There’s a debate among linguists about how many words Eskimos have to refer to the English word ‘snow’. I’m not a linguist but it makes sense for them to have 50 or more words for snow. I don’t know any Eskimos but my belief is that anyone that is passionate, educated, and living in the midst of something is able to describe it in very nuanced detail. How could an Eskimo not have a deep understanding of snow?
If you’ve made it to this little corner of the Internet you’re probably involved in business ownership and leadership in some way. If you’re at a cocktail party with your spouse and someone asks you what you do, you might just say you’re a business owner and leave it at that. But if we’re sitting down together, both as business owners, you can probably be more detailed. You might say you are founder of a ‘startup.’ This is a word for a certain type of business that indicates it’s age and the founder’s anticipated growth potential. It implies a small size but it might range from just you to several hundred people and still be a startup in my vocabulary. Size is relative to your reference points. Then, I may ask if you’re VC-backed or bootstrapped. Because your source of capital helps inform my views and expectations of the company further.
I love to talk with folks from a field that I’m unfamiliar with while they explain their equivalent of the 50 words for snow. It’s not just learning the new words that is helpful. It helps to even understand how they breakdown the field by what they have descriptive words for. If I were talking to an Eskimo, I might ask about yellow snow, but then they don’t have any words to categorize the colors but they do have words that categories the moisture content or the rate at which it falls. Those aspects of snow must be important for some reason. I should find out why!
It is this kind of thinking that led Daryl, Neil, and myself to talk about Small and Medium Enterprises (SMEs) and Innovation Driven Enterprises. Bill Aulet from MIT authored a paper that helped give us this vocabulary a few years ago. Like many helpful authors the main benefit for us was establishing a vocabulary for our various views of business. We need to differentiate between these types of businesses for a lot of reasons that Bill outlines in the paper. I was able to meet Bill at an event a few months ago and thank him in person for the clarity his paper provided. I strongly suggest you give it a read.
I think you’ll learn a lot from the paper but one unfortunate misapplication some take from it is to pit SMEs and IDEs against each other. Bill says, and I agree, that our economy needs both. We simply need to treat them differently.
Understanding this difference is applicable to others, outside LEV. However, we think our perspective helps set us apart. We like both both types and see ourselves as agents of change for those rare SMEs that have “IDE potential.” In our experience, many small business owners spend their time in the day-to-day grind but have trouble stepping outside of it to see the real limitations they’ve inadvertently place on their business. Sometimes this is under-utilization of technology (or over-utilizing it in some cases) or simply thinking too small (Think Big!). Most “Silicon Valley” investors can’t be accused of thinking too small, but they don’t want to take the risk of having to go operational on a business. They’d rather write off the vast majority of the investment rather than go operational in situations like dealing with a personnel issue or figuring out how to implement a price increase.
We are attempting to balance this tension here at LEV. We love a good SME that is run efficiently, pays employees well, treats customers right, and kicks off some cash. But we also love when we can use that cash to plow back into the business to implement or build technology that can transform the business. The existing customer base and cash flow provide a much better platform to launch growth initiatives from compared to a startup. It doesn’t mean it is easy. It takes time to change an SME culture, a lot of hard work, and sometimes even some tears. But we believe it is worth it in the end for our partners, our companies, and our customers.