Building a Startup v. Building a Business

One of the things I got horribly wrong with Distil was that I didn’t focus enough on building a business. Sure, me and the other founders would talk about the enormously successful company we imagined we were building. But my actions weren’t those of someone building a sustainable business. Instead I was building a startup.

We had just closed our first investment round. The only revenue we had was from a single large sale. Our revenue projections (which showed the obligatory hockey stick growth) were less what I saw as happening and more what I wished would happen. Actually that isn’t true at all. They were bullshit, pure and simple.

Knowing the projections were bullshit, I struggled with what to do next. We had money that was meant to build a team to deliver on revenue that was pure fantasy. The truth was that we didn’t need a team anywhere near the size we had raised capital for until our sales team started closing deals. If I was building a business, I would have banked the money we had raised, kept me as the sole technical person, and hired the best sales people I could.

But I was building a startup. Startups are about growth. They are about momentum. And risk. They are sexy. We must look bigger than we are.

Then it hit me. Eureka! If I can’t control whether I meet my revenue targets, I’ll focus on what I can control — the expense side. I’ll make sure that I execute perfectly against the plan. That my quarterly expenses are dead-on what I forecasted. That I fill all the key positions with the best people to the timeline that we agreed with our investors.

I remember one time my VP of Engineering asked me if we still needed to hire a developer with data mining skills. The project we needed that skill set for was delayed because the customers for that project weren’t quite yet at the table. Should we maybe wait until the customers were there before making the hire? (By the way, my VP of Engineering had better business sense than me). “No!” I said. “We told the VCs that the product would launch next quarter and we still need to do that.”

At board meetings I focused on how well we were executing to our plan. Everything was running like clockwork. Products were coming out right on time. When the board asked about revenue, I explained that such and such a deal was delayed. Or that so and so was needing to get board approval for budget. Next quarter all of that missed revenue would come in. We were on track. And look over here — we have the ability to run 2 projects simultaneously through development. 2 projects! We were ready for when all those sales started rolling in. As they would. Next quarter.

Looking back, I built a great startup. But a crappy business.

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6 Responses to Building a Startup v. Building a Business

  1. I think startup label is risky in ways that overnight product making and shipping the product fast are the only core activities that the organization should bother to care. I understand the mentality from the first-hand experience, albeit not much. They raised fund and started the business because they think that they can deliver, which they probably will. The sponsors and investors see something and inner trust must have been built before they award the fund in the first place.

    I think when the fund is granted, then we should start to proactively investigate the other-side. As an engineer or a hacker, we have some level of confidence that we can execute the development process to deliver the proposal. But what about the business part? Recruiting? Marketing? Dealing with feedback? Many business aspects are previously un-learnable due to lack of interest or understanding or knowledge or experience or the money. It’s obvious that the business aspects are important when building a business, which the startup is aiming at from the beginning and hoping to grow out one as soon as possible.

  2. The King says:

    above comment is crap !

  3. Ric Shreves says:

    The King is dead…wrong. Seongjoo is dead…right.

    I go to startup conferences and often find myself thinking “cool idea, but these guys have no clue how to build a business.” Stalking VC is NOT a business model. So many conversations revolve around “this is what the investors want to see.” Few revolve around “yeah, this may not be so sexy, but this is what we need to do to build a great business.” IMHO, smart investors — the ones who bring more to the table than just $$$ — are interested in great businesses. Cool ideas are a dime a dozen.

  4. Why do you think you need a big team in order to sustain the growth of a startup? Fewer people do less, but leave all the non-important things out.

    I think there’s a hype right now regarding startup vs business. A startup is the beginning of a business that’s supposed to be scalable, so you won’t sale time for money. If you’re offering a service or product for twice as customers without twice the number of employees, then you’ll have the startup you’re looking for. In any other case, it’s a business, even if it’s a big successful one.

  5. kentonwhite says:

    I like this discussion. I don’t think there is any one right answer. The lesson I took away from the above experience is to know what you are building. With Distil I thought I was building a business but was building a startup. Some ideas do need to be built fast. There might be a limited market window or external forces that require you to scale up the business In these circumstances it makes sense to build a large product team with large capital before your business model is proven. Why? because the market factors mean that if you try to grow organically you have already lost.

    But in many cases, like Distil, there is no time pressure or external factors at play. You can grow organically. In which case it makes sense to focus on discovering the business model while keeping development small.

  6. Pingback: We Raised Too Much Money | Battle Hardened

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