by Manuel Stagars, CFA, CAIA, ERP
Günter Faltin, author of the book “Kopf Schlägt Kapital” (German, “Ideas Beat Capital”), held the keynote at the Entrepreneurship Summit in Berlin in 2012. Under the heading “The Art of Entrepreneurship,” Faltin put forward a lean business model for entrepreneurs with low overhead, and reliance on available resources instead of venture capital. In the keynote, he talked about the true purpose of entrepreneurship, which he sees in philanthropy. Is the business model of consumption-based enterprise is still valid? How can entrepreneurs update their models to revolutionize their business? It became obvious Faltin is a strong believer in quality over quantity. He suggested starting a business while still being an employee, and to hypothesize and experiment a ton before starting. I second all this. Building on his speech, I outline a few of my beliefs about the entrepreneurial mindset in this post. Some of them run against Faltin’s theory.
It is reasonable to approach entrepreneurship from the angle of lean startups. The traditional VC model is so 1995. Especially digital businesses have much stronger tools at their disposal than fifteen years ago. While the VC model has worked for few hits-driven businesses, it is an illusion for first-time entrepreneurs. So why aren’t they embracing lean strategies and go all in on their own? The only thing lacking is the right mindset. The sooner entrepreneurs get used to starting lean, the better.
Once more, the saying “It’s not pretty in the sausage factory” comes to mind. Everyone who has built businesses in the past can attest to that. It’s obviously cool to stand around at networking events as the founder/CEO/innovation architect of a hot VC funded startup. This beats being a bootstrapper in your parent’s basement anytime. Wherever people work hard, transpiration takes place, and in the process, founders become successful entrepreneurs. Other than competence in a chosen field, true entrepreneurship encompasses many other skills:
- Motivating an unpaid team to stay in the office for the next forty-eight hours to finish a prototype.
- Making up a story to ensure the client does not notice all servers just crashed and that his demo is running HTML and screenshots from the only laptop that is still working.
- Maxing out your personal credit card again for tickets to fly yourself and the CTO to an industry conference. You pay a thousand dollars each to attend, but stay at the local youth hostel.
The list is not long, but as you see, already rather unappealing. Do you still want to be an entrepreneur? Get used to the idea that this is by no means glamorous, but mostly ungrateful work that maybe – MAYBE – pays off big at some point in the future. If you are still not entirely convinced that the sausage factory is for you, it’s more rewarding to seek employment than to start your own business.
And that’s exactly why I don’t subscribe to the higher purpose of entrepreneurship that Faltin postulated in his Berlin keynote. Don’t get me wrong, it’s an honorable approach to draw satisfaction from creating non-monetary value for society. Regardless, this cannot be a prime motivation for a valid startup business. If your enterprise is successful in the long run, it will automatically become a profitable company. Then should you concern yourself with philanthropy, but not before. None of the entities that create serious social value today (such as the Bill and Melinda Gates Foundation) have started with this end goal in mind. Microsoft is far from a philanthropic enterprise. I think starting a business without external capital and then sacrificing future profits is contradictory. Once a startup has passed the J-curve, we will find out soon enough whether society values its services past the honeymoon. Mr. Market is still a powerful validator of business ideas. His heavy hand should not be distorted with non-market metrics such as purpose, goodness, or eyeballs. Remember, it’s not pretty in the sausage factory.