Comparing Ventures to Kids
DOUG: Back to how to define a startup, broad or narrow. You made an
interesting analogy with raising kids.
ROLAND: Yes, for venture capitalists, all their portfolio companies are like
kids. Kids are their parents’ financial responsibility until they have “left the
nest.” Toddlers, school kids, teens and college kids, the same broad financial
definition applies. Financially, they are all kids until they earn their own
keep. The same for growth companies: they are all “startups” in the sense that
they have not exited yet.
DOUG: Yet how you raise a toddler better be very different from how you
raise a teen.
ROLAND: Exactly my point. From an advisory and education perspective, a
single “kid” definition is too broad. Each stage of development requires its own
skills. What helps a toddler get ahead is completely different from what makes a
teen successful. A toddler crawling, singing aloud, saying whatever they think
is very cute. A teenager, not so much. Every stage has a new set of success
criteria, and requires new competences to fulfill them.
DOUG: And you see the same phenomenon with growth companies?
ROLAND: The very same phenomenon indeed. An early-stage startup needs
hands-on founders, a hacking mindset and constant pivoting. A late-stage scaleup
will implode if it follows those prescriptions. Instead, it needs clockmaker
founders, intense market focus and rapid issue resolution. And once it turns
into a mature corporation, it will need yet different prescriptions.
DOUG: The success criteria change as you scale.
ROLAND: Yes, that is the very essence of what the book–Scaling Silicon
Valley Style is about. How founders can learn to ride that rollercoaster while
staying in charge. While staying a good parent to their growing scaleup, if you
DOUG: Thanks, that is crystal-clear. But on page , you mentioned a second
reason against defining startups as “any venture pre-exit.” Why else is this not
ROLAND: Correct. These days, ventures can stay out of public markets much
longer than they used to. The rule was to go public when reaching $100M in
Nowadays, many growth companies prefer to keep scaling in private. They can do
so because more private investors are eager to invest. But also because of
secondary markets. These have allowed insiders to realize some of their wealth
without a listing.
This compounds the problem we mentioned above. We now have “startups” making
billions in revenues and employing 10,000s of people. In such companies, classic
startup advice like “move fast and break things” is no longer helpful. Calling
any company pre-exit a “startup” becomes meaningless.
DOUG: If “startup” is such a broad term, then what do you prefer?
ROLAND: I prefer startup — scaleup — incumbent. In this lineup I define a
startup narrowly with Blank and Ries. A startup is a company still seeking a
replicable, scalable business model. In other words, one that has not yet found
DOUG: So what happens when a startup reaches that famous product-market-fit?
ROLAND: Then it ceases to be a startup. But at the same time, they are
nowhere near incumbent status. That is why we need a new term: scaleup. A growth
company beyond product-market-fit, but before the product-market-dominance that
DOUG: So every growth company is first a startup, then a scaleup, then an
ROLAND: Those that succeed and survive, yes. Unfortunately, most growth
companies stumble on the trajectory to becoming an incumbent. Especially in the
scaleup stage. That is why we wrote this book.
DOUG: To serve as guidance for scaleup leaders.
ROLAND: Exactly. Our book helps guide founders of scaleup companies along
the rollercoaster journey. From Series A through Series D. And from initial
product-market-fit, all the way to ultimate product-market-dominance.
Roland Siebelink regularly speaks and writes about leadership in fast-growing
tech startups. You can find more of his insights, including free chapters of his
book “Scaling Silicon Valley Style.”