Zombie Startup or Small Business?

David Cummings posted another insightful article last night on Zombie Startups, which he defines as “startups that have enough revenue to stay in business but not enough growth or scale to raise more money or be attractive to an acquirer.” In the SaaS world, these startups are indeed zombies, because they just walk around and consume brain power trying to hit high growth mode and eventually get acquired. Unfortunately, these startups are often seen in a very negative light, simply because of the nature of the software startup ecosystem, which rewards, praises, and celebrates “the big raise”, which these “zombies” never achieve.

However, the software startup ecosystem, while hugely successful, only passingly acknowledges and tends to gloss over the fact that 99%+ of these startups never raise any money, never get acquired, never become “the next Instagram”, and certainly never get close to an IPO. 

Another name for these zombies is “small businesses”. There are more than 85,000 small businesses in the U.S. today, and these enterprises are the heart of the American economy. Cummings even points out a phenomenal example of what is viewed negatively in the SaaS startup world:

“take a $2 million/year SaaS business that’s breakeven and put it in harvest mode generating $500,000/year in profits”

If you owned a small business with $2M in revenue, which would be about 10-15 employees, and it was pulling down $500k in annual profits, now THAT would be seen as a sterling small business. You’d be a bona fide “1%-er”, and have plenty of income with which to invest in and build more businesses.

Most startups don’t ever raise VC money. Even fewer get acquired. Even fewer make millionaires out of the founders. That’s ok. Just remember, the next time you’re considering starting a business (which should be always), that owning a small business is the heart of the American dream. “Own your own business!” is what can and should be attractive to most entrepreneurs, because most of us will never get acquired and hang out with Zuck. But we can play a huge, meaningful role in the lives of our families, employees, and community when we build a sustainable business that does not have as it’s only goal – or only source of revenue – “the exit”.

What do you think about that?