‘Upstart Business’ is a phrase that seems to be creeping into the journalistic language used on tech and entrepreneurial blogs in the US. The first time I heard it I thought the writer was simply playing with the normal term ‘startup’ to be witty and focus on a particularly ballsy and inspiring effort of a young entrepreneur. Then a week or two later I read it again elsewhere. This got me thinking: Was ‘upstart’ just a meme that one clever writer used once and then suddenly caught on with the blogging fraternity or is it now a well known and accepted term? More to the point does its origin matter and is it more important to ask which is better?
Googling the term, you get a myriad of results. Many are for business or consultancy related groups and services that use the ‘upstart’ interchangeably with ‘startup’.
The online dictionary definitions which appear are all similar to this one:
n. A person of humble origin who attains sudden wealth, power, or importance, especially one made immodest or presumptuous by the change; a parvenu.
adj. 1. Suddenly raised to a position of consequence.
2. Self-important; presumptuous.
Reading between the lines in the tech blogs it appears that the difference is this; ‘Startups’ are entrepreneurial businesses that begin with external funding from venture capital from their inception. However, ‘Upstart’ businesses begin without significant external funding, just savings and personal loans from friends and family and usually the founders maintain all equity. This is in keeping with the upstart definition, springing from humble origins to wealth, rather than having lots of cash to play with before you have a customer.
A Big Upstart
Felix Dennis, author of the refreshingly direct, ‘How to Get Rich’, is very much in the upstart mould and believes a business owner should do everything in their power to hold on to the most equity possible. Each percentage of equity you manage to own, could be worth millions when you eventually sell your business. In one chapter he describes how two important employees at his magazine demanded a small share of the business or they’d start a rival publication.
He instantly called their bluff, fired them and wished them well in their new venture. Within a few years their business was bust and they were back working for him, no hard feelings. When he sold up and moved on, that tiny percentage they had demanded was worth millions; his baby, his millions. Dennis put it in uncompromising terms:
Talent is indispensable, although it is always replaceable.
Just remember the simple rules concerning talent:
Identify It, Hire It, Nurture It, Reward It, Protect It. And when the time comes, Fire It.
Nobody likes ultimatums. Such swift and decisive action to an ultimatum is admirable if not ruthless. While stock and shareholder options can be a positive motivator and ascribe a sense of ownership, pride and involvement in a large corporation with 100s or 1000s of share holders, it’s a very different animal when there’s just one owner. Even if you’re only parting with 1% not fifty, there are now two of you in the business, regardless of the breakdown things are far more complicated. If he gave those two guys a percentage, how long until the next one is up demanding their share? It wasn’t their baby, it was his and he stuck to his guns and understood who was replaceable and who was not.
The Flip Side
The flip side is, it’s better to have a percentage of something, than a 100% of nothing.
Not all businesses can be started from a bedroom or garage. Many modern startups wouldn’t be possible without starting capital in the first place. Many require capital before they can achieve what’s called a ‘Minimal Viable Product‘ to test in the market. When you need to pay a room full of coders or for expensive bio-tech equipment you need capital there’s no way around it. However most ideas don’t need much money to deliver the most basic rendering of a product to market.
When you take in venture capital you’re no longer your own boss, you have investors to answer to and they want results. If you’re lucky they’ll have a more medium term perspective than mere short term gain and will provide significant expertise to help you along on top of the cash and capital injection. An article in a recent Friday shorts blog roundup, 10 Reasons Why VC backed Startups Fail, number eight was a big one, the lack of adding value beyond the money.
90% of VC’s don’t add value… They’re spread a mile wide and an inch deep. Most don’t really understand the way that technology is changing within any one space (although they will claim to).
Dragons’ Den is a great example of this. The really smart entrepreneurs who they return to later to see how well they’re doing, knew they weren’t just there for the capital, they needed the exposure of the show and the connections of the dragons. All that extra value beyond the cash investment.
So, Upstart or Startup?
If it’s your baby and you don’t require massive capital to begin, go ‘upstart’ and get a minimal viable product tested and selling. Then if you need a big boost, venture capital is an option when you’ve a proven business to invest in. If you’re aiming to work for a new business for the challenge and opportunities, aim for a startup, they’re used to dividing equity with venture capital and so are often willing to attract top staff with share options.
What are your thoughts on Upstarts vs Startups? Are you in one or running one? Do you have venture capital or have you gone it alone?