Your Internet Business Probably Isn’t A Startup

We have a big problem: people think that just because their company uses technology or makes sales online that it makes their business a startup. They couldn’t be more wrong. 95% of online or technology business are small businesses. They’re lifestyle business. And there’s nothing wrong with that.

Unfortunately a cadre of investors, successful (and wannabe) tech startup entrepreneurs, Hollywood and the media have bastardized the words entrepreneur and lifestyle business. Entrepreneur now only refers to people working to become the next Facebook and lifestyle business is used as a pejorative by investors who know they can’t get their desired 10-50x returns. People dismissively say, “ Why bother with that, it’s just a lifestyle business?” And entrepreneurs start to think that if they want to start a business, they need to find a way to stretch their small business idea into the box of tech startups.

I see entrepreneurs make this mistake every week. They religiously believe that their small business that happens to use the Internet needs to raise $1m, grow rapidly and get acquired by a tech giant. In reality, they have a small business that could generate a decent profit each year. They could support themselves nicely, but they cling to the idea that they’re a startup. No! They’re a traditional small business that happens to use the Internet.

An entrepreneur is not synonymous with Internet tech startup entrepreneur. Entrepreneurs come in all shapes and sizes: everyone from Mark Zuckerburg to the guy selling tshirts on his college campus. It doesn’t mean taking big investments from well know VCs. It’s not rapid growth to try to take over the world. Being an entrepreneur is creating value and being responsible for the gains and losses.

We got into this mess for two reasons. First, entrepreneurs have been beatified by the press, Hollywood (The Social Network, Shark Tank) and politicians who have fostered a “job creating culture” around entrepreneurs who are now these superhuman people who do incredible things. Now when people think of entrepreneurs, they think of tech startups like Facebook, Twitter and Instagram: companies that took massive investment, grew rapidly and changed the world.

Second, VCs, angels and tech entrepreneurs have pejoratively demonized small business as a “lifestyle business” which makes these potential entrepreneurs feel unworthy unless they’re starting startups. Successful tech entrepreneurs and investors say things like “its hard enough to start a small business, why not aim big?” At best, it’s a confirmation bias because those are the companies that VCs, angles and serial tech entrepreneurs have seen succeed. At worst, it’s because VCs and angels have no interest in small businesses and lifestyle businesses because they’ll never generate the 10-50x returns that these investors need to make money on their funds.

The confluence of these trends means that entrepreneurs who have great small business ideas think that they need to fit into the tech startup box. Instead of growing like a small business, they try to raise money, get rapid growth and delude themselves that someone like Facebook will buy them for millions of dollars. They end up beating their heads against the wall and failing because they’re wasting their time on things a small business has no business doing and wasting their precious money on things a small business shouldn’t ever focus on.

I’ve been advising a small business that thinks it’s a startup over the past two years. They have a great idea, passion and over six figures in revenue each year. But among many other problems, they’ve always thought of themselves as a startup that should have massive growth. They’ve dreamed of an acquisition by a tech giant, raising money and taking out loans trying to achieve this massive growth. It’s been obvious since day one to everyone outside of the founding team that they’re in fact a small business, not a startup. A potentially very profitable small business, but a small business nonetheless.

But the founders won’t give up the startup dream. And they will fail and go bankrupt despite having a small business that should be generating a profit of $250,000 this year because of their inability to admit reality.

This is an extreme, but not isolated incident. I see it every week. As entrepreneurs, we need to stop perpetuating the myth that every business is a startup. We should be encouraging small business creation that happens to use the Internet. We should create more resources for these entrepreneurs to learn about how to grow. And these entrepreneurs should be accepted as the real entrepreneurs that they are. They need to know that they’re not the same as Facebook. They’re closer to a corner store. And that’s just fine.

The US needs small business. They create the vast majority of new jobs each year. And sustain millions of families each year. Internet small businesses are one of the most promising paths to success in our economy. But we need to get this problem under control.

To reiterate: just because your company uses technology or makes sales over the Internet does not make it a startup. There’s nothing wrong with that. Rock it. Embrace it. Earn your money. Live a great life. And stop trying to be something you’re not.

  • MikeDH

    I’m a little late to the party, but I just wanted to say that your point about “small businesses” being virtually ignored because they aren’t the next big celebrity-buzzed Internet “thing” is poignant. It’s also devastating. People need more than a new way to let the world know what they just did 15 seconds ago. Unfortunately, people who try to build businesses that create real and practical value aren’t sexy anymore – so they are on their own. Or at least, so it seems. Maybe the world does really have it in for the little guy.

    • http://www.nathanlustig.com Nathan Lustig

      thanks for commenting. i think people who are trying to create value aren’t sexy, but investors these days really care about traction, and not much else. if you’re trying to change the world, you’re probably a startup. if you want to make a bit of money, you’re likely not. and there’s nothing wrong with that.

      • MikeDH

        I wholeheartedly agree that there is a difference in the two type of businesses. But it remains disheartening that the media and investors seem to discount the value of “lifestyle businesses.” The world still needs new widgets, even if only so people can talk about them on whatever comes along to replace Twitter.