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Nurturing the Startup Juggernaut

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In 1995, Sergey Brin was assigned to show a new student, Larry Page, around Stanford. They soon started developing BackRub, a new way to search for content on the rapidly growing Internet. Two years later, they received their first angel investment of $100,000 for a company that didn't yet exist. In 1998 PC Magazine named the newly christened Google the search engine of choice.

Feeling like the company was distracting from their academic pursuits, in early 1999 Sergey and Larry tried to sell Google for $1 million to an established web company. Rebuffed, they plugged along and later that year received a $25 million investment valuing Google at $100 million from two blue chip Silicon Valley venture capital firms.

If Google was only a search engine, you might never have heard of them. Sergey and Larry were opposed to selling advertising on their site, like most other web companies did. Bleeding cash, their investors were growing restless. Then Sergey and Larry found GoTo.com, which had an inferior search engine, but a superior way of generating revenue. GoTo.com's key insight was that when you enter a keyword into a search bar, you are disclosing what you are interested in at that point in time that allows the search engine to serve up a highly relevant ad. Google launched AdWords in 2000 and refined it in a couple of years into AdSense. GoTo.com was bought by Yahoo, which sued Google, which settled by giving Yahoo a chunk of stock.

Google's value exploded through the combination of a superior technology and a powerful business model. Google went public in 2004 with a valuation of $27 billion and today is valued at $365 billion, making Sergey and Larry two of the world's richest people. The past always seems obvious.

Observing the distinctive role startups play in our economy, Stanford Professor Steve Blank defines a startup as, "a temporary organization to discover an unmet customer need and then to develop a highly scalable business model around it." Harvard Professor Clayton Christensen notes that because early insights are personal, informal, and not fully formed, "It is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be. Guessing the right strategy at the onset isn't nearly as important to success as conserving enough resources to get a second or third stab at getting it right."

Every large successful company has matured through a highly evolving startup phase to become a mature, operationally excellent organization. While the entrepreneur excelled at dealing with ambiguity and iterating to a successful business, later management excels at data driven disciplines, which reduce variability and produce predictable results.

Except Larry didn't settle in. Though Google owned Internet search on most desktops, Larry kept fritzing around with new, out-of-the-box ideas. In 2005, Google bought a mobile phone software startup, Android. Larry said, "I felt guilty about working on Android when it was a little startup we bought. It wasn't really what we were working on. I felt guilty about spending time on that. That was stupid. That was the future. That was a good thing to be working on."

If the Google CEO was tense that working on the future feels like robbing from the present, people throughout large organizations feel the tension even more acutely. Roger Milliken's admonition is that all successful organizations must excel at both execution and innovation. "Operational excellence secures the present. Innovation excellence secures the future."

In 2007 Steve Jobs launched the iPhone and ignited the smartphone market. Had Google not been working on Android, they would have missed the massive shift from the desktop to mobile devices. But Larry was prepared, and today over half the world's smart phones run the Android operating system. The past always seems obvious.

Larry said, "I look at lots of companies and why they don't succeed over time... What do they fundamentally do wrong? Usually they miss the future." For Google to avoid that fate, Larry focuses on what the future is going to be and how to drive that at a really high rate.

What hair brained idea is Larry working on now? Drones. What do drones have to do with Google? Google attracts massive audiences as the master of search and advertising on the desktop and the leader in software running mobile devices. So what's the problem? In February 2014, with 84 percent of all 222 million unique web visitors, Google is running out of Internet. Drones can provide Internet access to the two-thirds of the world's population, roughly 4.6 billion people, who haven't been on the Internet. Drones are a strategic bet that likely will take years to pay off, if at all.

Christensen notes, "If history is any guide, the successful innovations will emerge from companies who carve disruptive footholds by targeting non-consumers and moving up-market with better products only after they have started simple and small."

Startups are the juggernauts that discover new markets, which drive growth and wealth creation in our economy. It's in our interest to nurture the ecosystem that allows startups to thrive. While the past always seems obvious, the best way to predict the future is to create it.