Next is funding the idea. Once again, income-generators are at a bit of an advantage here. With income-generators, you’re in no rush — if a hole has existed in a market for a few years, it’s probably going to stay that way, especially if the market size of that hole is small. Startups, on the other hand, are screwed the second someone gets to market before them — so they’ll need to come in hard and fast.
This means that income-generators are typically bootstrapped whereas startups are typically fundraised. Bootstrapped means that a company’s expenses are paid for, at the start, by the founder and solely the founder. Typically the creator of the business just develops it alongside their full-time job, until they make enough from the business to split. They can also dive straight in to full-time on the project using their own savings, or by borrowing some money from friends and family. Fundraising, on the other hand, is a much more complicated process; this involves legal equity agreements with outside investors such as angels or VCs. Typically a startup will start with getting money from an angel or incubator, then move on to a seed round with VCs or accelerators, then finally get however many rounds of investing in before they exit. Fundraising is a whole other beast, one that will involve its own episode!
However, not all companies must be strictly income-generators or startups. Basecamp is a notorious example of this; the popular project management tool was initially built using an income-generator philosophy, yet ended up becoming a multi-million dollar startup. Typically however this crossover doesn’t happen — a startup is fated to become a startup, and an income-generator is fated to become an income-generator.
The final piece of entrepreneurship we’ll cover in the scope of this episode is exiting. Exiting involves the release of control of the company to an external team in exchange for a large sum of money. There are two types of exits: acquisitions and IPOs. Acquisitions involve the release of control to a different company, whereas IPOs involve the release of control to the public (aka shareholders). Once again, we won’t cover the financial/legal details of exits too much in this episode — that will be a more appropriate topic for Fundraising.
Startups usually go into either of these exits, assuming they don’t fail sometime beforehand (most do fail before this!). Income-generators, however, rarely make an exit. This makes sense; you’re the only one getting the revenue, and it’s your main source of income! That being said, it’s not completely uncommon for someone to exit an income-generator via acquisition, especially if that person gets bored with the idea or is ready to retire.
Apalla 