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.
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:
- Eventually the venture capital will dry up, killing the startups with no real value proposition and leaving those with the capacity to make money. This day is coming soon — the tech bubble is approaching the bursting point.
- Running a startup with any goal besides eventual profitability is wasteful and selfish. We have an obligation to all our stakeholders to be responsible, value-creating members of the business community. Doing otherwise is simply adding to the clutter, and often removes resources that could otherwise be invested in more legitimate operations.
- We may be young and proud, but if we’re to have any longevity, we need to demonstrate an ability to follow through. Starting something is easy; sustaining it is hard.
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?
- Make sure your startup has a realistic metric of success. The number of users you have doesn’t mean a thing if none of them generate revenue; likewise, pageviews are worthless unless they can convert. There’s a joke floating around that rings a little too true: “A million people walk into a Silicon Valley bar. None of them buys anything. The bar is declared a rousing success.” Don’t be that company.
- If your startup will only ever generate money through an acquisition, you should question whether your value proposition holds water. If you’re creating something worthwhile, users will be happy to pay for it — if they aren’t willing to pay, ask yourself what that says about your idea. It may be doomed to remain in startup mode forever.
- If you’re building a startup with an eye on the exit, you should question whether you’re passionate about the idea or just passionate about the paycheck. Great companies are built on passion and perseverance, not an exit strategy.
- Change our terminology. The next time someone asks what you do, don’t tell them you’re working on a startup — tell them you’re working on a business. Maybe “business” isn’t as sexy as “startup,” but at least it’ll still be around in three years to continue being unsexy.
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.