What is a Mighty Middle Startup? Every Founder's Goal

We often hear about unicorns – those rare companies that reach billion-dollar valuations and dominate headlines.

But there's a lesser-known category that deserves more attention: the "mighty middle."

These are the startups that may not make the front page of TechCrunch, but they're building solid, profitable businesses and achieving impressive exits.

On a recent podcast I interviewed David Sinkinson who founded one of these companies, AppArmor, and had a great successful exit for $40 million.

Today we will dive into what “might middle” startups are and why it should be the goal for most founders.

Listen to the full Startup Hustle podcast episode in your favorite video app, or you can also watch it on YouTube.

The Landscape of Startups

Before we dive into the mighty middle, it's important to understand the broader startup landscape. Traditionally, startups have been categorized into several groups:

1. Lifestyle Businesses: These are small companies, often run by a single founder or a small team, that generate enough revenue to support the owner's desired lifestyle. They're not designed for rapid growth or large exits.

2. Small and Medium-sized Enterprises (SMEs): These businesses are larger than lifestyle businesses but smaller than large corporations. They often serve local or regional markets and may have limited growth ambitions.

3. Venture Capital-Backed Startups: These companies raise significant funding from venture capital firms with the goal of achieving rapid growth. They often prioritize growth over profitability in the short term.

4. Unicorns: These are the rare startups that achieve a valuation of over $1 billion. They're often VC-backed and have demonstrated exceptional growth potential.

Where do mighty middle startups fit in this spectrum? They occupy a sweet spot between lifestyle businesses and VC-backed startups aiming for unicorn status.

Mighty middle startups are typically too large and ambitious to be lifestyle businesses, but they prioritize sustainable growth and profitability over the "growth at all costs" mentality often seen in VC-backed companies.

Defining the Mighty Middle

These companies often bootstrap their growth or raise minimal outside funding. They aim for significant exits (typically in the $20-100 million range) but do so through building profitable, sustainable businesses rather than chasing huge valuations based on growth metrics alone.

The mighty middle isn't about settling for less; it's about building sustainable, profitable businesses that create real value. These companies might not be household names, but they're the backbone of the tech industry, solving specific problems and generating significant returns for their founders and early employees.

They are the most common type of successful startups and should be the goal of most founders.

Why Mighty Middle Startups are Different

Mighty middle startups stand out in the crowded startup landscape due to their unique approach to growth, funding, and market focus. These companies challenge the traditional startup narrative by prioritizing sustainability and profitability over rapid, unsustainable growth. Let's explore the key characteristics that set mighty middle startups apart:

1. Focus on Profitability: Unlike many venture-backed startups that prioritize growth at all costs, mighty middle startups aim for profitability early on. This focus on profitability provides stability and options that many high-growth, unprofitable startups lack.

2. Bootstrapped or Minimally Funded: These startups often grow organically, reinvesting profits rather than relying on external funding. This approach allows founders to maintain control and avoid the pressures that come with answering to external investors.

3. Niche Market Focus: Mighty middle startups often thrive by solving specific problems in niche markets. By focusing on a niche, these startups can become leaders in their specific domains without needing to dominate entire industries.

4. Sustainable Growth: Instead of chasing rapid, unsustainable growth, these companies grow at a pace that allows for stability and long-term success. They prioritize steady, manageable expansion aligned with increasing customer bases and revenue.

5. Customer-Centric Approach: Mighty middle startups often have a deep connection with their customers. This close collaboration allows these startups to develop products that truly meet customer needs and build loyal user bases.

These characteristics enable mighty middle startups to build strong, sustainable businesses that can weather market fluctuations and provide long-term value to both customers and founders. By focusing on these principles, these companies can achieve significant success without the high-risk strategies often associated with unicorn-chasing startups.

Why Mighty Middle Should be the Goal for Most Founders

While the allure of building a unicorn startup is strong, the mighty middle approach offers numerous advantages that make it an attractive goal for most founders. This path provides a balance of significant financial reward, personal satisfaction, and reduced risk. Here's why founders should consider aiming for the mighty middle:

1. Achievable Success: Reaching $5 million in annual revenue can lead to a significant exit. This level of success is more attainable for most startups than becoming a unicorn. It's a realistic goal that can still provide significant financial rewards and personal satisfaction.

2. Maintain Control: By avoiding or minimizing external funding, founders can retain control of their company and vision. This control extends to the ability to choose when and how to exit, providing flexibility in strategic decisions.

3. Lower Risk: The mighty middle approach often involves less financial risk. Companies can focus on product improvement and market fit, rather than constantly chasing the next funding round, leading to more stable and sustainable businesses.

4. Flexibility in Exit Strategy: Mighty middle startups often have more options when it comes to exiting. They may attract interest from strategic buyers, private equity firms, or even larger tech companies looking to expand into new markets.

5. Personal Satisfaction: Building a profitable business that solves real problems can be incredibly fulfilling. It's not just about the money, but about creating value and making a difference in your chosen market.

6. Work-Life Balance: While still demanding, mighty middle startups often allow for a better work-life balance than the all-consuming pursuit of unicorn status. This can be particularly important for founders with families or other commitments outside of work.

By setting their sights on the mighty middle, founders can create successful businesses that provide personal and financial rewards while maintaining a sustainable and balanced approach to entrepreneurship. This path offers a compelling alternative to the high-risk, high-pressure world of unicorn-chasing.

The Path to Mighty Middle Success

Building a mighty middle startup requires a different approach than pursuing unicorn status. It involves a focus on sustainable growth, profitability, and creating real value for customers. Here are key strategies that can help founders navigate the path to mighty middle success:

1. Focus on Solving Real Problems: Address specific needs in your chosen market. This approach allows you to build a loyal customer base and create products that truly add value.

2. Bootstrap if Possible: Grow organically by reinvesting profits. This approach gives you stability and options, allowing you to maintain control of your company's direction.

3. Be Patient: Success in the mighty middle often requires time and perseverance. It's not about overnight success, but about building a sustainable business over several years.

4. Stay Nimble: Be prepared to pivot or adapt your product when market conditions change. The ability to quickly respond to new opportunities or challenges is crucial for long-term success.

5. Prioritize Profitability: Focus on building a profitable business from the start. High profit margins can make your company attractive to potential buyers and provide you with more options for growth and exit.

6. Build Strong Customer Relationships: Develop close relationships with your customers. This not only helps in product development but can also lead to valuable referrals and long-term loyalty.

7. Consider Partnerships: While not necessary, strategic partnerships can provide valuable resources, market access, or complementary skills to help grow your business.

By following these strategies, founders can build strong, sustainable businesses that have the potential for significant exits. The path to mighty middle success may not be as flashy as the unicorn chase, but it offers a more attainable and often more rewarding journey for most entrepreneurs. Remember, the goal is to create a business that not only provides financial success but also allows you to make a meaningful impact in your chosen market.

Case Study: AppArmor

On the podcast, I talked to David Sinkinson in depth about his company, their journey, and his exit. Let’s dive into more of his story as an example.

AppArmor exemplifies the mighty middle startup:

Founded: 2012 (as a side hustle), went full-time in 2014

Exit: Sold for $40 million in 2022

Employees: About 20 at the time of exit

Annual Revenue: Approximately $6 million in final year

Profit Margin: 60% in final year

Funding: Bootstrapped

AppArmor's journey began when its founders identified a specific need in campus safety. They started with a single paying customer, which allowed them to bootstrap their growth and reinvest profits to expand their product and customer base.

The company's path wasn't without challenges. They initially faced a small market in Canada before successfully expanding to the larger U.S. market. This expansion required patience and strategic planning, demonstrating the importance of perseverance in building a mighty middle startup.

AppArmor's success also highlights the importance of agility. When COVID-19 hit and campuses closed, threatening their core business, they quickly pivoted. They adapted their product to include health functions like COVID self-assessments, which led to a surge in adoption as their app became essential for campus access.

The company's focus on profitability was a key factor in their success. By their final year, they were achieving a 60% profit margin, making them an attractive acquisition target. This high profitability, combined with their strong market position, led to multiple suitors when it came time to exit.

AppArmor's exit process also demonstrates the flexibility available to mighty middle startups. They initially turned down an offer of $20 million, and a year later, sold the company for $40 million. This ability to choose the right time and terms for their exit was a direct result of their strong financial position and market leadership.

Conclusion

The mighty middle isn't just a consolation prize – it's a viable and often preferable path for many entrepreneurs. It offers the potential for significant personal wealth creation, the satisfaction of building a real, profitable business, and the flexibility to exit on your own terms.

In a world obsessed with unicorns, the mighty middle offers a refreshing alternative. It's a path that allows founders to build sustainable businesses, solve real problems, and achieve personal and financial success. As the AppArmor case study shows, the mighty middle can lead to impressive exits and lasting impact.

For most startup founders, this should be the goal – creating value, achieving profitability, and building a business that can thrive in the long term.

By aiming for the mighty middle, founders can build successful, impactful businesses without the extreme pressures and risks of chasing unicorn status.

I also want to give a shoutout to Greg Head with Practical Founders, who produces a lot of great content via his blog and podcast. He helps coach founders to become practical founders who build these same type of lightly funded mighty middle startups. Check out his excellent free resources.