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 will.

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 helpful?

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 revenues.

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 product-market-fit.

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 characterizes incumbents.

DOUG: So every growth company is first a startup, then a scaleup, then an incumbent?

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.”