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What Type of Start-Up Do You Want to Build?

There isn’t a one-size-fits-all definition of a startup and you won’t get a single definition. However, there are very different kinds of startups. In my opinion, there are three different kinds of startups. Pie-takers, pie-growers and pie-makers.

If your goal is to get x% of an existing industry, you’re a pie-taker. You’re delivering (hopefully) a superior product or service to users with the goal of gaining market share. Hell, you could even be providing an alternative that isn’t necessarily superior. You’re a pie-taker.

For example, MakeSpace — a self-storage alternative.

As Mark Suster, managing partner at Upfront Ventures tells TechCrunch, “We deliver a superior product at a cheaper price and we will continue to crush them as our centralization model takes hold.

MakeSpace has identified the self-storage market as ripe for disruption and is providing “a superior product at a cheaper price” to gain market share. It isn’t actually creating value in the economy.

Now don’t get me wrong, companies like MakeSpace could go on to be very successful and I have no doubt that MakeSpace will go on to be a successful pie-taker start-up.

Airbnb is another example. People were travelling and living in hotels, b&bs, hostels, renting rooms on Craiglist and couchsurfing before AirBnb was born.

Airbnb challenges to gain market share. It is unlikely to cause a significant number of users to travel more.

Pie-takers are companies that come in and grow the pie significantly. The market existed before them. They were late entrants and they entered, dominated and expanded the pie multi-fold.

Take Facebook. Facebook was not the first social network or even the first college social network. But Facebook’s entrance and eventual domination fueled the growth of social media to the state it is in today.

Apple is another example with the iPod. The iPod was not the first of its kind. It was Apple’s take on technology that already existed by Creative. Creative made the pie. Apple came in and expanded it.

Pie-makers on the other hand, are a whole different ball game.

Truly disruptive technologies that went out and created entire markets that previously didn’t exist.

Google transformed the way we think by giving us the world’s information at our fingertips, literally.

Uber transformed the way we travel by making it so convenient to travel that people can afford not to drive.

Optimizely transformed the way marketers approach testing hypothesis by making a DIY system that reduces their over-dependence on tech.

Pie-makers have a much higher risk because they are betting on changing user behaviour. But this is why the best case scenario payoff is potentially also much larger than a pie-taker’s.

Both pie-takers and pie-maker’s are legitimate start-ups. The key question is — what kind of start-up do you want to build?

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