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Avoiding Risk, Startups Think Small

When I was an editor at The Industry Standard from 1999-2001 I sat through dozens of pitches from startup companies with business models that sounded overly vague, at least for me to understand, and overly ambitious. Now, the startup pitches I hear are more modest. Maybe too modest.

At today's "Startup City" competition at the InformationWeek 500 conference in Tucson, five tech startups with widely varying business models made their pitch to a panel of three venture capitalists and an audience of CIOs. One was selected as the winner and will be featured in the regular Startup City feature in next week's issue of the magazine.

Each of these companies had business plans that were easy to understand and highly specialized. One, Confio Software, seeks to enable more accurate and effective database performance monitoring. Whamtech offers data integration middleware, while Peak8 Solutions provides an automated "self-help-desk" customer support solution. None of them seek to change the world, or dramatically improve people's lives, or provide broad solutions to a wide array of different customer types.

Part of that, of course, is because these were enterprise-focused startups. Audacity tends to be found in the consumer galaxy of the startup universe. I would argue it represents a broader trend, though.

"We have been extremely deliberate in partnership with our investors integrating our first market segment, even though our solution has very board applicability," explained Peak8 CEO and founder Ron Renjilian. "For us the goal is proving the revenue model in one industry, then taking those successes and approaching a wider set of customers."

As a strategy, that's hard to argue with, and it's clearly an outgrowth of the over-exuberance that infected the VC industry in the dot-com era. As a vision, it's less than inspiring. What happened to all the BHAGs (big hairy audacious goals) that have fueled Silicon Valley dreams since Bill Hewlett and Dave Packard built their first audio oscillator in a Palo Alto garage in 1939?

"The venture market has become so stratified that all the VCs are moving upstream," said William "Billy G." Glynn, chairman of venture firm Collective IQ, who helped grill the startup contestants today. "It's a rarity for emerging companies to actually get capital."

That's a recipe for caution and finding the narrowest niche possible, to reduce risk. It's also a prescription for small thinking, not world-beating technological innovation.

"I often hear companies say, 'We're gonna go after 1% of the market, and if we get 1% we'll be successful,'" continued Glynn. "Anyone who's going after 1% of the market, that's someone we're not very interested in talking to."

Like any other part of the economy, venture funding and the startups it supports go through cycles of expansion and contraction. In high tech we're due for another burst of exuberance, risk-taking, and big thinking.

Oh yeah -- the winner was Mino Wireless, a Santa Clara-based startup that seeks to solve a very specific problem: overseas voice-over-IP calls and roaming for large enterprises.

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