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Startup founders vs Entrepreneurs

There are more than a few falsehoods within the world of startups. Most are not worth worrying about, but some are very damaging. Some have side-effects that can ruin or kill people.

Every once in a while, the debate about "startups vs lifestyle businesses" recurs. It's one of those never-ending debates, with one side, let's call them the "scalable startups", bemoaning the lack of ambition of the "lifestyle businesses", and the other bemoaning the hare-brained, risk-it-all attitude of the startup crowd.

This is not the main contradiction I want to address in this article, but it's related.

The falsehood I want to address is exposed when you look at the terms in the title: startup founders, entrepreneurs. Pretty much all startup founders believe they are entrepreneurs. They consider themselves an exclusive, elite subset of entrepreneurs who start an elite subset of businesses: the scalable tech startup. They therefore naturally look down on the wider world of entrepreneurs, who do business in a less fashionable, sometimes less scalable manner.

However, that belief is a falsehood. Many startup founders are not entrepreneurs.

What is an entrepreneur?

It helps to start with a good definition for entrepreneurs. Here I am not concerned with the dictionary definition, which is based on usage. I want a useful definition.

An entrepreneur is someone who sets out to find business opportunities and create business systems to exploit those opportunities for financial gain.

I have deliberately excluded "internal entrepreneurs" at large corporations, and "social entrepreneurs" who aim for social good rather than financial gain. I believe those should be considered as separate categories. Although many successful businesses lead to social good, making social good the primary objective of a venture makes it a social venture rather than an entrepreneurial venture.

This definition is useful because it is broad enough to include anyone who genuinely tries to create viable businesses, but not so broad as to include anyone who does anything of their own initiative in the vague hope that maybe some day it might make some money, however unlikely. Creating a blog or site which perhaps some day could make you money through advertising does not make you an entrepreneur, neither do owning a good domain name, having ideas for cool products, or registering a dormant business. Those things may lead one to later becoming an entrepreneur, but they are not, of themselves, sufficient.

However, the definition does include anyone who tries to find business opportunities (through pot luck, determined research, personal connections, etc) and do useful work (themselves or via employees) that results in substantial enough amounts of money being made that the enterprise has a chance of becoming profitable at some point.

There are many tens of millions of entrepreneurs in the world, perhaps hundreds of millions, or even more. In poor countries, many people have to be entrepreneurs to survive. They spot business opportunities and exploit them to make a living. Because the opportunities tend to be small and conditions are very uncertain, they are never able to scale those businesses up, but the person who runs their own clothes shop in Liberia under incredibly difficult circumstances is every bit as much an entrepreneur as the one who starts a global fashion brand in New York.

Startup founders

Many startup founders are in fact entrepreneurs. I consider myself to be both, for example, though only since launching GrantTree.

Startup founders are, quite simply, people who found startups. They register a business (maybe) and create something that might turn into a business at some point, or even do turn it into a business successfully. So far, they sound a lot like entrepreneurs.

One difference is the goal. Entrepreneurship always has a financial motive. For startup founders, though, that motive is often secondary. They usually want to change the world, build cool products, become famous, have a big exit - oh, and perhaps, if it's socially acceptable at the time, enjoy the money that they've made as a side-effect of their chosen career. The money motive is often discouraged as a primary driver.

The even bigger difference comes when considering the concept of closing the loop. A business is not viable until the loop between creating value, delivering it to customers, and being paid for it, is closed. For entrepreneurs, closing the loop is essential, the main task on their task list until it is done. There is no business until the loop is closed. For startup founders, closing the loop is often secondary, perhaps even toxic (since if the loop does not generate large profits as soon as it's closed, funding will often dry up).

This is not to say that closing the loop is the only way to build a business. Erstwhile startups like Facebook, Google and Twitter, show that it is possible to build huge businesses, some of them very viable, without worrying about making money for years. Success stories like Instagram, Tumblr or Youtube show that it is possible to achieve a billion-dollar exit without having ever closed any viable loop whatsoever.

In Silicon Valley, it is even plausible to make "the loop" be the creation and acquihire of the startup itself. That is a valid model for investors, and even for some founders, though it presents a lot of downsides that I believe most first-time entrepreneurs wouldn't accept if they were fully aware of the alternatives.

The downside of being a startup founder

As I mentioned earlier, most startup founders believe they are entrepreneurs, even if their startups are completely divorced from the financial reality of business. Cushioned under a blanket of (relatively) easy VC money, surrounded by the hype bubble, drenched in startup articles from Hacker News, one could be forgiven for thinking this is the only way to do business in the 21st Century. Meanwhile, the rest of the entrepreneurial world looks on at this incredible machine that takes unviable businesses, pumps them full of venture money, and sells them on for stratospheric valuations.

It's a wonderful system for the savvy investors who know how to play it, but what about the founders?

The downside of this system for the founders is pretty simple: the risk and pressure are enormous. In order to succeed at this game, the game usually requires the founder to tie the startup to his identity. The failure of the startup and the founder's fate become closely tied. Importantly, the outcome, success or failure, is only known years into the venture. Youtube succeeded in a lightning-fast 1-2 years, but they are the exception, and even they must have been under enormous stresses approaching the exit event (Youtube was, I recall, being sued by content holders when Google acquired them). It could have gone very badly very quickly for them. Tumblr was running for 6 years before being acquired, and had, from the sound of it, a failing business model. Imagine the stresses David Karp was under.

Any startup where you're going to have to raise lots of money, make lots of promises, hire lots of people and generally tie your fate to the startup very publicly, for years, before you can find out if you're successful, is going to be a pressure cooker for the founders.

The result of such a game is tragedies like Jody Sherman and Ecomom. While tying the two together remains speculative since Jody left no note, it is fairly credible that the two were strongly linked.

Even if the outcome is not so dramatic as a suicide, such stresses take their toll. Binary outcomes that can change your life from heaven to (subjective) hell are always extremely stressful.

A funded startup always carries with it the possibility that you will exit as broke as you came in.

An alternative

Despite its apparent anti-startup stance, this article is actually not an attack on startups and startup founders. I believe that the startup game can be a valid way to create businesses. Some day, I will probably venture down that road too.

However, it should not be painted as the default or superior option. Choose the startup founder path if you want to, but choose it in full knowledge of what you're doing.

The alternative is to do business the way it's been successfully done for millenia: find business opportunities and exploit them to make money.

There is much less risk in this approach (you know whether the business is working out within months, if not sooner), and it is more rewarding emotionally and financially. The skills are also more transferrable. You can apply the skills of the entrepreneur anywhere in the world, whether there's war (Milo from Catch 22 and Oskar Schindler come to mind) or peace. The startup founder path is only truly viable in a few places in the world right now - most of them in or near Silicon Valley. It could close up quickly if the historically rare, 60+ year long period of peace we're experiencing comes to an end.

And lest someone thinks entrepreneurship is destined to create only smaller businesses, there are many giant companies out there that started as level-headed entrepreneurial ventures - including such Tech household names as Apple, Microsoft, HP and Cisco. There was no guarantee that any of those would become the behemoths they are today without additional capital, but even if they had ultimately failed, their founders would have retired wealthy.

Conclusion

Either path is viable, and if you're determined to go down one path or the other, no article is ever going to stop you.

But if the thoughts in this article are news to you, I urge you to consider which option is more suitable to you at this point of your life, and to remember that you don't have to restrict yourself to just one of those. You can be an entrepreneur today and a startup founder tomorrow, or both at the same time, or just a startup founder. Which of those three you pick will make a huge difference to the risks you take and the pressures you face.

My personal opinion is that if you're starting off from a position of weakness (i.e. you're poor and not famous), and especially if you're not in a startup hub like Silicon Valley, it makes a lot more sense to go down the entrepreneurial route than to go via the startup route.

And if you do, don't let anyone who's chosen the startup route tell you that your business is somehow less worthy than theirs. Both are viable approaches with different risk and pressure profiles.


Old and new ideas  

John O'Farrell, General Partner at Andressen Horrowitz, on ideas:

Some great ideas work spectacularly the first time around, handsomely rewarding the original entrepreneurs. Others fail or flounder initially, sometimes multiple times, before a combination of the right entrepreneur and the right market and technology conditions unlocks their true potential.

He goes on to give two convincing examples, and follows up on the next day with another. Great read.

Positioning and differentiation  

Mikko Järvenpää, marketing geek, on positioning and differentiation:

Differentiation and positioning are strongly related. Differentiation is what makes you unique, it is your edge, how you differ (obviously). You can differentiate based on your technology, your experience, your niche market or your location. Features, benefits, quality, distribution can all be sources of differentiation. While it can be obvious to you how you are different from others, you still need to communicate your difference in order for it to work.

And how do you make it work? You need to position your difference in the mind of your target user or customer. This is a fancy way of saying that whoever you are marketing to must understand and remember your differentiation. And this the crux of the matter.

Excellent stuff, read the whole thing here. Here's another gem, in case you're not convinced yet:

Positioning can be explained in terms of psychology. We think in terms of representation. What is that person or company about? This is the most important thing in any elevator pitch. It has to stick. You want the person hearing it being able to recite it exactly the next day, regardless of how many they’d heard.

How to interview developers  

This is the method I've been applying for some time now (not at a large scale, but quite reliably):

So what should a developer job interview look like then? Simple: eliminate the exam part of the interview altogether. Instead, ask a few open-ended questions that invite your candidates to elaborate about their programming work.

  • What's the last project you worked on at your former employer?
  • Tell me about some of your favorite projects.
  • What projects are you working on in your spare time?
  • What online hacker communities do you participate in?
  • Tell me about some (programming/technical) issues that you feel passionately about.

Basically, have a relaxed, friendly chat, and tease out whether they're a bright, passionate geek, or not.

Worth noting that this method is, in my opinion, only applicable by people who are themselves developers. If you're completely non-technical, you'll struggle to tell apart a good bullshitter from a geek. Whereas as a geek, it's very easy to do. Any chat about past side projects will involve numerous statements that only a geek can get consistently right - and one slip-up is enough to discredit someone, in this game (for example, "Yeah, I built this 3D engine in C++, it was pretty cool. It ran in the browser." would need some very good follow-up to be convincing, and a flake would not be able to come up with it).

The startup skill set

I went to LeanCamp London last Sunday. It was a blast - there were a lot of interesting people to meet, and one of the highlights was, of course, seeing Eric Ries answer a whole bunch of questions very intelligently and entertainingly.

Another key highlight, for me, was my own "workshop" talk, judiciously titled "Lean Startup Skill Set". Was it really specifically lean? Perhaps not, but it's a skill set that will help any entrepreneur trying to build a startup, particularly those that use Lean methods.

My premise, as I explained previously, is that success (at least to the "survival" or "comfort" levels) in the startup world has more to do with skills than with ideas. A skilled entrepreneur will achieve some measure of success even with a mediocre idea. An unskilled entrepreneur is likely to fail even with a brilliant idea whose time has come.

There are exceptions, of course, but you can't rely on being the exception any more than you can rely on winning the lottery. So the best approach as a new entrepreneur is to try and fill the glaring gaps in your skill set (via learning, partnerships and mentorship) so that if your startup fails, at least it will be failing for an interesting reason.

The workshop's purpose, then, was to discuss what those core entrepreneurial skills are and where to learn them.

For this article, I'll just list the skills we ended up with at the end of the workshop, along with a brief description. Over the next few weeks, I'll pick a number of these and cover them in more detail, including thoughts about what someone can do, concretely, to learn those skills. As I do this, I will update this article to include links to those articles, so the best article to bookmark is this one.

The purpose of the startup skill set

It's worth noting, before diving into the list, that none of those skills are absolutely mandatory. You can (and founders do, all the time) build a successful business while severely lacking in one of these areas. However, what is clear about all those skills is that they help. Being at least baseline-competent in all the skills on this list will markedly decrease the chances that you screw up your first business in a really obvious and easy to avoid way.

One of the reasons it works that way is because the options you will see for evolving and adapting your startup will be directly related to your skills. If you are a programmer, then building a tool to automate part of your business is an option. If you know how to sell, then customer development is an obvious approach. On the other hand, if you lack those skills, those options will seem less appealing, so you're less likely to use them, even if they make sense. The landscape of your skills determines what choices you make when developing your business. The more gaps in that landscape, the more gaps in your business.

Some of these skills (but not all) can be outsourced or delegated. However, the sad reality of delegation is that you can only truly delegate work that you understand. So even if you plan to get an external designer to do your design work, you still need some basic design skills to understand and evaluate their work.

1. Client management and customer service

Being able to handle clients and support your products or services is an essential entrepreneurial skill. Early on, and perhaps for the whole life of the startup, the founders will be doing this.

In the B2B world, this skill essentially consists of being able to handle nice and not-so-nice clients, to deal with both professionally, ensure that clients are happy with your service, feel well cared for, well informed, and don't end up "blowing up" because of some avoidable mistake you made. It also involves knowing how to react to a client actually blowing up, how to handle them the right way so they turn back into a happy client.

In the B2C world this consists of being able to respond to support queries in a polite and efficient manner, always remembering that every customer interaction is an opportunity to delight. It also consists of being able to deal with pissed off customers without losing your cool and making a fool of yourself. On the web, great customer service is a differentiator - or even, in some cases, a price of entry.

2. Sales

Directly related, but very different, is the skill of selling things. Although I said that these skills are optional, if you're going to learn one skill, let it be this one. As the saying goes, "sales cures all management ills". If you screw up everything else completely, sales won't save you, but making enough sales can at least give you the time to learn the other stuff.

"Sales" is a big word, covering everything from selling a $10 subscription on your website to selling a million-dollar contract to a large corporation. Funnily enough, the two are not as unrelated as they might seem. Certainly, someone who is highly skilled in one of those will find it easier to learn the other than someone who is completely unskilled in sales.

Being able to sell stuff, online or in person, is also incredibly easy to practice, so long as you are willing to try unusual things, as we'll see in later articles.

3. Making things

"I make stuff" is the credo of the hacker-entrepreneur. My parents used to ask me, when I was a kid, "what can you make?" It is always possible to build a business without making things, or by selling other people's ability to make things, but having that ability yourself is a huge bonus as an entrepreneur. It makes it easier to explore ideas, and it makes it much easier to communicate with others who make things.

Making things is split into multiple sub-skills: programming, design, and even engineering (and, perhaps, in the future, biotechnology! "Click here to download this YC-funded DNA patch and grow a third arm!"). But all of those stem from an impulse to "make things", from the sense of wonder that comes from looking at "something" and thinking "hey, I made this".

Luckily, despite the neigh-mystical nature of "making things", all those skills can be learnt. You can't learn the passion, but you can learn enough to be useful. Designing and building a simple web-app is attainable for pretty much anyone, and a huge plus as an entrepreneur.

4. Measuring things

As Eric Ries puts it, entrepreneurship is a management science. And, like both science and management, it relies on being able to measure the right things and draw the right conclusions from those measurements.

Understanding what to measure, how to measure it, how to apply statistical (or other) analysis techniques to it to figure out what it means - all of these are very useful startup skills. If you completely lack them, you will be at a disadvantage in building any kind of business.

5. Communication

Entrepreneurs all need to be at least competent communicators. Communication can take many forms: written (via blogs or even emails), in person (presentations, pitches, networking, etc), vocal (on the phone) or even visual (diagrams and designs). All of these areas are important. Being "world class" at these skills is not essential, but a baseline level of competence is required. An entrepreneur who cannot give a presentation, write a good, sharp email, or close a sale on the phone, will be at a disadvantage.

6. Management

Eventually, most startups end up needing to employ others to achieve their goals of rapid growth, whether directly or as subcontractors. Some may think that subcontractors manage themselves. Those people are in for a surprise. Management is hard to learn, perhaps the hardest on this list, particularly when it comes to managing other people - and yet most entrepreneurs don't think they need to learn it! Management mistakes can cost as much as recruitment mistakes, if not more.

Management skills are also essential early on, when the startup is made up of only founders. A full-time manager would be a waste for a pair of hackers, but at least one of the two should be thinking of where the project is headed, setting goals and milestones, considering whether the team is working well together, and fixing process and people problems before they become too painful. That person is, implicitly, operating as a part-time manager. If they suck at it, or don't do it at all, the business will suffer.

[ More details ]

7. Recruitment

Management (the people kind) and recruitment go hand in hand, in that you can only really recruit with discernment once you have enough management experience to recognise how someone will be to work with. The point when you need to bring more people into the company because there's just too much work is not the ideal time to learn recruitment, particularly since most corporate jobs offer ample opportunities to get involved in recruitment.

Being able to recognise talented people with the right work ethic, and to convince them to work for you, is a crucial entrepreneurial skill once the business picks up, and early on, it cannot be outsourced or delegated to anyone.

8. Marketing, branding and PR

I've lumped these three together because they all relate to projecting the image of the company and getting people to hear about it and care about it. All startups have a brand, whether they know about it or not, and those founders that know how to present their business with the right "branding" will typically do better than those who don't.

Marketing and PR, the ability to get people to give a damn about your product and to come check it out and to trust you, are equally important for many kinds of businesses.

9. Networking

Some people would call this an activity rather than a skill, and they may even be right. However, having "networked" for a number of years now, and having observed both skilled (e.g. my cofounder, Paulina) and unskilled (they shall remain nameless) networkers in action, I believe there is enormous variation in the amount of "value" that networkers will get out of a meetup, and that variation is directly tied to skill.

Learning to network is not hard, but it takes practice and perseverance and a deliberate approach to constantly push yourself out of your comfort zone.

10. Research

There are truly incredible amounts of data available on the web. Most of that data is useless, but hidden in these mountains of straw are the needles that point the way for your business to go.

Being able to squeeze the right information from the web (and other sources) on demand and efficiently is a fantastically useful skill for any entrepreneur. And, like all others, it can be practiced.

11. Financial control

The ability to keep your business's cash above zero is a fundamental and often neglected entrepreneurial skill.

A startup CEO has three key responsibilities: setting and communicating the company vision, recruiting and retaining a great executive team, and making sure there's cash in the bank. Everyone gets very excited about the first two, but the last one is equally important.

In an age when most people live with humongous credit card balances, financial control is far from a given. If you don't know how to keep your own cash flow positive, chances are you'll screw up your business's too - with far more dire consequences.

Financial control for a business also requires an understanding of accounting, taxes, and the legal options for dealing with bad payers.

12. Fundraising

Depending on your perspective on business, investors, bootstrapping and so on, fundraising may be either the most essential skill of all or complete anathema. I myself prefer not to have to worry about investors. However, being able to raise money (from both private and public investors) if you decide it's appropriate for your business is a valuable business skill.

This is hard to learn in any other way than by doing it, though some elements of it can be learned separately.

In conclusion

This is a lengthy article (sorry about that) that will turn into a lengthier series of articles. Hopefully, they can provide a path for new or would-be entrepreneurs to make up for the skills gaps which they naturally have when first arriving "on the scene". Even knowing all those skills won't guarantee success. However, being competent in all these areas will certainly increase your chances of achieving some form of entrepreneurial success.

If you have other suggestions, please do let me know.

Update: Some people are suggesting that "persistence" or "willingness to take risks" are more important skills. Whether they are more important or not is debatable, but what I'll argue without hesitation is that they are not skills. So many articles are focused on character traits that correlate (or not) with entrepreneurial success. This article is about skills: things you learn, practice and get good at, not things you are born with, or which are properties of your personality.


Learn from your competitors  

Mark Suster has posted another article (or rather, a second part to yesterday's article, discussing how to treat your competition.

The very sensible suggestion is to avoid the easy macho assumption that your competitors are all stupid, and instead go out and meet them and have friendly meetings discussing various problems your industry is facing. After all, you're all trying to solve the same problems, and have a lot to learn from each other.

Bootstrapping and knowing how to make things  

Rob Fitzpatrick makes a very valid suggestion to non-programmers:

If you want to get into startups and you don’t already know programmers who enjoy working with you, then I seriously suggest you start learning to program immediately. It’s not as bad as it sounds.

Too many people go around looking for a "technical cofounder" to build out their idea (which, usually, at that point, exists on the back of napkins and business plans - both more or less equally worthless media).

One of my best friends, who used to be one of those "non-technical" people (i.e. he didn't know how to program), taught himself how to build a simple site with ASP back in 1998. He made a few hundred pounds from it. He then built a more complex site and made a few thousand pounds from it. After that, he built an even more complex site that made him hundreds of thousands of pounds.

Recently, he's taught himself Rails, server administration, has learned to manage a team of developers (outsourcing to Russia works if you're a competent programmer yourself). He's now building out site after site, trying out many different ideas until he finds one that really takes off. Those are not trivial sites - they're the kind of applications where most people would say "you need a technical cofounder".

The fact is, you're not going to get to that level instantly, or within a few weeks. But once you start the process of learning how to program, several things will happen:

  • You will have started a lifelong process that may well get you to the point where you don't need any technical cofounders.
  • You will know a lot more about what "technical people" do, so you can both recognise the good ones and "talk the talk" (which makes you a better person to work with).
  • You will be able to build simple things to test your ideas without any outside assistance! This dramatically lowers the bar to testing ideas.

It's worth finishing with a note that "programming" is a subset of "making things", one of the key skills in the startup skill set. Programming happens to be an insanely useful skill these days, but there are other ways to make things. With sites like Kickstarter, we're seeing a resurgence of people being able to build companies based on their ability to make physical things, for example.

How to survive a due diligence  

It's often easier to start things than it is to finish them. Selling a company is not that unusual, especially in the tech startup world. What few people realise is that often, when you sell your company to any kind of decent acquirer, they won't just take your word about what's going on in the company and "open the package later" when you're out of sight.

Before you sell your company (and even, sometimes, before you take VC investment, which is a form of limited selling), there will be what's called a Due Diligence:

(...) due diligence is all about verification and risk assessment.

(...)

During a due diligence you'll likely be visited by a lawyer for the legal affairs, an accountant for the financial portion, and if you're a technology company someone that looks at the tech side of things.

This excellent blog post by Jacques Mattheij, who has conducted numerous technical due diligences himself, is full of useful information and will come in very handy if you're about to go through this process.

Why blog?  

Gabriel Weinberg on why and whether he should blogs:

It's not an easy decision, and one that is constantly in your face, simply because blogging takes a lot of time. A good post may take 3-5 hours when all is said and done. That time (for me) is often directly taken away from other professional activity, so the opportunity cost is quite high. In other words, I must have a good reason for doing so or else I really shouldn't be doing it.

Gabriel lists 4 key reasons:

  • Writing leads to understanding: writing things down forces you to think through them more logically.
  • Writing blogs helps you get over your fears of putting your opinion out there: in this, it's very much like public speaking.
  • You can reach the right people: building a following will help you reach an audience with other things you have to say.
  • You can stand out: having a popular blog is a great way to stand out in your field.

I agree with all these reasons and they are great reasons to blog. Personally, I have a few other reasons:

  • I just enjoy it. I love writing, expressing thoughts in the written medium. Throughout my life, I've always spent a good amount of time each day writing things. Whether it has been fiction writing, posting on message boards, commenting on HN, chatting on IRC or even blogging, writing my thoughts out is something that I can't help doing each and every day.
  • Blogging is an opportunity generator. A lot of really excellent opportunities have come my way because of blog posts I'd written. This ranges from coverage from sites like LifeHacker, Slashdot or TechCrunch, to essential business deals that made a big difference to one of my business ventures.
  • It serves a purpose. I like to share useful lessons with others. I'm a big believer that when good ideas spread, we (humans) all benefit. It makes sense to take part in the spreading of good ideas.
  • It's as essential as having business cards: although this is changing these days, with Twitter taking the place of a blog, I still feel like an entrepreneur without any kind of personal or startup blog is a bit strange and incomplete.

I'm sure there are many other reasons to blog. Fundamentally, I think the best reason is because it's just fun.

Hiring from Craigslist  

This summer, at Woobius, we hired some interns. We used a British-centric equivalent called GumTree, and it worked well, even for programming interns. The article proposes a repeatable process for successfully hiring from Craigslist:

  1. Create an informative ad with the right information
  2. Create an application form with the right questions
  3. Post to Craigslist and wait for the applications
  4. Select the 10 best applicants and send them 2 further, very detailed questions
  5. Interview the 3-4 people you like best in person
  6. Hire!
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