Startup = Growth

A startup is a company designed to grow fast.

Growth is the only essential thing for a startup.

In an efficient market, the number of failed startups should be proportionate to the size of the successes.

Everything else associated with startups follows from growth.

A barbershop is not designed to grow fast, whereas a search engine is.

To grow rapidly, a company needs to make something it can sell to a big market.

Startups fail frequently because of the high potential value of a successful startup.

Only a tiny fraction of newly founded companies are startups.

Most newly founded companies are service businesses, such as restaurants, barbershops, and plumbers.

Startups are different by nature, in the same way a redwood seedling has a different destiny from a bean sprout.

Google was different from the beginning, not just a barbershop whose founders were unusually lucky and hard-working.

For a company to grow really big, it must (a) make something lots of people want, and (b) reach and serve all those people.

A barbershop's problem for growth is reaching and serving all people (b) because it serves customers in person and few travel far.

Writing software is a great way to solve the problem of reaching and serving many people (b).

Software to teach Tibetan to Hungarian speakers would be constrained in market size (a), despite being able to reach most interested people.

Software to teach English to Chinese speakers is in startup territory due to its large potential market.

The distinctive feature of successful startups is that they are not tightly constrained in making something people want (a) or reaching those people (b).

The constraints that limit ordinary companies also protect them.

A barbershop only has to compete with other local barbers, while a search engine competes with the whole world.

Normal business constraints protect them from the difficulty of coming up with new ideas.

A startup generally has to work on something everyone else has overlooked because ideas for large markets are so valuable that obvious ones are taken.

Successful startups often happen because founders are sufficiently different from other people that ideas few others can see seem obvious to them.

Much of the innovation in successful startups is unconscious at the moment they get started.

Successful founders can see different problems.

Being good at technology and facing problems that can be solved by it is a particularly good combination for founders.

Technology changes so rapidly that formerly bad ideas often become good without anyone noticing.

Steve Wozniak wanted his own computer in 1975, which was an unusual problem to have.

Technological change was about to make personal computers a much more common problem.

The problem Steve Wozniak solved for himself became one that Apple solved for millions of people in the coming years.

Apple was already established by the time it was obvious to ordinary people that personal computers were a big market.

Larry Page and Sergey Brin had the technical expertise to notice existing search engines were not as good as they could be and to know how to improve them.

The problem of web search became everyone's problem as the web grew.

Google was entrenched by the time everyone else realized how important search was.

Rapid change in one area uncovers big, soluble problems in other areas.

Advances in chip technology allowed Steve Wozniak to affordably design a computer, yielding Apple.

The growth of the web was the most important change for Google's origins, increasing the bigness of the problem rather than its solubility.

Startups create new ways of doing things, which is new technology in the broader sense of the word.

There is no precise answer for how fast a company has to grow to be considered a startup.

Starting a startup is a declaration of ambition to start a fast-growing company and commit to searching for rare ideas of that type.

The growth of a successful startup usually has three phases: initial slow/no growth, rapid growth, and eventual slowdown as it becomes big.

A company that grows at 1% a week will grow 1.7x a year.

A company that grows at 5% a week will grow 12.6x a year.

A company making $1000 a month and growing at 1% a week will make $7900 a month in 4 years, which is less than a good programmer's salary in Silicon Valley.

A startup that grows at 5% a week will make $25 million a month in 4 years.

Small variations in growth rate produce qualitatively different outcomes.

Startups do things that ordinary companies don't, like raising money and getting acquired, due to the qualitatively different outcomes produced by small growth rate variations.

If a successful startup could make a founder $100 million, then even if the chance of succeeding were only 1%, the expected value of starting one would be $1 million.

For the right people, such as Bill Gates, the probability of startup success might be 20% or even 50%.

The great majority of startups at any given time will be working on something that's never going to go anywhere.

Judging startups by the median rather than the average leads to misunderstanding the concept of a startup.

Looking at the average outcome rather than the median explains why investors like startups and why it's a rational choice for non-median founders to start them.

The test of any investment is the ratio of return to risk.

Startups pass the return-to-risk test because although they're appallingly risky, the returns when they do succeed are so high.

VCs are interested only in high-growth companies because they get paid by getting their capital back, ideally after the startup IPOs or is acquired.

There isn't a parallel VC industry that invests in ordinary companies in return for a percentage of their profits because it's too easy for private company controllers to funnel revenues to themselves.

VCs like to invest in startups not simply for the returns, but also because such investments are easy to oversee, as founders cannot enrich themselves without also enriching investors.

Founders want to take VCs' money for growth.

If a scalable idea doesn't grow fast enough, competitors will.

Growing too slowly is particularly dangerous in a business with network effects, which the best startups usually have to some degree.

Startups often raise money even when they are or could be profitable.