It’s Time to Rethink the Idea of Startups

It’s time we take a serious look at what a “startup” actually is. We have to stop chasing unicorns as investors and the concept of acquisition by Google or Facebook as the foundation of value as founders.

Stop Saying Startup & Start Saying Tech Enabled Small Business – Paul Singh

The Coming Tech Bubble

According to venture capital investor Bill Gurley, the average MONTHLY burn rate of startups in Silicon Valley is $4 million per month. That’s the burn rate!

The vast majority of entrepreneurs would dream of having $500k one time, let alone $48 million a year, all while not making a dime in profit.

This is leading to the next 1999-like tech bubble explosion, but we could be having a massive growth in technology as the cost to build MVP’s is going down dramatically. Unfortunately, because of the investor need to chase unicorns, tons of great ideas get ignored. There are so many amazing B2B ideas out there that never get built because they are only a $10-50 million business.

It’s only a matter of time before this catches up to us and institutional investors realize so much private equity capital has been wasted. The second the IPO’s dry up, that money is gone.

Bringing Back Traditional Business Logic

As humans we seem unable to learn from our mistakes. In this context we’re only 15 years from the last one, so there is literally no excuse. It’s time both investors and entrepreneurs snap back to reality and think about creating companies with a legitimate chance of success, even if it’s on a smaller scale.

I don’t know about you, but I’ve never started a business without a plan to make money from day one. If that wasn’t in play, there was no point in taking the risk.

If I didn’t have a customer acquisition plan ready to go from day one, I didn’t move forward.

If there isn’t a reasonable chance of profit quickly, I didn’t move forward.

So much of this baseline logic seems to be applied to the extreme in some areas and completely ignored in others.

Creating Some Pipe Dreams & Crushing Others

It is completely realistic to build out MVP’s of most startup ideas for less than $100k these days. Don’t believe me? Call just about any development shop and ask them. I’ve owned one and know this is true. The cost is going down by the day.

Demand for B2C apps is going down dramatically while going up in B2B.

So why is it that we are constantly hearing about the latest funding of a startup that needs 100 million users to make money, but ideas that need 3,000 to be worth $50 million can’t raise $500k for scale.

This is leading to so many entrepreneurs completely ignoring a great idea just because it doesn’t have crazy sex appeal to Techcrunch or the Valley. On the flip side, people with proof of concept and initial customer base who just need small investment to grow quickly are quite frankly wasting time trying to raise chump change in comparison.

Let’s Change The Argument

If great B2B ideas are going unfunded, it might be time to reconsider the system of business loans for startups.

Since brick and mortar business models can get loans from the bank, SBA, and other lending institutions, why is it almost impossible to get these same type of loans for technology companies?

Our economy is primarily based on soft assets not hard, just ask the Federal Reserve and Wall Street.

So why do not all the same principles of business apply? Office space, employees, customers, revenue, taxes, insurance etc.

Banks look at assets, personal credit, business model etc. Very often it’s time in business, but others it’s not.

Let’s look at the idea of collateral. If you put up say $10k personally toward building a working software platform that costs $100k, is that not collateral?

Repossessing the code has value. Putting working software on the market will lead to purchase. Perhaps at a small or big loss, but that applies to lines of credit and many other options available to traditional businesses. It’s ultimately no more risky than the new bakery down the street.

Tech startups often fail because of the people involved, not because it was a bad idea. This is true in any business.

If we just re-framed the argument from “startup” to “tech enabled small business,” showed the true value of the assets being created, and allowed personal responsibility to be applied, not only would burn rates go down, the potential economic growth is amazing.

Let’s face it, when you’re responsible for the money, suddenly every dime being spent matters and efficiency and focus to turn a profit goes up.

The Gig City Launches National CO.STARTERS Program

Small business is the backbone of our economy.

We’ve all heard it. Over and over (and over) again. But is it true?

Earlier this fall a report from the Kauffmann Foundation suggested that it may not be. Tech companies do actually drive economic growth, so that’s good news for the startup ecosystem. But, we all know what a risky game starting up is, and we can’t always trust that tech companies will continue to grow like they have in recent years.

Still, startup founders and investors have learned a lot about developing businesses. Wouldn’t it be great if we could apply some of those lessons to other segments of the economy? The term “intrapreneur” defines employees of large corporations that push for innovation and change. Is there something similar for small businesses?

There will be soon, if the CO.STARTERS program in Chattanooga, TN has anything to say about it. Last month the program, based out of startup engine The Company Lab, announced a national expansion of their brand of small business development.

“There is a new approach to business in the high-growth startup world,” CO.STARTERS Director Enoch Elwell said in a statement. “Through CO.STARTERS we’ve adapted and applied those highly effective proven methods to micro-business, bringing together a community where these founders can thrive.”

Those of us in the startup world almost consider these techniques cliche now. Things like the lean startup method, customer-focused iteration, pivoting quickly to meet market demand–these things are so common they’re not even really debated any more. But that’s not true for the small business world, where entrepreneurs can labor for years before realizing they’ve missed the market.

With the national launch, CO.STARTERS is offering its curriculum in 3 different formats. The core curriculum covers the basics of business building, regardless of location. The urban and rural (coming soon) take that core curriculum and add in layers that will address the unique situations in each of those areas.

The CO.STARTERS program has already been adopted in cities around the country like Phoenix, Cincinnati, and Fort Wayne, Indiana. To find out more about CO.STARTERS check out their website.

Startup Vs Small Business Debate Stretches To Kuwait

One of the biggest things I have struggled with since I’ve been in the startup community is explaining my position on the startup vs. small business debate. Some consider me a startup snob or a startup hipster. This debate is compounded by the fact that everyone seems to have an opinion on the issue.

Take for instance Green Girl Produce, a Memphis based company that pitched and built at 48 Hour Launch in Memphis back in October. The concept is an urban farm. Granted it’s not Joe’s Dry Cleaners, but many people decided to take me to task when I penned this piece about Green Girl.

The debate for me isn’t necessarily about technology, or web based technology. It’s about creation and innovation. In that post I wrote:

“The debate about “Startup vs SMB” in Self’s case has NOTHING to do with technology. There is another woman in Memphis who has come up with a new way to remove acrylic nails without the harsh abrasiveness and damage to the nails that traditional methods have caused. To me, the young lady with the nail solution is a startup. Green Girl is not.”

Today while perusing Brad Feld’s version of Hacker News, The Hub at Startup Revolution, I came across a post by Kuwaiti startup community leader Abdullah Alshalabi. Obviously he’s struggling with the same thing. Here’s how he explains it on his site StartupQ8

In a Startup you are:

Building a new product

Solving a new problem or fulfilling a new need

Entering a new market with new customers (doesn’t really know if there is a need or not)

Founders have a vision to scale and become a world class company

Very risky, yet very rewarding

Want to change the world to a better place

Attract bright and smart talents (employ more than 1,000 people in the long-term)

Revenue more than US$50M

In a Small Business you have:

Known product/service

Known Customer with known market

Low risk

Want to keep the business small or within the family

Have low potential to grow

Founder vision is to make enough money to feed the family

Attract cheap labor (create 10-100 jobs)

I definitely agree with most of the items in both lists. I’m not sure that a startup needs to employ 1,000 people in the long term. Revenue more than $50 million may be debatable as well, but the general consensus that you are creating a new product or tackling a new issue with your company are things I definitely agree with.

Entrepreneur

So I’ve said this a lot on nibletz.com and when speaking on the topic of startups, startup communities or startup vs small business, every startup founder is an entrepreneur, every entrepreneur isn’t necessarily a startup founder. There are several great entrepreneurs out there. In Memphis there is Shawn Tuohy for instance. He’s a restaurant entrepreneur he’s built his company into one of the biggest fast food franchisers in the region with over 80 establishments. Tuohy, also known for his infamous adopted son Michael Orr and the book and movie The Blind Side, has done very well. He’s a successful entrepreneur. Was he ever a startup founder? No.

You can check out Alshalabi’s entire post here. Every community needs small businesses. Luckily for them many communities have a support infrastructure in place, that’s been in place for several years. Small Business Councils, Chambers of Commerce and other organizations both big and small have always supported entrepreneurs.

Incubators, accelerators, and organizations like those are the support infrastructure for startups.

Check out one of the largest startup conference in the world, everywhereelse.co The Startup Conference

Austin Named Best City For Small Business For Third Year In A Row

The Business Journals, you know the local tabloid sized weekly business newspapers, have selected Austin Texas as the best city for small business for the third year in a row. Raleigh NC, Oklahoma City OK, Houston Texas and Salt Lake City UT followed behind Austin this year.

Sure Austin is home to two mega festivals every year with South By Southwest (SXSW) and Austin City Limits, but it’s their year round support for local small businesses that has earned Austin this title, yet again. The actual scoring factors by the Business Journals were; growth in population, private sector jobs, per capita concentration of small businesses and the number of small businesses. The Business Journals declared a small business having 100 employees or less.

Austin’s strong number of startups of course contributed to this winning. Website austinstartuplist.com has found over 1400 companies that are in their startup stages and call Austin TX home.

Every year hundreds of startups flock to Austin’s SXSW Interactive festival hoping to get the buzz that Twitter, and Foursquare once garnered. Startups like Zaarly (2011), Highlight and Glancee have pulled traction out of the Austin festival but not the way Foursquare and Twitter have.

Austin is also a hot bed of acquihires the most notable being Facebook’s purchase and relocation of Gowalla from Austin to Paolo Alto.

We’ve spoken with several Austin based startups who sometimes feel like Austin’s startup scene is hot only in March. They’ve got some great companies, startups and events, all that we’ll be covering here at Nibletz as the voice for startups everywhere else. As for not being hot year round, Business Journals obviously thinks they are.

source: Inc