I’d rather have lots of next small things than one next big thing

A 2006 article I wrote about Jason Fried on why bigger isn't better. See note, links at the bottom of post.

[Note: The following post is intended for people who actually read what it says, not for those who don’t read it, but feel the need to react to what they think it says.]

Obviously, I love internet-enabled technology and startups and am overly (obsessively?) fascinated by how the internet is changing our lives, jobs, relationships, culture and well, I could keep going. I’ve chronicled a lot of that fascination and interest on this blog for the past 12 years.

However, there are times when I wish Al Gore hadn’t invented the internet.

If there was no internet, I wouldn’t have to read things like this New York Times  clichéd story about startup companies that are (possibly) on the cusp of making it big financially (translation: like Instagram). They’ve rounded up some startups (some of which I like and use) that are already over-hyped, or that were created or funded by over-hyped individuals.

In my opinion, there are some bound-to-flop ringers in the list. (I call them Gertrude Steiners in reference to her quote about Oakland: There is no there there.)

And some on that list can’t lose unless the founders wait too long before cashing out. Hint: Dropbox.

But in my opinion, the entire premise of the story is wrong.

The companies they are pointing to may be the next big financial windfall for their creators and early investors. It’s about being the next financial big thing — the next big hit for venture-backed startups.

If that’s the definition of a “big thing,” then I prefer lots of small things that bring value to all of us — even financial rewards.

Moreover, there are several flaws in the obsession with the “next big thing” focus (startup porn, as some would describe it). Here are just a few: 1. Venture capitalists have a good record at choosing the next big thing. 2. Past success is an indicator of future success. 3. “Big things” are created by individuals who start for-profit companies for whom “exit strategies” define success, and 4. To be the next big thing, you need to create a solution to some banal or “first world” non-problem.

Let’s take those in order, in a lightening round:

1. Venture funds make big bucks: Let me point you over to the folks at the Kauffman Foundation who issued a major paper yesterday that says institutional investors should rethink the whole idea of investing in venture funds (and accept the blame for the previous failures of such funding strategies). It was written by the individuals at Kauffman who have been investing in venture funds for the past 20 years (e.g., not merely and academic exercise). They blame themselves (institutional investors) for believing the hype of VCs and declare on the press release, “After Fees and Expenses, Most Investors Will Do Better in Public Markets.” If you disagree, take it up with them, not me.

2. Past success is an indicator of future success: That’s right up there with past failure being an indicator of future failure. Frankly, failure is probably a better indicator. Does away with the hubris success can bring, at least.

3. “Big things” are created by individuals who start for-profit companies for whom “exit strategies” define success: Most of the companies listed have built their products using software platforms that were not created by for-profit companies that had exit strategies. Even when Al Gore created the internet itself, it was before he had a VC gig.

4. To be the next big thing, you need to create a solution to some banal or “first world” non-problem: Frankly, it’s embarrassing to look at the list of potential next “big things” and realize we’ve arrived at the place where a generation of entrepreneurs are devoting themselves to creating a means to find a taxi easier than, say, finding a cure for dementia.

I love the internet and technology and the people who create the cool things on this list, but being the next big thing financially for a few people is far less important than being the next thing that matters to us all.

After seeing an article like this, in order to get the sour taste out of my mouth, I click over to Kickstarter and see ideas that might be small to the world, but are big to an individuals and a few of his or her friends or fans. I love this stuff — and I love the heart and passion that goes into things that are proudly small.

Or, to get over the obsession with big, I kick the tires on ideas that may not become products, but will be approaches to software that can make it easy for me to do those things I want to do.

I love business. I love entreprneurship and innovation. I like it when people make money. But the next big thing will be bigger than making a billion dollars for a tiny group of individuals.

[Note: I go way back on this topic. In 2006, I wrote a cover story for MyBusiness magazine titled, “The Next Small Thing,” that was the first (of many) national cover-story on Jason Fried. He wrote about it on the 37 Signals blog here.]

Except for all the other times, now’s the best or worst time to start a small business

Mr. Milavitz in front of his jewelry and tobacco store, DuluthRecently a writer for a national magazine (that’s not about business) interviewed me for a story he was working on about starting a small business. As such interviews usually end up getting whittled down to a sentence quote from me, I thought I’d post the long version of what I said, as it captures several thoughts I have on that topic — yet it’s a topic I historically have not written about much on this blog, as I write about it elsewhere.

What are some of the reasons I might want to hold off on starting my small business right now?

There’s always an endless list of reasons for not starting a small business — in good economic times, as well as bad. That said, I think starting a small business that is capital intensive is especially difficult these days if you need to finance it through a bank loan. You’d better have a proven track-record in the business you are trying to finance if that’s the case. Despite what banks say in their TV ads about supporting small businesses, they require more personal guarantees, financial collateral than I’ve seen in my nearly 30 years of owning small businesses. Even if the SBA backs your bank loan, the bank and the SBA will require personal guarantees and a long list of requirements.

What are some of the reasons I might want to move ahead with my small business idea, bad economy or not?

If your business requires little or no capital — just your time as a consultant or contractor or free-lancer, adversity is often the motivation that forces individuals to pursue a small business idea they’ve long considered, but put off. Indeed, lots of established small businesses have had to find new ways of making money during the past few years.

I have a sense that many companies are in that post-recessionary period when historically, they focus more on utilizing contracted services to fill in gaps, rather than hiring — somthing that is making the employment picture look so bad. However, much of that contracted service work is going to people who used to be employees, but are now, in effect, small business or self-employed individuals. Many free-lancers, independent sales reps, consultants and contracted laborers are so busy, they have no desire to return to the 9-5 world.

What are some of the challenges I can expect to face that are unique to starting a business in a bad economy?

If you want to be self-employed or, what the government calls, “nonemployer businesses,” then you only need one thing to start a business: enough customers or clients that generate more revenue each month than the expenses required to fulfill what it is those customers and clients are paying you for. The better you deliver on what they’re paying you for, the more solid a business you’ll have — in good times and bad.

Likewise, if you start a small business with only a concept, and no paying customers, you can expect every day to be filled with bigger challenges than you’ve ever faced in business.

How can I overcome those challenges?

Study up on what is being called these days, a “lean startup” (from the book, The Lean Startup, by Eric Ries). If refers to an idea from the software development world that, rather than creating something with all the bells and whistles, start with the “minimum viable” version of something that you can sell. And that word, “sell” is critical. Starting with that approach, you can get to market quickly and constantly adjust to what you discover will actually sell, not what you imagine will sell.

Another thing I’ve discovered over the years of hosting the wiki SmallBusiness.com is how there are multiple organizations in every city and village in the U.S. that are all dedicated to providing help and support to small businesses. Community colleges, SBA-supported groups like SCORE and local Chamber of Commerce programs are just some of the groups. (We have a list of such groups in a state-by-state directory on SmallBusiness.com.)

Using those services, and engaging in the networks of small business owners that may be a part of them, can also help you face such challenges.

What are some of the ingredients to ensuring that my business will survive and, in the longer-term, thrive?

The smaller a business is, the more it has to compete on the basis of quality and service. Trying to compete in an arena where price is the only factor in purchasing decisions is a train wreck waiting to happen. If you can help a customer or client be better at something they want to be better at, you’ve cracked the formula on long-term success.

What is the overall outlook for small businesses in 2012? Are there any industries that are in such a slump that I’d be unwise to start a business in that particular sector?

I’m not an economist or forecaster, but that never stops me from pretending to be one. Despite a sense that there is “one” U.S. economy, the reality is that geography and industry vertical and economic diversity mean that opportunities are not evenly distributed. That said, if you are an expert in some business niche or have a passion for an activity and you can demonstrate the ability to turn that expertise or passion into revenue and profit, then it doesn’t really matter where you live or what industry you’re in.

[Photo credit: Jewish Historical Society of the Upper Midwest, via: Purple Reigns: Ultra Violet is the 2018 Color of the Year

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