Don’t Build a Startup, Build a Business

Don’t Build a Startup, Build a Business

Oct 23, 2012 Opinions

I picked up a book recently called The $100 Start-Up. The name alone was enough to hook me — it sounded perfect for someone interested in the startup scene, and the title implied that it was flying in the face of the VC-funded status quo.

Unfortunately, after just a few pages, it became clear that the book wasn’t about startups at all; it was about starting a lifestyle business. Nothing wrong with that, but a lifestyle business just isn’t the same as a startup. The title misrepresented the product, in the hopes of cashing in on the popularity of a word.

The world of startups has attained such mystique that people are scrambling to get involved. The word alone can sell a book, even if that book is about something only tangentially related. Somehow, entrepreneurship has become de rigeur, and everybody wants a piece of the pie.

What is a startup, really?

Language should be precise, so let’s define our terms. A startup is a very specific type of company — one that is early-stage, focused on rapid growth, and not yet locked down to a final business model. Startups tend to be heavy on innovation, and seek to disrupt whatever industry they’re in (or create a new one). A part-time project isn’t a startup. Not every internet company is a startup. Not every new business or small business or tech business is a startup.

The tech sector is over-saturated with new products — each week brings a new crop of apps and services vying to be the “next big thing.” Unfortunately, most are so pedantic that they simply add to the noise and make it harder for legitimate innovation to find an audience. Very few of these products launch with any capacity to make money, leaving them to rely on the overabundance of venture capitalists looking for a share of the next Facebook.

Without a source of revenue, and often without any desire to find one, these ventures are doomed to remain in the startup phase forever. Despite the cachet we apply to the term, however, remaining a startup means you’ve failed — the goal is to develop into a legitimate business, with a positive cash-flow and a sustainable future. Don’t be blinded by the euphoria that’s characterized this second dot-com bubble — when it bursts, only the startups that can stand on their own two feet will remain. The rest will fall, and fall hard, taking their financial backers and customer data with them.

In his essay Startup vs. Company, Carbonmade co-founder Spencer Fry writes:

You build a startup to test an idea and then you build a company to execute that idea. Let’s get back to that distinction. No more romanticizing about how cool it is to be an entrepreneur. It’s a struggle to save your company’s life — and your own skin — every day of the week. When this bubble blows up — and it will — only the people who have been prepared all along to make a business out of their startup will survive.

The dilution of the term is indicative of a more serious problem: we’re focusing on the wrong things, forgetting that the startup phase is merely a stepping-stone to a sustainable business. Remaining a perpetual startup is a surefire way to sink an idea, and we should stop encouraging newcomers to aspire to the wrong things.

Why should we care?

It’s hard to think of startups like Tumblr or Pinterest as failures, even if there’s little chance they’ll ever turn a profit. Here are a few reasons why we should deviate from their template and concentrate on building our businesses beyond the startup phase:

Unfortunately, there are attitudes pervasive in startup culture which fly in the face of these realities. Focusing on profit and product rather than users is seen as pandering to The Man. Adhering to the basic laws of economics is considered outdated and unnecessary. Our desire to disrupt the status quo is so great that we embrace hubris for its own sake. The internet has lowered the barriers to entry across the business world, but that doesn’t mean that the startup scene is as populist as we think it is — after all, we mostly build products for the wealthiest 1% of people.

So what do we do about it?

So how do we ensure we’re spending our time and energy wisely, rather than continuing on the never-ending startup treadmill that leads to nowhere but eventual insolvency?

Don’t get me wrong, I love startups and the whole tech scene. But we have a habit of making startups into idols, forgetting that the exhilaration of the startup phase must eventually give way to the responsibilities of being a business. We mustn’t betray the trust we build with the users, customers, and investors who are relying on us to remain viable. We must be good stewards of the time, data, and money they’ve invested in us.

In the meantime, I’ll leave you with this: Startup is the New Hipster.

  • http://joshuasortino.com/ Joshua Sortino

    I think one reason for the vast amount of startups is because of the rapid growth of the internet (and technology in general). Over time, we’ll see fewer startups. Other industries have evolved much slower, over decades and sometimes even centuries. However, the internet is a baby. There’s a gold rush and everyone is joining in.

    That being said, this isn’t necessarily a bad thing. The gold rush created many opportunities in the west. Even if you didn’t find gold, you found new work and opportunities. The startup culture is similar. Many companies will fail but, in the long run, it will create new opportunities.

    • http://twitter.com/akbogert Adam Bogert

      The gold rush did indeed create many success stories.
      It also created many ghost towns.

      • http://joshuasortino.com/ Joshua Sortino

        I would argue that’s the cost of progress. Without those ghost towns, some of the bigger cities today might not exist.

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  • http://twitter.com/johnmills John Mills

    “Unfortunately, most are so pedantic that they simply add to the noise and make it harder for legitimate innovation to find an audience.”

    You hit the nail on the head. And what happens when everyone is using the same, terrible buzzwords? Make up some more and throw a little gasoline on this fire!

    • jordankoschei

      I’ll invest $10 in the first startup to develop Buzzwordification as a Service (BaaS).

  • http://twitter.com/MsMaishaBHoye Maisha B. Hoye

    Absolutely, loved this article! I am a marketing person who is working on a business model that allows tech startups to hire a my firm to help them get the customers that will deliver the profitability you wrote about.

  • Charlie

    I agree with most things in the article but “start up” I think can refer to any type of business that is “starting up” including social enterprises and charities. A start up is exactly that, not necessarily a tech co or a rapid growth business but a type of organisation that is in fledgling status for whatever reason with a view to generating an income. I agree with the points at the end that unless you clearly define the goals whatever they are insolvency or boredom or even apathy will set in. The start up then moves to become a successful and workable business or insolvent and dies. I also feel that enterpreneurs can love just the start up phase and then can hand the business over to those who arent the risk takers who can really move the business forward. Its not just passion or pay check it can be risk taking too. Just my thoughts….

  • http://twitter.com/PDDevins P. D.

    I think the ideology behind the “start-up” is really fantastic and not at all shy of the goal. Start-ups are the american spirit; a bunch of semi-like-minded people collaborating on a common goal not for cash and prizes but for the spirit of creating; being a maker of things. The idealism behind the start-up is our search for the purest of ventures, not just some dirty dollar that shoots out the ass end of a product. Risking sounding like a contrarian, which I assure you I am not attempting to be, I think that business-people are latching on to the next money maker (i.e. tech start-ups) and riding it dry. True innovators and makers have their sights set on longer lasting and loftier goals that “surviving the coming tech-bubble-burst”. I guess it boils down to this: Do you do it for love, or for a buck. In other contexts you would be choosing between virtue and prostitution. But I digress.

  • CrowdfundingRes

    Too idealistic. The argument basically shoots itself in the foot

  • CrowdfundingRes

    Btw what kind of idea nowadays is truly a breakthrough? Unless you’re looking for a drug for cancer or making a time-machine, we pretty much have it all. And there still needs to be a job for a designer, developer and essay writer to put food on his table. I wonder if the author asks these questions when accepting a new design assignment for the “next generation app”

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