A Business vs a startup, and the wisdom to know the difference

Long before I became a tech seed investor, I was a founder. Ultimately, my first company was a Business and not a Startup. Let me explain.

As mentioned in my last post, every business has its own growth trajectory and ‘market reach’. In other words, its own answer to the question, ‘How far are we going with this thing?’.

A Business is likely to optimize for profit rather than scale. Growth is likelier to be linear. Many great companies started this way. Some achieve scale over time, many stay local. Compared with fast growth Startups, businesses tend to be seen as more reasonable, realistic, stable and practical. More ‘real’ than trying to shoot the moon. (Side note: Ironically anyone “crazy enough” to start a company of any type rather than going to work for one is highly unlikely to be regarded as having these attributes. I am no exception.)

A Startup, on the other hand, has a scalable product that has the potential for exponential growth right from the beginning. This is a different game entirely. Whether or not the startup generates revenue, it has (or is aiming for) runaway train momentum. Its an environment of rapid iteration and (hopefully) spectacular outcomes. Its exciting, its rewarding and its difficult to get right. When successful, these companies can shape and redefine markets (and in some cases directly influence our lifestyles) virtually overnight.

I chose to bootstrap my first company — no outside capital. I grew the Business off of the revenue it generated. I’ve noticed a sort of romanticism around this idea of bootstrapping something. It carries this connotation that you did not have unfair advantages (I certainly did not). You also have total control — you do it ‘your way’. (Somewhat true). But there are trade offs. I stand by the choice and things turned out just fine. But I confess that I will never know what would have been possible with growth capital and the resources that come with it.

While I respect Businesses, for the last 3 and a half years my focus has been Startups. This means investing in the rapid growth, shoot the moon, high risk, high reward world of turning new ideas into fast growing companies. It’s a different level of urgency and the goal post, in terms of company size, is way higher. Its a way of doing business that, to me, feels on pace with the rate at which the world is changing.

There’s no ‘right’ answer to what is better — the Business or the Startup. Its a matter of what matches the founder (or investor’s) priorities, the type of business, the size of the opportunity, the market dynamics and so on.

As a Boot-Strapper turned investor, generally my sense is that a young company can go further — solve more problems, reach more people, try more things — with the right type of capital than it can without.