Are You Building a Business or a Project?

Yesterday, I read a very nice book by an old friend.  Frank Vargas and I were young lawyers working for the same partner at Wilson, Sonsini, Goodrich & Rosati in Palo Alto in the late 1980s.  We went two different paths, but stayed in touch with one another through the years.  Now, we are colleagues again – both as Adjunct Professors at the Santa Clara University Law School.  The concept of Frank’s book is to share with the up and coming generation the “secrets” of life that he has learned through the years.  It is available on Amazon here:  [Link].

One of the stories that Frank tells is of a discussion he had with his entrepreneur wife, whose fledgling company was struggling.  Frank told her that the company was spending too much and her retort was “We are not over-spending, we are under-earning.”  Frank’s point was that a company cannot control how much it earns (that is in the hands of the customers), but it can control what it spends.  His advice was and is sound.

I wonder, however, if his entrepreneurial wife might have also had a profound insight.  Remember when the internet companies of the 1990s didn’t care about having a business model?  They thought that if they only could gain enough users (back then they talked about measuring eyeballs as the most important metric) then they could worry about making money later.  Even now, Amazon.com uses a variant of this strategy, but that is a topic for another day.  It is little wonder that the “Internet bubble” burst, since so few of those companies had any sustainable business model.

I had thought that the lessons of the Internet bubble’s burst had been learned for all time.  But apparently not.  This week, Mark Suster (a partner at Upfront Ventures) posted on his blog about how the bad habits of the past are creeping back in entrepreneurs today [link].

I completely agree with Mark.  Without a sound plan to make sales, an entrepreneur is not building a business.  He or she is merely conducting a project – or worse, has a hobby.

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