

Make No Little Plans – Defining the Scalable Startup - nathanh
http://steveblank.com/2010/01/04/make-no-little-plans-–-defining-the-scalable-startup/

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grellas
Excellent points on what constitutes a "startup" as opposed to a "small
business" but the approach, I think, too narrowly limits the idea of "startup"
largely to the type of potentially industry-changing company that VCs will
fund.

Among other distinctions that can comfortably be drawn within what I think are
clearly "startup" companies are:

1\. Founders who seek to make a pure technology play and sell to a larger
company within a narrow window in the 7-figure range (up to $100M). The
founders in this type of startup are not in it for the long haul and can
potentially succeed without any form of VC funding (though they typically do
not self-fund but rely on either friends/family or angels to give them needed
capital). This is a bona fide startup, in my view, even though it may not
scale quickly or at all by the time its technology is acquired.

2\. Founders who seek to develop a new and innovative niche business that will
not shake up an industry but will make for a good growth business yielding
extraordinary returns (e.g., a player that succeeds in the virtualization
space with a product that does not take on VMWare or the other large players
but that works within the established environment to offer, e.g., low-cost,
non-resource-intensive desktop virtualization solutions for the enterprise).
This type of startup will tend to scale quickly but will never shake up an
industry. It potentially could succeed with angel-level funding and bypass the
VCs, though more likely it will need some form of VC funding. Typical exit: up
to $300M via acquisition.

3\. The type of industry-changing startup described by the author of this
post. Typical goal here on exit: $400M and up but usually aiming at multi-B.
This type of startup is invariably VC-funded and is indeed the "sweet spot"
for tier-1 VC investments.

All of the above typically involve a founding team, normally small initial
capital contributions by the founders themselves, a reliance on some form of
technology or IP to define at least a key aspect of the business model, and an
expectation of an extraordinary comparatively short-term return on the
investment (typically 3-5 years).

This stands in contrast to the attributes of a typical small business, where
the founders will often make more substantial initial capital contributions,
will not tend to emphasize intellectual property rights, will fix their sights
primarily on making immediate operating profits, and will typically have no
expectation of any extraordinary return on investment in the short term (that
is, will not aim for a near-term exit).

I think the above is a more useful way of distinguishing a "startup" from a
"small business." That said, the post here is quite good and highlights very
sharply the key attributes of what is perhaps the most important type of
startup - the one that scales rapidly and seeks to conquer an industry.

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10ren
Do you have some examples in mind for 1. pure technology play?

I ask because that may be where I'm headed - thanks!

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grellas
In think any situation where, from an acquiring company's perspective, the
decision becomes one of "build versus buy" fits the description of a pure
technology play.

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10ren
That makes sense, thanks; if you have an examples, I tend to find them very
educational and helpful.

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whatusername
SO there's GOOG/YHOO/MSFT/AMZN/etc, but there's also places like
IBM/EMC/HP/CISCO that are going around spending lots of cash.

So look at edge cases around Enterprise Solutions where new tech (or moore's
law) lets us do things that were too expensive previously. Some previous
examples:

Data Deduplication: Data Domain --> EMC, Diligent --> IBM Config
Management/Provisioning: opsware --> HP, Rembo --> IBM

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10ren
many thanks!

