I would like to say entrepreneurship means different things. The plumber I call when my pipes are clogged is definitely an entrepreneur—he is self-employed and employs a help, he does not come alone. Yet there is not much idea behind it. It is just simply so that in these kinds of professions self-employment is more common than working for large corporations.
I have the impression that if you are approaching it from a Silicon Valley / Paul Grahamesque direction, what you call entrepreneurship is that subset of it that scales up easily, this seems to be the most important determining factor. Web based software, provided as a service and not as a purchasable shrinkwrap package, is the canonical example because it is relatively easy, free / cheap and barrier-free for theoretically even billions of people to start using something like Hipmunk or Beeminder. Their crucial feature is scaling up.
I think scaling up is why in such fields entrepreneurial ideas are dime a dozen, because of the ease of scaling means really high potential payoff and it means really intense competition—not only for customers but also e.g. for co-founders.
Compare opening a pizzeria in a small town. How much idea you need for that? Chances are there isn’t a competitor at all and then you offer the basic types, if you have a competitor you just spend a few hours googling up some less usual but delicious sounding recipes.
The point is, if you fail at that pizzeria, you are doing something wrong. If you fail at that insanely competitive infinitely-scalable market, then it is not a failure and has no special reason, it is just like not winning the Olympics: someone was better, that is all.
If you can make a profit opening a small restaurant, then a large startup (this is the word for a scalable business) will try to do that in a way that scales (franchising). Restaurants fail far more often than they succeed, and I think you’re underestimating the risk of starting a small business.
If you can make a profit opening a small restaurant, then a large startup (this is the word for a scalable business) will try to do that in a way that scales (franchising).
I don’t see that here. Franchising is largely an American habit, probably due to many restaurants, even real ones (steakhouses) having semi-fast-food type approaches that lend themselves easily to being broken down to procedures and rules that can be trained to anyone. Most restaurants I see here don’t have these semi-industrial procedures, they are typically based on the personal touch, the owner cooking or training a cook in person, by mentoring, without being able to break that down into written rules that can be trained by someone else in a different city. The interior design and even the building itself plays a non-scalable role as well i.e. if you open a fish restaurant with a fisherman’s theme and put 100 years old fishing instruments on the wall, you cannot really blow up into a chain of 50 restaurants, in that case the decoration will be made in some kind of a factory and the whole thing having a fake vibe. In short, their appeal is largely in their uniqueness, being in a specific historical building, having a specific semi-historical or not but generally unique interior, with the personal touch of the owner’s cooking or personally trained cook and all that.
I figure the kind of restaurant that could be potentially turned into a franchise could easily fail because it would not have this appeal of uniqueness. It would be just a place to eat at… not the whole experience of time-travel or travel to a distant place in the case of authentic ethnic ones.
Point, and yet , over 60% of restaurants fail in the first 3 years. In terms of small businesses over all, 90% fail in the first five years. It’s true that the percentage of businesses that become unicorns is much, much smaller than 10%; either way, I think calling any business easy, whether startup or small business, is drastically overstating the odds of success.
My point is that there seems to be a relationship between scalability and failure. Due to scalable offers facing heavy competition and lacking uniqueness / niche. If you have the only Indian restaurant in the town, the you have checked that a significant % of the population likes curry, how exactly can you fail? Aside from doing obviously dumb things like delivering food cold or oversalted or burnt or unreasonably high prices, as long as it is managed according to basic common sense it cannot really fail. But if you have opened the 537th generic steakhouse in New York, of course there is a huge chance to fail—but if not, you could scale that up into a franchise.
To go back to software examples, let’s say you built a custom order processing software for a steel mill in Sweden with the GUI in that language and then look into turning it into a product. Your target market may not be bigger than 100 firms, but if it works right it is almost certain you will have some sales because it is what that niche needs and there is not much of a competition.
A different way to look at scalability and failure would be disproportionality between costs and sales. Suppose you sell downloadable software, delivering each additional copy has near zero cost, the first X sales recover your costs and then each $49.99 copy sold is pure profits (not taking stuff like support into account), this is the capitalist wet dream. However, due to the wet dream effect it attracts competition and if you aim at a large market you cannot really focus on a small niche with unique needs, which means you either cannot fully satisfy your target markets many needs, just a subset, or if yes it takes a huge investment under the hood—like the Google search engine, just one simple field, but how much behind it… my above example of a software for a specific industry, language, culture does not only not have a huge market but each additional sales will not have zero costs because they will request customization. But they will be really happy with the results, and hopefully they know it or you can convince them that they will be happy with it, which really really helps making sales.
Yes, I think we’re in agreement here. I agree that a startup is much harder than small business, for reasons you mentioned here, and others. I think you would agree that a small business is also hard, and success is far from guaranteed :).
Wait, the word startup is defined as a scalable subset of small business? I thought it is just a fashionable term for newly established small businesses...
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.
There’s actually several competing definitions of startup, from Steve Blanks “An organization in search of a business model” to the dictionary “A newly created business”. However, the common silicon valley parlance is that a startup is a business created for growth and scale.
I would like to say entrepreneurship means different things. The plumber I call when my pipes are clogged is definitely an entrepreneur—he is self-employed and employs a help, he does not come alone. Yet there is not much idea behind it. It is just simply so that in these kinds of professions self-employment is more common than working for large corporations.
I have the impression that if you are approaching it from a Silicon Valley / Paul Grahamesque direction, what you call entrepreneurship is that subset of it that scales up easily, this seems to be the most important determining factor. Web based software, provided as a service and not as a purchasable shrinkwrap package, is the canonical example because it is relatively easy, free / cheap and barrier-free for theoretically even billions of people to start using something like Hipmunk or Beeminder. Their crucial feature is scaling up.
I think scaling up is why in such fields entrepreneurial ideas are dime a dozen, because of the ease of scaling means really high potential payoff and it means really intense competition—not only for customers but also e.g. for co-founders.
Compare opening a pizzeria in a small town. How much idea you need for that? Chances are there isn’t a competitor at all and then you offer the basic types, if you have a competitor you just spend a few hours googling up some less usual but delicious sounding recipes.
The point is, if you fail at that pizzeria, you are doing something wrong. If you fail at that insanely competitive infinitely-scalable market, then it is not a failure and has no special reason, it is just like not winning the Olympics: someone was better, that is all.
If you can make a profit opening a small restaurant, then a large startup (this is the word for a scalable business) will try to do that in a way that scales (franchising). Restaurants fail far more often than they succeed, and I think you’re underestimating the risk of starting a small business.
I don’t see that here. Franchising is largely an American habit, probably due to many restaurants, even real ones (steakhouses) having semi-fast-food type approaches that lend themselves easily to being broken down to procedures and rules that can be trained to anyone. Most restaurants I see here don’t have these semi-industrial procedures, they are typically based on the personal touch, the owner cooking or training a cook in person, by mentoring, without being able to break that down into written rules that can be trained by someone else in a different city. The interior design and even the building itself plays a non-scalable role as well i.e. if you open a fish restaurant with a fisherman’s theme and put 100 years old fishing instruments on the wall, you cannot really blow up into a chain of 50 restaurants, in that case the decoration will be made in some kind of a factory and the whole thing having a fake vibe. In short, their appeal is largely in their uniqueness, being in a specific historical building, having a specific semi-historical or not but generally unique interior, with the personal touch of the owner’s cooking or personally trained cook and all that.
I figure the kind of restaurant that could be potentially turned into a franchise could easily fail because it would not have this appeal of uniqueness. It would be just a place to eat at… not the whole experience of time-travel or travel to a distant place in the case of authentic ethnic ones.
Point, and yet , over 60% of restaurants fail in the first 3 years. In terms of small businesses over all, 90% fail in the first five years. It’s true that the percentage of businesses that become unicorns is much, much smaller than 10%; either way, I think calling any business easy, whether startup or small business, is drastically overstating the odds of success.
My point is that there seems to be a relationship between scalability and failure. Due to scalable offers facing heavy competition and lacking uniqueness / niche. If you have the only Indian restaurant in the town, the you have checked that a significant % of the population likes curry, how exactly can you fail? Aside from doing obviously dumb things like delivering food cold or oversalted or burnt or unreasonably high prices, as long as it is managed according to basic common sense it cannot really fail. But if you have opened the 537th generic steakhouse in New York, of course there is a huge chance to fail—but if not, you could scale that up into a franchise.
To go back to software examples, let’s say you built a custom order processing software for a steel mill in Sweden with the GUI in that language and then look into turning it into a product. Your target market may not be bigger than 100 firms, but if it works right it is almost certain you will have some sales because it is what that niche needs and there is not much of a competition.
A different way to look at scalability and failure would be disproportionality between costs and sales. Suppose you sell downloadable software, delivering each additional copy has near zero cost, the first X sales recover your costs and then each $49.99 copy sold is pure profits (not taking stuff like support into account), this is the capitalist wet dream. However, due to the wet dream effect it attracts competition and if you aim at a large market you cannot really focus on a small niche with unique needs, which means you either cannot fully satisfy your target markets many needs, just a subset, or if yes it takes a huge investment under the hood—like the Google search engine, just one simple field, but how much behind it… my above example of a software for a specific industry, language, culture does not only not have a huge market but each additional sales will not have zero costs because they will request customization. But they will be really happy with the results, and hopefully they know it or you can convince them that they will be happy with it, which really really helps making sales.
Yes, I think we’re in agreement here. I agree that a startup is much harder than small business, for reasons you mentioned here, and others. I think you would agree that a small business is also hard, and success is far from guaranteed :).
Wait, the word startup is defined as a scalable subset of small business? I thought it is just a fashionable term for newly established small businesses...
Paul Graham:
Okay, then it is defined so.
There’s actually several competing definitions of startup, from Steve Blanks “An organization in search of a business model” to the dictionary “A newly created business”. However, the common silicon valley parlance is that a startup is a business created for growth and scale.
I find it useful to use the term “startup” for Paul Grahamesque “startups” and “small-business” for pizzaria-esque “small-businesses.”