The startup scene is full of losers who are being led on
I am not a Steve Jobs or another paradigm-changing entrepreneur but I built businesses that work well and make money. Aside from my own businesses I have been involved in launching businesses of other people, all were successful. So it is safe to say that I know a thing or two about business.
Not like those folks who are binging on funny entrepreneurship and motivational crap on social media, imagining that they can do something big without understanding anything about business.
In the unsuccessful parts of the startup world, it is cool to be an idiot. A college-dropout, someone who cannot cope with the 9-to-5, the broke 30-something hipster trying to make ends meet writing articles or to be the unappreciated guy with a crazy idea.
After 10 years in the business, I am starting to understand what is going on in this scene. An entire industry has formed to capitalize on the fools who dream about having their own business.
Gurus ripping off dreamers who dream about starting their business
These guys are targeted by entrepreneurship mentors, social media advertising gurus, growth hackers, motivational speakers and others who sell courses, books and such, mostly poor quality information about how to plan, start and manage a business. Quite often the talk about shit like 4-hour workweek, work from the beach, or 3-step programs that made people just like them millionaires.
They say stuff like the school was just a lie and entrepreneurship is the way to go. They talk about investment plans that just sounds totally ridiculous for any experienced investor. Furthermore, they talk shit like someone can run a business just by focusing on social media ads or growing their Instagram page. Seriously? How about solving big problems and providing value? How about hiring and retaining talents? How about staying competitive in the market by embracing constant change? They don’t talk about these because they never got this far in their entrepreneurship career.
And sadly, people pay these crooks because they want to invest in becoming an entrepreneur. They want to “take action” and take a “next step” by buying courses, taking consultations, signing up for coaching or downloading e-books.
Business support services ripping off people who are in the process of creating a business
Things get serious here. I will not lie to you, switching from a full-time job, especially if it’s a good one like mine was, is not an easy decision, especially from a financial point of view.
Starting a small business that makes even just a couple of thousand dollars monthly will require you to understand your market, develop a product or service, design a business model and of course to be abe able to manage your costs. There will be risks and most likely you will work a lot more compared to a full-time job. It’s true.
This is where business support services will find you, such as consultants, software development companies, marketing solutions, companies selling “leads”, email lists and other kinds of services to “accelerate your growth”. And damn, these people are a lot smarter compared to the gurus you be exposed to in the previous stage.
These people understand business and will present you with products and services that offer almost an instant solution to your problems, like getting more customers, growing your brand or improving your services.
They have one thing in common: they are all quite expensive for a starting business but they want to convince you that investing in their shit will get you to the next level and you will make a fantastic ROI with them.
Investors ripping off greedy founders who already have a business
In case someone manages to build a functional business that actually generates satisfying profit for a sustained period of time, a new kind of threat will approach: scaling your business quickly.
Scaling is an obvious direction for anyone who has a successful business, however, accelerating growth can be risky. Normally, businesses grow because of continuous business development efforts such as introducing new product lines, making new partnerships, reinvesting profits, opening new sales channels, introducing systems to reduce cost and most importantly improving customer experience. Most of it is boring stuff that involves accountants, networking and the growth rate are really slow — maybe 15–20% year on year.
Then comes the idea to find an investor who can “accelerate growth” by “injecting funds” into the company. If the company is profitable and there is upside potential then it will be relatively easy to find an investor who will provide significant amounts of money in return of double-digit equity or serious loans.
This makes entrepreneurs hallucinating growing their profits from $10k monthly to $500k monthly and think that this is their foot in the door of doing big business. In reality, it’s only big business for the investor and probably a high risk for the business owner.
Typically, these funds in the startup world are spent on marketing and advertising, often with agencies that are affiliated with, or owned by the investor. Another large chunk of this “cash injection” will be spent on business support services we discussed before — once again, often owned by the investor. It does not take a genius to figure out that the investment will soon return to the investor through various channels.
Most startup entrepreneurs who get their funding will quickly forget about the hard methodical approach they used to follow before. They will get blinded by the ability to buy the “best” of everything, hoping that it will boost their company growth. Most times it will not, but they will end up with either a hefty debt or a large share they need to pay to the investor every year or quarter.