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.
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.