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by • August 27, 2010 • FoundersComments (1)68

Founder-model misfit

Startup communities are a big help when searching for business models that are a good fit for us, as people. Their advice teaches us what constitutes a “good” idea for someone like us. Startups function best when the stuff that makes you happy is also good for business. Knowing what worked for someone who cares about the same things as you is a solid head start.

For example, founders who share 37signals’ values of self-dependence end up getting a lot of encouragement to build B2B subscription services, which happen to be well-suited for bootstrapping. The uISV community draws people attracted to the idea of passive income and promotes businesses targeting tiny niches whose members can be acquired in a hands-off fashion via search. At the other end of the spectrum, founders who subscribe to FastCompany sketch out high-growth models well suited for venture funding.

Your business model should be consistent with itself, and also consistent with the things you care about.

Trouble emerges when pieces of the advice are taken out of context and mixed back together without reconsidering the new whole. 37signals’ denouncement of venture capital is a philosophical stance, but it’s also the right way to grow their category of businesses. There’s nothing about their model that money helps do better: the technology is non-defensible, there’s no network effects to justify rapid paid user acquisition, and their PR platform couldn’t have been built any faster.

I sometimes meet FastCompany-style founders with 37signals-style products and business models… Their next two years will be frustrating! They will overvalue investment and undervalue blog subscribers. They may feel a slight sting when their friend’s company raises that Series A and grows past 20 employees. But really, they’re perfectly on schedule. They’ve picked a slow-growth business model which is ideal for Jason & DHH’s values and a nightmare for someone with different goals and success metrics.

(As an aside: It’s unclear exactly how much you’d have to change 37signals’ model for it to really make sense with VC funding, but I suspect it’s non-trivial. The best examples that come to mind are Zappos and Salesforce, depending on whether you scale up from their culture or product.)

The biggest tension point is funding, which touches every startup through its presence or absence and which is fairly explicitly connected to the the founders lifestyle. Other common problem areas are the sales/PR process, user privacy, revenue vs value proposition, and UX vs pageviews. Burnout is the natural result when the founder’s goals are at odds with their business models

It’s worth occasionally re-considering what your business model is really all about. When your competitors are trying to eat you and you need to stretch your runway beyond any reasonable limit, everything outside the core is going to get cut. If the part of the business you loved is on the periphery, you’re liable to lose it when things are already at their worst. Pivots are a chance to re-connect with your reason for starting the company. Sometimes it’s right to pivot around your customers, and other times you may need to pivot on yourself.

As a close-to-home example, The Startup Toolkit is now free for all founders. Trials have been upgraded and new accounts are fully featured and non-expiring. Refunds have been shipped to the few wonderful people who managed to find the somewhat hidden subscription page (thanks!). I started working on these tools because I wanted to help startups fail a bit less often. Once I knew I would be making a webapp, I made the mistake of blindly copying the subscription model. But subscriptions exists to maximize revenue per visitor, whereas I want to maximize active users (who are presumably active because they’re receiving value). A subscription pay-wall was directly at odds with that intent, and it was bumming me out.

The goal, which I think is something founders should ideally resolve before employees and equity-holders begin limiting your maneuvering room, is to be able to stop saying “This is a good idea” and start saying “I love doing this.” Your business will be better for it.

Lessons learned

  • Business advice (and models) are heavily influenced by the advisor’s personal values
  • Certain business models work best for specific types of founders
  • Changing one piece of a model can completely change its focus
  • Pivots are a chance to realign your business with your self

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One Response to Founder-model misfit

  1. [...] Our reasons for excitement are our own (money, size, impact, interest, etc), but it’s got to be in there somehow. Don’t work so hard to build a company you don’t like. [...]

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