I work with a lot of high tech startups but started out consulting with a different kind of startup, one that has been largely ignored in the past ten years since tech startups went in fast and cashed out faster.
Have you ever tried to borrow money to open a brick and mortar store? You think you have a great idea, you’ve bought a huge inventory of widgets and you even spent a pile of money on marketing. Did your family gush over your wonderful new idea and shower you with dough? Did your friends line up at your front door with checks in hand? Probably not!
Now go back to those same family members and your buddies and tell them you’ve begun a tech start-up. Tell them you have a product… sort of. You think you know who the customers are but you’re not really sure, and oh, by the way, you need a million bucks. Sorry, you tell them, but you’re not sure how and when they will be repaid but everyone is sure to be rich eventually. Now watch the money roll in!
It’s amazing how a tech startup can instill in people the lust for gold and riches. However, it’s like mining stock. No offense to my mining buddies, but mining resource companies must be the best moneymakers in the world. They raise money on promises and maps, saying they are going to explore and operate a mine. They dig a three-foot hole to legalize their statement and ask for millions of “speculative” dollars—and they get it! Does it ever pay out? Sure, sometimes, but don’t hold your breath.
It seems the crazier the story, the larger the amount of money people can raise for startups, while the guy opening a new auto-glass business has mortgaged his house (never do this, by the way), tapped into his savings (never do that either) and has enough of his own money to last the six months his business advisor told he would need in cash reserves. It’s enough to drive you mad!
While tech startups can drag investors on for months and even years without showing profit, the small business owner is in deep trouble if there is no revenue for even a short period of time.
The real startup
The “real” startup, what I call a small business, has been and always will be the backbone of our society. In British Columbia, for example, 97% of all business is small business. A note to my American friends: a small business in Canada is defined as five or fewer employees rather than 50 or fewer as it is in the US.
The real businesses I’m talking about are your local baker, the mechanic down the street and the contractor that installs alarm systems for the big guys. It’s mom-and-pop operations. Remember when people actually used that terminology? Its whole premise is to offer a good product or service and bring in revenue. Revenue in, expenses out and make a profit.
People ask me all the time, what kind of business they should start. Starting a corner store is stressful enough, maybe more stressful than the tech startup. The tech startup usually relies on sweat equity on the part of the founder, while the small business owner is usually self funded or bank financed. The mantra for the tech startup is raise as much capital from as few people as possible (because you really don’t want to have to deal with too many investors—they ask questions!), spend it on crazy things like big offices for all those employees you don’t have yet and then get more money from investors when you run out.
The small business owner can’t just build it and hope “they will come.” Hope is a poor substitute for a strategy. He needs to know from the get-go what his plan to bring in revenue is, before leasing the storefront. He needs to have tight control over finances and certainly any money he borrows, he will actually have to repay.
It’s such a challenge to bring any enterprise to life but you must hand it to the hardy true entrepreneur who takes a passion and builds the business from the ground up. My best buddy told me today he wanted to open a 25-seat ethnic restaurant. He is from El Salvador and had one a couple of years ago that essentially went bust. It might have had something to do with the fact that he put the restaurant in his laundromat and also did money transfers for his expats and folks from the Philippines. Talk about diversifying!
Having given that example, not all small business remains small. There’s a great story about YKK Zipper company in Japan. You must have a passion to specialize in zippers and succeed, but Tadao Yoshida did and was determined to make the best zippers. He and his business survived World War II, and as he grew, he knew he needed to control his supply chain. He started making the different parts of the zipper in-house until eventually he had it all under his roof: Smelted the brass for the toggle, made his own polyester for the zipper track as well as the thread, dyed the polyester and forged and molded the zipper teeth. Phew! YKK Zipper Manufacturing now supplies 50% of the world’s zippers. The company generated ¥428.0 billion (US$3.9 billion) in revenue and ¥23.5 billion (US$213 million) in operating income in 2018.
For fifteen years I made money from assisting small business. For the last ten years, I’ve been working with startups. Gee, what a difference! Where every hour coaching the small entrepreneur felt like taking money from the mouth of babes, working with startups is the opposite. It almost makes you feel bad for the investors. As if!
Certainly working with entrepreneurs who understand the complexities of a small business and who are hands-on with each aspect of the operation until they can afford to hire people is very different from the startup founder who sees just a number on a balance sheet that someone else manages.
In a market where everyone is looking for that startup idea and the means to fund it, the small business owner will continue to push their product and service out to the world while slowly building a viable business and leaving a legacy. Long Live the Entrepreneur!
Bizzo is CEO of Syphon Nanotech Inc., Bizzo Management Group Inc., and Bizzo Integrated Marketing Corp. in Vancouver. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018. He is an Adjunct Professor of Integrated Marketing & Communications as well as Consumer Behavior at the New York Institute of Technology, MBA School of Management (Vancouver Campus).
Equities Contributor: Gary Bizzo
Source: Equities News