Show notes from Episode #136 of the Sweaty Startup Podcast.
If you’re familiar with the Sweaty Startup, you know that Nick professes starting small with simple, low-risk ideas. A gig that you work on weekends can grow to a multi-million dollar business that replaces your job. These businesses aren’t immediately scalable, aren’t sexy, and won’t make you a billionaire, but that helps create your opportunity.
Jim Flannery is a lecturer in the entrepreneurship program at the University of Georgia, and he takes a different stance from Nick. Jim began his career in investment banking, then started and sold his own tech company, and now runs a nonprofit assisting startups that has seen one member company go public and two get acquired by publicly traded companies. In short, Jim’s career has been all about big ideas, and he believes that Nick’s bounded rationality can lead us to sell ourselves short.
This all begins with fundamental philosophy; Nick’s goal is to continuously take steps forward in life and grow every day, and to own a business that supports him living the life that he wants to live. He enjoys the challenge that service businesses provide and the problem solving that comes with it. He believes that sweaty startups provide people a high likelihood of being able to quit their job, pay their bills, and live how they want to live.
Jim isn’t afraid to swing and miss while he looks for home runs. He thinks the pursuit of business simply to pay your bills can limit your potential. He thinks that if you’re comfortable with risk, comfortable with the idea of betting your last dollar on your business like Elon Musk or Fred Smith, that you can achieve something beyond the means of a sweaty startup.
Nick’s philosophy revolves around chasing pre-identified pains that somebody else is already solving inefficiently, and solving it better. To Jim, that pain may not be so clear, but the market is still there.
Sweaty Startups and Big Ideas
The first problem is in people. Sweaty startups are inherently capped by the number of people they employ. Jim wants to focus on finding businesses that aren’t scaled by labor. Minecraft, the highest selling video game of all time, was made by a studio with just 128 people. That scalability doesn’t exist in the service world.
You also have competition. All the smartest tech companies, VC firms, MBA programs, and incubators have amazing ideas that scale. Everybody is chasing every problem, and most are failing. With sweaty startups, the participation rates are lower, the competition is easier to pass, and the odds of success are higher.
But competition doesn’t scare Jim. What excites him is to identify what the competition is doing poorly, what they’re doing well, and finding your own niche. No matter the industry, there is a subset of customers that will happily give you money. Your job is to grow that subset to a worthwhile size.
In Jim’s mind, an entrepreneur’s mindset has to be fixated on solving a problem. This has to be a bigger priority than making a comfortable living day to day, and he sees the journey as part of the privilege of entrepreneurship. There’s risk to it, and there are tradeoffs, but going after something that’s intellectually challenging and that people have been unable to solve is a thrill.
However, people that fail don’t always get back in the game, and that’s why both Nick and Jim suggest starting small. Any type of business should start small to minimize the risk of failure and allow you to level up over time. The decisions you make 5 years down the road will look massive in comparison to your first year.
You’ll know early on if you have a real shot at success. Nick knew in the first six months of Storage Squad that they’d be doing well by year 5. If you’re good at management, he thinks you’ll find success 9 times out of 10.
So what determines success? First is finding a problem that either hasn’t been solved or has been solved inefficiently, and solving that problem in a way that makes a subset of the market want to pay you for it. For both big ideas and sweaty startups, the approach is the exact same–get in front of people, explain what’s wrong, solve it, and expand from there.
The pursuit of big ideas [2:40]
Sweaty startups vs big ideas [16:40]
Starting small [35:25]
The timeline of success [43:50]
Final words [48:30]