Monday, August 1, 2016

The Two American Businesses

There are two types of businesses in America.

Small business involves raising money through hard work or taking on personal debt to do something better than the guy down the street. When the local game stores were all terrible, I started a game store because I thought I could do it better. It was a basic model that any Economics 101 student could understand (I'm assuming, as I've never taken Economics 101).

Big business involves raising money from other people to leverage big opportunities that change the economic landscape. Selling games online at a loss and making it up in data services would be an example of this. It's a bit counter intuitive and it relies on the faith of investors who will lose millions as you conquer a concept, rather than a local market.

When you fail at the first type of business, you lose your house, your car and often your marriage. You have skin in the game, yet you will never have more than modest accomplishments. Nobody gives the owner of the first business a dime without their personal guarantee.

When you fail at the second business, it's to be expected. It's a stepping stone to success, they'll tell you. 30-40% of start ups fail and up to 80% never see a return on investment. You get to keep your house and your car and your wife who has grown accustomed to your MBA induced salary and your country club membership.

The goal of the second type of business is to crush the first type of business. The point is to be a disruptor, to change the playing field. If it takes a series of bankruptcies to get to that roughly 1 in 10 clearly successful start up, then so be it. If it take re-negotiating contracts because your lawyers are bigger than mine, so be it. If it means the banks have a problem when you're in debt and not the other way around, so be it. I once bent my bank over a barrel and made them do my bidding. They congratulated me at the end. That's every day for business number two.

Remember the two types of businesses when you're praising someones acumen in the marketplace. Are they the kind of business owner who creates value and solves a need or are they a disruptor for the sake of disruption and their personal fortune? How do they treat their community? Most importantly, how do they treat the people who make them successful?

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