It’s not a startup … It’s a startup business

Photo via RootStartup

As a species, we can be pretty lazy with language.  That’s cool… we all know what we mean.  But I reckon there can be benefits from occasional reminders about what we all think we know.  The word “startup” is such an occasion. 

We say it and we hear it all the time.  But “startup” is really just shorthand for “startup business.”  We all know that, right?  So what’s the point of laboring over two whole additional syllables when we’re already all on the same page?

I’m not claiming causality here, but I find it curious how infrequently I hear entrepreneurs talking about the business side of their startup businesses.  Mostly, we love to talk about the idea and our passion for it.  We love to talk about our motivation… the solution… the design… the technology… the brilliance.  The business?  Not so much.

Mostly, the ideas I hear are good.  Some are really good.  But a startup business needs to be more (much more) than just a really good idea.  It needs to be a good business too.  And as it turns out, there’s usually a huge chasm between good ideas and good businesses.

Here’s the rub: there are lots and lots of really good ideas, cool ideas, outstanding ideas, stuff we all wish existed and if it did exist we think we’d use it… that are NOT also good businesses.  It’s only a small subset of good ideas that are also good businesses.

Job one for an entrepreneur is to figure out if there’s actually a good business to be had from a good idea. Or is it just a good idea?  It’s OK if a good idea turns out not to be a good business — just so long as you figure that out before you spend three years of your life, expend all your savings, exhaust your relationships and take down your whole team with you while you’re at it.

There’s no certainty to be had here but it’s remarkable how often startups are pursued without ever diving deep on the business side.  It’s a rare thing when an entrepreneur reaches out to me because they want to talk about the sustainability of their business model or the scalability of their revenue strategy.  They want to talk about their idea.  Which is just fine because I love talking about ideas.  But even more than the ideas themselves, I love talking about the business of the idea.

So once I think I have a reasonable understanding of their product, their market, their team (which usually takes less than 15 minutes)… I am ready to talk business.  How are or you going to make money?  How much will customers pay?  Why would they pay that?  How long will it take and how much will it cost you to acquire those customers?  How many have you talked to?  What’s the long term value of a customer once acquired?  What’s your distribution strategy?  Is it a two sided market?  How are you going to solve for that?  And a hundred other questions. Needless to say, these can be hard questions to hear if you haven’t spent a lot of time thinking about them and can make for a disappointing conversation for a lot of entrepreneurs.

In any case, here’s what I’ve found: It’s really hard to tell if a startup business is likely to succeed but it’s surprisingly easy to show that it’s likely to fail (or at least show that there’s rational justification for believing you don’t know how it could possibly succeed).  This is really good news because if you can make your startup business fail on paper first then you’re way ahead of the game.

Then you have some choices to make besides fervently proclaiming your passion for the idea and constantly quoting the late Steve Jobs on perseverance and citing Instagram’s acquisition.

You could choose to call it what it looks like, i.e., just a good idea but not a good business.  There’s no shame in that. Lots of useful, clever ideas turn out not to be a good business.

Remember, most good ideas are not also a good business.  If it’s an idea you really care about about but you can’t wrangle a business model out of it then you may have just discovered a labor of love that you can have a blast working on in your spare time without the pressure of feeling like you should quit your paying job.  And who knows, if you keep working at it, something might change and you might stumble upon a business pivot that turns it from a labor of love to a startup business.

Bob Crimmins

You could also choose to dig in and keep working on the business model until it’s really hard to make it fail on paper. This is what I think a lot of really good entrepreneurs do.  This is called “perseverance” and it’s a lot of work so buckle your seat belt.  This is also where your passion is a really valuable asset because it will keep you moving forward while you figure it out.

Just don’t loose site of what you’re trying to figure out, i.e., a sustainable business that can support your awesome idea.  And by the way, don’t build into your model that your going to raise investment capital before you’ve got a reasonable story about the business side of your startup business.

You could choose to take what you learned and pivot your idea in the direction of a different market, a different customer, a different product.  This is another common behavior of good entrepreneurs.

You could also choose to follow your passion, ignore the paper and double down on your good idea in spite of a lack any evidence that it’s likely to be a good business.  At least if you choose to double down in the absence of a credible business model you’ll at least be making an intentional choice to do so.  I don’t recommend that but as an informed and conscious choice I can get behind it.

As I’ve written before, I believe passion is necessary but not sufficient for startup success.  But recognize that your passion is irrational.  Although it inspires you, your passion doesn’t know anything about revenue models, acquisition costs, competitive barriers or conversion rates.  Your passion has never crunched a spreadsheet or solved for a two-sided market. In short, it doesn’t know anything about the “business” part of your “startup business.”

To be clear, when I say “fail on paper” I’m being very lazy with language.  It takes a lot more than just paper to figure out whether your idea might also have a decent shot at being a business.  Some indicators that you’re doing something right are:

  • You’ll be talking to a lot of relevant people about your ideas.  And unless your preparing to file a patent, you won’t be asking anyone to sign an NDA.
  • You’ll be doing a lot of market and competitive research.
  • You’ll be crunching numbers in spreadsheets to figure out what the economics are likely to look like.
  • You’ll feel like you are the biggest critic of your idea and will always be on the look out for qualified folks to confirm or challenge your assumptions… but mostly to challenge them.

My recommendation:

1) Occasionally work in the phrase “startup business” when you talk about your idea. It may feel dorky but it will help keep you honest about what you’re really trying to do, i.e., build a sustainable business.

2) Strap a spreadsheet to your passion and embrace the hard questions that will help you figure out if your good idea is also possibly a good business.  I strongly believe that falling in love with a specific idea is, well, a bad idea.  Much better to fall in love with solving problems and cultivate a passion for exploring ideas with the aim of figuring out if they might also be a great business.

3) Try in earnest to prove that your idea is not a good business.  If you fail at that then you have a much better chance of staying out of the 90-plus percent of startups that fail —  even though the founders had tons of passion for their idea.  You may also have a shot at discovering a labor of love that you can have some fun with while you wait for the muses to return with a better idea or fix the one you already have.

Bob Crimmins is founder and CEO of MoonTango, a personal care products experience exclusively for women.  He’s also chief instigator of Startup Poker 2.0 and a an advisor, teacher and speaker on entrepreneurship.  You can catch him tweeting at @bcrimmins and occasionally blogging at voxdigitas.com.

  • http://www.facebook.com/smallscreen Colin Kimball

    Thank you for this post, Bob.

    I started my startup business (smallscreennetwork.com) in 2007 as a part time “let’s see what happens” endeavor. I don’t have an MBA or experience building successful companies that I could leverage into easy financing or instant customers. I didn’t know how to evaluate my idea or run a business at all. Calling my startup business a startup didn’t help either. Rather than seeing if I could actually create a business out of my idea and passion and attract customers, I spent countless hours writing a business plan and trying to raise financing, neither of which did I know how to do, because that is what startups do.

    Long story short, once we through away our business plan and set to getting customers to pay us, low and behold, we found them. Our audience grew (we are a content publisher) and continues to grow to this day.

    What do I do when I am not producing, publishing and optimizing our content or selling sponsorships or advertising? I create spreadsheets (which I hate as a creative person) and I move numbers around and research those numbers and try to back up my assumptions with data. I am constantly trying to prove that I do not have a business. Until the next customer comes along anyway.

    Colin Kimball

    Founder, Small Screen, Inc.

    • Bob Crimmins

      Hi Colin, thanks for sharing your experience. I understand your hate relationship with spreadsheets but good on you for wrangling them any way. If your not a math geek or a recovering CPA then, yeah, they can be pretty excruciating. But it is remarkable what comes out of grinding away on them.

      For those who haven’t done it much, I think you’ll be surprised at what comes out of it. It’s not just calculating the results of the assumptions you make and tweaking them till a cogent picture arises. Working out the math also reveals weaknesses and opportunities that you just plain would not have discovered if you didn’t “do the math”.

      Best of luck to you!

  • http://twitter.com/fijiaaron Aaron Evans

    Actually, “startup” is not short for “startup business”.

    I actually like wikipedia’s definition http://en.wikipedia.org/wiki/Startup_company:

    A startup company or startup is a company or temporary organization designed to search for a repeatable and scalable business model.

    When your startup finds and implements a viable business model, it stops being a startup, and starts being a business. I don’t mean that in the typical undergrad (what Paul Graham calls post-grad) naive, snobbish sense. I mean that a business has different goals than a startup.

    A business is designed to make money. A startup is expected to lose money. Nobody runs a business at a loss — it’s not good business. A startup doesn’t necessarily mean a computer software (or hardware) company, and it doesn’t mean a company funded by a Venture Capital firm — though traditionally VCs invested in startups.

    A startup means a venture (that’s where the word “venture” in VC originally came from) that, like the definition from wikipedia is looking for a business model. It connotates something that takes time and money to “start up” (that’s where the term “startup came from) before it could even think about making money.

    When most people say “startup” these days they mean either a company formed by someone spending other peoples money with the intention of being sold. Or they mean 1 or 2 people working from home to build a small technology business which –believe it or not– is antithetical to what Paul Graham & Co. are doing.

    When people talk about a business operating like a startup they mean investing money in R&D with the intention of developing new markets or products.

    • Bob Crimmins

      Hi Aaron, thanks for chiming in. I couldn’t agree more that the mission of a startup entrepreneur is “to search for a repeatable and scalable ‘business’ model.” And I’m happy to call it a startup “company” if you prefer. There are an indefinite number of stories of how startup companies get conceived, get financed, are grown, are sold, fizzle or die… which the vast majority do. My view is just that losing sight of the object of that search (a viable business model) is both dangerous and easy to do. As it turns out, math is a really powerful tool in that search and one that I think lots of entrepreneurs would do well to spend more time with.

  • Mark D. Walters – GC To Go

    I agree with Bob’s assessment, but more importantly, his recommendation about making sure there truly is a profit generating business in your startup company idea. Passion is great but you must make a profit, and if you can’t make it profitable, scrap the idea and keep searching for one that can.

    Colin’s story appears to reflect a bootstrapping startup company approach, which can really help on the profitability side, as well as a solid job of customer development. Nice work, Colin!