The purpose of this blog post is to illustrate how startups are different from traditional businesses, but also why more people should start a startup.
What’s A Startup??!
There is a misconception that any business “is a startup”. In fact most businesses are not startups.
Is that corner store a startup?
Is a website that you have created which is bringing in a small amount of revenue a startup?
Is a digital agency (web development company) a startup?
If you register as a freelance doctor/artist/consultant/web developer are you a startup?
The answer is no, but could be a yes.
Allow me to explain. Startups are a special type of business as they are designed to 1. scale and 2. scale fast.
If you look at the above examples it is incredibly unlikely that any of these will be able to scale to serve a massive number of people or do it quickly. There are exceptions such as Starbucks which found a way to scale and do it quickly. However, businesses which require a lot of human resources are the hardest type of business to scale and likely will never be able to do so.
Equally a digital agency will find it hard to scale. The bigger they get, the more people they will need to hire, the more they will have to charge to cover their overheads and therefore they will price themselves out of the market. Again, anything which requires human intensive work is very difficult to scale.
How about websites which bring in a little bit of money? Most are not startups as they won’t be able to scale and grow to serve large numbers or people.
In essence a “startup” is synonymous with growth. They are the one and the same.
Thalesian Principles (A Story About Startups)
Startups are old news.
Thales was a pre-socratic Greek philosopher. He also became very rich.
Thales invested in olive presses. When there was a good harvest and therefore high demand, he would rent out the presses at a high rate. One version of this story says that Thales predicted a good harvest one year and so bought all the olive presses due to his analytical skills and prediction that olive presses would be of great need.
Indeed Aristotle himself said that this shrewd business decision was due to Thales’ philosophy skills. However, others have noted that it wasn’t Thales’ extreme intellect that helped him to make the decision to invest in something which may not have returned any money, but because Thales understood that some investments have a convex (unpredictably high) return on investment.
Thales understood that it didn’t matter what he invested his money in as long as there was a convex return on investment. All he needed to make sure was that there was a limited downside (the initial investment) and a convex (near unlimited) upside. He understood that even if he lost the money he invested in olive presses, it wouldn’t affect him too negatively and that he would simply be able to invest in something else down the line.
Why More People Should Start Startups
They have finite limited downsides and possibly unlimited upsides.
It may seem to outside observers that entrepreneurs seem to risk it all by going on their ventures. But most entrepreneurs are actually very safe and know how much downside they can handle on a given venture. As long as there is a limited downside and an unlimited upside, entrepreneurs are happy.
If you can design a business* which will grow and grow quickly (as in a few years), this means that you may end up with an incredible return on your initial investment.
This is why I think more people should be starting well designed startups instead of putting their money in traditional investments such as 401Ks and pensions etc.
Let’s say that you can put aside several thousand dollars a year to invest and do what you want with. If you put your money into a 401k or something like property then after a certain number of years you will get a certain predictable amount of money back. The problem with these more traditional investments is that it takes many many years to get anything back. Also, you are handing over your fate to society, the government and the economy. If the markets crash, if there is a recession or if Wall street screws up then either you’ll break even or you’ll end up losing your money as so many people did in 2008.
So, the options you have are to either put your money into something which will give “predictable” returns (which will be either low or non-existent) or put your money into something which can actually generate lots of wealth – like a startup!!
*There are ways to design your business in a way which allows it to become scalable, but this topic is too large for this blog post.