For many stakeholders in the early-stage technology space – spanning from founders to investors to developers – the lean startup methodology is prized as the ideal approach to launching and growing a new enterprise. Debuted in 2008 by prolific entrepreneur Eric Ries, ‘lean’ thinking differentiates from traditional business strategy by prioritizing “experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development” (as the Harvard Business Review puts it).
Over the last eight years, lean thinking has gone from a new idea to a fairly mainstream approach. Terms like “minimum viable product” and “pivot” are now ubiquitous in Silicon Valley (and other tech hubs), and lean methodology is increasingly being embraced by large companies and business schools alike.
But is it really the end-all-be-all best practice for starting and scaling a tech company? Should it be?
While lean thinking will likely play a key role in startup business planning for many years to come, entrepreneurs launching (or growing) companies in 2016 are wise to consider how much has changed since 2008. Now that early-stage investors can access higher quality data on the private finance market – thanks to research firms like CB Insights, PitchBook, and others – institutional investors’ intelligence on startups’ potential and performance is getting better all the time, and their expectations are of the companies they fund are changing as a result. With shifting investor mindsets and tech-bubble talk in mind, some startup stakeholders are calling for entrepreneurs to consider alternative business approaches from the inception of their companies – or to shift the ways they think about (or refer to) their companies as they expand. Keep an eye on the following three concepts; they may give the “lean” outlook a run for its money in the years to come.
Co-optition to Create Non-Organic Growth
Given how aggressively most ‘lean’ startups choose to focus on building their products and acquiring new customers, many are highly averse to collaborating with their competitors. The thinking goes that if a business is leading the charge to innovate an industry or disrupt a market, it needs to prove its viability and potential to be the “top dog” by operating boldly alone.
But startup solitude isn’t crucial to success. Co-optition – the concept of fostering strategic collaboration among competing businesses – is an idea seeing increased traction in the early-stage tech sector. Co-optition isn’t about merging two companies together; rather, it’s about creating partnerships than can help both organizations benefit from utilizing one another’s complementary advantages.
Key to co-optition is looking beyond a startup’s ‘secret sauce’ strengths to the cost centers, business gaps, or market opportunities disconnected to its main value proposition. By negotiating smart partnerships with competitors who have those bases better covered, startups can lower their development costs or seize new customers.
Example: Pinterest and other startup social media platforms don’t rely exclusively on direct user registrations. Instead, they allow users to login with existing Twitter or Facebook credentials – thus allowing users to automatically connect to members of their existing social networks without starting on their sites from scratch.
The Scaleup: A Step Beyond Startup
One problem with the private market is its lack of specific terminology. Sure – every sophisticated investor understands that a seed-stage funding round is different than a Series B one. But the lines between a seed-stage startup and Series B startup, for example, can be a lot blurrier for investors, partners, or customers to understand.
Adding to the categorization challenge is the ‘startup’ term itself which, appropriately or not, is often associated with the idea phase of an unproven organization. Especially in B2B- or enterprise-driven sectors, stakeholders can feel uncomfortable with startups due the hoodies-and-happy-hours ethos associated with them. Early-stage companies that have scaled into more mature phases of the business lifecycle can find the ‘startup’ term burdensome or inaccurate – especially if they serve ‘legacy’ markets like healthcare, payments, or banking.
Enter the scaleup – aka, the ‘grown-up startup.’ As a post on recode explains, a startup is typically “on the quest to find product-market fit” whereas a scaleup “has already validated its product in a market” and proven the long-term viability potential of its approach.
Example: Gust is a platform that enables investors to access investments in, yes, startups. But even though Gust is itself is an early-stage company, it keeps its funding information shielded from the public and positions itself simply as a privately held company. That scaleup-savvy approach helps Gust appeal to the sophisticated angel investors who make up its user base and maintain a status above the startup market it serves.
The Startup as Small Business… Sort Of
As the tech booms of the early 2000s and today have made clear to almost everyone, startups are a vastly different animal than than small businesses. The distinction between the two company types is typically determined by their goals: for small businesses, the driving aim is usually sustainable, long-term profitability; for startups, the aim is scalable, top-end revenue and growth potential.
Yet there’s a small but growing shift toward bring those disparate-seeming objectives a bit closer together. It’s not necessarily about winning revenue to keep the doors open (in the mom-and-pop-shop sense typically conjured by the ‘small business’ term). More so, it’s about placing a priority focus on a startup’s potential to see sustainable, long-term ‘good growth.’ As Rory O’Driscoll, a founding member and partner at Scale Venture Partners, recently put it in Fortune: “You can no longer grow your business with little regard for the underlying economics.”
The movement to embrace smaller funding rounds and (as touted by Steve Case, founder of AOL) more long-term, public-private partnerships is an unsurprising reaction to fears that today’s tech industry is in a bubble . So while startups may never really be small businesses, a small-growth approach can help startups stay alive as institutional funding continues to dry up.
Example: In 2015, Indie.vc invested up to $100,000 apeice into eight companies to with the goal of seeing “what effect, if any, a group of founders focused solely on getting to profitability vs. attracting more VC investment might have on their growth and survival rates.” All eight companies are still kicking, and the Indie.vc plans to continue its approach with a new round of startups.