What Type of Business are you Building?

Sometimes it gets confusing when you’re comparing your business to the latest startup success, a huge multinational, or even the business that allows its owner to take extended holidays and be home to pick up their kids from school every day. But like most things, a lot comes down to getting clarity about what we want for our business. Whether the vision for our business is to build the next Apple or to minimise time at work, there’s no right or wrong, but there’s a huge benefit to having that clarity on the type of business you are building.

One useful way to think about and categorise your business aspirations is to use the matrix below. Think about both the timeframe you intend to be involved with the business for, and the size you hope the business to become. This puts all businesses into 4 categories;

• Built to Flip (or typical Start-up) – a business you’re building to sell for a profit in the not too distant future
• Enterprise – a business you’re intending to grow into a significant force within your industry
• Project – a short-term business aimed at answering a particular question or fulfilling a particular need
• Lifestyle Business – a business primarily designed to support the lifestyle you want to lead

It all sounds very simple (and it is), but in practise, I’ve found it really difficult to concretely put my businesses into one category or another. And looking back, this has been a big mistake.

How I Almost Mucked Up

In my last business, my cofounder and I started with the intent to sell to a larger player, so we should really have categorised the business as “Built to Flip”. But we acted in ways that were inconsistent to this – we didn’t really try to raise capital and take on investor funding to grow as quickly as we could. This meant that our growth was slower than a real “Start-up” type business, which then lead us to manage expenses more tightly so that we could ensure the longer term stability for the business. In addition, we loved what we were doing for consumers and businesses and weren’t really in a hurry to leave that in someone else’s hands.

In essence, we tried to build a hybrid of a “Built to Flip” and “Enterprise” business. This resulted in us making some decisions aimed at a future sale, with other decisions aimed at long-term outcomes for customers and the business. And neither scenario was optimised.

In hindsight, we should have been a LOT clearer on the direction we wanted to take the business – and understood that each type of business demands a different style of execution and management…

Businesses that are Built-to-Flip (or typical Start-up)

These businesses should grow as fast as possible and focus exclusively on just a handful of metrics that a potential buyer would evaluate the business on. In some cases, this might mean that the business does not necessarily have to be profitable (although that depends on the industry and economic environment). In many cases, growing quickly will (and should) necessitate the need for a high level of capital input to fund the growth. (Although it still should be said that money should not be thrown at something until it is proven that the investment leads to the desired results.) Growing this type of business is likely to be a crazy, whirlwind of a trip with a highly variable and unknown outcome. Founders need to put in 150%, be comfortable betting the farm at every corner, but also know that the ride is likely to be reasonably short-lived (as the business will either run out of funds or have a spectacular exit).

Businesses that are Built to be Enterprises

Here, slow and steady growth will usually win the race and the objectives should all be long-term focused. Investors are unlikely to be interested in getting involved as the exit timelines are too long for their needs. This of course, means that you need to build the business either with your own capital, or more likely, by growing at a sustainable rate without the need for capital injection. Customer satisfaction and customer growth are key here but they need to be achieved without large investments that would lead to cash-flow problems. Long-term reputation is also very important.

Businesses that are Designed as Lifestyle Businesses

These businesses are generally more of a means to an end. You might want a certain amount of profit for a minimum amount of input, or, you might like to work on certain types of activities. The objective here is not to maximise growth, but to optimise the business so that you can draw enough profit so that you can lead the life you desire, while doing the amount and type of work that you like to do. The key is to put a great team in place that can do the things you don’t like to do, and find the sweet spot where the business is at a size that allows you to live a great lifestyle, while limiting or minimising your involvement.

Businesses that are Projects

These businesses are always intended to be small and short-term. They may be in place to give you a certain type of experience, test a certain theory, or fulfil a short-term need (eg a career gap). Here, the business attributes depend on the exact objectives you are trying to achieve, but usually you will want to keep costs fairly low and focus mainly on achieving your project’s exact goals, without getting too distracted by taking the route of other types of businesses.

Know Which Type of Business You’re Building

It doesn’t matter which type of business you choose, but know that it’s more difficult to play the middle game by hedging your bets somewhere in the middle. It’s much better to be decisive and clear about what you’re trying to build and then everything about your execution can reflect that goal. Of course you can change your mind at a later stage, but you’re more likely to build a business you love if you consciously choose the type of business you’re building.

For an interesting discussion about this topic from someone who’s deliberately built different types of businesses, check out this fantastic article (the comments are very interesting too!).

Does your business fall clearly into one of these types?

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