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Five Reasons why Entrepreneurship Isn’t Quite Business
Good entrepreneurship eventually leads to good business. But here are five reasons why the two start out different:
1. Framework
Startups may be inventing either a new product or a new service, but quite often they’re also reinventing a business model. Good businesses, on the other hand, already know how they’re going to make money. Good businesses therefore always have this framework in which they can adapt to changing circumstances, but startups usually search for a bit before they figure out what it is that they’re doing.
2. Customers
Startups have no customers. Businesses focus on the omni-present “voice of the customer,” but startups have to go to extraordinary lengths to find this. They have to develop a product, get it in front of possible customers, and get their feedback. Sometimes, the first “customers” you talk to turn out not to be your customers at all.
This “lack of customer” means many startups have under-developed or non-existent sales and marketing teams. Many high tech startups bet the farm on a single big product unsupported by secondary revenue. If this is the case (and that’s a capital-intensive strategy), you’re much better off thinking about the “company” as a product development team than as a business.
3. Processes
Startups have no established ways of doing things. Good businesses have written processes and procedures AND, less commonly but even more importantly, built-in rules for changing the process. This is at the heart of why so many startup investors place so much stock in “the team.” Good businesses make it possible for ordinary folks to do extraordinary things. Good startups almost always rely on extraordinary folks.
4. Resources
Startups have what seems like too little time and usually no money. Good businesses operate on long timescales with the ability to forecast, budget, and invest. If you’re at a startup, you have to be extremely adept at balancing long-term goals with immediate needs. Many of the building blocks of a real business will seem unaffordable at a time when maybe you should be paying for them.
5. Independence
When you start something new, no one tells you what needs to be done. If you fail to do what matters, your venture fails. In good businesses, there are mechanisms whereby individual accountability is reinforced from the outside. Customers call you back to find out why you haven’t finished their project, your boss tells you what your goal is this week, the manufacturing floor tells you what you need to fix, etc. But when you’re in a startup, you really don’t have a lot of buttressing. Everyone must be highly accountable to themselves with good follow-up techniques and task list management.
Who gets to choose their customers?
Well, pretty much every service or knowledge business. Let’s look at landlording, manufacturing, and small business consulting as three examples.
Landlording is one of those embarrassingly interpersonal businesses: “Hello? I’m here to unclog your toilet.” “I’m not dressed! Just take care of it please!” Even with toilets that flush buckets of golf balls and other modern housing marvels, you’re trusting a breakable piece of a very expensive asset to a relative stranger. If they stop paying you or start causing problems, it’s very expensive and time consuming to end the relationship. After all, their basic home and shelter are at stake, so third party mediation (e.g., the courts) usually comes into play.
Different troubles await manufacturers, especially those offering fixed-price contracts. If you’re going to accept a job to make 100 of a new kind of widget, you want to feel warm and fuzzy about having the right drawings and knowing that they’re not going to change quantities or specifications once you start the run. In this case, you have to negotiate for up-charges, or offer concessions, or arrange a (hopefully) peaceful walk-away.
And for small business consulting, where you might feel you want every client you can get, you really want your customers to sing your praises and give you word-of-mouth traffic and their own repeat business. You definitely don’t want to try to please a habitual grouser, or to keep quoting a lookie-lou, or to otherwise commit to helping someone forever dissatisfied.
So What Can be Done?
Good landlords have a rigorous screening process (never discriminatory, always based on economics!) and so might lots of other businesses, except I very rarely see open communication about customer screening. As a potential customer for a lot of different services, sometimes I wish I could get feedback:
Dear Prospective Client:
You have had us requote variations of the same thing for the last three months. We’ll be happy to continue working with you after a one month hiatus, or you can sign and return one of our quotes and we’ll get started right away.
But when does that ever happen?
The best general advice that I can give is that sometimes it’s okay to say no to a prospect. As soon as you do, you’ll be thinking about the next prospect. Much better than wishing you weren’t locked into a bad situation.
