How Scientists and Engineers Got It Right, and VCs Got It Wrong
steveblank.com
steveblank.com
startups are a temporary organization designed to search for a scalable and repeatable business model
This definition explains why funding is the single best predictor of startup success: it permits the startup to survive until it can hit upon a successful product. Because most products fail. Even a product that succeeds depends as much or more on market context beyond the perception of its creators as it does on its intrinsic value. People are important, but they can only stick around as long as there is funding. (Of course, funding depends heavily on social networks, so in that sense the people are important.) But as the author acknowledges in the article, the fact that VCs generally don't understand why one startup succeeds and another fails does not change the fact that they control the single greatest differentiator: money.
If you change the definition from "find" to "find and prove" it holds quite nicely (but doesn't sound as good). This works on the theory that there are no applicable, proven, scalable, repeatable business models. (Due to the presence of established competition)
Models proven to be un-scalable and or un-repeatable is trivially possible.
Models which are scalable and repeatable but un-proven can exist, the company will be executing the business model and in that they will be demonstrating the viability of it assuming the company will lives long enough that this is possible. (Good ideas can still fail if they hit an early setback and don't recover)
If the model is proven to be scalable and repeatable then there has to be someone who proved it to be so (And given the quality of the business model and its lack of glaring flaws they will still be around). With this in mind the original proving company is first to market and likely has a huge advantage, so unless the original product is markedly worse than the new one the model is not scalable and repeatable due to competition (contradiction)
Now is efficiency gain (or conversely quality improvement) alone enough to make it qualify as a brand new business model? I'd argue that it is not.
My anecdotal support for my theory here is that we felt initially that we were taking very little risk in starting the business. It was clear and obvious to us that we could survive on the implied margins of other providers and acquiring customers in hosting at that point in time was relatively non-competitive.
I think Blank's distinction is helpful, in emphasizing that the term 'start-up' implies more model uncertainty and innovation.
(Sure, sometimes 'start-up' is used to describe things like a new laundromat or small consultancy, but the word is more useful when its connotations of novelty and discovery are prominent.)
Now, it's great that people are opting to work for themselves rather than go join some large, likely boring and cumbersome, existing business, but the conflation of "start-up" with "business" makes it hard to really know what's going on here or discuss what people are doing.
Having a reasonably clear and useful definition is valuable.
Seriously, new companies that don't have something substantively different about them don't have good odds. In brick-and-motar that "something different" might just be geographic location (e.g. a car mechanic in a town that doesn't have one), but in the online world, you usually need something more.
The "somethings different" can be only slight changes to the models (better customer service, better support for language X, etc.), but they're always different in some way.
"Startup" can imply something radically different, but it doesn't have to, and in any case, even companies that _try_ to stick to an existing business model rarely do, and the plans always change and adjust as you go along, it doesn't matter what kind of business you're in.
Even in the most commoditized industries with extreme competition, there is often a built in profit margin that is essentially accepted by the businesses in that industry, because it would be mutually destructive for it disappear entirely.
I'd wager that most of the small business economic activity in the US comes from sole proprietors repeating business models verbatim and collecting that additional margin above and beyond their built in salary expense.
First of all the idea that tech startups should be started by tech people goes back a lot farther than Silicon Valley. For example take a look at the history of the early automobile industry in Detroit. The founders of the early car companies were for the most part people like Henry Ford - engineers, mechanics, and other people who knew the technology rather than management types. Silicon Valley fits the mold of previous startup hubs.
The more major mistake is that Genetech's IPO in 1980 is cited for getting researchers involved in commercialization. However most observers cite the Bayh-Dole act in the same year as being the critical factor. It gave organizations such as universities the right to intellectual property (such as patents) arising out of research funded by the US government. This created a tremendous number of opportunities for commercializing research that simply had not existed previously.
Although, it's hosted on wordpress.com, isn't it...
http://measuringmeasures.com/blog/2010/7/2/research-driven-s...
Another possibility is that it's a contraction for "VC has," referring to the entire category of venture capital. This is less likely given that it destroys the parallel structure.
EDIT: Oops, somehow I misread apostrophe as comma.
- "VCs Got It Wrong" means: many (plural) VCs got something wrong
- "VC's Got It Wrong" means: a "Got It Wrong" that belongs to a VC