Archives for 2011

As a student of entrepreneurship I love to learn and more recently I’ve been immersing myself in approaches/mindsets for starting technology businesses. There’s the “venture capital” mindset here in Silicon Valley…and then there’s the “business owner” mindset in (what I call) the real world.

[contentheading]Mindset #1 – The BIG Idea[/contentheading]

So strategy one, you’ve got a BIG idea, it’s a potential $1B opportunity, you’re driven to create the next BIG thing, to create a BIG business and make a BIG impact. You want to raise venture capital and shoot for the stars!

Thanks to my Kaboodle experience I have a great reference for the venture capital way of doing things, from starting in a garage, raising angel investment, building a team, raising series A financing and ultimately being acquired. Chances of success…1 in 100, 1 in 1000, maybe 1 in 10000? You either succeed or you do not…it’s boom or bust. Venture capitalists want venture-sized returns in the next 3, 5 or 7 years. They’re not interested in a highly profitable $10M business…even if that cash flow could provide you a great quality of life.

[contentheading]Mindset #2 – The Business Owner[/contentheading]

There’s an interesting counter movement in the technology startup space championed most visibly by the guys at 37Signals in their book ‘REWORK‘. In case you’ve never heard of them, they started as a small web design firm that built a simple online project management tool (Basecamp), to solve a problem they had working with clients, that itself grew into a sizable business.

So strategy two, you’ve got an exciting business idea, it’s a solution to a real pain point that businesses or people will pay for. It might not be a $1B opportunity, but it could well be a highly profitable $10M opportunity.

In the “real-world”, if you’ve got an idea for a $10M, highly profitable business that requires little startup capital and has no fixed costs – well, most business owners would jump at the opportunity. Chances of success, hard to say…is it more likely to build a successful $10M business or a successful $1B business?

37Signals didn’t raise venture capital, they haven’t tried to grow to be the next Facebook, instead they’ve stayed niche, focused on adding value and have built a highly profitable business that I can only assume creates a great cash flow and lifestyle for the founders. They’ve thrived over the last decade through 2 downturns, remained profitable and if you were to compare them to businesses outside of the venture world they’re amazingly successful. I have many friends who are business owners that’d kill to have a business with 3 million customers that pay a monthly subscription with only 15 employees…that’s been around for 10 years!

Yes, we’ve heard the stories of the guy building the next hot mobile game and suddenly hitting it big, this isn’t what I’m talking about, 37Signals isn’t a get-rich-quick story. It’s a story familiar to any business owner, find a pain point, serve your customers and make money – don’t burn it. They just happen to build web applications instead of washing your car wash or dry cleaning your clothes.

[contentheading]Which Are You?[/contentheading]

I’ve met a number of budding entrepreneurs with great ideas that assume they have to go raise funding. The challenge is many of these ideas just don’t strike me as being venture fundable ideas (at least to me). I don’t see the $1B market opportunity. That said, they do seem to be great business ideas that could add value to people’s lives.

With today’s ecosystem making it real easy to build & deploy web/mobile solutions and the Internet making it real easy to reach potential customers I wonder if we’re in a renaissance period for nerds. The small business of the future might just be an Internet or mobile app rather than a McDonald’s franchise!