What Is A Startup?

Less than a week from today a large portion of the internet advertising community will convene in New York City. It’s not for the screening of Mad Men, and unlike last year it won’t involve a chance to take clients out to the World Series. But, it will still be ad:tech, and there will be plenty of meetings, plenty of greetings, and lots of eating. The majority will not attend the sessions, but they will walk around the expansive exhibit hall looking for familiar faces, remarking on the number of those they don’t know. That’s the part we like, seeing what new businesses have been created in the past year, seeing who from the year before is still around.

Starting a business is a natural progression, especially in the performance marketing space. Many of the people who end up running a business don’t start out thinking they will, but then they do. The cpa network space is famous for this.

Start-up Culture
Networks start up all the time, and usually they are started by those who have either worked at one or used one heavily. It’s no surprise that we go with what we know. If you worked in display and you wanted to start something, chances are you will probably do display. What you start is not more than just about an area of expertise. There is a huge cultural element to it. In the performance marketing world, there is an active startup culture in that a sizable number of companies go from idea to existence. Startup for performance marketing is, in that way, almost defined by existing and being active in the market place. But, that doesn’t mean there is a startup culture, not in the same way that San Francisco and the Bay Area has a startup culture.

Two Versions of Lean
Spend a little time embedded at a startup event, and among the words most likely to cross your ears are pivot and some variant of light, lean, able to create without heavy cash expenditures. That’s not unlike the performance marketing space. The performance marketing startup scene is largely a bootstrapped culture and bootstrapped companies tend to be lean. But, lean there just means able to do a lot without raising a lot of money. Being lean in the performance marketing space is a byproduct of the bigger focus, making money right away.

Funding
We need money to function. Do you earn it, borrow it, or trade some equity for it? Performance marketers focus on the first two. Bay Area startups tend to rely on the last. Whereas a performance marketer might wonder where to spend money, the Bay Area startup revolves around figuring out where to get money; be it from angel investors or later on institutional investors. The idea of going out and raising money is an anathema to the vast majority of the performance marketing space.

Long Term versus Short Term
The whole goal, and often reason, for starting something in the performance space is to make money right away. It’s done generally by either creating offers, running offers, brokering offers, or some combination of the three. It’s a 30 to 60 day view point, and almost always all about being cash flow positive from the start. The Bay Area culture is less deal driven and less transactional. It’s a product culture. It’s the culture that Google has helped instill where some of the most influential employees carry product management titles. It’s about creating something where that something isn’t money right away. Many wouldn’t know how to if they needed to. Some companies break through and figure out the revenue models, but very few have done so without relying heavily on other people’s money for a long period of time.

User-centric
Whether a byproduct of the raise money culture or a characteristic that is simply complimentary, as is the case with the time trajectory, we see the difference between the two startup worlds in the product focus of their efforts. Both sides focus on the user, but not surprisingly, the performance marketer’s business looks at the user as a conversion not as their customer. They want to get as many users as possible, but unlike the Bay Area mentality, it isn’t to do things for things. It’s to have them do things for the company. Performance marketers aren’t generally looking to build repeat business. Stickiness and virality aren’t part of the business lexicon. The Bay Area is all about viral quotients and network effects. Users are who they serve even when they aren’t paying.

The All Mighty Exit
Perhaps more than anything else, what separates companies from the two startup cultures is not the start but the finish. As ingrained in their heads as making money is in ours, the success of a business is judged by whether it has an exit. It’s ingrained because the focus on an exit is the final piece in a financial life cycle. When a business takes in venture funding, it is on the clock. They want to build a good product and business, but it’s all in the context of that product and business being one that a bigger company will want or getting big enough to have an IPO. Making money is fine; it’s generally a necessary part of getting the exit, but how that money fits into the story is of greater interest than just a company’s ability to make it. When you start with an exit in mind you get a much different business than if you start with money in mind. It’s that organizing principle that keeps our worlds separate, and it is why we see so little overlap in our world’s today.