This article was published on May 12, 2014

5 startup ‘rules’ entrepreneurs should ignore

5 startup ‘rules’ entrepreneurs should ignore
Amit Kumar
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Amit Kumar

Amit Kumar is Yahoo's Head of Small Business. Previously, Amit was founder & CEO of Lexity, the App Platform for Ecommerce. Amit Kumar is Yahoo's Head of Small Business. Previously, Amit was founder & CEO of Lexity, the App Platform for Ecommerce.

Amit Kumar is the Head of Small Business at Yahoo.

As a mentor for 500 Startups and former CEO of Lexity (acquired by Yahoo in 2013), I’m often asked how to build a successful business. In many cases the entrepreneurs, I work with are launching startups with hefty goals of changing an industry – or in some cases the world.

With these types of aspirations, there are certainly rules that can help startups get there, but these rules don’t necessarily work for all entrepreneurs. There are important distinctions to consider between startup founders and small business owners, who tend to take a very different path to success.

As Small Business Week kicks off in the US, I wanted to share the top five startup rules for small business owners to ignore:

Myth 1: Think big and have ideas that are scalable

Startups tend to focus on growth above all. This makes sense if you’re looking to revolutionize an industry or create a new market.

However, if you’re building a business in an existing market (i.e. laundromat, plumbing company, etc.) it’s harder to chart a course where you’ll be able to create a company, edge out the competition, and then make a billion dollar profit. In fact, you don’t need to!

For small business owners, it’s about figuring out what you need to live well and working backwards from there. Instead of making growth at all costs the goal, you should aim to be profitable as soon as possible, with a limited number of employees and expenses.

Myth 2: Startups are always competing for talent and attention

For many startups, the goal is to edge out the competition, so they tend to compete with each other. However, multiple small businesses can function successfully in a saturated market – think of how many successful laundromats there are in one city, or in a few blocks for that matter!

They can also work together, recommend complementary services and give each other tips. For example, your corner coffeeshop might only be able to supply your daily caffeine fix, but they might know the best place to get your wedding cake made.

Myth 3: Take big risks: Invest to build the product you want and the money will come

You can either create new markets or win in existing ones. If you’re creating a new market, you’re likely a startup. However, if you’re trying to win in an existing market, you’re probably a small business.

A lot can be learned by looking at existing successful companies. What sales strategies work? What products do they sell? How do they market? In other words, taking big risks is advisable if you have good financial backing, but another approach is to replicate and improve on models that are already successful.

Myth 4: Company metrics, particularly customer acquisition and retention, come second to the product

Most small business owners don’t have deep pockets when they start their ventures. Often they start with their own savings or borrow from friends and family.

Because of this, financial discipline and a good understanding of company metrics and what will make your business grow is very important. Many startups aiming for fast growth, can focus on one or two key metrics and ignore the rest to focus on product — small business owners, however might not have that luxury.

Myth 5: Plan an exit strategy: IPO or acquisition

Many startups build a business with an exit strategy as the end goal. However, most small businesses are designed to last, pay the bills, and generate healthy profit to provide a good life for the employees and owners of the businesses.

A sustainable business model is more likely to survive the long term, versus a business that was built to ‘exit’ at a certain point in time.

Typically, startups focus on “brand new” ideas and markets, which require quick adoption and leads to big payouts. Small businesses, however, usually attempt to build a business that can last so they can provide a dependable livelihood to the founders and employees over a long period of time.

The big difference here is the growth curve. I like to think of it like designing a car – a Formula One car, designed to go really fast, is not built to last 15 years, but that’s certainly the expectation from a Ford or Toyota. Finding success as an entrepreneur – whether you’re a small business owner or startup founder – is about understanding what your goals are, and following best practices for your type of business.

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