Is your startup a real business?

Disclaimer: Not coming from a so-called expert

I just completed 10 long years in Silicon Valley. It’s amazing how valley has transformed over the last few years. Nowadays, startups are sprouting everywhere. Every Tom, Dick and Harry is starting a startup or so that it seems. Getting seed money is easy, assuming you have a good team and a reasonable idea. But how many are building real businesses?

What is a real business?
Let’s start with the definition from wikipedia - a business (also known as enterprise or firm) is an organization involved in the trade of goods, services, or both to consumers. A business has a balance sheet with revenues and profits. It has culture, vision, a mission statement and a well defined management structure.

Facebook Era
The success of Facebook and Y Combinator startups has ushered in a new generation of entrepreneurs who are starting startups from dorm rooms (and then dropping out from schools). Building a product with almost negligible cost, they are bringing new and exciting products to the market at supersonic speed. 20-yr olds and 30-yr olds are becoming CEOs.

Wheat vs. Chaff
But 90% of these startups don’t last more than a year. We only hear about the Dropboxs and Airbnbs of the world but we don’t hear about the Fitfus or MokiTvs. What separates the wheat from the chaff?

1. Product Market Fit
This is an easy one. I added it because I will be chastised if I don’t. Steve Blank has talked about it in detail in his book, “The Four Steps to Epiphany”. So, I will spare you the mundane details, read it yourself. If you haven’t, please stop doing whatever you are doing right now and pick a copy.

2. Leadership
This is the hardest one. You may be an awesome engineer or an astute businessman but you probably suck at leadership. You are handsomely sitting with the CEO title bossing everyone around. You are busy building the sexiest product in Silicon Valley completely unaware of the brewing revolt. One day your star engineer suddenly quits and everything just falls apart. Are you paying enough attention to your leadership skills? Do you have a leadership coach?

3. Talent
This is a cliche! Every startup says, “we have a rock-star team”. If every startup in Silicon Valley has rockstars, where are the B and C people working? - Google? Facebook? (Pun intended!) Talent pool in a startup is more or less defined by the founders, it starts from the top. A hires A+ people, B hires C and fires A. Are you hiring the right talent? Are you empowering them to teach you a thing or two? Are you retaining the right people?

4. Vision
This is not to be taken lightly - vision is one of the most important attributes behind the long-term sustainability of a startup. A startup without vision is like a ship without rudder. Decisions will be made ad-hoc without clear charters. The startup will steer in many directions burning seed money with time. Do you have a vision, a mission statement? What is more important - profits or customer satisfaction?

5. Culture
The sheer number of startups lacking (good!) culture is staggering. Culture is not a mission statement or a one-page document. Culture is what defines your startup. Larry and Sergey did an awesome job with Google from their early days - they hired smart humble leaders, encouraged out-of-the-box thinking and only implemented what’s best for the customer. What’s your culture? What do you want your legacy to be?

Start a business not a startup
Vision, Culture and Leadership are as important as product-market fit. Don’t think about starting a startup (just because you have a cool product idea) until you have a clear vision of what kind of company you want to build. It’s OK to figure it out over time. Be passionate about starting a business, not a startup.