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4 Reasons You Should Start a Firm Instead of Launching a Startup 'Startup' and 'firm' are similar terms but with a distinction that can lead entrepreneurs to greatness.

By Per Bylund

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Should your next startup be a firm? In conversational usage, the terms are synonyms, so the question might seem odd.

Economically speaking, a firm is a for-profit entity detached from market solutions of the day. The label implies some sort of innovation is happening behind the business's doors, whether through novel production techniques, new organizational patterns or previously unseen products.

To be clear, the terms aren't mutually exclusive. Some startups are firms, but certainly not every startup qualifies. Only startups that do innovative things that cannot fully be done through simple buying and selling are firms. Startup-turned-superpower Uber, which sought to change how consumers hail taxis, is a firm because it presented the market with a new solution. Uber clone Juno may not be and future ridesharing services certainly won't be. They'll rely on bots and others' experiences to outsource, so they're not firms.

Firms come in all shapes, sizes, and industries. Henry Ford's automobile company revolutionized manufacturing, while podcast startup Gimlet Media is bringing native advertising to radio, marking both as firms.

So if you're ready to bring innovative ideas to the world, then consider the firm. Here's how to put yourself on firm footing:

1. Create new value for communities.

An emphasis on both "create" and "new." While serving coffee has value, the value of another coffee shop is neither new nor created; it's simply an old idea in a new location.

To create a firm, find a community to serve, identify a problem and apply design techniques and technologies to solve it in a new way. The problem you address could be as targeted and serious as leaded water in Flint, Mich., which David Tarver is helping his community solve through an urban entrepreneurship initiative. Or it could be as widespread and unexciting as a tired coffee-buying experience, which Blue Bottle Coffee, a Google Ventures portfolio company, is helping to address. The ecommerce startup uses a subscription micro-roasting model with marketing focused on brewing styles before bean varietals.

Regardless of the specificity of the problem, find an angle for tackling it how nobody else does.

2. Differentiate yourself for investors.

When investors decide which startup to support, are they going to pick the copycat with 100 competitors, or the first-mover entrepreneur with the market all to itself?

Especially with less venture capital available, investors want to know whether a business idea amounts to a firm. That doesn't mean your startup's model should be totally unrelated to what's been done before -- ideas too far from the beltway are risky -- but it does mean you need to find an unexploited niche, a new way of slicing old ideas.

Related: VC 100: The Top Investors in Early-Stage Startups

Climate Corporation is doing exactly that, and investors have taken notice. Sold by San Francisco entrepreneur David Friedberg to Monsanto in 2013, the agricultural data company meshes old ideas into a new, valuable package that attracted $109 million in four investment rounds. Through water and soil monitoring software, accompanying hardware, and crop loss insurance, it's helping farmers protect their livelihoods in the era of climate change. As Climate Corporation has, be prepared to demonstrate your startup's unique angle on a solution in order to attract investors.

3. Discover new business models.

Proven business concepts -- another dry cleaner, burger joint, or online clothing retailer -- are important to everyday life, but their business models are fairly "safe" and not innovative.

Related: 7 Actionable Steps to Craft a Lean Business Model

Forging a new firm, though, requires a new business model. Take, for example, Infibeam, a tough-to-categorize Indian ecommerce enabler. The company offers its software to merchants selling everything from books to electronics to automotive accessories. But this isn't an Amazon-like site where sellers simply post their offerings. Using Infibeam's Buildabazaar, more than 30,000 merchants have built full-fledged online stores to peddle their products. As Infibeam has done, use what you know and whom you know, but put it all together in a different way.

4. Test your business savvy.

The cold, honest truth about firms is that they must rely primarily on entrepreneurial judgment. Because firms build new niches, founders have no prior examples or data to look toward. That isn't the case with a coffee shop, where existing metrics can give a good idea whether a new location is feasible.

But that's why a seasoned entrepreneur is the perfect fit for a firm: An experienced founder doesn't just have vision; he has cultivated the business sense needed to make important decisions on instinct.

The late Steve Jobs was famous for trusting his gut at the helm of Apple. "Intuition is a very powerful thing," he told biographer Walter Isaacson, "more powerful than intellect, in my opinion."

Intuition, of course, isn't perfect. When Jobs was presented with the first iMac, he wanted to rename it "MacMan," citing gut instinct. Use techniques like prototyping, focus groups, and strict market segmentation with limited releases to get a better idea -- although not a perfect one -- of whether an idea will fly on the mass market. Do you trust your entrepreneurial instinct enough to stake a business on it?

Related: As Steve Jobs Once Said, "People With Passion Can Change The World'

Ensuring your next startup is a firm is far from necessary, and many startups do great things without attaining firm-hood. But firms are true pioneers: They do something different and better, creating new markets with ideas other business leaders have yet to imagine. And isn't that the sort of entrepreneur we all want to be?
Per Bylund

Associate Professor of Entrepreneurship

Per Bylund, PhD, is associate professor of entrepreneurship and Johnny D Pope Chair and Records-Johnston professor in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of six books.

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