Take startups for what they are — little experiments

There are many definitions of a startup. The one that I find the most relevant is by Steve Blank: “Startup is a temporary organisation formed to search for a repeatable and scalable business model”. It is that simple. You start a project. If it manages to find a business model that works, the project will be transformed into a company.

Right now we are experiencing something of a “cambrian moment”. Startups are everywhere. Everyone is building a startups, simply because they can. It is cheap to start one, the Internet gives you access to distribution networks. The know-how behind building a startup is becoming common knowledge. This knowledge is shared in posts, tweets, slides and videos. Investors are also bullish on this tech trend. We have startup schools (aka accelerators) around the world. We have platforms, which can connect us to investors. The media is pushing startups to the mainstream. The more people are involved in tech startups the more chances some monumental companies will emerge from this creative chaos.

I’m a strong believer in this tech explosion, and I agree with Marc Andreessen that “software is eating the world”. The one thing I am constantly thinking about is the “science” behind building these great new tech companies. I think Eric Ries once said that startups are like experiments — there is a slim chance it might work, but if it does, it will have a huge impact on everyone. I like this experiment analogy very much. At early stage we have very little data, so these experiments we call startups, mostly fail. A thought I would like to put forward is that maybe we should experiment more but in a controlled environment.

Costs related to starting a startup these days are very low. With so much tech infrastructure already in place, building on top of it becomes cheap and fast. This is what I would refer to as a controlled environment. Instead of building the next piece of the tech infrastructure, we focus on the implementation part.

The main goal for these experiments is to follow Steve Blank’s definition — find a repeatable and scalable business model. If we manage to keep the costs of these experiment at a very low level, it will not really matter that most of them will fail. The ones that will succeed will be able to finance the ones that failed. A similar thesis to Dave McClure and his 500.co.

This experimental model is the essence of Venture Capital. Looking at the industry today I think this is something that got lost along the way. VC’s are morphing into bank-like institutions, looking for proven business models. No one really wants to enter the dirty-ugly-smelly world of pre product-market fit startups. We need to take risk in order to create impact and generate return. If we skip the risk part, the whole equation will not make any sense.

This gap in pre product-market fit financing could be an opportunity for the government to spark up innovation in any country. Most countries show some sort of startup activity. As the Israel example shows, this can be done. TheEuropean Union is a strong believer in this thesis. Poland received grants in the billions of euros for starting innovative new companies. Only time will tell if this thesis was right. My intuition tells me that we could do more if only we would learn not to over analyze the subject. Let startups be startups — experiment and fail fast in order to succeed.