Successful Startup 101: September 2014 Successful Startup 101: September 2014 | Page 29

For the last three years I have been immersed in the
startup world. Many of my friends work for startup
companies, I’ve written a book that covered many
startups that trend towards the social good spectrum,
and I have been recruiting and working for many of the
companies myself, here in New York.
During this time, I felt like I was missing something-some major point that everyone else understood but
me. I wondered what purpose all of these startup
served, and wrestled with understanding how so many
of these businesses could be sold for millions, or even
billions of dollars, when most made little to no profit and
lacked concrete business models.


I kept quiet about my questions, afraid to admit that I just
didn’t get. When I shared my feeling with close friends I
boiled it down to an impression that it must simply be all
pretend. It must be one of those ideas that will eventually
self-correct and everyone will then realize they have been
believing in a fake shared reality. It was a philosophical
response that I obviously didn’t share with many.


Then, I had the chance to work with a 50+ billion dollar
company on a short term consultancy and I heard the board
members and C-suite employees talk about acquiring and
investing extensively in these small, profitless startups, as well
as the venture capital funds that fund them. I finally got it: It’s
all about research and development.


It isn’t pretend at all. It is a simple value proposition that
doesn’t rely on the companies having a business model
but rather relies on the knowledge they learned. It is
outsourced research and development. All these calls
to “disrupt” industries at the end of the day is different
language for what used to be called R+D.


Let’s look at it more closely. It would cost a large car
company, for example, $100 million dollars to research
and develop the best new LED light bulb themselves.
For the record, this isn’t an obscene amount of money
within the scope of a multi-billion dollar company.


Then you have a VC firm that has a look at the industry
and notices that it costs this manufacturing company
$100 million to do this R+D work, and they figure o ]