Startup America—Dead on Arrival

2/8/11Follow @sgblank

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travel agents, internet commerce storefronts, carpenters, plumbers, electricians, etc. They are anyone who runs his/her own business. They hire local employees or family. Most are barely profitable. Their definition of success is to feed the family and make a profit, not to take over an industry or build a $100 million business. As they can’t provide the scale to attract venture capital, they fund their businesses via friends/family or small business loans.

2. Scalable Startup Entrepreneurship
Unlike small businesses, scalable startups are what Silicon Valley entrepreneurs and their venture investors do. These entrepreneurs start a company knowing from day one that their vision could change the world. They attract investment from equally crazy financial investors – venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel rapid expansion.

Scalable startups in innovation clusters (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns, attract almost all the risk capital (and press.) Startup America was focussed on this segment of startups.

3. Large Company Entrepreneurship
Large companies have finite life cycles. Most grow through sustaining innovation, offering new products that are variants around their core products. Changes in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation – requiring large companies to create entirely new products sold into new customers in new markets. Existing companies do this by either acquiring innovative companies or attempting to build a disruptive product inside. Ironically, large company size and culture make disruptive innovation extremely difficult to execute.

4. Social Entrepreneurship
Social entrepreneurs are innovators focus on creating products and services that solve social needs and problems. But unlike scalable startups their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be nonprofit, for-profit, or hybrid.

So What?
Each of these four very different business segments require very different educational tools, economic incentives (tax breaks, paperwork/regulation reduction, incentives), etc. Yet as different as they are, understanding them together is what makes the difference between a jobs and innovation strategy and a disconnected set of tactics.

Go take a look at any of the government organizations talking about entrepreneurship and see how many of its leaders or staff actually started a company or a venture firm. Or had to … Next Page »

Steve Blank is the co-author of The Startup Owner's Manual and author of the Four Steps to the Epiphany, which details his Customer Development process for minimizing risk and optimizing chances for startup success. A retired serial entrepreneur, Steve teaches at Stanford University Engineering School and at U.C. Berkeley's Haas Business School. He blogs at www.steveblank.com. Follow @sgblank

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  • David L

    Steve, according to Brad Feld it sounds like there are a lot of smart folks with backgrounds in VC and early-stage tech companies involved. I’ve been critical of the administration’s efforts to date in stimulating the innovation economy, but this seems like a positive step. What am I missing? Would be interested to know what you’re basing your impressions on.

  • Lars M

    This is the same President who taxed “carried interest” not only for hedge funds, but for VCs — The most likely regulation to kill innovation.

  • JD

    Lars M,

    I think you put to much emphasis on the current Obama Administration when I believe it was specific individuals who introduced the bill originally (two senators).

    With that being said, it is the Obama Administration currently leading the entrepreneurship efforts in the US with Startup America compared to past administrations not mentioned here who have done very little.

  • JD

    Steve,

    I do not blame you, if I was your age, I would not want to lead this program either.

    I mean, not to say that you still don’t have the mojo, but lets be honest, your not up for the game to LEAD!

  • GS – Erie, PA

    To state that an Entrepreneurship Policy can’t be formulated by policy wonks and other types is like saying K – 12 Educational Tests and Standards can’t be created without the active buy-in of K – 12 students. BALONEY!

    Many in congress, economists, large corporate managers and economic developers indeed have run small businesses. Perhaps they have not segmented the market in the same way you have Steve.

    Regardless, this is a start, and a good one. I agree however that this kick-start program is not a substitute for comprehensive industrial development policy. The absence of such is a major chink in our domestic armor as global competitor’s methodically attack our industries and markets.

  • http://www.american-innovation.org Sergio M Perez

    Steve,
    I really liked your review of the different startups and a very good profile of “small business”. I am much more positive on the direction and value of Obama’s efforts. Besides adding more people with startup scars to the national team, what will be an effective national strategy?