The trigger that made me write this post was a facebook discussion about VCs that I was following last week. Entrepreneur-wannabes arguing with VC-wannabes about how Silicon Valley can be replicated and how much should the startup seed capital be… 🙁 It was yet another piece of the generalized confusion that I continuously observe between the younger members of the so called “startup ecosystem”. A confusion which I believe originates in misunderstanding of some basic terms used in such discussions around startups, entrepreneurship, funding, exits and so on.
So, if you who are reading this, are an experienced entrepreneur who knows all about starting up, please …stop! Read no more, you will waste your time! This post is just my 2 cents for those of you who may be just engineers, software developers or designers – those who thought business studies are a bit boring… but you still want or need to become an entrepreneur.
Hey guys! Get it straight!
The first clearing-up that needs to be made by everyone who thinks that he is an entrepreneur… Please, first answer the basic questions:
- Is your venture a “startup”?
- What type of entrepreneur are you?
- Who are your customers?
Now, one will say that I sound quite naive in asking these questions, but although the answers may seem obvious, for many, a lot of the common misconceptions start here.
Ok, you should realise that your venture will have a business model; a method that will allow it to be at least viable & sustainable – although profitable is the right word in business. This venture, you will eventually turn into a profitable business that will generate value to people, aka your customers. Depending on its scope, a business may be categorized in one of the following 5 types:
- Lifestyle business. This is something like a sailing school or a dance school, where the entrepreneur’s lifestyle is the business itself. They sell services to the neighbourhood.
- Family business. This is usually a small operation like a retail store, a bakery or a restaurant, where the entrepreneur and his family members are working in the business and are paid by the profits. They sell services & goods to the neighbourhood and can scale up regionally.
- Social business. Although one may argue that most of these are not-for-profit-organisations, the entrepreneurs running them are paying themselves a salary. Services may be sold or may be provided for free locally, regionally & nationally.
- Service business. These can be big or small, from a freelance accountant up to a telecoms operator. They sell services in the neighbourhood, regionally & nationally.
- Scalable business. These are the businesses that make & sell products in an industrial manner, i.e. automation is used in one or more operations in the business. These range from car manufacturers to software-as-a-service businesses. They sell products & services in a non-geographically restrained area. Scalable businesses are the ones that get funded by VCs.
Although one could say that he is starting up any of the above businesses, the term startup should be used only in the context of a new scalable business. If you are not venturing in a scalable business, i.e. a business that is not aiming to be funded by Venture Capital funds, then don’t call it a startup, call it a business bootstrap! I know that for some it may be disappointing but getting those semantics right is important, this might save you time & money…
It sure sounds halfway awesome to call yourself an entrepreneur, puts you in the club with some of the legendary guys like Bill, Stephen, Richard, Mark and Jeff… Don’t forget, these guys are the successful entrepreneurs! I find that there are 3 basic types of entrepreneurs, characterising a person by his experience in setting up a business as a legal entity, successful or not:
- First time entrepreneur, he who has set up his first business
- Seasoned entrepreneur, he who has set up at least two businesses
- Serial entrepreneur, he who makes a business out of setting up businesses. He founds, scales and exits multiple ventures.
So, if you have not yet set up a business, it is not a good idea to call yourself an entrepreneur! It’s like calling yourself married when you are not… Call yourself anything else you like… By the way, I would only call myself an entrepreneur if I was a successful one!
This is a very important question and the answer must be real. Please, don’t fool yourselves when you draw your business plans! If someone has not paid you for your business offerings, then he is not a customer – he is an opportunity. You have customers (or potential customers) only if you can prove that these people have paid, or are willing to pay, real money for your service, product or idea.
I hope that this post helped you a bit, I will be writing a few more posts trying to remove some of the noise generated from this startup hype.