A well-known entrepreneur was in my city giving the keynote at a local tech conference. Since I teach entrepreneurship, I offered my students extra credit for attending.
I wish I hadn’t. His advice was terrible.
The entrepreneur was from an older generation. Not that being old inherently means a person gives bad entrepreneurship advice, and the core issue I had with his advice had nothing to do with his age. The core issue was that he’d built and sold his massively successful tech company decades earlier. It was so successful that he had “f-you money” (yes, that’s a technical term), and he never needed to work another day in his life, so he hadn’t launched a new company in decades. As a result, his advice about building companies was based on an old, out-dated, and unnecessary model of entrepreneurship that no entrepreneurs should follow in 2023.
Unfortunately, whether they realize it or not, most entrepreneurs are still following the same, old-fashioned entrepreneurial model.
Recognizing the old model of entrepreneurship
The basic gist of the speaker’s story was that he and his co-founders built an important piece of software a few decades ago. They had the idea for it, wrote a business plan, raised lots of money to build it, then, once they had the money, the developed the software, began selling it to people, went public, cashed out, and now he occasionally keynotes conferences between trips around the world on his private yacht.
(OK… I made the last part up about his private yacht. But I assume it’s not too far from the truth.)
It’s basically the archetype of a startup success story. Since half my students attended the entrepreneur’s keynote, and I didn’t want them blindly following what they’d heard, I decided to spend a few minutes at the start of my my next class refuting some of his more old-fashioned ideas about entrepreneurship.
“Raise your hand if you attended the extra credit talk from last week,” I asked once class began the following Monday. A large number of students raised their hands. “And what did you think about his advice?”
Someone raising her hand in the front row said, “I enjoyed his story about taking his company public and his explanation of all the challenges he faced with doing that.”
Another student raised his hand and said, “I was really interested in his charity that he built after selling his company.” (Yes, uses his money run a charity now. I suppose he’s not a horrible human being.)
A third student referenced a funny story the keynote speaker had told about why he’d had to fire his first law firm.
Clearly my class wasn’t as concerned with this founder’s misinformation as I was. Heck, they hadn’t even noticed it, and that was the biggest problem. They were too young and inexperienced to understand why it was such bad advice.
I needed to steer my class’s toward the problematic parts of the keynote talk they’d heard. “Did you notice anything strange about the process he took for building his business?” I asked.
Finally, a student in the back row raised his hand and said, “I thought it was a little weird that this guy raised all sorts of venture capital for his business plan and his idea, then built the entire thing. It just doesn’t seem like that’s how building startups works anymore.”
Build your business before selling it
“Exactly,” I agreed. “And it’s stories like his that create lots of confusion for young entrepreneurs. Every time some uber-successful entrepreneur talks about how he had a brilliant idea for a startup, raised a bunch of money for it, and then built it, the next generation of entrepreneurs hears the wrong story. What’s wrong with that story?”
The class sat silently for a few moments until a student directly in front of me raised her hand and I called on her. “Because it doesn’t take as much money to build products now as it did back then,” the student answered.
“That’s definitely part of the equation,” I agreed. “And what else? It’s not just that it doesn’t take as much money to build products anymore. What else is much, much, much cheaper and more accessible.”
“Marketing,” a student called out.
“Marketing!” I confirmed. “This is the big difference between startups now and startups 30 years ago. It used to be that marketing a product was enormously difficult and enormously expensive. You had to buy ad placements in newspapers, and you had to film and produce TV commercials. In that old world of marketing, nothing was easy to change and update. As a result, before you could ever start marketing a product, you had to make sure your product was perfect. And, to build a perfect product, you needed lots of money up front. But, in today’s world, that’s no longer necessary. All of us in this room can literally buy ads right now capable of reaching millions of people. So, how does this change the fundamental process of entrepreneurship?”
“We shouldn’t wait to launch our products,” another student said. “We don’t need to. We can launch and keep iterating as we go.”
“Exactly right,” I confirmed. “And that’s the big difference between how that guy launched his company however-many-years-ago versus how you all need to think about launching your companies today. You don’t need to create a business plan, raise a bunch of money, and then develop a perfect product. Instead, get an imperfect product out the door and into the hands of real users as quickly as possible, learn from them, and iterate.”
To be fair, I get why people are still trying to build startups the old-fashioned way. After all, every well-known entrepreneurial success story focuses on entrepreneurs and their “revolutionary” ideas: Amazon, Microsoft, Apple, Uber, Facebook. They’re all stories about amazing, world-changing ideas. Listening to those success stories makes entrepreneurs think they need to get others invested in their world-changing ideas before they can actually build them. But that’s not how ideas become world-changing.
No startup idea is amazing on its own. Startup ideas become amazing as a company grows, evolves, and gains market share. As a result, being a successful startup means focusing on consumer adoption. The m
