There’s a persistent narrative in Silicon Valley that, to be “truly valuable,” a software startup must aspire to become a platform—the next Salesforce, ServiceNow, or Datadog. The truth is, far more startups succeed by creating specialized, best-in-class products that fill strategic gaps within larger enterprise stacks. They may never become a standalone platform—and that’s not a deficiency, it’s a valid (and sometimes optimal) path to value creation for founders, employees, and investors alike.
Category Creation and Dominance: The Real Prerequisite for Breakout Value
While the prospect of becoming a platform is alluring, the reality is that very few startups ever make that leap. Yet, this shouldn’t deter founders from aiming for breakout outcomes. Whether or not your startup becomes a platform, you must still do one of two things: (1) define and dominate a new category, or (2) redefine an existing category and dominate it. Only by asserting and owning a distinct market space can a startup stand out among incumbents, become a magnet for customers, and—crucially—command a valuation that is meaningful to investors, employees, and shareholders. Strategic buyers pay premiums not just for technology or revenue, but for clear category leadership—regardless of whether the company is a “platform” or a best-of-breed solution.
Startups as Off-Balance Sheet R&D
Most large enterprise software companies are focused on maintaining and modernizing their platforms—a euphemism for addressing technical debt and delivering on customer promises. This necessary focus leaves them with little “spare” engineering capacity to chase emerging problems or develop innovative new products, especially those that challenge their historical assumptions. In many cases, larger companies lack a sufficient number of people who have the market and product insights, risk profile, or motivation to develop truly disruptive/innovative products and business models: those people often grow frustrated with the internal politics of large corporations and leave to found startups.
Enter the specialist startup: nimble, customer-obsessed, and highly focused on solving one new pain point exceptionally well. Startups are, in effect, “off-balance sheet R&D” for the software industry. They have the freedom to take risks, experiment, and validate new use cases—serving as innovation engines that established players can later partner with or acquire.
When Acquisition is the Win Condition
It’s a mistake to view an exit-by-acquisition as a consolation prize. For many teams, being acquired by a strategic buyer brings significant upside—accelerated market reach, more resources, and often robust financial returns. Some of the most successful outcomes in enterprise software—measured by founder, employee, and investor returns—have resulted from precisely this innovation-to-acquisition dynamic.
Industry Examples:
- AppDynamics (acquired by Cisco for ~$3.7B): Built an exceptional APM product, sold into a competitive but crowded market. Cisco’s purchase plugged a crucial hole in their cloud and networking stack.
- Duo Security (acquired by Cisco for $2.35B): Focused on secure authentication, Duo’s solutions enhanced Cisco’s overall security platform and allowed them to leapfrog competitors in zero trust.
- Opsgenie (acquired by Atlassian for ~$295M): Provided alerting and incident response capabilities Atlassian lacked, integrating instantly into Jira and Confluence workflows for better DevOps outcomes.
- Looker (acquired by Google Cloud for $2.6B): Brought a modern data analytics/productization layer to Google, addressing gaps in their cloud data stack.
- MuleSoft (acquired by Salesforce for ~$6.5B): Delivered a robust integration platform that powered a broader “platform play” for Salesforce—but note, MuleSoft was a product company first, only “platformized” after acquisition.
Each of these startups addressed a clear gap—one that large players, encumbered by legacy systems and organizational inertia, couldn’t plug quickly internally. Their impact wasn’t measured by their ability to become “The Next Platform.” Rather, it was the value they delivered as a product, multiplied when brought into a larger enterprise story.
Why This Matters for Founders and Investors
Platform ambition is admirable, and—occasionally—attainable. But the pursuit can also be an expensive distraction when there is immediate value to be created (and captured) as the best-in-breed product within a well-mapped enterprise ecosystem.
Valuable exits through acquisition are not just commonplace; they are integral to the innovation cycle in enterprise software. Startups that fill product holes are often rewarded handsomely—serving as force multipliers for the acquirer and providing meaningful outcomes for their creators.
Bottom line: Not every software startup needs to become a platform. The industry needs, and rewards, both platforms and product specialists. But all true winners define a new category or reframe an existing one—and then dominate it. Choose the right North Star for your company and market. Don’t undervalue the product path, and never neglect the importance of category leadership. If you’re building, investing in, or selling enterprise software, don’t let “platform envy” obscure the very real value of focus—sometimes, solving one hard problem better than anyone else is the surest path to both impact and exit.