Looking beyond the hype of Startups

Do you know what a Startup is? I’m sure you’ve heard this term before, referring to an unconventional and tiny company, where eccentric founders are trying to create the new Facebook or Spotify. But, in my experience, there is a lot of noise and hype around these companies, and only a few really know what a Startup is.

I’m not trying to reinvent the wheel here. This blog post is an attempt to rationalize and organize what I know and I’ve absorbed and metabolized about this topic during the last years of work. That converges in a mix of some literature and a direct experience nourished during the time working as a consultant in a startup incubator before, being one startup co-founder later. Then I packed this baggage in a blog-friendly content format and seasoned with my writing style, but the goal of this blog post is to give you a practical view on the topic, hoping that could help you navigate in this ocean of startups.

What’s a Startup

To understand and determine if we are talking about a Startup or about a company that inappropriately uses the S word, I usually refer to the definition of Professor Steve Blank that helps to clarify some characteristics that this special kind of company must have.

“A Startup is a temporary organization designed to search for a repeatable and scalable business model”.

Let’s unbundle and analyze this definition point-by-point:

1. A Startup is a temporary organization.
   A Startup is a timed experiment that needs to bring results in a certain time window. It’s a problem-solution kind of experiment, a rational means to test some hypotheses related to a new or different way to solve a certain problem, creating value for a specific customer segment. This should be considered as a structured process that aims to validate or refute those hypotheses. In the first case, doubts have been turned into facts, the Startup founders have turned unknown in known and an Execution phase will follow, to boost sales and growth. If the experiment fails to show any value, the entrepreneurs should reflect on the results and decide to either stop the venture or reshape the initial problem-solution hypothesis, for a new cycle of testing, otherwise known as “pivoting”.
2. Designed to search.
   As we discussed above, the goal of the experiments is to search for answers, mainly to find a Product-Market-Fit, a match between the value created by solving a certain problem and a target market willing to pay for having the problem solved in that way. This search phase could last years (it depends on the kind of startup and the proactivity of founders) and it has costs. That’s why a typical Startup often needs financial aid/investment to gain time to run these experiments, and it should do it in a structured and scientific way, to manage at best the process of navigating the uncertainty to find the right Product-Market-Fit.
3. A repeatable and scalable business model.
   The business model tells how a company creates and captures value for itself while delivering products or services to its target customers. In a nutshell, it says how the company works and makes money. A Startup should have a business model that is:
   • repeatable: the Startup should prove that it has served different customers with the same characteristics that have purchased the solution for the same reason (no false positives). This is a tangible way to demonstrate to have found the Product-Market-Fit.
   • scalable: the “wannabe startupper” team should also demonstrate that they found a way to create and deliver that value to the target in a scalable way. It means that an increase in selling volumes won’t lead to an equal increase in costs. For example, a consultancy business is not scalable, because to accept more projects the company should add consultants in a proportional way. Spotify, by the contrary, is scalable, because for them adding a new customer won’t affect dramatically their cost structure (cloud structure is scalable by design). For this reason, lots of Startups invest in creating a product, to avoid selling time-consuming services.

Take-away: Use the definition to evaluate situations

Keeping in mind Steve Blank’s definition of a Startup could help you navigate this world. The next time you’ll read something about a company or a friend/colleague/ wannabe startupper will tell you about a business idea, remember the characteristics discussed above to analyze and understand the business initiative and its entrepreneurs.

It helped me, several times, but especially when I sat, one year ago, with the other co-founders of Clearbox AI to discuss my possible participation in the project. I was excited to join the team but I needed to understand which kind of company they wanted to create, to be aligned with the vision, and to shape future strategies. I used that definition to understand if they wanted to exploit their strong competences building a solid consultancy firm in Machine Learning or they preferred to start running some experiments, looking for a Product-Market-Fit, building a scalable Startup from scratch. Leading these experiments with the entrepreneur hat was the challenge I was looking for. We were aligned and I joined.

At the moment (October 2020) we are still a temporary organization designed to search for a business model, building an AI Control Room to solve the biggest problems that companies are incurring in putting AI into production, enabling AI adoption. This searching phase allows us to learn a lot, empowering our corporate and personal know-how, providing innovation into the market in a sustainable and challenging way.