Why You Shouldn’t Build a Billion-Dollar Startup

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Entrepreneurs dream about building the next big billion-dollar company. But the Apple, Google, and Facebook-shaped stars in their eyes end up clouding their vision. It’s easy to get caught up imagining your company going viral and getting to millions of users — all before your business has made a single dollar.

All the hopes and visions in the world won’t get you any closer to your billion-dollar exit. In fact, setting out to build a billion-dollar startup is one of the biggest mistakes you can make.

Gary Chou, an instructor at the School of Visual Arts in New York City, teaches his students how to launch a startup by taking a completely divergent approach. His course in Entrepreneurial Design has an unexpected syllabus for a business class: forget about creating a business plan or making a pitch deck for a fictitious billion-dollar unicorn company. Instead, get out there and do it — create a real $1,000-dollar company.

Chou’s assignment is to create a business that will produce $1,000 in monthly profit in a way that’s repeatable and sustainable. What has emerged from this exercise includes real profitable, ongoing businesses and funded Kickstarter projects. But beyond the money that’s been made and the companies created, what’s most important is the experience and knowledge you take away — for if you take on the challenge of building a $1,000 startup, you’ll learn three invaluable lessons.

You’ll Create Self-Sufficiency and Independence

Getting your project to ramen profitability is a vital and game-changing milestone because individuals and startups need to be self-sufficient. Dependence and relying on others holds back your creativity and autonomy. If you have to worry about surviving based on a salary to make a living or investor money for your company to keep alive, you severely limit your capabilities.

Deciding to raise investor funding and swing for the fences often means chasing someone else’s dream, not your own. When you set out to build a billion-dollar startup, you’re often implicitly following another’s path to success rather than thinking independently.

For Zingerman’s, a Michigan deli that was doing $5 million in annual revenue, going big meant taking their local operation national and becoming a chain restaurant, replicating the same formula in city after city. But instead of chasing more revenue and growth, they decided to choose their own definition of success. They stayed small and local — rather than replicate the deli over and over by racking up franchises, they created the opportunity for their employees to start distinct local businesses, like a bakery and a creamery and more, based on the Zingerman’s culture and brand.

They multiplied their annual revenue by 10x to $50 million by blazing their own path.

Get your company to make $1,000 per month, and you start being able to cover rent. Your self-sufficiency slowly grows into a dawning sense of possibility because you’ve created a sense of self-reliance and control. When you feel more in charge of your fate, you have the means, the autonomy and the creativity to do something totally original.

You’ll Actually Learn How to Build a Business

Following the well-trodden road of building a startup by bouncing from idea to accelerator to funding to operating often results in a rude awakening. I’ve seen many founders who went through top accelerator programs, raised impressive-sounding million-dollar seed rounds, and then fell short when it came time to actually build the business. They had never made a single dollar so they never learned how to do it.

Basically, building a business is not fundraising.

By the time iDoneThis hit $1,000 in recurring revenue, I had gone through setting up the groundwork and learned how to grow — from how to build a product, to how bring it to market, to how to get people to pay for it.

When you focus on building a $1,000 startup rather than a billion-dollar one, you’ll get the order of operations right without putting millions of dollars of investor cash at stake as a funded company: validate and learn first, then scale.

Your $1,000 company might be bigger than you think

Building something big by building something small is actually one of the best, most counterintuitive ways to build at all.

The paradox is you limit yourself to “big” ideas, narrowing your scope and most likely coming up with bad big ideas. According to Paul Graham, the best ideas are often what he calls “toys,” or ideas you wouldn’t recognize as touching on a billion-dollar opportunity.

ZeroCater, a Y Combinator-funded company started by founder Arram Sabbeti, was born from the humble ambition Arram had when he wanted to quit his job. He just needed enough money to pay for his rent and ramen. He started by helping his own employer cater company lunches and began to expand to other local area startups.

What started as a $1,000 startup soon became a much bigger opportunity and then a full-fledged business, as Arram added more and more paying clients. Within a year, Arram had turned his rent and ramen side project into a startup backed by the best investors in Silicon Valley.

The big mistake is to focus on opportunities that seem like big ideas but result in products no one would pay for or use. To Graham, it’s far better to build a product that has customers who “really need what [you're] making.” This will be a small number of people at first, and that’s okay. When your product has $1,000-worth of passionate customers, you have concrete evidence that you’re on to something good, with the potential to be huge.

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The $1,000 startup is a powerful frame to put on your ideas, because it strips the distorting force of market opportunity out of the idea equation. Rather, it properly focuses you on the question of whether you’re building something that some significant number of people want enough that they’re willing to pay you for it.

Meanwhile, you get out there with a kernel, a seed, you do the work and grow from it, and you learn how to put one foot in front of the other.

  • http://krishanvpatel.com/ Krishan

    Thanks Walter. Really enjoyed this post.

    A couple of reflections that came up while reading your post:
    Zingerman’s: I am amazed they did not fall to the pressures of expanding as a franchise or some other expansion. I believe it speaks to a belief-system or values. I am curious about that decision making process to go online, and how they transitioned from amazing service in-person to amazing service online.

    Lau Tzu: “A journey of a thousand miles begins with a single step.” I recall when I was running when I ran my first and only marathon. If I thought about getting to the 26th mile, I felt exhausted mentally and emotionally; however, if I focused on just getting to some point in the distance that I could see, then I began to enjoy myself with the tiny victories.

    Problem Solving: There is an excellent Bill Gate’s commencement speech, where he speaks about how people often get so overwhelmed with the immensity of problems, that they don’t know where to start and so they never do anything about the problems. For example, if I am very upset about the plastic trash bags floating in the ocean — instead of trying to clean all the bags in the ocean, I could pick-up the next one I see floating around the streets and throw it out.

    • Walter

      great, stuff — thanks for sharing, krishan!

  • petergold99

    Great post Walter; if only more people would think like this. I applied the same approach to my last race (1 day at a time) and to my business (1 client at a time). Amazing how by focusing on one small activity e.g. just win one new client this month, it feels more achievable and less daunting :-)