When talking about business innovation, startup companies are so fundamental that it’s a topic we’ll return to from time to time on FRB as part of our series on startups. For now, we’ll begin at the beginning and discuss what a startup is, the startup ecosystem, startup culture, and how all of that has changed over time.
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Erin Camp: Hi, I’m Erin Camp.
Art Cavazos: And I’m Art Cavazos, and this is Future-Ready Business.
Erin Camp: I’m a corporate finance lawyer with Jackson Walker, a Texas law firm.
Art Cavazos: And I’m a corporate and finance lawyer with Jackson Walker.
As corporate and finance attorneys, part of what we do is work with startups, we work with mature companies, and we work with early-stage companies. Today, we wanted to talk about the early-stage companies and the startup industry folks who invest in startup companies, in addition to folks who start new companies. There’s a lot of different places, we could start there, but where do you think we should start, Erin?
Erin Camp: What I was about to say is that a lot of what we do, especially for newer companies, is act as outside general counsel, basically, and help them get on their feet, establish best practices, and really start getting going. We come across a lot of recent business grads and talk a lot with business professionals and know that in business school, they’re teaching business professionals that a startup company is any company in sort of that beginning stages of business that’s just starting up. In our practice and what we’ve talked about a lot is we really think that definition is much too broad, and that a startup company is in and of itself a type of company, and that not every company is a startup company.
Art Cavazos: Right. There’s kind of a startup industry, or startup culture, that has arisen. What’s really interesting to me is that over the past 20 years or so, I’ve witnessed what was kind of an early dot-com era startup industry develop into what is really now a very mature, institutionalized industry that is no longer only focused in certain markets. There actually was not only Silicon Valley back in, like, the ’50s getting started, but Dallas was the center of, like, Silicon Prairie. You know, there was like Texas Instruments and all of these other companies, all of that has matured to today.
All across the country, you have angel investor networks, incubators, accelerators, university programs that are teaching classes on startups and entrepreneurship. You have venture capital firms. It really has become this entire industry in of itself, and I think that’s kind of what we wanted to talk about today.
Erin Camp: Yeah, and we do think that a startup company is something separate and apart. In other words, we don’t think every company that starts in its beginning stages is a startup company.
When we’re talking about that startup culture, what I see in my head is like craft beer on tap at the office, no suits, flip-flops, and shorts – you know, the open office concept. I mean, it really is something that’s been labeled startup culture. I feel like that’s very common to have sort of those images when you think of a startup.
Really, what we’re saying is the bodega down the street is not a startup, or at least it doesn’t feel like it is when it opens up, there is something there, and we would like to really flesh out here what that is. What makes a startup company different from just any old mom-and-pop down the street that just opened up?
Art Cavazos: Not every new business is a startup is our view. So, what is a startup?
First of all, a startup company is not a new concept. Going back again to like the 1950s, Silicon Valley is when that really started getting off the ground. You saw the technology industry booming all through the ’60s, ’70s, ’80s, even going straight to the technology industry and associating that with the startup culture. There is a long association of the technology industry and the startup culture or the startup industry. And I think that that goes all the way back to that time period where you had companies like Apple and Microsoft that were just getting off the ground.
But that also was a very different era of the startup industry, because it really looks nothing like the startup industry today, where we have this well-established path for new companies—often technology companies—but, as we’ll talk about, not always technology companies that have almost a playbook where there are certain types of financial assets like SAFEs, which are simple agreements for future equity, that have become popular in the marketplace. Those have somewhat replaced convertible notes, which are also still popular in the marketplace, but there’s kind of a whole set way that startups begin, mature, and go through like the series A, the series B, the series C rounds. There’s like a whole playbook now.
Erin Camp: And I think also what we’re trying to get at: it’s not all in one industry, it’s not all tech. And so that isn’t, in our mind, a defining feature of a startup company – we think it can be in any industry.
Art and I have sort of two different ideas of how important these two prongs are, but I personally think that a startup, whenever, is a company that, once it first sort of opens its doors or gets started or right before it gets started, it’s already thinking about fundraising. They’re already thinking about how they’re going to expand and how they’re going to expand quickly, and that’s all part of their beginning business plans. So, I really think that this sets it apart from like the bodega down the street.
Another prong that we’ve discussed—which, I think, kind of dovetails nicely with what Art was just saying about technology and how startups originally seemed to be tethered to this one industry but are no longer since they are, in and of themselves, their own thing—is that they have to be, in our opinion, a company that has a business model that is disruptive or innovative. In the past few decades, that largely has been the tech industry. But as the tech industry continues to evolve, it’s seeping into pretty much every industry, too.
Art Cavazos: Yeah. And there’s also kind of a feedback effect, right? Where, like, startup culture has become so large and mainstream in the public eye that everybody wants to be a startup now. So, there is like a little bit of a feedback effect, where if you—I do think disruption and innovation is a key aspect of the definition, because if you are a yoga product company and you sell products that people can do yoga with, but you do it in a new and disruptive way, or if you’re Warby Parker and you sell glasses, but you do it in a new and disruptive way. Those, I think, are startups, even if they’re not focused entirely on technology. And you may be utilizing technology like a website or the internet. You could almost describe it in waves. There was, kind of, the personal computer startup wave in the ’80s, there was the internet, the early internet wave, in the late ’90s and early 2000s, and then, over the past 20 years, I think we’ve had kind of a web 2.0, it’s sometimes called, of businesses that are leveraging the platform of the internet that didn’t exist before to create all of these new and disruptive business models.
Erin Camp: Yeah. I really think that is a way that we can differentiate what is a startup versus, you know, what is an early-stage general company. Just this act of wanting to expand and fundraise and grow right from the outset, and then having a business model or an idea that somehow disrupts or innovates the economy or a specific industry.
Art Cavazos: One thing we haven’t talked about yet, that I think is a really interesting aspect, as well, is kind of the generational issues or just the—
Erin Camp: —the generational tensions. I do think a lot of the startup culture is very tied to millennials. I think there’s something to it. But when you talk about the big startups or companies that started out as startups that have now become a lot of the tech giants, a lot of them, maybe, they were started—like, let’s take Facebook or Snapchat. They were started by millennials, they very much wanted to have these millennial cultures or this very startup millennial-inspired culture, but then they grow and, oftentimes if they’re successful, they will get an injection of cash, oftentimes from a private equity company that is run and managed by someone that’s of the, sort of, baby boomer generation that has very different ideas of how the company should run and what the company’s goals are and how the company should evolve. I think that’s a very interesting tension there.
Art Cavazos: Yeah, because over the past 20 years or so, since the early dot-com boom and bust, startups have been largely associated with kind of the younger generation, you know, maybe the millennials, you could say. But I think in the past, that has actually been a little bit of a misconception. If you look at all – especially the top startups – the really big tech companies that have come to dominate the economy over the past 20 years—I’m talking about Apple, Microsoft, Amazon, Google—all of those were founded by either baby boomers or Gen Xers. It’s really not until you get to Facebook and Snapchat that you do have millennial founders. So, I think maybe the difference is that the dominant companies over the past 20 years have not been led by millennials, but the newer companies coming up maybe have been more so led by millennials, and we might be kind of at a transition point. It’s interesting to note, if you look at that list of Steve Jobs, Bill Gates, Jeff Bezos, Larry Page, Sergey Brin–I mean, obviously, Steve Jobs is deceased–but none of them are involved in day-to-day management of those companies anymore, they all have stepped back. The only ones who are actually still involved in those top kind of tech or startup companies are Mark Zuckerberg and Evan Spiegel at Facebook and Snapchat, who are both millennials in their 30s. And so that is kind of an interesting observation that they’re the only two that are still active in the day-to-day management of those companies.
Erin Camp: Yeah, and I mean, that could be because of age, but it also could be for other reasons. But I do think that is an important distinction to make, because these technology giants today that did very obviously start up with this very distinct startup culture, they were very much out-of-the-ordinary, very disruptive, innovative players in the fact that they were startups, and they were instilling this startup culture and that they’ve managed to carry it into today. Millennials now making up the majority of the current workforce, which is new. That just happened, right?
Art Cavazos: So, millennials are currently the largest generation in the world in the workforce, but they’re projected to become the majority just millennials in 2030.
Erin Camp: Okay, great. Yeah. So, as millennials become more and more of the workforce, what we’re going to see is, you know, more and more new companies actually falling into this distinct, what we’re saying, is a startup company sort of category. Maybe over time, we are moving closer and closer to the definition being so vague. To me, that seems like it could be an indicator of that, meaning maybe right now, as we’re sitting here, that definition seems way overly inclusive. But as millennials become a bigger and bigger part of the workforce, we may be looking at a huge corporate shift towards companies that really do start out with, and always do start out with, that sort of startup culture, startup feel, and that becoming more common than companies, you know, the mom-and-pop hardware stores or at the bodega down the street. I mean, that may have even become, it may even be more common now.
Art Cavazos: Yeah, I think that goes back to the feedback aspect of it, where the startup industry has grown so large and gotten so mainstream, every market – whether it’s a small kind of Midwest market or a smaller Texas market, definitely on the coasts – everybody is looking to get into the startup game. There’s a lot of money there. There’s a lot of venture capital money, there’s a lot of angel investor money, there’s a lot of money just being poured into resources, there’s a lot of capital being put into co-working spaces and incubators and, again, university classes, and things like that. So, there’s kind of all this infrastructure that’s been built up around it, and if you were – maybe would have been – a more traditional small business owner, like you were saying your mom-and-pop bodega or the hardware store down the street or whatever, and you weren’t really thinking about yourself like a startup, maybe you start going down to the local accelerator or incubator and taking some classes and learning about venture financing, and you start making changes to your business model to try and fit that startup mold a little bit more.
Erin Camp: And I think we are going to see that. I think there’s pros and cons to that. I mean, one con could be we may continue to see a lot of consolidation and getting continually small in more and more industries that where, you know, previously, we haven’t seen that. You’re maybe the bodega down the street, maybe we’ll all be held by like five major corporations. I think that’s a con. But, you know, maybe it’s good for the people that interact with those companies, people that work for those companies, because another part, another aspect of startup culture aside from the fundraising aspect and aside from the innovative, sort of, disruptive feature is that they do seem to have some sort of like ethical/moral responsibility towards their employees, too. They do seem to give them some other benefits aside from just their salary. So, you know, maybe it’ll be good in those ways.
Art Cavazos: It is an opportunity for a cultural shift, right? You know, we talked about startup culture and you mentioned things like craft beer, and, you know, I imagined people in like hats and with tattoos and you know, everybody’s riding bicycles and—
Erin Camp: —longboards to work.
Fun fact about Art: He was a young finance attorney on his longboard in uptown Dallas.
Art Cavazos: I did used to ride down Katy Trail every day to work. So, but you know, so we kind of laugh about those kinds of cultural aspects. But you know, a topic that we’ll be talking about on this podcast, as well, corporate responsibility, that’s out there as a buzzword. Corporate social responsibility, thoughts about the environment, thoughts about taking care of workers, taking care of customers in ways that maybe corporations haven’t always been tasked with. There are separate questions about what a corporation has a duty under the law to do, and then there’s a separate question about what customers and employees and the public just expect from a corporation or from a company. And maybe some of those attitudes are shifting, maybe some of these startup culture aspects will go into that, as well.
Erin Camp: Yeah, and they’ll really start permeating into more sort of corporate environments. It really does seem, you know, if you think about what just sort of the raw definition of a startup is, it really does seem like there is something intangibly different than what a startup is—just to bring this whole little episode full circle—it has to be a company that before they open their doors, maybe right when they’re opening their doors, they already have an eye towards fundraising, and then it also has to sort of disrupt its industry or be innovative in some way.
Art Cavazos: We’ve mentioned that a few times, but we haven’t really gone into what we mean when we talk about disruption or innovation. And I do think it is a key part of being a startup, and it is a key part of that startup culture, is creating something new, doing something in a new and different way. Not every business has that mentality. So, I think at the outset, if you as a company, employees and management, everyone involved, investors, all have that mentality that you’re doing something new, you’re doing something different, I think that that does set the culture on a different path right off the bat. And so, I think that that is a fundamental aspect of what makes a startup.
Erin Camp: Yeah.
Art Cavazos: So, one thing that I find interesting is to compare the startup culture or industry of the past 20 years or so to the post-war era. Baby boomers were kind of born during that boom, but the reason it was a boom is because there were so many new American businesses being started during that time period. And it was post World War II, it was a much more kind of egalitarian era, CEOs were probably making 10 times what the average worker was being paid as opposed to 100 or 1000 times what the average worker was being paid, and there wasn’t nearly the level of institutionalized investors that were looking to invest in all of these small businesses. I think a lot of those businesses were startups, to some extent. The definition we’re using requires disruption and innovation, I think we have maybe a differing view to some extent on how important of a role institutional investment plays in the definition of a startup. Because if you say that you have to be seeking venture capital or some type of institutional investment, private equity, then I would say most of those businesses were probably not startups under that definition, because there probably just wasn’t as much institutional investment available in the ’50s and ’60s. The market wasn’t as robust as it is now for that. The financialization of the economy hadn’t taken place yet to the same extent.
Erin Camp: We agree to disagree.
So, I guess we’d have to talk a little more about how those businesses just by existing were innovative, because I think that probably needs to be fleshed out more. I think a lot of the companies that you’re talking about are, like, the mom-and-pop hardware store down the street, which I don’t think whether or not there was this availability of institutional investors. I think you’d have to look at that prong too, but I guess when I say an eye towards fundraising, I don’t necessarily mean something institutional. I mean, there’s a bunch of crowd—you know, the Kickstarters—crowdsourcing sort of fundraising. Back then, it was a lot easier to do that because it wasn’t as regulated. Institutional investors kind of came out of high regulations, protecting consumers. I think there’s kind of a chicken and egg part of the show.
Art Cavazos: Real quick, I wanted to say on the boomer thing, I kind of just wanted to juxtapose, you know, the boomer era—which really wasn’t even the boomers again, because they will be born during that period—but it was that boom post-war period. I just wanted to kind of juxtapose that against the past 20 years of startups. I think it was very different that a lot of those businesses probably wouldn’t meet our definition of startup. But our definition of startup also, I think, is contextualized in the modern era, where we are in a world where we have all of this venture capital and institutional investment and all of the infrastructure around being a startup and getting funding in those ways. None of that infrastructure really existed at that period is what I’m saying. But there was a boom of new businesses being started and founded, you know, so it was maybe just a different era of the startup. But not to leave out Gen Xers and Zoomers.
So, Gen X was actually, you know, very critical to the big tech companies that we have today. So, that was maybe kind of the generation that founded a lot of the largest companies that we have now. Millennials are really only starting to get into that territory where companies that they have founded are becoming dominant players in industries. I think that is only starting to happen. But now, I think we do have Zoomers coming in who will be filling the role that millennials did over the past 20 years, which is starting the newest startups.
Erin Camp: Yeah, I think it’ll be interesting to see, you know, in the future, will all new companies meet this definition of startup? Because it seems like the younger generations like millennials, but Zoomers, kind of lean towards that sort of culture versus the mom-and-pop, sort of, older generation idea of what a new company is.
Art Cavazos: Yeah. I mean, it’ll be interesting to see. I mean, I could see it go in two ways. You know, either startup culture could kind of just become corporate culture. It could just kind of migrate out and become completely mainstream. Or it could be that old story of, you know, you’re liberal until you start paying taxes and, you know, millennials turn into boomers, essentially.
Erin Camp: I think, right now, the way business schools are teaching what a startup company is, is technically incorrect. It’s not every new company that’s created. I can name clients that we have that have never been a startup under our definition that we’ve been, you know, sort of fleshing out on this episode. I think we might see it’s sort of a self-fulfilling prophecy, since we are teaching business professionals that is what a startup company is and that all new companies are startups. I mean, maybe one day, that definition will be correct and all new companies will be startups?
Art Cavazos: Yeah, or at least most. That’ll be kind of the way to do it. I mean, if I were starting a business today, I would go to the local incubator, right? I would meet people there. There are networking events, and they have classes, they have resources available. I mean, that that’s how I do it today.
Erin Camp: Right? And, you know, just to talk about my prong a little bit more, what is that incubator for Art?
Art Cavazos: So, I think we’re about out of time for today. But that was really just an introductory conversation about startups in the startup industry, what is a startup, thinking about the different generations of startups, and the Zoomer generation that that is really coming up and coming right now and that will be creating the newest startups over the next few years. So, we’re going to be talking a lot more about startups, as well as a lot of other topics on the podcast.
Erin Camp: You heard his touch on this, but corporate responsibility – we have an episode on that coming up with a guest. Do you meet to say who the guest is?
Art Cavazos: Let’s keep it secret. Okay. No, no, go ahead and say.
Erin Camp: You can say it.
Art Cavazos: Yousef Kassim—a good friend of both Erin and I—he’s a startup entrepreneur himself, and he’s going to come on and talk about corporate responsibility, corporate social responsibility, sometimes it’s called. I think that kind of, you know, maybe partially proves the point about startup culture, right? It’s something that I know is important on his mind as a startup founder.
Erin Camp: Be sure to check out our episode on Cryptocurrency. We’ll have episodes on, hopefully, legal automation coming out soon and some other episodes coming your way.
Art Cavazos: If you like this show, please rate and review us wherever you listen to your favorite podcasts and share feature at business with your friends and colleagues.
Erin Camp: We would like to thank our producer, Greg, on the ones and twos.
Art Cavazos: Our theme music was provided by me. Thank you, me.
Erin Camp: If you’d like to reach out to us with a comment or any feedback on our show, you can follow me or find me on Twitter at @BusinessLawyerE. E for Erin.
Art Cavazos: And you can find me on Twitter at @FinanceLawyer.
Erin Camp: We’ll see you next time.
Art Cavazos: Goodbye, everybody.
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