Tag: Entrepreneurship

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.

My Entrepreneurial Journey

Note: I wrote this post back in May 2010 for a guest post on a large tech blog, but it never got used.  I found it today while going through my inbox and decided it was too good to not post.  This is my entrepreneurial journey from 2004 until May 2010.

As I made my way from Milwaukee, WI to Madison, WI for my freshman year of college in fall 2004, I had no idea what I wanted to do with my life.  I’d know for awhile that I liked working for myself: I’d been a soccer referee since I was 12, which allowed me to make my own hours and make more money than any 12 year old should be able to earn.  I’d been fairly bored with high school because we learned boring theories instead of practical ideas that would help me later in life.  My biggest take away from high school was “more practice, less theory.”

All of these thoughts took a backseat in my 18 year old mind when I received a letter from the University of Wisconsin notifying me that I’d lost the student football ticket lottery.  I was devastated.

After moving in, I’d been thinking about how to find tickets, but I didn’t have to look very far.  One of my friends invited me to a party my first night at college.  I was about ready to call it a night and walk home when I heard a guy screaming into his cell phone.  He hung up and was so mad that he slammed his phone on the ground, breaking it.  He got even angrier because he said he didn’t have the money to get a new cell phone.

Something in my brain just clicked and I said, “hey, do you have football tickets?”  He looked at me really strangely, but said he did.  I responded, “well I don’t have them, but I’d buy you a new phone for your tickets.”  I wasn’t really expecting anything, other than maybe some choice words, but to my surprise, he got excited.   The next day, I tracked the broken cell phone guy down via a friend in the frat, bought him the money for the phone and made the exchange.

I was pretty excited.  It only took me one night to get my football tickets.  All was right in the world.  I told my story to some of my new friends and quickly realized that there were a ton of kids who were in my same predicament.  I agreed to help them find tickets.  It pays to be in the right place at the right time.

Enter Exchangehut.  I first remember seeing flyers and spray paint stencils for the site a week into my freshman year.  I checked it out, signed up and was user number 1117.  Exchangehut was a ticket exchange that worked like the stock market.  Buyers could input a bid price and sellers could put in an ask price, creating the market.  When the prices matched up, a sale happened and both parties were contacted.  I used the site to help 4-5 friends buy tickets and quickly saw how useful the site was.

As the year went on, I became one of the more active users, I realized that the site had limitations and thought about creating a competitor.  I wrote up a simple business plan, but got discouraged because I was having trouble finding a programmer to write the new site.  I put the project on the back burner and went on with my summer.

I was in the right place at the right time again a month later.  The owner of Exchangehut was selling the site via an auction because he was graduating.  I quickly shot an email back, did my research and put in a bid.  I excitedly talked with my friends about how I was buying a business and to my surprise, one of my best friends from high school said he was too.  I said “what business” and we both said “exchangehut” at the same time.  He was a computer engineering major and we decided to merge our bids.  A month later, we were the proud owners of a 2000 person tickets and textbooks website at age 19.

We ran the site until 2008, growing the site to 150k users across 8 college campuses.  We learned a ton and needless to say, I was hooked.  I loved coming up with ideas for the site, promoting the brand and working my own hours.  I was making more money each week working on average 8 hours per week than my roommates were making bartending and waiting tables full time.  I loved the freedom that came with being able to work from anywhere.  I got to travel places and meet interesting, creative people.  I enjoyed meeting people who though “how can we fix a problem” not “why can’t we.” We sold the business to our ad network in summer 2008, but I knew I was going to start a new business.  This isn’t to say it was easy.  We put in long hours, answered angry customer emails and calls and continued to go to class.

Like many entrepreneurs I know, I keep a business idea list.  I had over 200 ideas on my list and after selling, worked on cutting them down to 10 that I thought were promising and would be fun to work on.  All that stopped when three professors I had gotten to know independently told me that I had to meet a student named Jesse Davis.  At the same time, two of my friends said that Jesse was working on something cool and needed a partner.

I met Jesse in one of the libraries on campus and he pitched me his idea.  Jesse’s pitch went something like this:

“I just read Thomas Friedman’s The World is Flat and couldn’t get through it when I got to US Marine Justin Ellsworth’s story.  He was killed in action in Iraq and his family wanted access to his Yahoo! email account.  Yahoo said no.

After a long court battle, a judge ordered Yahoo! to turn over the contents of his email accounts to his parents.   It shouldn’t take months to gain access to a deceased person’s email account.  Also, what if I don’t want my parents looking into my Facebook account or other sites I might have? Friedman ends the passage by saying “someone sort this out.”  Let’s create a system for people to store their last wishes for their digital assets, which are any online account or file on their computer, and let’s allow them to input their passwords so that their survivors have access.

I immediately thought back to ExchangeHut.  In 2005, we hired a programmer to help us make improvements with the site and at one point, I realized that our programmer has all of the usernames and passwords to the server, database, credit card processing, affiliate programs and everything else that was necessary to run the site.   Like programmers like to do, he used a random password generator, so there would be no way we’d be able to guess his passwords if he were to get hit by the proverbial bus.  We ended up having our programmer write down every password on a piece of paper and I stored it in our safe deposit box, just in case.  Jesse’s idea would have solved this problem.

I was looking for a project, Jesse was looking for a cofounder with some experience and we hit it off.  Two months later, we founded Entrustet.

I was sold on Entrustet because we had a chance to create a solution a real life problem.  The death of a loved one is an incredibly stressful time and we thought we could help give people peace of mind that their digital assets would be dealt with according to their wishes, and that survivors wouldn’t have the burden of having to guess what the deceased person wanted done with their online accounts.

We’ve been working on Entrustet since November of 2008 and launched in March 2010.  In our first year, we spent under $20k starting the business.  We were able to spend so little because we hustled and were located in Madison.  We’ve stayed in Madison, even though we’ve had opportunities to move to Silicon Valley, New York, Boston or Austin.  Being located in the Midwest has given us some advantages that are often overlooked by people on the coasts.

It’s incredibly cheap to live and work in Madison.  Our office is located across the street from the state capital and we pay $200 per month.  I pay $400 per month to live in a nice apartment four blocks from the office.  On the coasts, we’d have had to pay 5-10x more.  While the talent pool is not as deep, we’ve found talented employees who cost a fraction of what they would on the coasts.

Madison is small enough that we’re able to get in contact with anyone we want to relatively easily and Madison has groups like MERLIN Mentors that help new startups by pairing founders with successful entrepreneurs who server as in informal board of advisers. Everyone in our company walks to work and we’ve become active in the startup community by starting Capital Entrepreneurs, a founders group with over 60 tech companies in the Madison area.

I’m a huge believer is pursing your passion and starting starups has allowed me to pursue mine.

Punishing Failure, Stifling Innovation: How Culture Affects Who Goes into Entrepreneurship

I wrote a post last week about some of challenges facing Chilean would-be entrepreneurs because of the culture.  Overall, Chilean culture punishes failure, which stifles innovation.

It got me thinking and I realized that it seems to me that a fixed percentage of people in the world are entrepreneurial.  I’m not sure what the exact number is but if I had to guess, it’s probably around 10% and I’d be willing to bet that percentage is fairly static across the world.  I believe that these 10% have the skills, desire and entrepreneurial spirit to start a business and succeed.  10% of Americans, Saudis, Chileans, Spaniards and South Africans all have the desire to start businesses, so why do some places have lots of entrepreneurship and others don’t?

Why does the US have a higher percentage of entrepreneurs than Chile, Saudi Arabia or other places around the world.  And in the US why do Silicon Valley, NYC, Austin, Boulder and Boston have a higher percentage of entrepreneurs compared to Des Moines, Tallahassee and Phoenix?

I believe that certain cultural values free up the entrepreneurial 10% to actually start businesses and succeed.  For example, in the United States, we reward risk taking, business ownership and making money.  On average, we also love innovation, learning and trying new things.  We love rags to riches stories, even if they are only partly true.  If someone’s business fails, it’s seen as experience, not a black mark.  In the US, these values are stronger in San Francisco and Austin than in Cleveland and Memphis.

In other parts of the world, there are many different cultural pressures that stifle innovation: punishing failure, punishing innovation, closed culture.  Some places even look down on successful people.

In Silicon Valley, I bet 20% of the people are entrepreneurs in some way shape or form.  In Austin, maybe 8%.  In Chile it’s .01%.  I believe that all cultures start out with the same 10% who can start businesses, but some cultures push people who may not have started businesses to do it, while others push people who would have otherwise started a business to shy away.  The most important thing entrepreneurs, government and academics can do is to try to free the people who would start a business, but don’t because of cultural pressures.

I’ve seen it first hand in Madison.  When I was 19 and just starting with ExchangeHut, there were not many young entrepreneurs.  I only knew 4-5 students and recent grads who were starting businesses.  After JellyFish sold to Microsoft, Networked Insights started to have some success and young entrepreneurs like those in the Burrill Business Plan Competition started to get press in national publications and have some success, other people started to see that they too could start a business.  Capital Entrepreneurs has accelerated the process, along with all sorts of cool initiatives from the startup community like barcamp, forward tech festival, high tech happy hour and more.  I think Madison went from a 1% to a 3% city in the last five years.  We still have a long way to go, but by unlocking the pent up entrepreneurial talent, we’ve seen an explosion in entrepreneurship.  Just wait until we see what Madison looks like at 5%!

In Chile, I’d estimate that we’re at .1%: for every 1000 people who are entrepreneurs at heart, only 1 starts a business.  That’s 1/1000!  In Silicon Valley, it’s probably 200/1000, Austin 80/1000 and so on.

Part of Start-Up Chile‘s mission is to introduce entrepreneurs from all over the world into Chile’s culture to try to break the cultural pressures that punish failure and stifle innovation.  I believe that we should be focusing on the other 9.9% of Chileans who might start a business if they were not afraid of being punished for their failure.  If we can double the amount of entrepreneurs who start businesses, it will be a huge win for Chile.  I see similar parallels to Madison and the entrepreneurial community is starting to take shape.  People just need the entrepreneurial push!

What do you think?  Are entrepreneurs distributed equally across the world or are more entrepreneurs born in one country compared to another?  What can you do to help free up the rest of the entrepreneurs who are scared to make the leap?

How to Make an Introduction

I get asked to connect people all the time.  I also ask others to connect me to people every single day.  Getting introductions is an incredibly powerful way to get to know people who can help you with your business or in your personal life.  It’s also great to be able to give an introduction to two people who will mutually benefit from knowing each other.  Email introductions are the most common intros these days, so it’s important to know how to both introduce two people and respond to introductions.

Introducing Two People

I like to keep it really simple.  Here’s a mock introduction between my business partner Jesse Davis and our friend/Madison entrepreneur Steve Faulkner of Real Time Txts.

To: Jesse Davis, Steve Faulkner

From: Nathan Lustig

Subject: Introducing You

Jesse, meet Steve Faulkner.  Steve is, among other entrepreneurial endeavors, the founder of Real Time Txts, a service that texts subscribers free drink offers at local bars in real time.  He also wrote an awesome article about Madison entrepreneurship that was featured in Techcrunch.

Steve, meet Jesse Davis.  Jesse is the cofounder of Entrustet, a website that allows you to decide if you’d like your digital assets transferred to heirs or deleted when you die.  He is also active in the Madison startup scene and Capital Entrepreneurs and writes a great entrepreneurship blog.  Jesse is interested in connecting with you to see if there is a potential partnership for Real Time Txts and Entrustet.

I wanted to connect you guys so you could figure out how to make it happen.  I’ll let you take it from here.


Key Points to Remember

  1. Use the format above to introduce both people to each other
  2. Include links to each person’s business, unless the person is well known
  3. Include a sentence at the end to say why you’re connecting both people to each other
  4. Include a sentence that tells the two people you’ve just introduced that it’s up to them to take it farther

Responding to an Introduction

It’s fairly straight forward.  Click reply all and thank the introducer for making the intro.  Introduce yourself to the other person and go from there.  It’s important to include the introducer in the first reply so that they know that you’ve actually responded.  If I’ve taken the time to introduce two people, I want to know that they’ve actually taken the next step to connect.  After the first email, feel free to leave the introducer off further conversations.  Here’s a sample reply:

To: Jesse Davis, Nathan Lustig

From: Steve Faulkner

Nathan, Thanks for intro.

Jesse, many people have told me that we should meet as well.  As Nate said, I’m the founder of Real Time Txts, a service that sends people texts about free drinks at Madison area bars.  Do you have some time this week to chat via phone or meet up for coffee so we can discuss a potential partnership?



I hope this helps!  What do you think?  Do you use this format or do you have a different format that works well for you?