5 Ways to Know Whether a Startup Is ‘Real’

Anyone who starts a business, with rare exception, deserves a lot of credit. It is hard work, risky and often demoralizing. However, if you are applying to work for a startup or if you are looking to invest in a younger company, it is sometimes important to recognize a “real” startup (and its leadership) versus one that is a poseur. Often, people put their careers at stake or money on the line when working with a startup and there are good guidelines for knowing what is real and what is not when doing so.

How many businesses has the founder started? There is a certain kind of person that seems to bop from venture to venture without ever getting a true win. These entrepreneurs typically start many businesses, all of which, when you look under the hood, were not really businesses at all. The argument these folks would make is that entrepreneurship is the art of taking risks and trying new things. But people who fall into this category seem to start an endless number of companies that don’t go anywhere. Most of the time, they are not Elon Musk, who has started several real companies. They’re Elon Musky. Where the undiscerning eye might not know the difference between Musk and Musky, there are many small things that make them different species entirely.

I remember reading in biology about the DNA structures of different things and was struck at how similar the DNA structure of humans is to that of birds. It’s kind of like this with entrepreneurship. Real entrepreneurs look and feel very similar to people who are poseurs, but they are vastly different, due to a thousand very small, barely perceptible factors. Look out for entrepreneurs who have started many businesses. I know there are exceptions here, but it should still make your ears perk up. I’d be amazed if anyone could found and start five different businesses in a lifetime, because it takes so long to start and develop a mature business.

Does the business have a product or service that generates revenue? Again, there are exceptions where, in the short run, a real and good business might not generate revenue, but the acid test for a good business is market acceptance as validated by real customers. If you think you are looking at a true startup that has not yet developed a product or service, see point three below.

Does the company have the capacity and the resolve to get real products and services out to market? There is nothing wrong with a company that is in development. Some products and services take a lot longer to develop than others. But good businesses are obsessed with getting something out to market. If you are interviewing at or looking at investing in a startup, the language of the founders should be all about getting products out to market and sold. There should be a lot of resolution on deadlines for that. The truth is that if you’re a business and you’re not selling anything, you’re not real.

What are the employees and players like when you are talking to them? Are they sharp and focused, or do they seem dreamy, academic, defeated, or otherwise not-with-the-program? By the way, don’t pay any attention to things that are not important to a startup’s success, such as where people went to school or where people worked before this business. Where somebody went to school is a function of their academic record. Where someone worked before joining the startup is a function of where they worked before joining the startup. In fact, the sharpest startups that I know don’t have much language at all on externalities or extraneous items like these. I realize this is a hard one to put your finger on, but nobody said that life was easy.

What does it feel like when you walk into the office or business? Are people happy or pleasant? Does the office look busy? Are people talking? What’s the energy level of the business? Again, this is a very subjective thing, but it might be the most important one. Just as you get a feeling from meeting a person, there is a feel to every business.

When I started Sageworks, I had to sell our initial technology to other technology companies, and it amazed me how different companies felt when I walked into them. Intuit was popping, and I don’t mean everyone was standing around playing foosball. I mean there was a subtle energy to the people and environment. I met Zach Nelson, the founder of NetSuite, when he only had about five employees. But, you could tell that the business was real even though they probably didn’t have a significant number of customers yet. On the other hand, sometimes when you walk into a startup, the place just feels as if nobody cares. Finally, and I don’t even know if I’m right on this particular point and I don’t make a cognizant effort to do this personally, but I always notice whether a business or facility is clean. Tidiness is not super important. But cleanliness is. It’s an indicator of how much people care about the space in which they work. Are the carpets stained? Are the chairs broken?

By the way, if you’re an entrepreneur running a startup, be aware of these things, because sophisticated prospective employees and investors will pick up on them.

Anyone who starts anything deserves credit, so I don’t want this article to come across the wrong way, but evaluating all of these items together will give you a good picture of the strength and realness of a startup.