Sometimes I can come in too strong. For example, last week I tried to argue against a statement someone tweeted about startups. He suggested that if any team says “we’re a startup inside a big company”, they almost always fail. I disagree.
Yes, that team could certainly fail. About 90% of startups also fail eventually. I understand the sentiment though. I have spent time in both startups and in big companies and teams that think they are a startup in a big company often fail. The biggest reason is the crushing baggage of being tied to a massive organization.
The examples often cited are the acquisition stories of plucky startups being swooped up by large enterprises. When Tumblr was acquired by Yahoo, most of the friends I knew there were concerned whether Tumblr would be able to keep their culture. After a year, the few original Tumblr folks still left told me bluntly that there was no Tumblr anymore. The name was there, but the culture and soul of Tumblr had disappeared.
While some startups manage to eke out a year and change of independence from their corporate masters, eventually the startup gets assimilated. Key people start to leave, new policies from the parent take hold, processes and approvals get tacked on to any initiative, and you spend more time in legal than with customers. Then one day you look around and realize you have now become the Borg.
The other oft-cited example of attempts at creating startups in big companies are innovation centers. Nearly every enterprise has one, whose sole purpose is to foster innovation outside of the constraints of the corporate bureaucracy. They have the trappings of the cool startup vibe like the laid back office, the big name startup executive hires, and sincere promises of autonomy. But as one VC shared, autonomy comes with limits:
“There is no such thing as a startup inside a big company. There’s various leash lengths to your freedom, but you’re no longer a startup.”
Ultimately, whether it is an innovation center, a skunkworks project, or a tiger team, you are serving a bigger corporate master. That master has quarterly numbers to hit, reputation to protect, legal guardrails to maintain, investors to please, and a short memory. The big hurdle is the ability to take on risk, as this same VC stated:
“You will never be able to take the brand risks, the legal risks, or the partnerships risks that a startup can.”
Startups can feel like nirvana after working in the straitjacket of corporate. When I founded my first startup, it felt so freeing to decide what features to build, craft my own messaging, use more creative marketing channels, and sign deals that I thought moved us forward. I did not have to get the blessing of a committee or wait in line for some approvals board to grace us with the go ahead.
So what exactly am I disagreeing with? While it seems like I am acknowledging that doing a startup in a big company is impossible, characteristics of organizations such as tolerance for risk, speed of execution, and level of bureaucracy do not define a startup.
The way most people define startups is by the outside trappings. Images from the film “The Social Network'' and the hit TV series “Silicon Valley” come to mind. We think small, scrappy teams, cool offices with unlimited snacks and games, and the “move fast and break things mentality”.
Steve Blank, startup founder and author or The Four Steps to the Epiphany, however has a more fundamental and meaningful definition of a startup:
“A startup is an organization formed to search for a repeatable and scalable business model.”
First, a startup is an entity with people, a company or team, that comes together for an explicit purpose. That purpose is to find a business model (how to make money), because the idea is not well-defined or has been done before. Lastly, this model can support an ongoing business that has the potential to grow.
This definition differentiates a startup from a small business, which often look the same in the early stages. The risk for a small business is not in finding and defining the business model, it’s in the execution of a known model. A restaurant, dry cleaner, or online fashion store are all businesses that have well-established ways of making money.
This is why you can have a startup in a big company. The focus is on exploring and doing something completely new that can be the next big business. In my past experience with innovation teams, I often saw projects go from a wild idea to a successful product or an entirely new business. Maybe it required more hurdles or took more time, but it happens.
Sometimes these new businesses are launched completely separate to the company, in what is known as a spinout. I interviewed JC Clark, CEO of Arturo, on the AWS Startups Show on Clubhouse back in December about how Arturo went from an idea in American Family Insurance, a Fortune 500 insurance firm, to a now Series B startup. They built an AI-powered platform that derives insights and predictive analytics from aerial and satellite imagery, thus helping insurers and real estate firms make better decisions when assessing properties (hear the full talk on Clubhouse).
Ironically, it can sometimes be harder and slower to get things done in startups. In a small company, founders wield all the power and decision making and can sometimes be worse than any corporate bureaucrat or micromanager. There was one seed-stage startup that I worked with for a brief time as the head of business development. It was brief because the founder thought it was appropriate to tell me how to do my job and wanted all employees to account for their time in a time tracking app.
The other limiting factor with the typical startup is access to capital. Sometimes the search for a repeatable and scalable business model takes longer than the funds a startup has to operate. This is why most startups die. At least with startups incubated in big companies, they have a funding lifeline they can leverage which can be much easier to access than the VC route most startups take.
Which do I prefer? I would always pick the small, scrappy, independent startup. Most of my time in startups has been enriching and rewarding. I personally cherish the speed and autonomy and agency that being in a small startup brings. Having equity in the startup if it goes well also means I get way more financial upside. All that being said, being in a “startup” in a big enterprise is not a bad place to be either if you want to innovate, but prefer more structure and stability.
What type of company are you in, a startup or enterprise? Do you agree or disagree with the definition I shared with what a startup is, or would you add something?
Mark Birch, Editor & Founder of DEV.BIZ.OPS
Guess what? I am going to be back in Miami next week for TNABC Miami 2022, ot the North American Bitcoin Conference. It is going to be three days of blockchain, bitcoin, crypto, coins, NFT’s, and sun. If you are going to be there, let’s meet!
In other words, I am on a roll with my TikTok experiment. Twelve days into the new year, I have posted twelve videos, one a day, on what I am seeing in the startup world, trends I am following, and lessons learned on my own entrepreneur journey. If you are on TikTok, it is more than meme’s and silly dance videos, there is some pretty useful, informative, and intelligent content up there, like from my colleague Allie Miller. Check out my page, let me know what you think and what content you would like to see (other than asking me to bust out dance moves while reciting AWS services).
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