“That’s not a business, it’s a hustle.”
I’m paraphrasing Dan Lyons speaking at a recent Chew The Fat event. He was talking about his time at HubSpot and wondering how a loss-making company could grow so fast, list, and make a lot of investors a lot of money. In his view its business model is fundamentally flawed: he describes it as buying dollar bills at face value and selling them at 75 cents each. That sort of model may well get you hyper-growth but it’s a hustle, not a business.
The image of the hustling, zillionaire tech entrepreneur who has never made worried about profits has become dangerously deeply ingrained. I recently got talking to a graduate – evidently a bright individual – who ran a business idea past me. It was to do with optimising a retail shopping experience. Quite a neat idea so I asked the obvious question: where would the revenue come from? The consumers or the retailers?
He didn’t have an answer.
He assumed that all he’d have to do is somehow get some VC money, spend it on scaling a platform with loads of users, then sell out and walk off into the distance with $50 million in his pocket. Now that’s a hustle, not a business. There are cases where this has happened. But there are also plenty of cases of people winning the lottery and I suspect that on a risk-weighted basis, winning the lottery is more likely than being a part of the next Whatsapp.
Please, if you want to become an entrepreneur, bear these two things in mind:
- You stand a better chance of making a successful business if you have intimate knowledge of the problem you are trying to solve. If you’re targeting students then, fine, as a recent student you might have more than enough knowledge to build a viable business. But if you’re not then probably you would need to work somewhere for a few years to get that deep understanding first (“domain knowledge”, in the jargon)
- You will stand a better chance of success if you can create something that makes revenue, profit and cash. All those things are different so make sure you have a clear idea of how they will interplay in your business. In fact, you might even end up with more money in your pocket if you build a niche, profitable, growing business than if you go chasing unicorns.
This doesn’t mean you need a detailed business plan. You just need to be articulate those two points in as straightforward a fashion as possible. Here’s a classic DHH talk to hopefully get you thinking along the right lines . Incredibly it is still as valid today as it was in 2008.