Startups are all the rage. And they should be. As the global economy continues to shift, startups are often at the forefront, pushing the envelope, and generating the next wave of economic growth.
But what is a startup, really?
Steve Blank, the author of The Startup Owner’s Manual, which is one of the four books every startup founder should own, describes a startup as:
a temporary organization in search of a scalable, repeatable, profitable business model.”
Many things follow from this, such as:
- A startup is not a smaller version of a large company. Traditional methods of planning and product development won’t work for a startup.
- A startup is not a lifestyle business. While good money can be made for small business owners pursuing lifestyle businesses (e.g., selling wares on Etsy), these companies are not startups.
- A startup is (generally) not a service business. While there is some gray area here, in general, most service businesses (mine included) don’t fall into the category of “startup.”
So, what’s left? What does a startup look like?
Startups have the potential to scale. This means, at a minimum, they have the potential to grow well beyond the founder, and arbitrarily large.
As a scaling business, a startup should be able to handle many customers, with each additional customer bringing not only additional marginal revenue, but also additional profit. Finally, scalable startups have the potential to take over an entire industry. At a minimum, a scalable startup should be capable of breaching $100M in revenue.
It is nearly impossible to scale if there aren’t repeatable internal processes to support execution. This means that startups should seek to hit on patterns that can be replicated – independent of the individual(s) running the show. In particular, successful startups have repeatable customer acquisition & product development processes.
All businesses strive to make a profit. Startups, however, have the potential to generate huge returns – often 10 times investment or more – for the business, investors, and the founders. Concretely, as a startup scales and becomes better at executing it’s repeatable processes, it’s margins should grow considerably.
Temporary, and In Search. Until They’re Not.
Startups start to become successful once they find product/market fit. Except, that’s hard to do. Because for startups, both products and markets are merely hypotheses until they aren’t. As a result, startups need to be able to recognize their assumptions, test them, and iterate quickly. If they can’t find product/market fit after a reasonable period of time, they should move on to something else.
But, if they do find it, the resulting success is a boon for everyone involved.