Two types of start-ups
I have begun to separate out new companies into two groups. I call them the Finders and the Keepers. Most of the time it is pretty easy to put a founder or team into one group or the other, but occasionally a really smart one will surprise me. That's possible because while you can usually tell by the product or service offering itself, the definition is based on underlying motivation. And motivation is, of course, an art to sniff out.
A Finder company has come across a great, big, hot, easy or otherwise enticing idea that's just begging to be developed. The company is built because someone sees the opportunity, wants to start a company and has what it takes to do it. A well-executed Finder company can and will attract large investments because it is a logically intelligent business move.
A Keeper company has emerged out of a realization that there is something the world is desperately lacking and will do anything in order to provide it. This type of company typically has a much harder road ahead of it and rarely will it find big time investors early on. Keepers may be logical to their founders, but really they are driven by passion. They are built because someone sees the need, can't find anyone else to do it right and relinquishes him/herself to making it happen.
There are multitudes of successful examples of both types of companies, with the Finder type (Facebook, Zynga, the Rocket Internet clones) dominating over the past few years thanks to the low barrier to entry to internet-based products & services combined with glut of investment money. [Ok, it is slightly more complicated than that, but let's leave the creation myths for another post.] From what I understand, Apple is a Keeper, as well as the more obvious examples like Wikipedia and Tesla Motors.
What is important about these two types of companies is that they require completely different approaches to almost every aspect of their development and they result in very different outcomes for those who participate.
Identifying which type of company you are (or want to be) early on can save you a lot of trouble down the road, particularly when it comes to investors and financing strategy. If we start with the end, this becomes more clear:
A Finder company is made to be bought out - usually by a competitor, another firm somewhere along the value chain, a dying old giant who wants to be cool, a VC fund or a handful of other less common acquirers. [Yes, I said VC fund - I would recommend all start-up founders think of VCs as purchasers of companies (and their founders). Again, I will leave the explanation of that to another post, but you can read any of the classics like this from Paul Graham or a new post such as this one from Venture Village.] All of the big tech investment stories these days fall into this category - they are companies molded to fit the marketplace now and smart investors snap them up accordingly.
A Keeper company is much less likely to be bought out - not that it won't be courted, but its founders made it because they want to have it. They didn't make it because they want to have millions of dollars - not that they won't have millions of dollars, but this comes second. Because of this, they won't let it into anyone else's hands until the goal has been reached, the company functions on its own or the other hands are most definitely going continue on the mission. Keepers are built for the long haul, so they can also be mis-timed in the market, intentionally kept small or otherwise made unattractive to traditional investors.
So the question stands, if you are about to embark upon the incredibly exciting and exhausting adventure of starting a company, which is it? I suggest taking a long, hard look at your goals and being honest with what you are attempting to build. This will help you understand how long your commitment is going to be (and how to define your give-up point), how you will use your early resources (on fundraising and marketing or product development and iteration), who you will bring onto your team (big names or big brains), how you will watch & react to the market (like an EMT on a pulse or a ship with a lighthouse lookout). Here are a few questions to help you figure it out, I'll go into more detail on how to move forward (in either case) in future posts. Just a note, these are the same questions investors will typically ask you to understand your motives.
1. When did you know this was what you wanted to do? I mean, what was the exact moment that it tipped from interesting to compelling to irresistible? What was it that made the push? Something external, like the market is just right or internal, like this is the perfect way to make my life better?
2. What is your ideal resting state for the company? Is it huge, with you as CEO and thousands of people working at it? Is it small, with you as CEO and a few people working at it? Is it a nice passive income in your bank account? In other words, do you want to do this for the rest of your life? The rest of the decade? Year? Week?
3. How would you feel if someone copied your idea? How would your company respond? Would you feel threatened or encouraged? Would you move harder, faster, stronger or would you feel confident that you will do it better?
4. What, exactly, is your goal? To build a company? To make a lot of money and do something else with it? To create a job for yourself or other people? To solve some problem that irks you?
Remember there are no wrong answers - really. I have started both Finders (for other people) and Keepers (for myself, of course). As I said before, both types of companies can be truly noble, incredibly risky and wildly successful. However, it will very difficult to make the right strategic, operational and financial decisions if you aren't upfront with yourself, your investors and your employees about what kind of company you are building.