Different Types of Information Technology Startups

Steve Blank in The Four Steps to the Epiphany observes that there are four types of startups: those “entering an existing market,” those “creating an entirely new market,” those that “want to resegment an existing market as a low cost entrant,” and those that “want to resegment an existing market as a niche player” (Blank, pg. 23). Essentially, he’s defining a startup based upon how they reach and offer a service or product to their customers and users. One can identify a startup entering an existing market with a new product by looking at the product they’re offering, comparing it to competition and noticing higher performances in the new product when compared to competitors (Blank, pg. 24). A new product in a new market is “when a company creates a large customer base who couldn’t do something before,” is a result of creating something that has never before existed (Blank, pg. 25). When a startup resegments an existing a market as a low cost entrant, it means that a startup is targeting a smaller group of people within an existing market. Doing so, allows for the startup to successfully allocate resources to focus on a single user group before going on and tackling the rest of the market.

Within the IT industry, the Startup Genome has discovered startups grouped into three major clusters: the automator, the integrator, and the challenger, with a fourth type, the social transformer, similar to the automator except that its product also has network effects. Each type is based on the way the startup acquires and interacts with its users and customers. The three main types are defined by a spectrum with 100% marketing on one end, 100% sales on the other, and a midpoint. Furthermore, the Startup Genome also provides a definition for a startup with multiple audiences. For example, the startup could be an automator for one of its user groups, while an integrator to another (1). The Startup Genome uses the word “wing” to describe a startup with multiple user groups. The startup may have a core type and have one of the other types as a wing. All the types interact with their customers via their software, which is their product or service, and usually by means of the internet.

The automator is a type of startup that is focused on the product, a self service customer acquisition, and has low overhead. They are on the end of the spectrum of 100% marketing. They're “more likely to tackle existing markets” and have a lowest barrier to entry in comparison to the other three types. This also means that they have the most competition because their competition may simply build a product, put it on the internet, provide a fantastic user experience, and begin taking market share from an existing automator (2). The average number of months for this type of startup to reach late stage, where it begins to scale Examples that are provided by the Startup Genome of companies that fit into the automater category include: “Google, Dropbox, EventBrite, Slideshare, Mint, Groupon, Pandora, KickStarter, Zynga, Playdom, Modcloth, Chegg, Powerset, Box.net, Basecamp, Hipmunk, OpenTable, and Amazon” (2).

The social transformer is similar to the automator in that it has a self service customer acquisition strategy, except that its product also has network effects. Since the social transformer type has network effects, the biggest challenge for their product is to reach a critical mass of users. “Their products are characterized by creating new ways for people to interact” (3). Examples of social transformers include: “Ebay, OkCupid, Skype, Airbnb, Craigslist, Etsy, IMVU, Flickr, Linkedin, Yelp, Aardvark, Facebook, Twitter, Foursquare, Youtube, Dailybooth, Mechanical Turk, MyYearbook, Prosper, Paypal, and Quora” (3).

The integrator is in the mid-point of the spectrum, with 50% marketing and 50% sales. In other words, they “have a semi-automated customer acquisition strategy” (4). This means they are partially hands-on with how they acquire new customers and partially hands-off when compared to the other types. Examples of integrators include: “HubSpot, Marketo Xignite, PBWorks, Zendesk, Uservoice, GetSatisfaction, Flowtown, Kiss Metrics, Mixpanel, DimDim, Kontangent, and Zoho” (4).

The challenger is at the end point of 100% sales, and are focused around selling to enterprises. Examples of challengers include: “Salesforce, Zimbra, MySQL, Redhat, Jive, Ariba, Rapleaf, Involver, Oracle, Yammer, BazaarVoice, Atlassian, BuddyMedia, Palantir, Netsuite, Passkey, WorkDay, Apptio, Zuora, Cloudera, Splunk, SuccessFactor, Yammer, Postini, and BrightEdge” (5).


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