What Square's rise means for the startup ecosystem

Like Google and Facebook before it, Square is set to transform the startup ecosystem.

Square's focus on monetization and mobile cannot be overlooked. Screenshot by Jason Cipriani

Square is different than any other startup that has come before it, and its growing influence and size will inevitably lead to a change in the way entrepreneurs run their companies and venture capitalists invest.

There's no doubt that Square is on the rise, but it is set to accelerate its growth, thanks to a strategic investment from Starbucks that places Square's technology in front of millions of consumers. And thanks to Starbucks, Square's revenue and valuation are set to soar .

Perhaps this is why more pundits are calling Square "Silicon Valley's next great company," an informal title previously held by Intel, Apple, Facebook, and Google. I certainly can't argue with the assessment. In fact, I'd argue that the other potential contenders -- Twitter, Pinterest, Dropbox, Uber, etc. (Tumblr, SpaceX, and Foursquare would make the list, but they're not in Silicon Valley) -- don't have Square's potent mix of a visionary founder, built-in/scalable business model, and enormous market potential.

Those three characteristics -- visionary founders, straightforward business models, and enormous markets -- are becoming more important than ever to investors as they search for the next billion dollar company. Andreessen Horowitz has become a top-tier VC firm in record time in part because it has made transforming founders into CEOs its calling card. And the struggles of Facebook, Zynga, and other ad-based tech businesses on Wall Street has made finding scalable business models more valuable than ever.

Square's rise is also a validation of the mobile-centric approach that more and more startups are adopting. "Square has helped everyone see the value in mobile-first thinking," says Greylock's Josh Elman. "Mobile isn't just a consumer phenomenon -- enabling small businesses to be more successful in mobile can be a huge business as well."

It's also a validation of Dorsey's approach of putting design and usability first, Norwest Venture Partner's Josh Goldman says. "The product experience is so revolutionary, and a huge leap in utility and usability, from both consumer and merchant standpoint, that it's attracting huge levels of interest."

Google transformed Web advertising, which paved the way for a new class of ad-supported startups that thought about growth first and revenue second. Facebook, which exemplified this type of ad-supported startup, quickly made social the engine that drives most of today's startups (including Pinterest, Tumblr, and Zynga), especially after the social network launched the Facebook Platform in 2008.

What will Square's role be in the startup ecosystem? I suspect that, beyond an emphasis on design, mobile, and built-in revenue models, Square will also become the platform on which many startups monetize, especially if and when it starts gobbling up the world's other payment startups in its quest to simplify payments across the world.

With the struggles many Silicon Valley companies have had on Wall Street, a focus on monetization is a good thing.

 

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