So we all know the bubble has burst. Startups aren’t cool anymore. The term is overhyped now. And everyone wants to be one. I’m hoping the next thing entrepreneurs want to be is a company.
(I’m not the first to say it—I believe that honour goes to Mark Suster.)
A company is when the idea actually gets focused on collecting and paying cheques, corporate governance and responsibility (not the granola version of responsibility), hiring and replacing people, and building a plan focused on solving the problems in a value chain.
First clue you’re a startup and not a company: you had to go look up value chain. Here is my version of You-Know-You-Grew-Up-When, or the Top 10 Things That Prove You’re a Company and not a Startup.
1. The day you start to worry about eking a few percentage points out of your value chain at every step is probably a good indication you realize your product is now a math equation.
2. The day you don’t have any more time for startup conferences. When you realize that now you have to pick four conferences a year to attend—two customer focused, one geared to fundraising, and for the fourth one you understand that the only reason you go to CES or SXSW is to product launch.
3. The day you realize your customer is more interesting than your product. This is a powerful and almost spiritual event. Second-time entrepreneurs get this early on, so early in fact that they generally start their second company around solving a market pain as opposed to trying to find something fun to do with code or leftover university IP.
(Let me explain further on this one. I get a kick out of the incubator exercise where you pull an object out of a brown bag and brainstorm about what product it should become. Are you serious? The exercise should be “pull a customer out of a bag and see how you can solve their problem.”)
4. The day you realize one of the partners isn’t a partner. Your startup began over lunch, beer, lattes, a gaming marathon… with four buddies. Your company begins when two friends have a really hard conversation about what a great beer buddy they are—but not a business development, marketing, development, finance, etc. guru.
5. The day you realize that your beer buddy owns too many shares. Ugh, corporate governance and lawyer shit. Don’t you wish now that you had listened when someone told you about a vesting schedule and options? To the startup person reading this column, look up vesting schedule.
6. The day you learn about cash flow. This one usually happens on a Thursday night before the end of the month and it normally involves the realization that large corporations are really shitty at paying their bills.
7. The day you have to start your family and friends round. Let me be clear here: this isn’t actual fund raising, but it can be humiliating and embarrassing. Plus it involves that responsibility thing. It was way more fun when you were playing grown-up instead of being one.
8. The day you hire the first employee you didn’t already know or weren’t related to. Some of you startup folks reading this now will be saying, “whew, I’ve done this one so I must be grown up!” Don’t congratulate yourself yet—point eight and nine go together.
9. The day you have your first “we don’t have money for payroll and three of you are leaving” conversation. I hated this one. Most business owners have been here at one point. It was raw. Personal. It showed I had failed to launch my company properly. But it was a good day to grow up.
10. The day one through nine became more fun than playing startup. I don’t want to be the naïve first-timer ever again. I want to be known as Master of the Universe, builder of companies!
The lesson from all of this? The day you realize that your angel investor or institutional capital partner cares more about these 10 things then your cool startup idea is the day you raise real money.
Finally, make sure you think about these three points: executing with a great team; building a solid deal structure where everybody wins; creating a great path to exit.
If you already knew the last three, then you aren’t a startup anymore. Welcome to the big leagues, kid.
Originally published in November 2012.