What is the difference between a small business and a start up? Ok, I have the answer but this is one of those annoying rhetorical questions that a teacher asks to the class as the students stare in fear of saying the wrong answer. Go to the most sophomoric way to define anything, the dictionary. The start up is literally defined as ‘a new business’ and the small business “independent business...that is not dominant in its field…”. In social context I think people generally see the small business as the coffee shop on the corner and the start up being a bunch of computer geeks in a garage. The latter aiming towards some rapid ascension to stardom and unknown riches while the coffee shop lingers in profitable mediocrity. In fact, 66% of small business will survive their first two years while their start up brethren have a 90% failure rate. So then why is it that you hear about start ups being acquired for millions of dollars yet the coffee shop languishes in no man's land? The simple answer is upside (and fame). Tumblr, Twitter, Snapchat, Instagram, Shazam all have a much higher upside (potential profitability) than even the best coffee shop. But you know what they don't actually have? Profits. Thats right, these million dollar organizations and acquisitions are not particularly profitable (or not at all) and show no clear path towards consistently being in the green, the fundamental quality any business is trying to achieve...at least I thought so.

So let’s bring up “the kids”. Video games set a bad example for “the kids”. Eating fast food is a bad habit for “the kids”. Defining business based on some empirical value, and not profits, is also bad for “the kids”. I never had a lemonade stand as a kid, I hated waiting for clients, but I did sell candy in middle school. Turns out that is a punishable offense and I almost got into a lot of trouble as a teacher thought I was a drug dealer. The sudden spotlight showed the model was a success along with one crucial element...I made money. Mom and dad didn't buy my supplies, I was on my own. When it came time to diversify my offerings I had to save money to buy more candy. When distribution became an issue I had to recruit friends in other classes. Upon discovering my profits were literally being eaten I had to pivot my model to ensure good returns. (really good thing this wasn't drugs). But you know what my first business never had? Funding. There was no candy VC. No money from the Wrigley family to start a middle school distribution center. I had to make money to spend money. The baseline of most successful businesses.

In the startup world this is not the case. Businesses are funded with a fuzzy vision to profitability, no established business plan or growth strategy, no market research validating the model. Now, I am not advocating that startups should not be funded or suggesting that businesses that are some what profitable will always be better bets. But as we watch companies like WeWork, a $5 billion dollar (valued) organization, fall victim to the most basic business/ mathematics principle; if you put out more than you will take in you will net negative. That is bad business, but the blinding lights of potential unicorn status can be enough to muddy the financial waters. Yes, I am making some giant generalizations and there are bounties of smart VCs that a vetting their investments...bets...to ensure success...better odds. But, the 90% suggests that the house usually wins so be careful how many trips you make back to the ATM.