Start Ups vs. Small Businesses

There is a lot of media coverage, hype, and trendiness around “Start Ups”. Who is the next Unicorn? Who raised the latest eight figure round? Who is disrupting what? There is a ton of advice (blogs, videos, etc.) addressing the various aspects of being a Start Up founder and how to grow your business. That’s great if you are actually in a Start Up. However, most of businesses that get created are not actually “Start Ups”, but rather “Small Businesses”. The problem is that much of the advice that is out there for Start Ups is totally inappropriate for Small Business owners. I am by no means the first person to touch on this topic, and I borrow heavily from other great posts (like here, here, and here). Let’s dig in…

First let agree on terminology. When I say “Start Up” I am referring to a type of business and not the maturity of a business. In other words, a business is not a Start Up merely because it is early in its existence. Second, there is no exact definition of Start Up or Small Business. I am speaking in generalities, and there are exceptions to everything I say here (so assume the words “most” or “many” apply to the statements that follow). To keep it short, I am going to only focus on two differences that illustrate my point well (this article is a great summary of some of the others).

Business Goals

Start Ups are designed to grow exponentially and to have a big exit (IPO, sale, etc.). The Founder of a Start Up needs to be prepared to rapidly scale the business and to quickly take a chunk out of a relatively large market. It takes a significant amount of resources to accomplish this feat, which is why most successful Start Ups require several large tranches of Venture Capital. Building a boot-strapped business to be self-sufficient is a very slow process. It is VERY rare that you could innovate (think highly paid talented employees) over several years, at a large scale, and quickly, without investment. If you have a business model that allows for that with no capital investment, hats off. However, the minute you take real VC money, you best be prepared to be driven towards rapid growth. The investors need every company they invest in to have the potential to scale exponentially, to make up for all the ones that will fail. For many Start Ups, if you don’t get to a 9-figure valuation (or more) investors will be dissatisfied.

Small Business, on the other hand typically, has the goal of becoming self-sustaining as fast as possible. Owners may start the business with personal savings, small business loans, or money from friends and family. They typically desire to become self-sustaining and to service that debt in a relatively short period of time. Where Start Ups need to burn through the cash fast to innovate and build a large customer base (anticipating another round), the Small Business is very careful with each expenditure focusing on sustainability. Once a small business is sustainable, many often do start to scale. For example, an owner that starts a dry-cleaning service may open a second location after the first location is cash flow positive and debt is under control. A small business can certainly grow large through steady growth, but many also stay in the 6-7 figure range for their entire existence.

Innovation

Start Ups typically have innovation at their core. Many are trying to do something entirely new, or provide a product or service that is at least an order of magnitude better than what is available in the market today. While there is plenty of room to innovate in Small Business, a Small Business can be highly successful by simply providing well established products and services to an underserved market. To be clear, many small businesses innovate in both their products and business models. It’s just not as essential as in a Start Up. For a Start Up it is hard to obtain massive growth and market domination with an incrementally better product. If you are passionate about the restaurant industry you be very successful opening several restaurants of the course of a few years; and you can certainly put your own unique spin on the business, but when was the last time you really went to a restaurant that truly innovated to provide an experience that was an order of magnitude better than anything else that exists?

So What?

There are many other differences, and people have written them up better than I will here. The main point I want to get across is that a lot of the books, blogs, and videos out there are geared towards Start Ups. Geared towards business for which the going in assumption is that you are trying to grow exponentially / fast, primarily through some technical innovation to create or disrupt a market. Advice about the persona you are supposed to have, your work life balance, financing, growth targets, etc. are largely geared towards Start Ups. If you don’t understand the difference between small businesses and start ups and the context in which the advice is given you could get wrapped up in a bad mental model.

I see a lot of small businesses reading blogs about VC, when it is clear that they don’t have a scalable business model that a Start Up would need. You can make damn good money with a business that pulls in $5M year after year with a 10% net profit margin. But no VC is going to invest in that business, and so any time the owner spends reading up on VC is a waste of time better spent elsewhere. Reading up on how pricing models for Start Ups that really care more about “users” than revenue, may not be super helpful if you are trying to build a sustainable local small business.

Start Ups get a lot of press, but I know a lot more people who have built significant wealth and financial independence as a small business owner than I do that have achieved the same through a Start Up IPO. Do you have a business that you think will really scale up to be a billion-dollar business within 5-7 years and is your goal to take it here? If so, then you might be a Start Up. If you are a business of 10 people and have been so for 4 years, you are a Small Business. If you are 25 people and offering products and services that are common in the market place, you are probably a Small Business. If you are just starting up and your first goal is to be sustainable and give yourself a pay check, you are probably a small business.

And you know what? Small Businesses are awesome. Small Businesses take just as much grit and determination as a Start Up. It’s not better or worse, it’s just a bit different. You need to understand that difference when seeking out information, planning for the future, and making decisions. So, my advice is to check out some of the articles I linked to and figure out if you are a Small Business or a Start Up. From there make sure you are seeking out information that is relevant to the type of business you have.

What Else Sioux Falls Needs to Grow its Entrepreneurial Ecosystem

A few weeks ago Matt Paulson authored a great piece entitled “Four Things Sioux Falls Needs to Become an Entrepreneurial City“. In Matt’s post, he identified four main things that the Sioux Falls community needs to foster entrepreneurial growth:

  1. More Collisions – between potential partners, founders, employees, etc.
  2. Better Story Telling – of our entrepreneurial success stories.
  3. Better Education – focused on the many paths to entrepreneurship.
  4. More Capital – from local and national investors to fuel growth.

The post has been rattling around my brain for the last two weeks and I thought I would pile on by giving my perspective. The community most definitely needs the four things Matt mentions in his post, but it needs a few additional things.

Community Identity

It might be controversial to say, but the Sioux Falls Entrepreneurial Community lacks a strong identity. We have individual successes, individual efforts, individual organizations all running in different directions. It seems that we have many small cliques, rather than a broad and cohesive community. We are worried about “duplication of services” and “turf”. Getting people to come out of their caves is often very difficult. Why is this important? It is very hard for individual people or small businesses to influence policy, economies, education etc. A community that coalesces around similar values, objectives, and needs carries much more weight. A large enough community represents a critical mass of consumers, voters, donors, etc. that is capable of influencing change.

In his post, Matt identifies that we need better story telling. I agree. But beyond just lauding individual successes, we need to start exporting the success of the entire community. There needs to be a visible “scene” here in Sioux Falls. When a startup says they are from Silicon Valley; Boulder, CO; Austin, TX; there is a little bit a weight that comes with that, since those areas have great reputations for pumping out success stories. The community’s reputation is what drives investors to continually scope out those scenes.

Developing and exporting a strong community identity will help drive local change and increase our national visibility. We need to figure out what it means to be part of the Sioux Falls Scene. Who are we? What are our values? Why is this a great place to start and grown a business? What is uniquely Sioux Falls? We then need to have a community focused attitude where building and promoting the community is as important to us as building and promoting our individual businesses. We want more capital, more co-working options, more top talent. Development of strong and visible community is the only way that is going to happen in a meaningful way.

Entrepreneurial Culture

A commonly voiced opinion is that Sioux Falls needs to do better in developing, attracting, and retaining people with startup / entrepreneurial interests. This includes founders as well as people willing to work for a startup / small business. For this to happen, we need to work on the culture. For a small town, Sioux Falls has a fairly “big business” feel to it. Healthcare, Financial, Agricultural, and Education are four monster industries that have significant influence Sioux Falls business community DNA. Entrepreneurs are often looked at as a strange subculture of people who just don’t want to go and get a “real job”.

Startups are risky, but they are not crazy. For the most part, people who put their all into starting businesses are not lazy, lost, foolish, or flaky. Yet when they fail, they are often labeled as such. Over 50% of all businesses don’t make it to 5 years, and nearly two out of three of businesses make it to 10 years. Failures are not something to brag about, but they are a part of the game. We need to accept folks who give it their all and don’t quite make it. We need to respect their effort, and do everything we can to lift them back up on their feet. A community that accepts failure and provides a safety need for those who tried, will find that many more people will be willing to try.

Too often we push highly talented people with entrepreneurial interests into traditional jobs via social pressures. These people are often miserable, so this is not only bad for the individual, it is also bad for the community since that person could have gone on to do something truly great.  Our leaders, teachers, parents, and financial institutes all need to embrace entrepreneurs as a key part of the future of Sioux Falls. They need to provide cautious but optimistic support. Sioux Falls needs to “legitimize” the startup. We need to propel entrepreneurs forward, applaud their successes and pick them up and dust them off when they fail.

Mentorship

Starting a successful business is not easy, and despite whatever “fad-process-of-the-day” might say there is no cookie cutter path to success. There is plenty of research out there that demonstrates that entrepreneurs with strong mentors are significantly more likely to create successful businesses. Mentors can provide:

  • Valuable insight drawn from their own successes and failures;
  • Much needed reassurance when times are tough;
  • A larger network, beyond your own personal contacts;
  • Unbiased analysis of critical business issues;
  • An emotional outlet to talk about your fears;
  • And much more…

A successful mentor-mentee relationship is mutually beneficial. Spending time with young, energetic, hardworking people is very motivating and inspiring. When the mentor gets to play the role of the “more experienced” entrepreneur in the relationship, it is a confidence builder; it is a reminder that they have had some success and that what they have learned is valuable. When giving advice, mentors often realize that they themselves need to follow the very same advice. Serial mentors will tell you that they have gotten just as much out of the relationships, if not more, than the mentee. It’s also just good karma to put out in the world.

I have noticed a lack of mentorship in the Sioux Falls community. Many startups do not have mentors, or advisory boards. Many entrepreneurs who have started to have success simply disappear from the community and do not actively find less experienced entrepreneurs to mentor. Entrepreneurship is life long journey with a spectrum of experience. No matter how experienced you are, you can always use a mentor. Likewise, no matter how new you are at the game they is someone you can mentor. Even if you are only 6 months in to your first business venture, there is a college kid somewhere who is wondering how to start. Successful entrepreneurs and business people need to view mentorship as a moral / ethical obligation to the community.

So, if you are just starting out, seek out a mentor. If you have had some success, make yourself available to the community and find at least one person to mentor.

Grass Roots Community Participation

Many people have voiced the challenges that they have encountered in trying to start businesses. They often share thoughts on how the community should and must evolve to better support them. However, having ideas is not enough. We need people to take action.  As much as the city, the Chamber, the universities, and the non-profits in the area care about these issues; community identity, culture, and mentorship can really only be driven by the entrepreneurs themselves. All of these organizations can provide amazing support, but WE the entrepreneurs need to be driving the bus. It’s OUR community, OUR culture, OUR insights, OUR successes that will transform the community, and we can’t sit around and hope that others will create it for us.

Many people don’t take action because they aren’t sure what to do, or how to make an impact. If this is you, I encourage you to reach out to others in the community that are taking action and offer to help, they may have ideas for you. Others may feel like they are too busy focusing on their business to effectively contribute to the community. This is a challenge for sure since entrepreneurs are notoriously stretched thin. Unfortunately, if everyone one is too busy to build the community, the community will never grow and it will never get easier. We must take the long view and invest time and energy now for a payoff in 5-10 years. I encourage everyone to find 2 hours a month to contribute. What can you do?

  • Come to a happy hour and share your experience.
  • Write a blog post about your experiences.
  • Offer to be a guest lecturer for a high school or university.
  • Find someone to mentor.
  • Talk about the community to people from other parts of the country.
  • Respond to questions on our Facebook Group.
  • Bring new faces to events.
  • Many other unique ways…

Summary

While this post focused on a few more things we need to do as an entrepreneurial community to grow, Sioux Falls has a lot going for it. Great quality of life, low cost of living, a warm and welcoming community, a strong local economy, etc. However, if we focus on what we need to improve, Sioux Falls can significantly accelerate the growth of the entrepreneurial community over the next 3-5 years.

Sioux Falls – Tech Pints

Last night we had the first “Sioux Falls – Tech Pints” events at WoodGrain, Brewing Company in down town Sioux Falls, SD. The premise of the event was to gather together people interested in the Tech / Tech Startup Scene in Sioux Falls.  The first event was a bit of an experiment; an attempt to get some grass roots momentum in the start up scene.  I was only expecting a few folks to show up, but in the end I would estimate the number of people who showed up to be 20+.  The events was attended by founders, engineers, local business owners, investors, and other folks interested in technology start ups.

We all met some folks we didn’t know before, shared startup war stories, introduced about our businesses, talked technology, and discussed the state of the startup scene in Sioux Falls. Topics of discussion included increasing growth, getting investment, solving hard technical problems and new business ideas. There was at least one introduction that may have resulted in a new business idea getting off the ground, which is great.

We will definitely be holding subsequent events.  I am not sure how the event will evolve over the coming months. I am personally passionate about tech startups, but I also want to be inclusive of the entire startup and entrepreneurial community.  Anyone is welcome whether or not you are in a tech startup, non-technical business, part of a non-profit, university, or government group.  Anyone interested in learning about, joining, supporting, investing in or otherwise being part of the Start Up scene is welcome. Last night was a great success, but I’ll be contemplating how to improve the event over the next several weeks.

The most promising thing was that, people seemed engaged, passionate and very interested in helping each other out.  There were a lot of ideas being exchanged.  People became aware of each others journeys, and were genuinely interested in supporting each other.  Thanks to all that were able to attend, we hope to see you again at the next event, and hope that next time you bring some new folks and introduce them to some awesome people.

Future of Tech StartUp – Sioux Falls

I had the opportunity last night to sit on a open panel discussion in Sioux Falls, SD focused on the future of tech startups. It was a great night, with lots of energy, and lots of ideas shared about how to take Sioux Falls to the next level.

For reference the panelist were:

  • Michael MacFadden: Chief Technology Officer of Solute, Inc.
  • Ryan Sougstad: Associate professor at Augustana University and co-founder of SystemMeasure Inc.
  • Korena Keys: Owner and CEO of KeyMedia Solutions
  • William Bushee: Author of Wired For Coding, Co-founder of Code Bootcamp of South Dakota
  • Austin Hanson: Director of Engineering at Myriad Mobile

The panel was moderated by Clint Brown, of “The Bakery” fame.

The entire experience was a bit surreal. Having only been in Sioux Falls for about six months, I was definitely the “outsider” in the room. It was interesting to hear some of the questions an opinion from the audience. The range of emotions included everything pride, frustration, excitement, curiosity, and fear.  I don’t think any of those are actually bad in anyway.  If anyone has ever started or run a business, we all feel all of those all the time.

I think my biggest take away from the night was that the conversation consistently turned back towards people, education, behavior, and community.  There was not a lot of focus on investment, infrastructure, business legislation etc.  Most people wanted to talk about building a sense of community, regional awareness, education, and the breaking down of mental barriers. I think there is a real desire for the community to start connecting the dots. There are a lot of great people, resources, and businesses in Sioux Falls, but the word isn’t quite getting out enough yet.

Main Takeaways

  1. Build a more supportive culture where responsible failure is tolerated and even celebrated.
  2. Aggressively communicate every startup success in the community to help attract top talent and investment capital to the Sioux Falls region.
  3. Develop a networked approach to community building, ensuring successful and hardworking people are more aware of what each other are doing.
  4. Focus on developing a “cool vibe” around start up participation in Sioux Falls.
  5. Build ties to other communities in the region.
  6. Invest in focused education to develop entrepreneurial spirit in tech students.

One other interesting observation was that a lot of the energy in the room was coming from several groups of students who showed up. A few groups of students stayed after to network and have follow up conversations with the panelists. It was pretty motivating interacting with a bunch of go-getter millennials.

I hope events like these become more common. The longer I am in Sioux Falls the more I am convinced that this is more going on here than most people realize.

Sioux Falls Public Pitch Event

I had the pleasure of serving as a judge at the “Launch Pad” event sponsored by CenturyLink and hosted by The Bakery in Sioux Falls, SD. The event featured five StartUps giving short 5-minute pitches followed by 10 minutes of questions from four judges and / or the audience. The evenings contenders were:

  • Vivo Center for Innovation: Developing technology keep older adults connected to the community and the things that allow them to thrive.
  • Learn Create Build AcademyBuilding the next generation of makers by providing physical and online technology camps for for K-12 students.
  • Podyum:  Developing a social media platform that allows players and coached to build their sports resume to improve the recruiting process from both perspectives.
  • Rodeo Analytics: Provides riders in rodeo and equine sports with an objective analysis of their competitive performance using video analytics software.
  • Juna Sleep Systems: Building high quality mattresses and beds, using the best quality materials and innovative manufacturing techniques, delivering a cost / quality that can’t be beat.

I have to say that all of the StartUps were brilliant. I would highly recommend checking out all of the companies. It was very difficult to pick the winner. But in the end Learn Create Build Academy came away on top for the evening. Congrats guys.

So What?

So that was the evening, but this post is not just a “book report” on the event itself.  I think it’s more important to go “meta” and to place the event within the context of a growing and evolving Sioux Falls StartUp scene. There are a couple things to note right off the bat.  First, the night was a collaboration between CenturyLink and The Bakery. This demonstrates successful collaboration between an established large corporation and an up-and-coming local small business. Typically, business of these sizes move at drastically different paces. The fact that they were able to come together and put on an event like this is great for the community. I am sure it took a lot of hard work (thanks for inviting me to judge by the way). I think the folks at CenturyLink would tell you that this was a great investment. They got a lot of good PR from the event.

Another major thing to note is the while five companies pitched, the event actually received several more applications. There was a lot of interest in this event from within the community. Another interesting fact is that Rodeo Analytics is actually homed out of Lincoln, NE. So Sioux Falls actually attracted interest from outside our metropolitan area. While not earth shattering, anything that attracts outside attention to a growing StartUp scene is a step in the right direction.

Something else that struck me was the fact that many of the people in the room had not met each other before. The event introduced founders to other founders, founders to investors, community builders to community members, etc. More and more of these kinds of events are happening which is going to really help create energy and connectivity within the community.

Really…So What?

So the most interesting thing to me was that this event was open to the public. It was said to me that this might have been the first time there was an organized event in all of South Dakota where StartUps were pitching for money in front of random strangers. I can’t speak to it being the first or not, but I can certainly say that if it is not the first, it is definitely a rare occurrence. We know that public pitches happen (1MC, etc.), but there was actually money on the line last week. It was a competition with a “winner” and “losers”.  You might be asking, why this is important? The answer is because everyone in the room started to get the sense that there is enormous value in the competition / exposure regardless of “winning”.  Five groups pitched; one came away with the $5,000 prize, but all five teams were winners.

All of the teams had great pitches and made names for themselves within the community. All of the teams got asked some pretty hard questions from judges which will help them hone their business. They made connections with each other and with potential customers, partners, investors etc. The public won as well. I bet there were several people in the audience who are now going to take advantage of the services provided by these companies that they learned about at the event.

In a lot of midwestern communities, it’s not OK to “lose”.  Failures are kept quiet. This is hard on a StartUp community where every single entrepreneur is going to have failure at some point in their life. At the event last week, all of the companies succeeded. Yes, one came away with the grand prize, but all of the companies were celebrated. It was a recognition that putting yourself out there and trying is what needs to be admired, not just the endgame of winning or losing at the end. The success was getting selected for an event like this, getting your pitch ready, and putting yourself out there. You don’t close every deal, you don’t win every event, every product launch will not go perfect.  The vibe on Thursday reinforced the idea that the more you try the more you win.  This kind of positive atmosphere will encourage others to try, because they know there is a community that will support their passion and effort regardless of the outcome.

This event was just one small step in the multi-year path that Sioux Falls is on. A small step, but a profound one. As events like these continue, I hope the community gets more engaged. Even if you weren’t connected to one of these companies, it was very inspiring to see people exuding passion. This is the spirit that made our country what it is today. If the community can rally around events like this, the StartUp growth in Sioux Falls will accelerate.

To the StartUp Crowd

It’s ok to put yourself out there.  It’s ok to get up in front of colleagues, investors, community leaders and put your passion out for others to see. If, on a particular day, you don’t close the deal, that’s ok. We still respect you, love your energy, and are here to support you. Your day will come. Seek out more events like this. You will come away with connections, ideas, support, and a refined pitch.  And who knows, maybe you will win one… you’ll come out on top no matter what.

In Closing

Sioux Falls has a growing StartUp Scene. If you weren’t sure before and you attended the event, then you would clearly see it now. We need to encourage more StartUps to participate in public events where something is on the line. It will help sharpen their game. We need to encourage the community to come out and participate;  and not the “StartUp Scene” regulars. We need to get regular folks to come out and see what is going on with these start ups. It’s fun, energetic, and inspirational. In closing:

  • If you are a StartUp: Find one of these events to do.
  • If you are a Large Business: Find on of these events to sponsor.
  • If you are a community member: Find one of these events to attend.

 

Very exciting stuff… let’s get together and Start Up Sioux Falls!

Ready to Launch

Hey all!  I just re-tooled the web site.  There isn’t a whole lot of content up just yet.  I will continue to build it out over the coming months.  I will likely be posting some blogs and information about my current and future projects.

As most of you know I am currently deeply passionate about StartUp communities and helping them grow in new areas of the country. I suspect a lot of my posts will be about that.

Check back soon.