During a panel discussion earlier this month at the IDPF Digital Book 2012 Conference prior to the start of BookExpoAmerica in New York, there was an interesting panel discussion of publishers and their thoughts on the e-book revolution. The speakers on the panel were Richard Charkin (Bloomsbury), Jane Friedman (Open Road Media), and Madeline McIntosh (Random House). The entire panel was a wide-ranging and interesting conversation. IDPF will be posting the audio of the panel later this month (I’ll provide a link once it’s available).

At one point in the discussion, Richard Charkin made the point that, “[a]nyone who isn’t acting like a start-up [in publishing] has a serious problem.” This made me think what it means to be a start-up, and what it might mean for publishers to act like a start-up.

There are a number of books on the subject of start-ups, particularly since the boom of Internet start-ups in the late 1990s. During that time, a lot of wealth was generated at start-ups, and many were keen to know what made newly launched tech companies successful. It became important at many organizations to understand how they could the replicate that atmosphere and, in particular, those results in their own companies.

The real question for our community — since lamentably (or possibly thankfully) we don’t all work for a start-up — is how does one act like a start-up to ensure your organization is capturing the vitality, the new ideas, and the opportunities that distinguish a successful organization from one that either treads water or worse.

I’ve had the opportunity to work at a variety of organizations over my career. A few weren’t at all like start-ups and didn’t want to be; two allowed start-up-like innovation; one was very much a start-up; and one was forced to reinvent itself.

My own opinion of what distinguished those organizations was a receptiveness to embrace change and run with it. Determining the right opportunity and gauging the implications of that opportunity is never an easy thing — it is fraught with risk and potential pitfalls. Allowing staff to pursue those opportunities, while supporting the overall mission of the organization, was key. Fortunately, I wasn’t present at too many or major flame outs, so I can’t say that the organization was open to failure, because failure wasn’t really contemplated.

I thought the best way to test this question was to post it to some people who lead technology companies in our community. I asked what their thoughts were on this question about what are key aspects of a start-up, particularly in our community. The responses were fascinating, and a few of the best follow (in keeping with the rules of the list, I’m hiding specific attributions).

One person responded by quoting Steve Blank:

A start-up is an organization formed to search for a repeatable and scalable business model.

Another respondent quoted Eric Ries’ definition:

A start-up is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.

In addition to Blank’s writing on start-ups, among the books on this subject that were mentioned in response to my request were “The Lean Startup,” by Eric Ries (@ericries), John Nesheim’s book, “High Tech Startup,” or “Getting real!” By Jason Fried, Heinemeier David Hansson, and Matthew Linderman of 37signals. The commencement lecture by Neil Gaiman is another source of inspiration for many.

Probably the best full description was from another start-up founder:

The key distinction was the ability to develop a project free from the corporate restraints that you place on all the ‘business as usual’ activities. If you are developing an idea/product that is new and unproven it will be, by its nature, higher risk and won’t conform to the usual standards that you base your other business development on. You have to measure its success by different metrics. You also have someone at the top who can accept that your initial idea probably isn’t going to work, and that you will have to change it (pivot) as you go along.

Finally, another co-founder described it this way:

A start-up keeps on going beyond doubt, concern or budget. I mean, you just don’t stop because something doesn’t work as expected the first time or because you find an additional challenge or risk (on the other hand, a good start-up shouldn’t love the original idea too much as that doesn’t let it pivot if required.

For all the excitement of start-ups, we have to realize that start-ups themselves do not represent a sustainable business model — the reality is that the vast majority of start-ups do not succeed. A venture capitalist may satisfied with a success rate of only 5%, realistically because the potential value of an acquisition or IPO can return a sufficiently high margin on the investment to overcome all of the other losses. One commonly cited analysis of VC-backed successes showed that only 6.8% of investments returned 10x or more on the invested capital. The downside of these figures is that according to research on the topic over 60% of investments lost money or failed to exceed the returns from traditional bank savings rates. And it is important to note that a successful IPO might mean a cash-out and return for the financial backers of the organization, but that is not the same as a long-term successful business. We need only look to Facebook and its short-lived $100 billion valuation, or going back to the 1990s, the long list of IPO-rich firms that are now long since shuttered. Most start-ups have an exit path (at least for the initial investors) that is focused on going public, some form of sale, or a merger, as opposed to long-term independent management. This is not the same as the creation of a long-term business value. And this is certainly not a model for an existing business that expects to be around for the long term. To be fair, this is not the end goal for many start-ups, but primarily those funded by venture capital.

While many have described the book publishing world as operating on roughly the same fundamental model — i.e., produce enough books and one will be a bestseller — I am not certain that most organizations could long survive in that environment, just as the majority start-ups fail. Several large corporations have dedicated divisions focused on innovation, sometimes called skunk works. Notably, Amazon launched Lab126 to develop physical products, and A9 to create search products, while Google X, is exploring everything from driver-less cars to alternative energy systems. Companies like Lockheed Martin (from whom the broader term was derived), Xerox, and IBM were renowned for their innovation groups, but they exist outside of the technology world as well such as BMW and Citibank. Few large publishers have innovation groups. Notably, Elsevier does support an Innovation Lab to study scholarly communications and test new products.

The challenge for most organizations is not necessarily that good ideas don’t exist. They do and might flourish, but realistically, the care and feeding of existing workflows and business processes need to be supported. In an era of reduced capacity for economic reasons, there isn’t the staff bandwidth to be developing new products or services with the kind of focused passion that is possible or necessary at a start-up. Ensuring that existing products and services are often all consuming for most publishing staff. In addition, realistically, few existing organizations have the wherewithal to see six of ten new projects fail in hopes that only 1 of 20 is a tremendous success.

So, while innovation and risk-taking are to be lauded and encouraged as much as possible, is it realistic to presume that every organization needs to act like a start-up to succeed? For an organization that is well established and producing quality services, acting too much like a start-up could be detrimental in the long term. Though this is not at all to say one cannot or should not innovate and try new things related to one’s existing products. One respondent noted that a start-up is “a business without a legacy. It is a way of thinking where you don’t need to worry about supporting a legacy business with existing (possibly restricting) limitations.” This can work within larger corporations by designating small entities with their own budgets and responsibilities, with the remit of solving a particular problem or developing a product. The risk in this situation is to what extent does innovation detract from your legacy business. But then again, to what extent are your products already at risk? And which risk is greater?

I’ll end by noting the comments of Joe Esposito, one of the other cooks in the Kitchen. Joe made the point that:

The real thing about a start-up is to do something that is new.  It doesn’t have to change the world.  It doesn’t have to have a $100 billion IPO. It has to find — or invent — a new market.

Now that is good advice to leave you all with. Now get to it!