Startup = Growth

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September 2012

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.

If you want to start one it's important to understand that. Startups
are so hard that you can't be pointed off to the side and hope to
succeed. You have to know that growth is what you're after. The
good news is, if you get growth, everything else tends to fall into
place. Which means you can use growth like a compass to make almost
every decision you face.

Redwoods

Let's start with a distinction that should be obvious but is often
overlooked: not every newly founded company is a startup. Millions
of companies are started every year in the US. Only a tiny fraction
are startups. Most are service businesses — restaurants, barbershops,
plumbers, and so on. These are not startups, except in a few unusual
cases. A barbershop isn't designed to grow fast. Whereas a search
engine, for example, is.

When I say startups are designed to grow fast, I mean it in two
senses. Partly I mean designed in the sense of intended, because
most startups fail. But I also mean startups are different by
nature, in the same way a redwood seedling has a different destiny
from a bean sprout.

That difference is why there's a distinct word, "startup," for
companies designed to grow fast. If all companies were essentially
similar, but some through luck or the efforts of their founders
ended up growing very fast, we wouldn't need a separate word. We
could just talk about super-successful companies and less successful
ones. But in fact startups do have a different sort of DNA from
other businesses. Google is not just a barbershop whose founders
were unusually lucky and hard-working. Google was different from
the beginning.

To grow rapidly, you need to make something you can sell to a big
market. That's the difference between Google and a barbershop. A
barbershop doesn't scale.

For a company to grow really big, it must (a) make something lots
of people want, and (b) reach and serve all those people. Barbershops
are doing fine in the (a) department. Almost everyone needs their
hair cut. The problem for a barbershop, as for any retail
establishment, is (b). A barbershop serves customers in person,
and few will travel far for a haircut. And even if they did, the
barbershop couldn't accomodate them.
[1]

Writing software is a great way to solve (b), but you can still end
up constrained in (a). If you write software to teach Tibetan to
Hungarian speakers, you'll be able to reach most of the people who
want it, but there won't be many of them. If you make software
to teach English to Chinese speakers, however, you're in startup
territory.

Most businesses are tightly constrained in (a) or (b). The distinctive
feature of successful startups is that they're not.

Ideas

It might seem that it would always be better to start a startup
than an ordinary business. If you're going to start a company, why
not start the type with the most potential? The catch is that this
is a (fairly) efficient market. If you write software to teach
Tibetan to Hungarians, you won't have much competition. If you
write software to teach English to Chinese speakers, you'll face
ferocious competition, precisely because that's such a larger prize.
[2]

The constraints that limit ordinary companies also protect them.
That's the tradeoff. If you start a barbershop, you only have to
compete with other local barbers. If you start a search engine you
have to compete with the whole world.

The most important thing that the constraints on a normal business
protect it from is not competition, however, but the difficulty of
coming up with new ideas. If you open a bar in a particular
neighborhood, as well as limiting your potential and protecting you
from competitors, that geographic constraint also helps define your
company. Bar + neighborhood is a sufficient idea for a small
business. Similarly for companies constrained in (a). Your niche
both protects and defines you.

Whereas if you want to start a startup, you're probably going to
have to think of something fairly novel. A startup has to make
something it can deliver to a large market, and ideas of that type
are so valuable that all the obvious ones are already taken.

That space of ideas has been so thoroughly picked over that a startup
generally has to work on something everyone else has overlooked.
I was going to write that one has to make a conscious effort to
find ideas everyone else has overlooked. But that's not how most
startups get started. Usually successful startups happen because
the founders are sufficiently different from other people that ideas
few others can see seem obvious to them. Perhaps later they step
back and notice they've found an idea in everyone else's blind spot,
and from that point make a deliberate effort to stay there.
[3]
But at the moment when successful startups get started, much of the
innovation is unconscious.

What's different about successful founders is that they can see
different problems. It's a particularly good combination both to
be good at technology and to face problems that can be solved by
it, because technology changes so rapidly that formerly bad ideas
often become good without anyone noticing. Steve Wozniak's problem
was that he wanted his own computer. That was an unusual problem
to have in 1975. But technological change was about to make it a
much more common one. Because he not only wanted a computer but
knew how to build them, Wozniak was able to make himself one. And
the problem he solved for himself became one that Apple solved for
millions of people in the coming years. But by the time it was
obvious to ordinary people that this was a big market, Apple was
already established.

Google has similar origins. Larry Page and Sergey Brin wanted to
search the web. But unlike most people they had the technical
expertise both to notice that existing search engines were not as
good as they could be, and to know how to improve them. Over the
next few years their problem became everyone's problem, as the web
grew to a size where you didn't have to be a picky search expert
to notice the old algorithms weren't good enough. But as happened
with Apple, by the time everyone else realized how important search
was, Google was entrenched.

That's one connection between startup ideas and technology. Rapid
change in one area uncovers big, soluble problems in other areas.
Sometimes the changes are advances, and what they change is solubility.
That was the kind of change that yielded Apple; advances in chip
technology finally let Steve Wozniak design a computer he could
afford. But in Google's case the most important change was the
growth of the web. What changed there was not solubility but bigness.

The other connection between startups and technology is that startups
create new ways of doing things, and new ways of doing things are,
in the broader sense of the word, new technology.
When a startup both begins with an
idea exposed by technological change and makes a product consisting
of technology in the narrower sense (what used to be called "high
technology"), it's easy to conflate the two. But the two connections
are distinct and in principle one could start a startup that was
neither driven by technological change, nor whose product consisted
of technology except in the broader sense.
[4]

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