Startup Opportunities. Sacca Chris

entrepreneurs who behave this way clearly overvalue ideas and therefore, almost by definition, undervalue execution. Brainstorming is a risk-free, carefree activity. Entrepreneurship in the literal sense of “undertaking” is not. Strap on your seat belt if you’re signing up for a startup. It’s a high-velocity experience.

      If you have a brilliant idea, it’s safe to assume that a few very smart people are working on the same thing, or are working on a different approach to solving the same problem. Just look at the number of different travel apps on your iPhone or the number of diet and exercise sites on the web for an example of this.

      Overvaluing the idea is a red flag, particularly in the absence of tangible progress. Sure, I miss out on investing in some truly great ideas with this attitude, but that’s okay with me; I don’t invest in ideas. Nor does Warren Buffett. I’ll lose less money than those who do. I can largely control my downside by investing in good people who, even if they fail this go-round, will learn from mistakes and have other fundable ideas (ideas I’ll likely have access to as an early supporter). I do not have this advantage when investing in ideas.

      One popular startup dictum worth remembering is “One can steal ideas, but no one can steal execution or passion.” Put in another light: There is no market for ideas. Think about it for a second: Have you tried selling an idea lately? Where would you go to sell it? Who would buy it? When there is no market, it is usually a very sure sign that there is no value.

      Almost anyone can (and has!) come up with a great idea, but only a skilled entrepreneur can execute it. Skilled in this case doesn’t mean experienced; it means flexible and action-oriented, someone who recognizes that mistakes can often be corrected, but time lost postponing a decision is lost forever. Ideas, however necessary, are not sufficient. They are just an entry ticket to play the game.

      Don’t shelter and protect your startup concept like it’s a nest egg. If it’s truly your only viable idea, you won’t have the creativity to adapt when needed (and it will be needed often) in negotiation or responding to competitors and customers. In this case, it’s better to call it quits before you start.

      Your idea is probably being worked on by people just as smart as you are.

      Focus on where most people balk and delay: exposing it to the real world. If you’re cut out for the ride, this is also where all the rewards and excitement live, right alongside the 800-pound gorillas and cliffside paths. That’s the fun of it.

      David didn’t beat Goliath with a whiteboard. Go get among it, and prepare to bob and weave.

      CHAPTER 1

      What Is a Startup?

      The word startup has become an increasing part of the popular lexicon in the past few years. While it has been around for a while, it has recently become ubiquitous for those discussing entrepreneurship and new company creation. But not all new companies are startups.

      There is a big difference between two types of entrepreneurial endeavors: (1) local businesses, also called SMEs (small- and medium-sized enterprises) or lifestyle businesses; and (2) high-growth companies, often referred to as startups or gazelles,2 a term first used by David Birch in 1979 and refined in 1994 to refer to companies with a minimum of $1 million of revenue that were at least doubling in size every four years.

      Local businesses are what they sound like. These are the businesses that you find in your city whose customers are close to the business, such as the corner grocery, local bookstore, nonchain restaurant, or locally owned gas station. Occasionally these local businesses start to expand and turn into multigeography businesses, resulting in a large enterprise, but many are local businesses for the duration of their existence.

      In contrast, high-growth companies rarely have a local focus. While they are often started in one location, and, at inception, usually only have a few people involved, the founders of these companies aspire to grow quickly, independent of geographic boundaries. Their customers are all over the world, and regardless of whether the company ever expands geographically, the business is rarely constrained by geography.

      In the United States, until recently, all startups were referred to as small businesses. This is a historical artifact of the U.S. Small Business Administration, commonly referred to as the SBA. Until 2010, the U.S. government didn’t differentiate between types of entrepreneurial businesses. Thus, the SBA was helpful to some companies but useless to many others, especially the high-growth ones. Government at all levels (federal, state, and local) didn’t understand the potential impact of startups as a separate class of company, so all small businesses were lumped together.

      In 2010, President Barack Obama announced Startup America3 and thus the word startup catapulted to the forefront of everyone’s mind. Through the support of the Case Foundation and the Kauffman Foundation, the Startup America Partnership was launched. This was a private partnership that executed a three-year plan, chaired by Steve Case (the founder of AOL) and led by Scott Case (unrelated to Steve), to define, support, and spread the message of startups throughout the United States.

      Today, a startup is recognized as something distinct from a small business. For the definition of startup, we turn to the czar of customer development and grandfather of the Lean Startup movement, Steve Blank, who has coined what we think is the best definition for the term: A startup is a temporary organization formed to search for a repeatable and scalable business model.4

      Let’s break down Steve’s definition and explore the different parts:

      A temporary organization: A startup does not last as a startup. It either goes out of business or succeeds in finding a solution that customers are willing to pay for.

      To search: The goal of a startup is to explore, test, and validate an unmet need. This definition recognizes that the startup lifecycle is finite.

      Repeatable and scalable business model: Initially, all startups are based on assumptions, with the goal of iterating until the assumptions have been validated. Once the business model has been proven and the startup is self-sustainable, it is no longer a startup.

      Steve says this in another delightful way: “A startup is not a smaller version of a large company.”5 Instead, a startup is a series of experiments in search of a scalable business.

      How to Use This Book

      Our goal with this book is to help you figure out in advance which ideas are worth experimenting with. While this book is intended to be read from beginning to end, we have organized it so that you can read each chapter independently. We want to provide you with a structure to evaluate the idea you have in a formal and comprehensive way while allowing you to quickly think about the key issues that will come up.

      We aren’t trying to create a new methodology for starting a company, nor are we trying to replace approaches like Lean Startup. Instead, we are taking a step back and engaging earlier in the process. This book is intended to be read before you read The Lean Startup or participate in a Lean LaunchPad process. We’ll provide plenty of context around different approaches and resources for getting your business off the ground, but our primary focus is in helping you with the prestartup, or the opportunity evaluation phase, when you are still deciding whether to put energy into the startup.

      In addition to our perspectives, we’ve included examples from entrepreneurs and the investors who funded them at very early stages. Many of the examples are of companies that have grown substantially. By going back to a point in time near their inception, you can get a sense of how and why the entrepreneur and the investor decided to pursue the opportunity. Other sidebars include expert analysis from practitioners or academics of some of the more important elements in the opportunity evaluation process.

      Our primary professional focus is in investing in high-growth startups. Brad’s experience, through Techstars and Foundry Group, is primarily in high-tech companies. Sean’s experience, through Dragons’ Den (Canada’s version of Shark Tank) and his own investing, is primarily in consumer

2

John Case, “The Gazelle Theory,” Inc., May 15, 2001, http://www.inc.com/magazine/20010515/22613.html.

3

The White House’s Startup America homepage, https://obamawhitehouse.archives.gov/economy/business/startup-america.

4

Steve Blank, “What’s a Startup? First Principles,” Steve Blank’s blog, January 25, 2010, http://steveblank.com/2010/01/25/whats-a-startup-first-principles/.

5

Steve Blank, “A Startup Is Not a Smaller Version of a Large Company,” Steve Blank’s blog, January 25, 2010, https://steveblank.com/2010/01/14/ a-startup-is-not-a-smaller-version-of-a-large-company/.