by Joshua Flannery | Manager, Student Entrepreneur Development & Co-founder at FounderLab
It’s not difficult to find a frustrated entrepreneur from our ecosystem whenever small businesses, lifestyle companies and startups get painted with the same brush. Small businesses are just that – small versions of big businesses. Startups, on the other hand, as Steve Blank drilled into our heads during my time with him in January during the Lead LaunchPad for Accelerators / Incubators programme at UC Berkeley, are temporary organisations searching for a repeatable and scalable business model.
For universities playing in the startup ecosystem, the obvious route to remain relevant to students who care and the ecosystem itself is to set up programmes that focus on encouraging and supporting startups. It would be “missing the point” or “getting it wrong” to do the same for small businesses or lifestyle companies, wouldn’t it?
I don’t agree.
Firstly, we have to keep in mind that entrepreneurs, on average, fail three or four times before their first successful startup. So for student entrepreneurs, the nature of the first business they start is less relevant than the fact that it serves as a vehicle to develop them as entrepreneurs. A tech startup entrepreneur and a small business entrepreneur face different challenges and need to use different methodologies, but the skill sets required for success are not worlds apart.
Before I go on, let’s put this into perspective. The startup ecosystem needs more multimillion dollar innovative Australian startups and the ultimate goal should be working toward this. But at the university level, we have to also build a pipeline of entrepreneurs that may not have their first experiences in real world business as a tech entrepreneur. Working with young entrepreneurs on a daily basis, I can testify that there is a growing number of first time small business entrepreneurs that aspire to eventually become a startup cofounder after learning what it takes to run a business more generally.
To explore this further, I spoke with two young entrepreneurs at UNSW who are currently running small businesses but are also interested in startups. Shahe Momdjian and I originally met during the first edition of the UNSW Startup Games in 2012. Shahe won 2nd prize with his startup StartupGenie. I asked Shahe about the small business he has been running since his high school days and his thoughts on these matters:
1. What is your business about?
We’re about proving that Young Wisdom is not an oxymoron! We are a communications and innovation consultancy designed to bridge the gap between talented young communicators (our team) and the corporate world (our clients) by building trusting relationships and delivering quality work.
So far, we’ve come to specialise in marketing communications and, within that, corporate (and startup) video production. Now, we’re branching out from there. Recently we’ve begun to help business leaders and teams become more effective through communication skills training and team-building. Next, we plan to offer development and custom SaaS solutions to support our clients’ various communications initiatives.
2. Do you have an opinion on “lifestyle companies vs. startups”?
I’m a big fan, but it’ll help more if I’m critical instead … Startup culture, particularly for students, can be problematic at times. We can underestimate what it really takes to run a business, and we can forget that a startup is (at least, trying to be) a real business. The “ask for forgiveness, not permission” mentality that many have adopted doesn’t help.
At the risk of oversimplifying, sometimes I encounter startups that might have been better off as a feature in another product, or even a marketing/CSR initiative for a larger organisation (something the “founders” could be paid to implement).
Sometimes it feels like we’re “disrupting” for the sake of it, or being driven by a would-be boss’ ego. We don’t spend enough time vetting our ideas according to actual market needs and justifying why they deserve to be whole new businesses (even knowing what we do about lean methodology). We then try to find a cofounder who will be just as committed (without looking much further than the next networking event) and try to pitch for other people’s hard-earned money to make it happen.
This approach is full of risk and it’s no wonder that many investors are not interested. We could then choose to blame the startup investment community and/or government for being small-minded, try again overseas or go back a few steps. And then, after many years of slogging away, there’s the opportunity cost to consider.
For young entrepreneurs in particular, running a “lifestyle” business or being a contractor, are excellent ways to learn what it takes to actually run a business without investing too much capital (or worse, someone else’s capital).
This is because the focus is on developing a relatively simple service-based product range, selling and serving customers instead of building something complicated (at large personal expense, at least in time) and getting funding. In the process, we learn the real challenges of business at an operational level – cash flow management, time/project management, bookkeeping and tax obligations. These are the things that will really test our resolve as would-be entrepreneurs and make traditional employment look much more attractive.
On the startup path, we only really learn how we feel about these responsibilities after the product is built or funding is received (that is, when the stakes are much higher). As a lifestyle entrepreneur, we continuously work on communication skills and relationship management, customer service and marketing.
Overall, we will have fine-tuned a whole range of transferable skills that will benefit us in every business pursuit, contract or job. Lifestyle businesses (of the coaching, training, etc. variety) also tend to relate to the founders’ personal skills or interests – e.g. yoga, tennis, maths – which is an effective way for founders to hone their own skills (especially in teaching and working with others).
Finally, it’s not true that these businesses can’t scale dramatically. Once you have a product range that works, a few happy customers and a target market that responds well to you, you can start working on your systems and processes, growing a team, or even adding a tech layer (bringing the startup-style potential, except with much more experience, market validation, and maybe even your own capital). Then, the limits of a business run solely by you dissolve and the potential becomes global.
3. What is the most exciting thing that has happened so far?
The thrill of sitting across from some of Australia’s largest organisations, listening to their needs, pitching solutions and being taken seriously as a credible supplier in a very competitive industry is one of my favourite moments, whether or not it turns into work right away. The most exciting thing, however, was when a colleague of mine sold, worked for and billed his own Young Wisdom client for the first time.
4. Future plans?
So many plans. Wait and see! There’s no right or wrong way to go about entrepreneurship as a young person; it’s a brilliant time in our lives to be experimenting. There are, however, lower-risk and higher-risk alternatives that we can choose from, depending on our risk appetite, resources and skill/experience level. Lifestyle business can be a great way to test yourself while still offering the potential to “go big” later on.
It has been interesting observing Shahe and his Young Wisdom small business being so integrated into the startup ecosystem – he has provided marketing services for funded geolocation tech startup Geepers and is well-known among the community for his extraordinary pitching and presenting skills.
As someone with responsibility over the growth of the startup ecosystem on one university campus, my verdict is that for a more medium to long term mission, it is just as important for universities to nurture these small business entrepreneurs and their businesses. They don’t belong in the same pitching competitions, mixers with angel investors or accelerator programs, but they can be a valuable part of the community – whether in the short term as potential service providers or collaborators with startup founders or for the fact that they may just come back in six months, two years or 10 years as the experienced entrepreneur with domain expertise ready to launch a globally scalable startup.