daily articles for founders

Product vs Business vs Company  

Fred Wilson makes an interesting point about the distinction between products, businesses and companies:

...most of our portfolio companies build the product first, then the business, then the company. And building a company is often difficult for founders because they are so focused on the product.

Roelof Botha, a leading VC with Sequoia, once gave me a great piece of advice in helping founders start to focus on company building. He said founders should think of their company as a product and build it and shape it with the same passion and care. I've taken that to heart and passed it on a few times.

It's worth restating the distinction.

A product is something that you can build and sell, directly or indirectly. It is the "thing" (though it can be a service) that you could make money from via a business. By itself, though, it won't make money, typically.

A business is a set of people, processes and tools that have been structured around a product to enable it to make money. Ideally, a business is profitable, but it may not be. Ideally, a business doesn't depend on any one specific person being a part of it (including the founders), but it may rely on some exceptional people.

A company is an organisation of people that's designed to run one or more businesses successfully, and to create new businesses to respond to opportunities in the marketplace. This must be, ultimately, independent of any specific employee, since companies, unlike products and businesses, are (or should be) built to last for decades.

A business is worth much more than the product that it sells. A company is worth much more than the business that keeps it alive.

This is one good rationale for why some startups (e.g. Facebook, Twitter), operating in environments where it's easy to raise money, have bypassed the "build a business" step to go straight to building a company. The danger with that is that if you don't first build a business, you might end up building a company that's incapable of building new businesses - and that's not worth a whole lot.

Conversely, entrepreneurs operating in conditions where there is much less cash to be raised (e.g. Europe) tend to focus on building a business first - even, in some cases, before building a product.

More from the library:
Send your (wrong-fit) customers to your competitors
Hair of the dog
What is your definition of "success" as an entrepreneur?
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