Startups can bring new ideas to market. They can give people a chance to change the world on their own terms. They can create something where nothing existed before. There is no doubt that they are exciting things to be a part of.
But, as much as the tech world tries to treat them as special, we don’t believe startups are special. They aren’t born out of big bang moments where the laws that govern other businesses don’t apply.
From the moment they go live, startups are as real as any other business. They are governed by the same set of market forces and economic precepts that wrap around every other company, new or old.
At the atomic level, all businesses need to generate revenue to pay their bills, grow their business, and stay in business. The sooner they find themselves in the black, the better chance they’ll have to survive. Call it a business survival instinct — businesses have to feed themselves or they’ll die.
Suggesting startups — specifically tech startups — don’t need to look for revenue opportunities now is akin to spoiling a child and shielding them from the outside world: They’re far less prepared when they eventually have to leave the house for the first time.
A poorly run startup is a poorly run business. A wonderfully run startup is a wonderfully run business. I don’t believe there are many great startups that are bad businesses. Maybe less than 1%. If the business is bad the startup is bad. A great idea, maybe, but a great business, no.
So if you start something up, start a business, don’t start a startup.
Joshua Blount
on 25 Apr 08No kidding, I just filled out paper work to get a EIN / S-Corp setup.
Ed Knittel
on 25 Apr 08Excellent points, Jason. And I’ll add that it’s better from your customers’ perspective as well. The more you look and act the part of a long standing, well established, legitimate business you stand a better chance at earning their respect and hopefully their business.
Scott
on 25 Apr 08I agree. Every “start-up” I’ve ever been a part of, whether it has $2M in VC funds or not, has failed. Great ideas, bad businesses.
Every business I’ve started up, especially those without high expectations to strike it rich, have succeeded.
Start a business that you understand and enjoy running. The rest takes care of itself. Just look at any of the businesses started by the guests at Seed 3.
Adam Bair
on 25 Apr 08Friends don’t let friends start a startup. ;)
Matt
on 25 Apr 08distinction without a difference?
Dave
on 25 Apr 08I attended startup school a few years back and the very best piece of advice I remember was that if your business is in beta, be sure to also beta test that revenue model (the latter of which is often neglected).
I couldn’t agree more. The revenue model is as important as the product itself. And like the product, the revenue generating side of the business will need time to adapt and evolve too.
Trevor Lee
on 25 Apr 08Spot on. What you describe is the sort of outlook that can help bubble-proof a startup. All the hubris and breathless excitement in the world can’t make up for real, solid business plans.
Mohamed Marwen Meddah
on 25 Apr 08Excellent post Jason; I couldn’t agree with you more. I’m a firm believer in knowing and planning out how you’re going to make money and keep your business alive; this whole build it, get it out the door, and then think about money approach just doesn’t work for me logically. I’m not saying it hasn’t worked for some or that it won’t work for others, it has and it will, but that’s not really the best way to build a business.
augustus
on 25 Apr 08You mean YouTube and Facebook are not real businesses.
What about the $300 million that both Chen and Hurley netted without showing any real revenue. Anyone remember Mark Cuban.
Sometimes useless ideas like creating the next great search engine might just be a winner.
I see your point, Jason. I would not disagree with your basic premise. I would simply say that if you think of the next YouTube or Facebook its worth pursuing. If not, stick to Business 101.
Regards.
Augustus
NewWorldOrder
on 25 Apr 08And if you’re using the Innovator’s Solution as the theory to guide your actions, then you are supposed to be impatient for profit and patient for growth. However, many venture backed startups do it the other way around: impatient for growth, but patient for profit
Justin D-Z
on 25 Apr 08I know a guy from my neck of the woods in WV (yes, we do have technology here!) who is a serial startup founder. He’s calmed down a bit now that he has like four kids but he did a number of ventures in my hometown when I was growing up. I turned down a few offers to work with him, because I knew he would be flipping each of them and I was looking for more stability.
But, I think this was the perfect thing for him to do. He was very excited about new ideas, loved getting them going, was good at it and had little interest in running a routine business from then on. There’s some kind of personality type (or ADHD?) suited to this. Given that these people would be unhappy running a proper, long-term business, I think we should diversify the dialog on both sides to respect that fact.
I’m sure there’s also a happy middle ground where you start a company, outsource most of the HR stuff some day (even if it’s small) and don’t artificially restrict the types of new projects you pursue. But that’s probably not appropriate for some people as well.
Denny K Miu
on 25 Apr 08Thanks a lot for a great post. I tried to make the same point in my own writing which is that one has to focus on making money in order to have a viable business no matter how much one wants to change the world. Hope you enjoy.
Make Money then Make Meaning
Tyler
on 25 Apr 08This goes back to the school of thought that Silicon Valley (for example) live in their own little world.
Anonymous Coward
on 25 Apr 08You mean YouTube and Facebook are not real businesses.
YouTube isn’t a business, it’s a Google product. Google owns YouTube.
Facebook is a private company so no one knows if they are a profitable business or not.
Vicky H
on 25 Apr 08I have come to not really like the word ‘startup’ which seems to have so many connotations associated with it. Most people think Web 2.0, the next best thing to Google, flipping, ect..
I find it refreshing to read a post that realizes that as @ Justin DZ said some are just suited to a particlular style. Some people, have a ft job and are looking to begin their passion and are not so interested in making money (only because I also have a ft job, of course).
There are many people out there trying to do different things, which is what keeps it all interesting.
I appreciate the points about revenue however as I may someday be interested in revenue and building something more.
Nice post Jason.
Lukasz Nowak
on 25 Apr 08Very good post!. Thank you for free lessons. You are my guru.
Denny Deaton
on 25 Apr 08Hi Jason, I have been following the 37signals blog for a long time now (silently). However this post hit home. My partner and I just started a business and launched a web site last month(humzoo.com). We were interviewed by several papers and they all mentioned the term startup, we were quick to change that because we wanted to come across as a company that was grounded and stable.
As several people mentioned above there is a ton of work that has to happen before you can legitimately start a company so why not consider yourself in it for the long run and present yourself in the manner?
I think its a mindset that some people consider startups to be more bleeding edge, non-corporate, open-minded and overall more versatile to change with the market. However they are usually the first to go. Maybe they aren’t taken very seriously inside and out.
Great blog!
djd
on 25 Apr 08Just curious guys but what’s the deal the last week or so with all the blatant anti startup/VC/et al commentary.
I love your guys take on business, entrepreneurship, design, etc but am wondering if something particular has set you off on this.
I’m feeing a disturbance in the usually balanced SvN force.
PJ Hyett
on 25 Apr 08Only VC-backed startups think they can get away with not having a revenue model, the rest of us are painfully aware that money doesn’t grow on trees.
DHH
on 25 Apr 08djd, I personally got a overdose of VC fumes from a recent trip to California that inspired me to get up on the soapbox a few times this week.
BTW, we’re not anti-startup. Anything but. Starting a new business is a wonderful thing. Much of what we’re trying to share is exactly to help startups, new businesses, succeed.
We do think that the approach of just worrying about eyeballs while blowing other people’s money in the hope of a big company buyout is an horrendously over-exposed approach. This is a counterbalance to that for people working in the web community saying “there’s another, simpler way”.
Tim
on 25 Apr 08If you guys don’t read latest Paul Graham essay, you probably don’t know why Jason writes this blog. Paul’s latest essay talked about just started a company/product that you like and helpful to people; the rest will follow (Revenue). Yup, it’s a lot of luck and VC-backed money to get such company going for a while until the exit point: sell out or merge to a profitable real-business company. Making quick money likes that is nothing to be ashame at, but the success rate is somewhere along the ratio of 1:100000 or so.
But if you want to see your company crossing the chasm to become great and lasting entity, then build a business like what Jason said here. Your chance is much better, and the experience you gain from building such company is invaluable and extremely helpful when you’re going to build the next one.
Kevin Milden
on 25 Apr 08People are pretty quick these days to ask for money before just trying to earn it. We’ve seen this all before and we know what to expect. The loop hole doesn’t seem to be taking companies public but rather selling them to larger companies this time. It will only work until the market corrects itself and the big companies have to focus on their core competencies. Only then will the investment community have to find another loop hole because no one will be buying start-ups. At least not at the price and rate they are right now.
Eric Silva
on 25 Apr 08I have agree with Paul Graham on this one.
The child analogy is pretty poor because to get venture funding, you’re selling a huge chunk of your technology to the VCs. You can’t really compare that to sheltering a child.
Creating value is always a good business, even if you haven’t figured out how to make money off it yet. If there is something valuable to people, they will either pay for it or endure ads for it.
Melani Gordon
on 25 Apr 08Great post. So much hype being put on the ‘startup’ when we are trying to focus our clients to think like business. Do you have a business plan? Not – do you have a ‘startup’ plan?
djd
on 25 Apr 08Thanks David. ‘Antistartup’ was harsh… I definitely get your guys alternative approach and find it refreshing. Keep it up!
giles bowkett
on 26 Apr 08YouTube isn’t a business, it’s a Google product. Google owns YouTube.
Facebook is a private company so no one knows if they are a profitable business or not.
The thing is, building a system with zero revenue and then selling it is a business. Your customer is not an individual user, but a technology company looking to acquire a system without paying to build it.
It’s meta-business.
I’m very skeptical of startups – just stating this for precision’s sake. It’s not that Facebook and YouTube aren’t businesses – it’s just that Silicon Valley builds companies as products rather than services, and they build technology corporations for other technology corporations, rather than building real stuff for real people.
Anonymous Coward
on 26 Apr 08The thing is, building a system with zero revenue and then selling it is a business.
You could say that. And I’d say you are a fool for taking those odds. They are less than 1%.
Wendy
on 27 Apr 08Startup innovate, Business often replicate. Yes business makes money faster by copying what has been working for years in the market that has been long existed, unfortunately the chance to get to that ultimate success is …. TINY. Rare by cases that a new venture in business take over the whole lots of legacy business, I can only think Micro.soft took over IBM.
Meanwhile people starting something work as hard as running their own business, they have a chance to reach that …. Huge Return. This is what appears on most of people mind right now.
Since it is easy to say that most startup fails, it doesn’t mean most business will run any longer. But certainly running a business means mostly won’t die bleeding so huge amount of VC money and cash flown in, if it happened to die.
Another way to say is if a lot of startups die, as expected, there are no longer anymore people will have to utilize Utility Computing such as Amazon Web Service (which is now crowded by so many usage from these whole brand new startups). In order to sustain AWS longer and longer, they need more sustainable business than hippie die young startups. Don’t tell me 37signals is linked to Amazon with all the talk to cajole people in favor of business.
CoryS
on 27 Apr 08Adding to the theme: Start a hobby not a startup.
Graham
on 28 Apr 08It’s all about the information and how good it is..
Bill
on 28 Apr 08Profit then growth… not always intuitive. Reminds me of flying: put your own oxygen mask on first, then help your child.
Chris Carter
on 28 Apr 08Selling startups makes money, in that sense I suppose it is a business. However, it was that poisonous business model that contributed heavily to the first bubble. Thanks to the “rockstars” in the Silicon Valley area, we’re probably headed into another. Speculation is a dangerous game. At least it appears to be mostly private investors this time around, the institutions and funds were bitten hard enough last time.
Pascal (raffle.it)
on 28 Apr 08Hi Jason, this is my first time so please be gentle. I’ve been reading your blog for longer than I can remember but never felt qualified to comment. Nothing’s changed on that front but I’ve finally realised that its okay to get involved.
Great article as always and relevant, I’ve recently launched our business and when asked refer to it as a start up some days and a business on the others. I agree with Denny Deaton when he suggests that the phrase start up conjures up a younger, more cutting edge business.
People pay to take part in raffles that we host and we take a share of that so I’m completely comfortable with our sustainable revenue model and also get incredibly frustrated when watching other new web based businesses (resisting the urge to use Start Up!) have no way of ever making money yet grab attention because they are a bit different and have loads of users.
Appreciated the link from the other Denny of LoveMyTool – very useful only wish he’d written it a year ago.
Looking forward to more SVN goodness.
JD
on 30 Apr 08I just started a startup—I’m going to revolutionize the fried food industry. Wish me luck.
Stilgherrian
on 01 May 08Jason, I thoroughly agree with this sentiment. Whatever happened to trying to build something of quality which endures?
Back when you wrote about the 4-day working week - which I’ve just adopted myself - I wrote a vitriolic essay comparing the “startup culture” with a religious cult. Some of i was perhaps over the top, but two key sentences were:
The intense startup locations like The Valley gather people with the same toxic attitude, and since they only socialise with each other they think this is the only way to do business.
Or is it just that the get-rich-quick style appeals to psychopaths? ;)
This discussion is closed.