When good business advice is wrong for you.

There is plenty of good advice for starting a business out there. However, “good advice” is relative. What makes sense for one situation might be wrong for another. This makes generally good advice, wrong for you.

“Entrepreneurship” encompasses such a wide spectrum of businesses — from a tuck shop to OpenAI. If you’re not discerning about what type of business you’re trying to build, you’ll find that most well-intentioned advice might lead you astray. But how do you know when it’s a fit?

Startup vs Traditional (small) business

Technically, a ‘startup’ is a business which is small. And a ‘small business’ is starting up — but in reality they couldn’t be more different.

Add on another layer with ‘deep-tech’ or ‘tech-enabled’ businesses and the advice gets more inappropriate to your situation and things get messy.

Most advice out there only applies to a certain context with generally applicable advice so broad it’s not particularly useful. Knowing what type of business you are, goes a long way to filtering for good advice.

Typical advice applies to only one of these quadrants but how you build a business in each varies wildly!

Side note:
I generally find that the distinction of B2B vs B2C is also a relevant one that has a large impact. However, it is better understood and easier to spot. And although it changes most tactics and some areas of strategy (go to market, engineering, timelines, partnerships, risk) at the early stages of getting to PMF and fundraising it has an influence but less of an impact.

Note also that there are exceptions to every rule and while I focus on clear-cut examples, there’s a fair bit of grey area for you to apply a dose of common sense to.

Lets dive into what these terms mean.

A small business is…

… the most common ‘traditional’ business worldwide. It starts small and can grow into a medium business, and then (hopefully) a big business. They do this sustainably by reinvesting some of their profits back into growth. If it stays small it’s called a lifestyle business. They are focused on sustainability and grow as fast as reinvesting the profits will allow.

A startup is…

…“a temporary organisation in search for a sustainable and repeatable business model,” according to the grandfather of the concept, Steve Blank. It’s a bold experiment (gamble) to push the boundaries and create something novel. It’s designed to learn as quick as possible and optimises for rapid growth — or to fail fast.

This sentiment by Jen Abel sums up the definition of a startup.

Deep tech is…

…A company where the core value that you deliver is the technology. Customers buy access to the technology and the technology is the value delivered. You can’t deliver an AI experience without the LLM or decentralised trust without something like a blockchain. If you remove the technology, you remove all the value. (These used to just be called “tech startups” until software ate the world…)

Tech-enabled is…

… When you use software to deliver a product or service. (Think Uber or Takealot) The customers aren’t actually buying the software or technology, they’re buying the car ride, shoes, advice, music, or access to a person to do the task. These tech-enabled businesses use tech to scale, but the customers are buying something else.

Small (traditional) businesses optimise for sustainability. Startups optimise for growth. It changes everything.

When good advice goes wrong: the advice mismatch

These 4 quadrants help map out very different types of businesses. Each with completely different advice. Some are optimising for profit, others scale. Some need a technical co-founder, and some don’t. Far fewer than you think should raise venture capital.

There’s a lot of advice for entrepreneurs out there. But almost none of it applies to all situations except some very obvious things These nuances fundamentally change who you hire, how you spend, how quickly to grow, if you should patent, where to cut corners, etc.

Some obvious things might apply to all of these business types: e.g. hire well, be ethical, build team trust, have a clear vision, etc. But the nuances fundamentally change how you approach: who you hire, how you spend or raise money, how quickly you grow, how to protect IP, where (and if) to cut corners and a million other things that affect your business.

Knowing what type of business you are is a useful rubric to discern whether advice that sounds good actually applies to you.

Here’s that 2x2 again. This time with examples.

Good types of advice for each quadrant

1/ Deep-Tech Startup.
This is a tech-first business that needs to be able to scale fast. Some things to consider:

• You need to hire some very expensive engineers upfront to develop an initial version of the product. You need a superb technical co-founder since technology is the core value driver.
• It has huge potential to scale with high margins (>75%) and (hopefully) reach millions of users.
• It will likely take longer to get your first customers due to longer product development and longer sales cycles. Having a co-founder who buys in and converts some of their pay into equity is super helpful. You need all the runway you can get.
• It’s also high risk as if it ends up shutting down, there is usually no asset because very specific, half-baked software generally isn’t useful. There may be some patents, but they often aren’t worth much out of context and are better at defence while you’re alive.
• It’s a great business profile for venture capital funding as it needs a lot of upfront R&D to build the asset.
• It can win VERY big. It’s an attractive acquisition for how it fits into an acquirer’s product suite or distribution engine - or simply to stop you from competing.

Example categories: AI, web3, product based SaaS

2/ Tech-Enabled Startup.
This is a business that sells a product and service and is able to scale fast due to tech. Things to consider:

• As above in its growth/exit potential and high margins.
• These are typically asset-light (Uber doesn’t own cars, AirBnB has no properties) and the technical challenges come from scale, not the core service.
• Distribution, marketing and sales make these work and they often rely heavily on network effects or product-led growth to do that. You’ll need a growth hacker or some marketing/branding savant as a founder.
• Venture capital is a good fit for these but only later as growth capital and not upfront R&D.
• The asset of value, in the end, is the network and distribution channel.

Example categories: Gig marketplaces, sharing economy, e-commerce super stores, social networks

3/ Deep Tech Small Biz
This is where you’re developing something novel and patenting the heck out of it. It may be some hardware, medical or engineering breakthrough. Technology or a unique research insight is at the core of what you’re doing.

• To do this you need bucket loads of funding to cover the upfront R&D and manufacturing. Early funding from universities, government, or NPOs is a good fit. Later, some VCs or Private Equity investors will back these businesses due to their potential and defensibility.
• Even if they fail they’ll often have valuable technology or assets left over.
• Taking venture funding early would be a disaster as the timelines take too long to make a VC return.
• Your margins are usually thin, particularly at low manufacturing volumes, and you need to build up physical distribution and sales — likely through partners.
• In the end your Intellectual Property or its licensing is what will be most valuable.

Example Categories: Inventions, medical devices, hardware, wearables, IT infrastructure

4/ Tech-Enabled Small Biz.
This is a traditional business and most businesses fall into this category. Tech enables all businesses in some way nowadays — as admin software or a website. Most non-technical entrepreneurs are building this type of business. It’s the easiest to get off the ground but as such is the most competitive.

• It often starts as a consultancy for the founder’s skills and scales by productising their processes and methods. This could be through hiring more people to do what you do or to automate it through software.
• While they can grow fast, they are hard to scale and need to evolve a lot as they do.
• The asset of value over time is the current and future client relationships.
• These are not a fit for venture capital funding as their margins are too low, and their scale is too slow.
• There isn’t a real asset of value at the end of the day — other than the team to be acqui-hired or dividends paid out.

Example categories: Lifestyle businesses, consultancies, service businesses, niche e-commerce

Advice out of context helps no one.

Entrepreneurship is hard. Building new things is hard and most people want to help entrepreneurs. But don’t take on all the well-meaning advice on ‘how to build a business’ out there.

The next time someone shares some advice, consider where it is coming from, who it’s for and if it applies to you.

It’s likely good advice, but wrong for you.

A huge thanks to Sona Mahendra, Olumide Ebigbola, Renier Kriel from The Open Letter, and David Wright for feedback on this piece.