In the last few years, most of the succesful people I have met are founders who’s company history goes quite contrary to the typical startup advice, but still they achieved the result of a fast growing, impactful company that made them rich in the process. Most of the founders I see with success are actually in service business or large suppliers for certain industries. A lot of them built their companies on the side, and the founding teams are either solo founders or large committees. Furthermore, these companies all grew profitably.
This goes contrary to the advice we get about how to build a startup, which is to do product businesses, focus on the company 100% with 2 or 3 founders etc etc. Yet the people in my life who went against this narrative still got to the end result we all want: to make a fast-growing, impactful company that makes us rich. This makes me wonder why there is a discrepancy between the advice we read online about company buidling, vs what the reality is on the ground.
The conclusion I’ve come to is that a lot of the advice we see online is written by prominent investors, and investors are usually faced with a big problem: how to align their interests with those of founders. The interest of an investor is to make many bets in different companies and quickly see which one will be the winner in their portfolio to beat the S&P 500 within their 10 year time window. This is contrary to the interest of most entrepreneurs, who just want to see their dream company come to life and be big enough to feed their family plus a couple of niceties here and there. To bring the interests of founders closer to those of investors, the financiers have flooded us with propaganda that blitzscaling unprofitable product businesses full time is the only way to go about building a big company.
In conclusion, don’t take the word of investors on social media as the gospel truth. Most of those guys are just selling the VC dream, so you shouldn’t feel bad if your startup doesn’t fully fit into their mould of what one should be.
If people take anyone’s word on gospel truth, that’s the issue right there.
That said, there are certain ways to go that one should do. For example, have a fantastic bookkeeper and accountant and have excellent financial controls.
Base your business on marketing.
Make sure you have a contract for every deal if required.
People can make great money in all kinds of things. A brain surgeon can make $2 million per year in income. Same probably with a top lawyer.
However, services do not scale well. There’s only so many hours in a day, in a year. A surgeon or web designer or other service person can only work so many hours and that’s it, end of story. Doesn’t mean that they can’t get “rich.”
The only way to get bigger in service businesses is to hire more people, and they they can only charge 40 hours per week maximum. There are a lot of huge accounting firms, law firms, advertising agencies with tens or hundreds of thousands of employees. The hiring of one hundred thousand people in a week might be difficult… (joke)
Products are completely different. I once read of a company a guy started and had distribution rights of monitors in all of the USA. This was a while ago. They shipped (not drop shipped) $60 million monitors per year with 6 people. 275 monitors per day, every day. They reshipped in bulk to distributors. This is not remotely possible in services, with 6 people.
Apps are fantastic as they have no distribution costs. One person could do $20 million per year with online app.
People in service businesses can get rich, but it just depends on how you define rich. It depends on how you define service. It depends on how you define product.
There is no one way. It depends on one’s goals. I think a fantastic goal would be to have $150,000 per year coming in on MRR, and I don’t have to do too much work. I don’t need $500 million in my bank account.
I’ve known lots of businessmen who have a service business, who go to their business location once per week for a few hours to check on things, and their employees run the business. One I remember is a well drilling company. All the employees are long-term - 10+ years. They don’t need the owner around. The owner just goes in to keep everyone honest.
VC’s - they are all looking for the unicorn, and with excellent reasons. Seed stage investors invest in 100 companies that are duds or eke along. They need to get the hits to underwrite all the loser companies, and try to make a profit on top of that. VCs will see 10,000 business plans, chose 5-10 businesses to invest in per 10,000 business plans. They see it all, have a ton of experience, yet even they can’t tell who the winners and losers will be.
All this being said, there are some pretty hard rules that all businesses need to know and abide by to have a chance of winning. Get my newsletter for $40 per month and find out what they are. (just joking again. Pretty funny guy, no?)