From the perspective of a company like Google or from a venture capitalist’s point of view, a startup is a company that was formed within the last 4 or 5 years and has grown to 20 – and sometimes as many as 100 or more employees. They are looking for “growth companies”.
As Steve Blank would define it, a startup isn’t really a small business. Instead it is a temporary organization looking to build a business model – hopefully before it runs out of money.
Investors like to distinguish between “growth companies” and “lifestyle companies”. They try to avoid investing in “lifestyle companies”, because they are nervous about having their capital “marooned” in a struggling business. In spite of this they typically miss the mark about 68% of the time according to one study.
Does a Startup Need a Business Plan?
Well no – not yet at least. According to Steve Blank, a startup is a temporary organization looking for a business model.
GROWTH COMPANY vs LIFESTYLE COMPANY
According to Steve you don’t need a business plan until you’ve built your business model. That assumes you can survive long enough feeding a small team to actually build your MVP (i.e. minimum viable product) and a viable business model. These days a small 3 person team will easily chew through $150,000 or more trying to get that stuff done. His idea of a startup is actually restricted to a growth company.
The overwhelming majority of small businesses start life as service companies that aren’t scalable – but quickly become revenue positive. They would be wasting their time approaching investors – except the BANK OF MOM & DAD – (aka Friends, Fools & Family).
Lean Methodology – What is it Good For?
In reality the lean methodology espoused by Steve Blank, Eric Ries and Alex Osterwalder, is really best suited to an existing business attempting to launch a new product. The simple truth is that very few young people have the personal resources to fund the kind of exploration required by the LEAN STARTUP METHODOLOGY.
They also lack sufficient real-world experience to understand a particular ‘pain point’. You not only need to understand the problem, but you also have to have (or develop) the skills to address it.
“VCs believe they have pattern recognition abilities that they simply don’t have. Instead, they rely on suppositions and stereotypes that don’t match the underlying data on startup success. The reason older founders are ignored by the ecosystem is the same reason why women and other minorities struggle in the Valley: It’s really not about what you build, but what you look like while building it. Data like those found in this paper should force all of us to reevaluate the kind of founders with whom we should be partnering.”Danny Crichton (TechCrunch)
Where is Steve Now?
Just like Alex Glassey, Steve is teaching at university (Stanford)