The Jonas Project’s Senior Capacity Builder, David Hincapie, has written a three-part series on one of the topics he gets the most questions about. This is the first of the three blogs. David is the first point of contact for Veterans who inquire about The Jonas Project, and the one who coordinates all of the resources for their business. He’s on the front lines every day steering our Veteran entrepreneurs in the right direction.
When you started looking online for information about starting a business, you probably saw a lot of talk about “startups” and “lean startups.” And maybe you’ve even wondered if your idea is a “startup.” So what do these terms really mean? What’s all the fuss about?
A “startup” is just a new business. The word comes from the technology startup world of Silicon Valley. But more specifically, a startup is a high-growth new business. That means a business begun with the intention to grow (revenues) very fast and eventually have a public offering of stock.
Or, sometimes entrepreneurs begin a business with the intention of producing a minimum viable product (MVP) so a bigger company will come buy their idea and the entrepreneurs will get rich in the sale. Sometimes they stay to continue developing the product and sometimes they walk away with their millions.
Is my small business idea a “startup” in the Silicon Valley sense?
Most small businesses cannot be scaled up the way a technology business can be scaled. If you start a machine shop or a gym or a brewery or a health food store you are physically limited by how much you can sell in your storefront, how many customers you can serve per hour, or how many people per day can exercise in your gym.
You might be able to scale up if you can sell merchandise or services online. But even with e-commerce not every business can scale. How, for example, do you sell personal training services online when workouts happen in your gym? You can sell the service online but to deliver the service the customer must come into the gym. Thus, a non-scalable business has different problems than a scalable business.
This is why most non-scalable businesses don’t get started with investor money. Investors are essentially gamblers. An investment is a bet they hope will pay back 10 to 1. That is, if they invest $500,000, they are hoping to get $5,000,000 back when the startup is sold to a bigger company or when there is an IPO (Initial Public Offering).
Does that mean I must get a loan?
You might be able to bootstrap your business- start it with your own money or from your immediate circle of friends and family- or you might even crowdfund it. But even though you won’t find venture capital investors for a non-scalable business, you might be able to use the “lean startup” idea to get going fast. Stay tuned for the next post “So what’s a lean startup?”