Just about everyone I know has a company. It’s a fashionable thing to have these days. Even people who work full time at a company have their own company on the side. Most of these companies are not businesses. If you are not intimately familiar with the startup world, it’s easy to confuse the two.
It’s a popular myth that starting a company is hard. The fact is, it’s incredibly easy. In most states you can start a company online in about 30 minutes, for just $125. It’s both easy and cheap. Having a business, on the other hand, is super hard and very expensive. That’s why there are so many startup companies and so few real businesses. All businesses are companies, but not all companies are businesses.
Having a company is a prerequisite to having a business. It’s the best vehicle for capturing and protecting the intellectual property that is being created by the founders. Having a company reduces certain legal liabilities and provides certain tax advantages. It’s the only legal way to divvy up equity and raise money. Unfortunately, most companies will never become businesses.
In my experience, the best way to think about a startup company is to see it as a project…a grand experiment. It’s very important for family, friends and angel investors to see it for what it really is. It’s especially important for the aspiring entrepreneur not to delude himself into thinking his company is a business. An entrepreneur who tries to pitch his startup company to me as a business immediately loses credibility.
With the proliferation of incubators, accelerators and crowd funding platforms, the startup company and the pitch deck have become common place. I see as many as 30 pitch decks each week. Helping aspiring entrepreneurs create these pitch decks has become a cottage industry. These decks are getting very good. Some are worthy of being a Hollywood production. The problem with a lot of these decks is that they are lies. Like a Hollywood movie, they are fantasies designed to entertain, not to factually inform and enrich. After peeling away the slick videos, graphics and transitions, I often find the following:
• The technology is not yet a fully developed and packaged product.
• The user testimonials are not from paying customers.
• The impressive list of team members are not working full time in the company.
• The financial projections are based on a wing and a prayer.
Look, it’s okay to pitch a company, just don’t try to disguise it as a business. You will lose credibility with sophisticated investors and lose the faith of family, friends, and angel investors that don’t know the difference. A startup company is powered by ideas, passions and hopes. A business is powered by finished products, employees and revenue. And a good (fundable) business is one that is growing its customer base each month and has a clear path to profitability. I will invest in both, I just want you to be clear about the difference.