The LEGO Startup Ecosystem

The ecosystem for both web and social startups increasingly resembles LEGO playsets. Rather than trying to do it all, startup companies are increasingly building in such a way that they can plug in and out of one another. In the process, the nature of exits, expectations of success, and boundaries of who can be an entrepreneur are shifting.

This shift in the web sector has been happening for a while. As activity has consolidated around certain platforms like Facebook, Google, iPhone, and Twitter, it has been increasingly appealing for young companies to build on top of those platforms. Whether it's Causes on Facebook or location check in services driven by the proliferation of smart phones, the companies building applications are leveraging the build in audience and distribution channel of their products, which in turn, are giving that built in audience new ways to use the tools and interfaces they've already invested in.

Importantly, there is an attendant shifting in the nature of early investments and exits. The lower cost of starting companies and building applications has prioritized engaged angel investment, or alternately, the host of community-centric incubators like TechStars and Y Combinator. More and more, companies are trying to get revenue posted (or have an exit) before they have to get too deep into traditional venture funding.

Exits are changing quickly as well. Whereas web 1.0 was all about homerun IPOs, these newer crops of organizations are all about mergers and acquisitions. And even the shape of acquisitions appears to be changing. It's not just big established players like Google and Apple buying (although they certainly are); even smaller funded companies are snapping eachother up to form better synergy. Yesterday, for example, social media application client company (i.e. a company that makes applications that make it nicer to use Twitter, for example) Seesmic announced its acquisition of Ping.fm, a URL shortener that makes it easier to update multiple networks at once. This is one of the clearest examples of the emerging, ecosystem centric nature of the web economy.

This pattern looks a little different in the social sector, but is exhibit in two main ways: educational and funding pipelining and stakeholder coordination.

Educational and funding pipelining is the process of organization's coming together to identify new social venture startups flow more successfully through the training and financial food chains. The programs I started and ran at Northwestern, which were largely "first step" or "exposure" programs have an ongoing conversation with more robust fellowship and incubator programs like ThinkImpact and Sparkseed, which in turn are ever deepening their conversation with family foundations and other funders.

Similarly, I've seen a huge amount of stakeholder coordination particularly in education programs, where the young groups that send students to different countries and to learn about different types of social change make it easier for students to move across organizations and find the exact right programs for them.

This is all hugely positive developments. As everyone becomes a platform and launch pad for others, it dramatically improves the access and context organizations have to coordinate, collaborate, and use resources more efficiently and effectively. Long live the LEGO.

(Photo: Guillermo)