Reality Check on the Role of Business

Shortly after TechCrunch50 this year, Sarah Lacy wrote a post entitled Memo to Start-ups: You’re Supposed to Be Changing the World, Remember?

There was a common gripe about the companies launching there: Not enough passion, not enough swinging for the fences, not enough trying to change the world. There were too many people building safe businesses, too many companies just trying to make existing things slightly better, and too many people wanting to be the next Mint.com, not the next Google. Nothing against Mint, but Silicon Valley wasn’t built on $170 million exits.

I completely disagree. Mint is an absurdly successful business.  Mint has changed the world.  They have fundamentally changed the way that a lot of people budget their personal finances.

There are a handful of problems in the world today that, if you solve, will make you rich and thoroughly change the way humans live.  Off the top of my head: low-cost carbon neutral building materials, curing cancer or AIDS, cost-effective energy storage and delivery to adequately utilize solar and wind power, and a system to enable us to affordably drive carbon neutral automobiles.  There are more I’m sure.  But those require a ton of technical expertise (probably a PhD in one particular type of science or engineering), a ton of funding, and a ton of time to even attempt to solve.

It’s a different world than it was during the dot com boom.  The web has matured to the point where the types of opportunities that created eBay or Amazon are fewer and farther between.  This isn’t a bad thing.  There seems to be this common misconception of what businesses should be doing.  The role of business has and always will be to profitably meet customer needs. Business is a win-win for both sides.

How Twitter continues to get funding without a dollar of revenue blows my mind.  The Twitter bubble will burst because it isn’t a viable business model. The crazy thing is that they know this!  They know that as soon as revenue is turned on they will be worth significantly less.  Their only hope is a large buyout pre-revenue.  A large buyout by some big company that can afford to lose a ton of money on the deal.  Is this what entrepreneurs should be shooting for?

Google didn’t just come from nowhere.  They took the relevancy algorithm of search results and improved upon Yahoo and AltaVista and all of the other initial search engines.  With AdWords they improved Overture.  With Gmail they improved upon Hotmail and Yahoo Mail.  None of those things came out of left field.  They were all built upon the previous innovations that paved the way for them.

Business is really simple: you have something I want, and I’m willing to pay for it.  In doing so, you turn a profit.  You hire more people and more jobs are created.  Eventually, if you’re doing a good job and customers are happy, there will be competition that will try to one-up you in some facet of the business.  That’s how the majority of sustainable innovation happens.  In tiny little increments by all sorts of regular people.  It might not be sexy, but “making things slightly better” is how the world improves.

6 comments on Reality Check on the Role of Business

  1. TIm says:

    Business – the practice of making one’s living by engaging in commerce. No where do I see it mentioned that you have to change the world or hit a grand slam. A successful business is simply a service or product offered that is better then what is currently available or fills a need presently left vacant. Small incremental improvements is the basis of evolution and businesses, like most all things in this world evolve, even if they don’t want to admit to it. These small incremental improvements spanned over a few generations is pretty remarkable and is a realistic measure of what humans are capable of. There are flukes, but how can you make yourself one of them? And if you could would you want to? I don’t mean to hi-jack this post, but my reply will be fairly lengthy in an effort to explain this, as I see it.

    An example of a small incremental improvement that has influenced all of us here in America, water. This stems back to a conversation Adam and I had a few years ago. I think most would agree that it is not difficult to obtain clear, clean and safe drinking water. This did not happen all at once, it was a series of thousands, if not millions of small steps to reach this point. Not even 100 years ago would you probably stand the chance of receiving a cloudy glass of water in a restaurant. With one small improvement at a time, water was understood, safely and cost effectively purified and then we figured out how to deliver it to virtually every home in America in a cost effective, simple way. Talk about a life changing technology that no one person can claim credit at creating, yet is an industry that supports millions.

    This leads me to my second point, most business owners are not cut out to lead major, life influencing companies into the future, it takes a very special individual to have the ability to create something brilliantly new and lead that company into the future. One of the themes we all see with companies as they grow, is the founders will appoint a CEO who specializes in just that, leading a large company in a responsible direction. The world is simply too complicated for anyone person to be truly good at everything. I also feel it is safe to say that no two businesses are exactly the same, much like the people behind these businesses. Not everyone wants to create a huge business, some people want to do whatever it is they do well and that’s it, they know their limitations and that is not a crime.

    The chances of anyone being the next Leonardo Da Vinci, or Albert Einstein is pretty slim, these truly brilliant individuals only pop up once every few hundred years. Perhaps they do show up more but by some twist of fate they take their theories with them to the grave. A great somewhat recent example of this is Nikola Tesla, who lived his life near poverty while his competitor Thomas Edison prospered and maintained a level of fame Tesla did not. Looking back it’s easy to see Tesla’s genius, but it was smothered by poor marketing and public perception. Only recently are we pursuing more of his advanced theories and finding out that much like Da Vinci he was FAR ahead of his time. So despite having a great, society changing idea, bad luck can strike any of us.

    Of course I’m not saying don’t try to swing for the fences, but that should not be your core focus, I think small incremental changes are a sure way to improve society. Who knows, what you’re doing today could influence the next Einstein in 100 years from now.

    One final point, a lot of these revolutionary ideas and companies do not start out with the goal of becoming what they’ve become and that is part of the enigma with them that makes it so hard to predict. If you really think that a Russian immigrant named Sergey new that in 1993 when he met an American named Larry from Michigan that they would create the largest, most successful website in the world, I think you’re mistaken. These market changing companies are often some what of an accident, and only afterwards, when they look back do they see the magnitude of what they were doing. Again this is one of the reasons it’s so hard to plan for this level of success, not only is it very rare, it’s incredibly hard to know you are involved in it until it’s happened.

    Great post Adam, very thought provoking!

  2. Dale says:

    I’m actually visiting silicon valley right now, and it totally blows my mind how “entreprenuers” here don’t care about making money. Business model anyone? You can’t build a successful business without cashflow. Instead they think they’re all that because they shoot the moon and save the world? Google only became so rich because they backed into a business model. They didn’t even want to put ads on their search results.

    I’ll take the “slightly better” companies that make a sustainable cash flow and contribute to the economy anyday over the “wait till Google buys us” model

    • TIm says:

      Dale – I am totally with you, call me greedy, call me simple, but at the end of the day what separates the companies that survive compared to the companies that go belly up is the company that has not only revenue, in this day in age that is not enough, but has profit after expenses. I don’t wish bad things on anyone, but I kind of hope Google Wave buries Twitter to show greedy investors what reality really looks like.

      • Adam McFarland says:

        Great points guys. I’m also not necessarily wishing ill will on the investors in Twitter, but I think if you step back and look at it, it’s unlikely that they’ll recoup their investment. And I hope they learn their lesson. There are plenty of companies that have real profitable revenue models that could use the money to create real jobs and have real growth.

  3. Adam McFarland says:

    Some comments over on the Brazen Careerist

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