Original commentary by Tom Ranken, September 3, 2011.
Steve Blank wrote a very interesting piece in Xconomy on September 1, 2011. Entitled “Why Governments Don’t Get Startups–Or, Why There’s Only One Silicon Valley,” Steve hypothesized that there are six subcategories of startups. He argues that “All of the individuals who start these organizations are “entrepreneurs” yet not understanding their differences screws up public policy because the ecosystem in supporting each type is radically different.” He suggests that failing to understand these distinctions can doom economic policy to failure.
The subcategories of startups are:
- Lifestyle Startups: Work to Live their Passion. An example of this is the person who loves to bake…and opens a bakery.
- Small Business Startups: Work to Feed the Family. This is an incredibly important part of our economy. There are 5.7 million small businesses in the US. They make up 99.7 percent of all companies and employ 50 percent of all non-governmental workers. Small businesses include the classic ‘Ma and Pa” firm, but can be in almost any kind of business activity. Most work very hard; many operated on slim margins.
- Scalable Startups: Born to Be Big. The founders believe that their vision can change the world. Microsoft, Google, Skype, Amazon, FaceBook, and Twitter are examples.
- Buyable Startups: Born to Flip. The founders’ goals are not to build a billion dollar business, but to make money by eventually selling the company.
- Large Company Startups: Innovate or Evaporate. To survive and thrive, large companies grow “through sustaining innovation, offering new products that are variants around their core products.” Often, large companies acquire buyable startups.
- Social Startups: Driven to Make a Difference. These organizations may take the form of a nonprofit, a for-profit, or hybrid and are created to change the world, usually not with normal profit-making business goals.
Blank argues that successful national policies to drive entrepreneurial cultures and companies are difficult to implement. In fact, he argues, only Israel has been successful in doing so to date. This is due to many factors, but understanding the subcategories of these organizations and focusing on their individual needs is essential to success.
Entrepreneurship is advocated and supported by all, but public policy has rarely been particularly successful in stimulating it. I would suggest this is because:
- Entrepreneurship is complicated and not well understood;
- Successfully starting businesses is extremely difficult;
- Entrepreneurs aren’t normally at the public policy debate ‘table’ (They are very focused on the success of their organizations–and rarely spend time advocating with policy makers unless there is a clear near term benefit); and
- Other business development policy advocates are far more effective and present in public policy debates
If true, of course, this makes the role of trade associations in advocating for entrepreneurs all the more important.
A prolific educator, thought leader and writer on Customer Development for Startups, Steve Blank is a retired serial entrepreneur who teaches, refines, writes and blogs on “Customer Development,” a rigorous methodology he developed to bring the “scientific method” to the typically chaotic, seemingly disorganized startup process. Now teaching entrepreneurship at three major universities, Blank co-founded his first of eight startups after several years repairing fighter plane electronics in Thailand during the Vietnam War, followed by several years of defense electronics work for U.S. intelligence agencies in “undisclosed locations.” Four Steps to the Epiphany, Blank’s fast-selling book, details the Customer Development process and is increasingly a “must read” among entrepreneurs, investors, and established companies alike, when the focus is optimizing a startup’s chances for scalability and success.