For my first post as a Forbes contributor I wanted to start by highlighting something I’ve learned first-hand while building my new venture: that a startup is not the same as a starting a new business. Teamlyis my third entrepreneurial outing and it’s been the most challenging, the most risky and the most uncertain of the three. Why? Because it’s pure startup. My first two ventures, although technology based, were far more businesses than they were startup.
So what is a “startup“? Wikipedia says it’s a company in search of a repeatable and scalable business model, and adds that the phrase is most often associated with high growth, technology oriented companies. Eric Ries, author of the book, “Lean Startup” defines a startup as a human institution designed to deliver a new product or service under conditions of extreme uncertainty.
To underline the point – and to really understand what a startup is – it helps to understand what it lacks compared to a traditional business. It lacks a repeatable and scalable business model and lacks certainty. It lacks these things because it’s delivering some new product or service, and no matter how much you think you can research in advance, you can never know how the market will react when you launch. In comparison, if you launch a “new start” business which tens of thousands of people have already done before, it can’t fall under the definitions above of what makes a startup. In this case the business has been proven many times before, and you can take advantage of that information, research and learning which has been perfected, potentially over hundreds of years. That doesn’t mean you can’t improve on what’s gone before – Virgin have said all it takes is being 10% better than their competition to win – but if you’re not fundamentally doing something new or different it’s not a startup.
As your level of understanding increases about the market, you gain insights from customers, and start validating your hypothesis and even earning some revenue from paying customers, the amount of “startup” reduces and the proportion of “business” increases; at the same time the risk decreases. It’s not a black and white thing either, you might start with 10% unknown and 90% known, or 90% unknown and 10% known.
The problem with building a startup outside of Silicon Valley is that the further away from startup culture, the less this is understood, by founders, investors, or any other stakeholder. Probably 99% of books written about business are addressing the issues of scaling, managing, and building an established business. As well as that, education and business support services are generally skewed towards that understanding of traditional businesses. The problem is that applying the tools of traditional business too early will kill the chance of your startup ever becoming a business. That’s not to say you can’t use skills or education learnt in a traditional business in your startup, but none of that will help you get to “product-market fit”: being in a good market with a product that can satisfy that market.
Finally, to illustrate the point, a student recently told me how he had a great idea and a great plan for a startup. It’s possible and entirely sensible to plan a traditional business before you launch it, but with a startup you can’t. You don’t know what you don’t know, and you don’t know what the market wants until you build something and show it to them. Consequently, it might take you a few months or a few years before you get to a scalable and repeatable business model. So if you’re thinking about starting a new venture, don’t do a startup if you don’t like uncertainty, and lots of it!