to execute
upon the designed plan.

One negative thing about serial entrepreneurs is that they are driven to correct their
past mistakes. This pursuit to be right can be both a good and bad thing. At times,
they may overcorrect in problem areas they experienced previously, which means
being overly critical on decisions, being afraid to spend cash on growth, or trying to
scale too fast before the product has even gained good traction within the
marketplace. When interviewing with a serial entrepreneur, ask questions about the
lessons they learned from their previous endeavor and how they plan to apply them
to their new venture.

Experienced corporate veterans doing their first startup

A founder coming from an established company with no startup experience can be a

hit or miss. They are often times incredibly skilled at hiring the right people and
leading them. But on the other hand, they do not possess the resourcefulness to
build a minimal product into one that gains sizeable market share.

Also, these leaders are used to having teams and systems in place that handle each
function of the business. Therefore, getting involved with processes outside of their
role is not what they have much experience in. But once they hire the right people to
handle the necessary processes, they can push the startup towards quick growth.

Limited leadership experience in a startup

It can be exciting to work with a group of skilled individuals who are leading their
own team for the first time. The experience of building something from the ground
up and learning as you go can provide tons of knowledge and new insight into how
different businesses work. But the process of learning things as you go can also be
very frustrating since it delays your ability to do your job effectively. If you need
someone with more experience to help guide you in the right direction, seek
mentorship outside of the organization.

Inexperienced leadership within a mature company

Any person who has made it to the top without much experience is either very smart
or knows the right people. In most cases, these individuals have surrounded
themselves with strong leaders who have helped put them. The opportunity to learn
from these types of companies is very rare. This is because when a company expands
too quickly, people are often put into roles where their experience is not sufficient
enough to get the job done.

Experienced leadership within mature companies

These are the organizations that you expect to run like a well-oiled machine. But this
comes with a lot of politics and process that are not found at a company just starting
up. Though, if you join a company like that, you will benefit from a great leadership
learn about seasoned practices.
Summary, Conclusions and Recommendations

This study was designed to determine the pros and cons to both startups and
established companies. Exceptionally talented people that work at both sized
companies have been successful in both types of companies. It all depends on
where you are in life and what you’re looking for. They are just very different
tracks
and not everyone can adapt and fit into both. Both of them have different pros
and
cons. So before going to choose one, there is a strong need to identify our need
first. Thinking about what we want to achieve with respect to the advantages and
disadvantages we can choose one out of these two. When some people take
startups as challenge, some people choose established companies for secure
future
with high salary.
 Works Cited

During the making of this report, following websites were referred.

1. https://www.incorp.asia/blog/hr/how-to-choose-between-a-startup-and-
established-company/

2. https://www.forbes.com/sites/quora/2019/05/21/what-are-the-pros-and-
cons-of-working-for-a-startup-vs-a-large-company/?sh=5ad118aa1a6b

3. https://unboxingstartups.com/blog/startup-or-established-company-
which-is-best-for-you/