sethserver / Startups

What is a Startup?

Everyone knows someone with the next big idea. You overhear them in coffee shops and bars, you're related to them, or maybe you even are them! (no shame - I have dozen of ideas!) Or, if you're lucky you get to listen to dozens of pitches every year in various forms: cousin with the next Facebook killer, distant acquaintance with a revolutionary AI idea that will save billions, business bro who just needs a tech person to build their vague vision. My eye is already twitching. Maybe we should step back and think about what startups are and what they're meant to accomplish.

Startups are Risky

The dry, technical definition isn't very useful in my opinion: a newly established business. It feels like we're blurring the lines between starting a small business and technology startups. Startups and small businesses are very different things, with different purposes, and different goals. I'm not trying to diminish the value of small business, nor am I trying to elevate the status of startups; I'm deliberately drawing a distinction between two different ways of building a business. Startups are inherently risky and typically shirk ways to mitigate that risk - they succeed or they fail.

Startups are inherently risky and have no reasonable way to mitigate that risk - they succeed or they fail.

Startups Lack Structure

Startups lack - for better or worse - a lot of the structures that most other businesses rely on simply to survive. Think about things like having a functional Accounts Payable department, or a Sales team, or a Marketing team, or a Customer Service team. Startups typically don't have these in place, or if they do they're small and very disorganized. This lack of structure is a feature, not a bug, it allows startups to be nimble. Small businesses should have these in place, if not internally definitely outsourced. Proper Accounts Receivable can be solved at some future point at a startup; but not receiving any money would spell disaster for a small business.

Startups Can Change Direction

The running joke is that startups pivot every few months, and while that's not entirely true it's not entirely false. Because of the product and market risk that startups take on, they need to be able to change direction quickly, and that's where the lack of structure comes in handy. The overquoted startup adage, fail fast comes to mind. I have no clue who said it first, and from what I understand it's a misrepresentation of John C. Maxwell's fail forward quote; which I feel still doesn't quite get to what startups are trying to do. Personally, I use "learn quickly" as a mantra.

Startups Aim for the Moon

Startups either chase an entirely new, unproven market or have a solution that's so crazy, so awesome, so novel it may not actually work. They aim for the moon. This is in stark contrast to small businesses that typically have a proven solution for a proven market. Simple examples are things like car washes, dry cleaners, laundromats, and franchises compared to a flying car startup. I also feel like (thanks to the cloud) certain technology companies can be better classified as small businesses - like an app that helps building inspectors better organize their properties.

Startups either chase an entirely new, unproven market or have a solution that's so crazy, so awesome, so novel it may not actually work.

I've found the distinction between small technology companies and startups to be one of the larger stumbling blocks for entrepreneurs. They have a fantastic idea, but the idea is best defined as a small business, not a startup. There's nothing wrong, bad, or shameful; but it's very important to know what type of company you're building so you can plan accordingly. Γνῶθι σαυτόν.

Startups are Funded Differently

Startups are most commonly funded by founders, early customers (bootstrapped), and eventually Venture Capital firms looking to multiply their investment by orders of magnitude. Similarly, small businesses can be funded by early customers, founders, loans, and grants. It's also perfectly acceptable (I disagree, but Twitter did happen) for a startup to not bring in revenue, or make a profit for years. Small businesses should definitely be brining in revenue from day one, and should be profitable within the first year.

Startups are Meant to be Sold

Finally, startups are meant to have an exit. The entire idea is to try something new, risky - and if it works, sell it to the higest bidder. The higest bidder can be a larger company, a Venture Capital firm, or even an IPO. Small businesses are meant to be run for years, decades, centuries. They're structured to be passed down from generation to generation, or be sold to another business in the same market.

I feel like if you walk away with anything it's this: know what you're trying to accomplish before you label it. If it's your intention to explore a brand new market with a product that has never been seen, and you're willing to risk everything to do it - you're building a startup. If you're incrementally improving a product or service for a well-defined market, you're probably building a small business.

Whether you're trying to build the next great startup or a solid small business I wish you success! Good luck out there.


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