The six types of startup…And what protects Silicon Valley

Silicon Valley veteran Steve Blank, writing in Xconomy, does a great job in describing six types of startups and how a clear understanding of the needs of each is necessary by national and local governments seeking to foster more innovation:

1. The lifestyle startup

On the California coast where I live, we see lifestyle entrepreneurs like surfers and divers who own small surf or dive shop or teach surfing and diving lessons to pay the bills so they can surf and dive some more.

2. Small businesses, usually family owned and run

They work as hard as any Silicon Valley entrepreneur. They hire local employees or family. Most are barely profitable. Small business entrepreneurship is not designed for scale, the owners want to own their own business and “feed the family.” … But in sheer numbers, they are infinitely more representative of “entrepreneurship” than entrepreneurs in other categories–and their enterprises create local jobs.

3. Silicon Valley-type startups — designed to be scalable

Scalable startups tend to group together in innovation clusters (Silicon Valley, Shanghai, New York, Boston, Israel, etc.). They make up a small percentage of the six types of startups, but because of the outsize returns, attract all the risk capital (and press).

4. Startups designed to be quickly sold, flipped

Their goal is not to build a billion dollar business, but to be sold to a larger company for US$5-US$50M.

5. Large company startups

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 to new customers in new markets (i.e. Google and Android).

6. Social startups — usually some form of charitable foundation.

… 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.

Blank writes that only Israel has managed to build a successful, sustainable version of Silicon Valley. He also has a list of what government organisations can do to support the different types of startups.

Blank doesn’t touch much upon the role of culture. Silicon Valley thrives on large amounts of failure, entrepreneurs get many chances at succeeding but in other cultures, there is huge stigma associated with failure and few entrepreneurs get another chance.

Exporting Silicon Valley’s well oiled system of financing, incubation, and education is not easy but exporting its unique culture is vastly more difficult. This is probably Silicon Valley’s greatest protection from losing its innovation throne to other regions — its tolerance of massive amounts of failure.