Orlando, FL – I was wrapping up a trial run of a soon to debut business podcast yesterday (yes I started this post off with a shameless plug) when my co-podcasters or whatever they are called and I got into a spirited discussion of what exactly is a “start-up” and what businesses qualify as a “start-up”? I am typing the word “start-up” in quotes because I am still trying to delineate if a “start-up” is really a noun or is it more of a cultural fad?
I grew up in a time where starting a business was clearly defined as having a somewhat validated product or service and selling it for a profit. Novel concept! I know, just hang in there. It seems that today starting a business and “founding a start-up” are two different things and if you dare confuse one for the other, be prepared to be ostracized from every hip “craft” coffee shop which now occupy virtually every corner of every town in every country.
In my business travels across the country it seems like everyone I meet at a coffee shop mind you, is in the “start-up” game. The “start-up” lexicon has been mostly associated with technology based companies, specifically “SAS” or service as a software brands such as Home Advisor, Uber Eats etc. however the non-profit sector and even some of the new brick and mortar businesses have hopped on the train and adopted the letters…S T A R T – U P as a new form of business designation. From traditional real estate brokers to cell phone repair shops, “fast-casual” restaurants and everyone in between, all want in on the “start-up” Kool-Aid because its..well..cool, trendy, and fashionable, I get it.
Are you a new traditional business owner possibly selling hand made jewelry and on your way to opening an online store? I hate to be the bearer of bad news, but upon being set straight by air pod infused aspiring entrepreneurs…at a coffee shop, the sentiment is that you are NOT a “start-up”!! Even though you literally started your business this morning. What I have learned is that to be welcomed into that club, your business need not turn a profit or even promise to produce one at some point in the foreseeable future, nor does your idea need to be based on actual market demand. Huh? Well research shows the socially accepted definition of “start-up” is as follows: an entrepreneurial undertaking to solve a problem where neither solution nor success are obvious.
To double down, “start-ups” are not initially judged on how they can turn a profit but evaluated on how quickly they can grow revenues, get funded, go IPO, control human behavior and of course solve global warming..regardless if you believe in it or not. Translated into non Silicon Valley English, this is saying that as long as your concept is growing revenues each year by acquiring more and more customers, it’s perfectly OK to lose 3X as much money as you take in, month after month, after month after month..seriously ..just keep growing and somehow magically the money will be there like a never ending source of Saudi Arabian fuel. I am being overly sarcastic if you could not tell, however the premise behind most of what I just said is fairly accurate.
The recent start up phenomenon has made the word “entrepreneur” UBER-cool, no pun intended. However in some ways it has hi-jacked that word as well, where the word entrepreneur is thrown out there as an all encompassing adjective summed up in the scenario below which may or may not depict an actual recent encounter with a twenty something individual at where else other than a coffee shop? We will refer to this aspirational young man as “Air Pods Bob”;
Me: So what do you do for a living?
Air Pods Bob: I am an Entrepreneur!
Me: Thats incredible! What are you selling?
Air Pods Bob: We are going to change the way something is done by doing this and taking that and growing this by cutting out all that, all through an insane app that will make all the other apps irrelevant and by the way, 10% of all the crazy amounts of someone else’s money we are going to lose will be donated help protect the endangered Spartan Crow in Papua New Guinea!
(In full disclosure, I did not understand the business which also holds true for most of today’s “start-ups” and the above is my literal interpretation)
Me: Hmm..that is exciting..so do you have a business plan?
Air Pods Bob: YES!!! It’s on a napkin here in my lap top bag, hold my Kambucha while I get it for you!
Me : Have you started selling or marketing your product?
Air Pods Bob: NO! I am working on raising seed capital through LinkedIN!
Me: Oh, how much do feel your idea is worth?
Air Pods Bob: $500,000,000…
Me: Oh wow, so how did you come up with your valuation?
Air Pods Bob: Reddit
A traditional entrepreneur was once someone who had to spend years if not decades to save hard earned cash, or beg a bank, friends or family to fund their absurd idea to open the only cup-cake shop in a neighborhood full of kids, upon which that entrepreneur was expected to spend the next decade of his or her life working 25 hours a day, 8 days a week, 13 months a year. By contrast the “start-up” entrepreneur with a an unproven idea has seemingly endless access to billions of dollars in seed funding through angel investors, venture capital, and private equity who all want to get in on that “start-up” craze as long as there is an “exit” strategy in play way before the company needs to prove it can generate a single cent in profit.
This is not to say that “start-up” founders don’t work hard, on the contrary many of them if not most of the actual “do’ers” NOT “dreamers” make huge sacrifices to make their dreams of an early retirement back packing through the Serengeti unaccompanied during Lion mating season a reality. The goals of a “start-up” founder and their business is completely different; preoccupied with growth and scale with the ultimate purpose of being acquired, where as the traditional business is focused on the bottom line and keeping the doors open. Many traditional businesses are adopting some of that “start-up” culture in order to attract and retain talent or simply emit the cool factor to customers. I mean who doesn’t want to work at a place with a ping-pong table, all you can eat vegan chips, and free draft PBR beer flowing through pipes connected with the men’s bathroom?
So at what point does a “start-up” shift to being just a business? BLASPHEMY!! It never does!..Yells the guy in the corner on his third Mactchabucha-something. But it is a real question. Facebook is now 10+ years in business, Google longer..both companies arguably built and defined the “start-up” model, but both are now mature businesses with clearly defined products and services. In terms of scale, both have already expanded across the Milky Way Galaxy and make bajillions in annual revenues. Neither have seemed to drop the “start-up” aura, likely because it goes back to what I said about it being more about culture.
Either way there is no question that technology has given unprecedented popularity to entrepreneurship. That I think is a great thing! I am as pure a capitalist as there is, but there is no question that there are two distinct forms of entrepreneurship today, both take huge risks but have two different purposes. Personally I would like to see the lines between traditional business ownership and “start-up” culture blend a little more, where great new ideas can still be incubated but with the focus of turning a profit and not just about burning through a pile of cash equivalent to a 3rd world country’s entire GDP in the hopes of one day getting acquired.
Drew Belani is a NY and Orlando based real estate entrepreneur, investor, and global market observer, licensed in the State of Florida. Drew Belani has a background in finance, media, sports and entertainment marketing. Drew specializes in market research along with capital markets and real estate technology. The opinions expressed on this blog site represents his and his only.