Eric Reis, What is a startup?

This is a discussion of Eric Reis' esay What is a startup?. It is part of a series of discussions of foundational texts on What is a startup business?

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Eric Reis

Eric Reis has worked for several startups, and has worked with Steve Blank. He is most closely associated with "Lean Startup," which itself is associated with Steve Blank's work.

What is a startup?

Reis' gets to the point early:

A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. (Reis)

He goes on to take that sentence apart, and defends the use of key phrases, arguing that they are critical. The words that he explains are "human," "new" and "uncertainty."

Human institutions

Reis correctly points out that all institutions are human institutions, except in the narrow sense made up for the sake of argument. However, he goes on to say.

Even for companies that essentially have only one product, the value the company creates is located not in the product itself but with the people and their organization who built it. (Reis)

And the point he makes here is that the systems and habits that a company generates may be as valuable as a piece of technology. Paul Graham explicitly calls new ways of doing this a new technology in the "broad" sense:

The other connection between startups and technology is that startups create new ways of doing things, and new ways of doing things are, in the broader sense of the word, new technology. (Graham)

Although Thiel positions himself contra the lean startup, I don't think he would disagree with this component. One alternative view, however, may come form Marc Andreessen who specifically thinks that a market can pull a product form a mediocre team. Reis is closely aligned with Blank, who acknowledges the centrality of the product market fit in the lean model.

Newness

Reis

And yet the newness of a startup’s product or service is also a key part of the definition. This is a tricky part of the definition, too. I prefer to take the most expansive possible definition of product, one that encompasses any source of value for a set of people who voluntarily choose to become customers. (Reis)

In his emphasis on novelty, Reis sounds closest to Thiel who emphasizes novelty more than almost anyone else we look at. However, Reis has a different idea of novelty:

Even the most radical new inventions always build upon previous technology. Many startups don’t innovate at all in the product dimension, but use other kinds of innovation: repurposing an existing technology for a new use, devising a new business model that unlocks value that was previously hidden, or even simply bringing a product or service to a new location or set of customers previously underserved. (Reis)

Contrast: This may contrasts with Thiel's notion of a startup because I suspect other improvements would count as 1 to n improvements for Thiel. These improvements would not lend themselves to sufficient differentiation to earn a monopoly.

Uncertainty

Reis has the most expansive notion of a startup of any definition I have seen, and the result is that he may define a traditional business very narrowly.

Startups are designed to confront situations of extreme uncertainty. To open up a new business that is an exact clone of an existing business, all the way down to the business model, pricing, target customer, and specific product may, under many circumstances, be an attractive economic investment. But it is not a startup... (Reis)

However, his emphasis on the uncertainty again echoes Thiel's view of a startup taking on a novel problem:

Thus, the land of startups is a unique place, where the risks themselves are unknown. ... Startups are designed for the situations that cannot be modeled, are not clear-cut, and where the risk is not necessarily large – it’s just not yet known. (Reis)

Q: Although uncertainty is where Reis and Thiel agree, it is also where Graham and Andreessen seem to agree with them. Graham considers good ideas to occur in the space where change happens because other spaces are already picked over. Andreessen considers the question of product/market fit to be the big question that is being explored. Is this the area that all definitions converge? Is there anyone that doesn't consider uncertainty to be a hallmark of startups? Or is uncertainty simply the hallmark of all business?


You can purchase Eric's book by clicking on this link: