Entrepreneur

5 reasons start-ups are entering a golden age

(Editor’s note: Scott Albro is CEO of Focus.com. He submitted this story to VentureBeat.)

Are start-ups entering a new golden age?

Ask a venture capitalist or banker that question and you’ll probably get “no” for an answer – and given the lack of recent IPOs, as well as the changes we’re seeing in the venture industry, that shouldn’t come as a surprise. Ask an entrepreneur, though, and a very different picture emerges. That’s because today’s start-up owners are generating ideas, building products, and scaling their businesses better and faster than they ever have before.

There seem to be five key drivers for this:

The velocity of good ideas – There has been a lot of talk recently about “lean start ups” and “pivoting”, but if you don’t have a good idea to start with, all the pivoting and lean thinking in the world won’t amount to anything.

In the early days of a business, the power of a good idea, no matter how rudimentary, is what gets you started down the right path. Today, those good ideas happen faster than ever.

The Internet – and more specifically the communities of entrepreneurs that connect on the Internet – have brought the gestation period for good ideas from years to months. These communities are breaking down, combining and remixing new ideas at a pace never seen before and, in the process, morphing Steven Johnson’s idea of the “slow hunch” into the “fast hunch”.

From resource scarcity to abundance – Five years ago, start ups spent a lot of time, money and effort on hard stuff that didn’t matter. Functions like figuring out how to process payroll or build out a datacenter took up a lot of entrepreneurial attention. In the last few years, we’ve been able to tap into an abundance of computing and business resources that were previously scarce.

We’ve rightfully paid a lot of attention to advances like cloud computing that obviate the need for complex, expensive data centers. But it’s not just computing resources that are abundant. Inexpensive, valuable services have proliferated for just about every start up function, from self-service advertising to crowdsourced testing to sourcing raw materials from halfway around the world.

That means entrepreneurs can focus on the hard stuff that matters – building good products, helping customers and creating value.

The early stage virtuous cycle -Product development and customer feedback have become high priority items early in a company’s life. These two things form what might be called the start up virtuous cycle – the more you engage your customers, the better your product will be. And the better your product is, the more your customers will engage with you.

Part of pulling this off is just understanding and believing in the aforementioned “lean start up” and pivot religion that Eric Ries and Steve Blank have recently been proselytizing. Being smart at this stage helps a lot, but being fast and nimble is arguably more important.

The most important thing to do here is to figure out how to build a small team that is simultaneously capable of rapid product development and customer engagement. That’s no small task, given that hiring good people fast is the ultimate in start up oxymorons.

The unit of one – One of the more powerful dynamics shaping the start up community today is the pace at which certain start-ups are scaling. While Groupon and Zynga are two of the better-known examples, there are dozens of start-ups that have crossed the $1M per month revenue threshold in less than 2 years.

These companies have all identified their “unit of one”, a tactic they can repeat at will and at scale that yields predictable growth in a critical business metric such as revenue per customer. For many of these start ups, the unit of one often involves successfully arbitraging the cost to acquire a customer against the lifetime value of that customer.

Units of one can take other forms though, including something as old school as figuring out where to hire good salespeople from and how those salespeople will ramp over time. Whatever its form, a powerful unit of one will be measurable, repeatable at scale, and fast.

Financial rationalization – Many of these changes have forever altered how start ups raise and return money to investors. The market for early stage financings is clearly changing with angels writing $500,000 checks in place of the $5,000,000 checks that traditional early stage venture firms used to write. That smaller check makes sense when you think about the speed and velocity that start ups can now generate.

On the exit side, the monster IPO of the 90s has evolved into an acquisition. The number of IPOs, the breadwinner of choice in the 80s and 90s, is down 70 percent this decade.


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