Let’s Incubate Businesses, Not Just Startups

When you’re an entrepreneur and you travel to another country, you tend to quickly fall in with a group of local entrepreneurs. We flock together — partially because we tend to love what we do and we’re the only ones that can tolerate talking about nothing but work all the time, and partially because friendships between entrepreneurs serve the double-purpose of also being potential business connections.

When I first started traveling full-time a little over three years ago, most of the entrepreneurs I met built businesses. Some online, some with brick-and-mortar locations. It was all over the map, and it was interesting to see what business models propagated in a given area: such things can tell you a lot about the local economy and culture and whatnot.

These days, startups are all the rage in the US, and that trend has seen massive growth overseas, as well. I still meet up with folks running restaurants and hardware stores, but most people I connect with are building websites and apps and providing services online.

I don’t think the move online is a bad thing — most of the business I do takes place online — but the other change I’m seeing is in the popularization of startups over businesses, and that does trouble me.

There’s a difference between businesses and startups, and although the terms are used somewhat interchangeably in a lot of cases, the fuzzy line between the two is an important one.

A business is something you build to provide a service or product to your clients or customers, and you make money by exchanging value for value.

A startup is something that aspires to be a business, but that requires an injection of funding from an outside source before it can really take off and become sustainable.

There are businesses that eventually end up taking on investors of some sort, or go public on the stock market which allows anyone to invest in stock. There are startups that make money from day one and continue to make money, and while most take on investors despite this, they do it not to survive, but to more effectively compete.

An incubator (or accelerator, but the difference between the two is largely branding, so I’ll refer to both by the former title for simplicity) is a program that takes aspiring entrepreneurs in and gives them access to resources in the shape of advisors, connections, and money. The money part is usually quite small, but the advisors and connections are the real cake, as that’s what budding businesses need.

Unfortunately, the focus in these programs seem to be more about preparing companies to pitch to investors, rather than teaching them how to build businesses that will succeed with or without injections of funds from outside parties. The reasons behind this — I think — are two-fold:

First, incubators are run by investors, and therefore it’s in the organizers’ best interest to keep bright, young would-be entrepreneurs coming to them first, so that they are able to get in on the ground-floor in terms of investment and seeing where different industries are going.

And second, overnight success is a sexy product to sell, and although everyone in the US (and in many cases, overseas) wants to be an entrepreneur now because its the modern incarnation of a rock star, it’s a far tougher sell when people realize that it takes years to build a successful business; investor payout for a good idea can happen within a far shorter time span. The modern folk tale of the bright kid with a good idea who walks away with millions is becoming more and more common. This doesn’t mean that it’s happening more, it just means that its a storyline people like and the media play to that preference.

I want to make very clear that I’m not trying to put down startups as being less than businesses that are profitable without investment. There’s a lot of value coming from successful startups, and frankly a lot of what’s been done (especially in the technology fields) wouldn’t likely have ever been possible if they would have needed to be profitable from day one (or ever year three). These kinds of companies will continue to be necessary in most industries.

Likewise, investors are an integral part to what’s happening in the technology sector and many other industries today, and in most cases they aren’t sharks like some TV shows would have you believe. Generally they’re enthusiastic about the businesses they’re investing in and looking to guide the opportunities into win-win-wins for themselves, the entrepreneurs, and the eventual clients or customers.

I do think, however, that the current model we have for educating would-be entrepreneurs and promoting entrepreneurship as a whole is skewed toward this kind of ‘overnight success by investment’ model, and that our economy isn’t doing any better as a result. What we need is more people building businesses that produce value in exchange for money from day one. That’s the kind of activity that produces an actual, immediate increase to a country’s wealth, while speculating and investing in tech that may or may not have real value is akin to blowing up a great big credit bubble. It’s common and a different type of fun (like gambling!), but mostly hot air.

The solution to this, in my mind, is to build more incubators and other programs that promote building businesses that are actual businesses, rather than startups that may or may not turn into businesses someday. This is a tougher sell to investors and former entrepreneurs who want to invest in hot new companies, but it’s a far better option for the economy, and for the steady growth of small- and medium-sized businesses (compared to what’s going on now: every business is a multi-million dollar success or nothing).

To pull a symmetry from the education system: rather than teaching students (entrepreneurs) to be good at taking tests (pitching investors), we should be teaching them to be good at learning (building and running actual businesses). Doing this will set them up for long-term success rather than short-term gambles.

If we want to make sure the flocks of entrepreneurs around the world keep growing, we need to make sure we don’t get so weighed down by short-term gratification and trend that no one can get aloft without help.