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If big companies were run more like start-ups . . .

I have said several dozen times in this blog that start-ups and entrepreneurs, who typically turn to the corporate behemoths for business models, will increasingly become the model for corporate behemoths. Broke, as I said in an earlier post, is the new black. The American auto industry, in particular, should be remade in the image of Startup Nation.

In this context, venture capitalist Peter Rip’s discussion of how corporations should be run like VC-financed startups in today’s Dealbook is a must-read. And if you’re involved in putting together your own startup, you should burn these principles into your desk so you face them every day:

  • Finance growth with equity, not debt.
  • Owners should act like owners.
  • Accountability is everything.
  • Use capital efficiently

    Money quote:

    Limited use of debt places an emphasis on creating truly low-cost producers, not financial engines. Research released last month from the Federal Reserve Bank of New York corroborates the beneficial effects of avoiding debt. In a study surveying 30 years, researchers found that companies started when credit was difficult to obtain had better odds of long-term survival than firms started under more liberal credit environments. Apparently a low-debt diet increases long-term business survival by forcing good habits to develop early, just as a low-calorie diet does for humans.

    The ad agency I worked with once did business with a startup founded by a B-lister actor and director (whose father and brother were both mega-, mega-A-listers, like, in the legend category). The product was good and they had bagged a major client with Raytheon. In our first meeting, we were shuffled into a cherry-wood paneled office in Carpinteria (read: expensive) in Herman Miller chairs and a gigantic, cherry wood conference table. Oh, and there was a wet bar in the room. All the C-suiters were major executives from major institutions — and resumes any of us would kill for (read: expensive). And we all got this magnificent lunch.

    As the agency’s principal and I walked out, I remarked, “They won’t be in business long.” Six months later . . .

    The fundamental, immutable law of business is this: you have to make more money than you spend. That fundamental is encoded in the DNA of every shoestring or bootstrap venture, but sadly disappears as companies grow more successful.

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