Why We Spin Up & Spin Out

I like to do new things. It's my greatest strength and my greatest weakness.

Steve Blank talks about this in the context of his entrepreneurial career. In his assessment, he believes he is a "creative CEO." It took him eight startups to realize this. Being a creative CEO means you are good at inventing new ways of solving problems. This is a great asset. But here's the rub: creative CEO's suck at getting the company to scale.

The reason creative CEO's suck at scale is because they keep re-inventing the business model. Once they solve one problem, and show they can make money at it, they find a new problem to solve and start working on a new business model to solve this new problem.

What they forget to do, because they are primarily disinterested in it, is take the first business model and execute it over and over again until it becomes a big company worth lots of money. The endless repetition of scale is tedious and it is does not interest a creative CEO. She's bored with the idea of doing the same thing over, and over again. Repetition is boring. It doesn't generate any dopamine in the brain for the creative CEO, so she finds a new problem to solve and repeats the creative process.

I just had a long conversation with a creative CEO. He has an innovative sporting goods company, who makes patented sports equipment in a growing niche. Sales are a couple hundred thousand a year with the current product. What he's really passionate about, are all the new products he has in the pipeline.

What about selling the shit out of what you already have? That's just not as exciting to him.

With E.piphay, Steve Blank's eight and final startup, Blank hired an "execution CEO" to scale the company once he achieved product-market fit. It worked. E.piphany was acquired for $329MM by SSA Global. I know that doesn't sound like a lot, but in 2005 it was a unicorn for those times. It was Blank's biggest financial success by far. 

Years later, Steve Blank created the chart below. It illustrates the fundamental difference between a startup and an established business. 

 

From SteveBlank.com

From SteveBlank.com

I think Steve is spot on with this chart. As Steve astutely points out, "A startup is not a small version of a big company. It's fundamentally something very different."

Startups are searching for a business model. They run experiments and they really don't know how this business will evolve. They try different things, iterate and hopefully find product-market fit which allows them to become a profitable enterprise. 

Established businesses are nothing like startups. Unlike startups, they already have a proven business model. If they are established, their existing business model worked, or they wouldn't be an established business because they would not exist. Established businesses are designed to execute a known business model and to make it more efficient and more profitable each year. Harvard MBA's are trained very well at this form of execution and they are great at it.

I had an epiphany went I saw Steve's chart - this is why Chicago has struggled over the years to grow its nascent startup ecosystem. Chicago still thinks startups are small versions of big companies. A lot of people in Chicago are completely misunderstand what startups are.

This is because the vast majority of professionals, businesspeople, financiers, government employees, staff at 1871 have never built a startup from scratch. They know Sears, Walgreens, Boeing, McDonalds, Abbott, Baxter, Motorola. Sadly, the founders and creative CEO's of those companies are all dead. In the old days, it took a really long time to build a $billion company. Much longer than the span of a single human life.

Mark Zuckerberg, Elon Musk and Scott Dorsey all remember what it was like in the beginning. It was such a short time ago. Fortunately, they are still around and can tell the story so we can all learn from it.

But not so in Chicago. In Chicago, well-intentioned, good people are trying to support the startup community. Most of the time, they are doing it under the belief that startups are small versions of big companies. It's not working. I don't think it ever will.

Why We Are Spinning Up & Spinning Out