Startups Should Focus on Impact and Innovation Before Growth

Written by Sean Murphy. Posted in 1 Idea Stage, 3 Early Customer Stage, 4 Finding your Niche, skmurphy

“I want the definition of startup back. To be used by anybody who is willing to take the risk to quit their corporate job and go out and try and build an innovative, disruptive, tech-enabled business that tries to change the way things work in the world.

It’s OK to build a company that stays small, has a few million dollars in revenue and builds careers, bank accounts and enriches client experiences.

It’s also OK to raise venture capital and try to build a monster business. But know that if you don’t go “up and to the right” you might find yourself abandoned (unable to raise more VC) or even ousted (to bring in a CEO who can show rapid growth or die trying) in the name of growth and returns. It happens more than is reported.

It’s also OK not to raise venture capital. To aim at changing a small corner of your world or industry. Or your life.

And I applaud all of you who try.”

Mark Suster in “Is Going For Rapid Growth Always Good? Aren’t Startups So Much More?

I agree with Suster on this for several reasons:

  • Small wins can snowball into larger ones. If you can get started at the intersection of two or three new technology trends you can make a small difference initially and continue to explore.
  • Nature does not make leaps. Andrew Hargadon quotes this axiom repeatedly in his book “How Breakthroughs Happen” to explain how successful innovators really work.  In a blog post “7 Things Every Environmental Entrepreneur Should Know” he summarizes why this is important:

    4. Don’t make leaps.
    Most environmental entrepreneurs have visions of fixing entire systems–after all, that’s what’s broken–and design solutions that promise wholly new technologies enabling (and requiring) wholly new behaviors. Think hydrogen fuel cell vehicles, which require innovations in fuel cells, fuel, fueling stations, fuel companies, and fuel distributors, to mention just a few. But that’s where most promising ideas fail. Innovations succeed when they offer evolutionary, not revolutionary, changes in behavior. Create a design that provides small steps, easy changes, for your customers. Edison designed his electric light to look and act just like the gas lighting existing customers were used to. Only later did people start using electricity for other uses. Natura non facit saltum: Nature does not make leaps. Neither will customers.

  • It takes a long time to appreciate how a technology will mature. To do foundational work and move down the learn curve faster than your competitors in the early going requires patience. Bill Buxton offers several examples of this in “The Long Nose of Innovation” concluding

    “The bulk of innovation is low-amplitude and takes place over a long period. Companies should focus on refining existing technologies as much as on creation.”

  • Startups must pursue ambiguous opportunities to avoid competing with larger well-established firms. These of necessity require starting small.

Suster’s blog post is  a rebuttal to Paul Graham’s “Startup=Growth” which opens with

A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.

Two of the examples Graham points to are Apple and Google. Both of these had a long period of exploration early in the life of  a new technology (microprocessors and Internet Search) before they really started to grow. He also neglects the franchise model as a way for a brick and mortar or geographically limited startup like a restaurant or a barbershop to become a McDonald‘s or a Supercuts.

I agree with Suster that “Startup = Taking Risks & Creating Value.” Growth is an outcome of impact. Bootstrappers raise capital for a startup that both merits it based on demonstrated traction and requires it because of the growth opportunity that has now been identified.

But it was a startup when they took a risk to create new value for their customers.


See also

Update Oct-31-2012 George Grellas posted some great insights on a Hacker News thread on the original “Startup=Growth” essay by Paul Graham (referred to as “pg” his Hacker News account name in the post).

  • This is a superb essay delineating the attributes of a fast-growth, all-or-nothing type of startup. No surprise here. Who besides pg has had the depth and breadth of quality first-hand experience with such ventures over such a sustained period and in such an explosive context as that of recent years? He has here given us a classic analysis of the prototypical, Google-style startup.
  • I think the idea of a startup should not be so narrowly defined, however, and the big reason is this: many founders set out to build ventures that are tech-based, innovative, aimed at winning key niches via hoped-for rapid growth and scaling, positioned for outside funding as suited to their needs, and aimed at liquidity via capital gains as the primary ROI for their efforts . . . but who also place a huge premium on minimizing dilution and maximizing founder control. These are the independents. The ones who, by design, want to defer or even avoid VC funding so as to build their ventures on their own timing and on their own terms. Now this is not the Google startup model. It is, in a sense, its opposite. But it is not the model of a small business either. It is just a different type of startup.
  • The trend over this past decade has moved decidedly toward greater founder independence in the startup world. Back in the bubble days, as a founder, you had very little information available to learn how startups worked, you often had heavy capital needs (e.g., $2M to $4M) right up front to do such things as build your own server banks, and you would almost certainly have little leverage by which to minimize dilution or loss of control at the time of first funding. Today, this has completely flipped. Vast resources are extant teaching founders how startups work. Initial capital needs are often minimal. And it is relatively easy to get reasonable funding on founder-friendly terms. What this means is that, today more than ever, the independent-style startup is more open to founders than ever before.
  • Given the above, it seems to me that this is not the time to say that the only style of startup worthy of the name is that of the super-rapid-growth type. The rapid-growth type may be more glamorous by far but it really defines only the tip of the startup world. Beneath it is a vast world offering incredible opportunities to founders who want more control over the timing, scale, and management of their ventures and who seek to realize gains and manage risks accordingly.

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