ETS, the risk-reward continuum, and why we like ETS

A startup is an experiment to prove a product-market hypothesis. It is often stated that 90-99% (pick your number) startups fail, and startups are portrayed as a very high-risk, and high-gain, endeavor. This is in fact a statistical bias because the startups we hear about are the ones that make it big. In making a big enterprise from scratch, the risk is indeed very high.  

The problem with this high-risk high-gain mindset is that it prevents many aspiring entrepreneurs from ever becoming an entrepreneur. They think they need to come up with a big idea, take a lot of risk, need an investment, and, since they are not ready to take all this on, they never start. We were there once too when we started our entrepreneurial journey. Thanks to Prof. Sanjay Patel of UIUC who gave us some excellent advice in our journey that services is a valid business that can have a life-changing outcome, in the context of our goals.

A side word on goals: it is very critical that every founder knows their personal goals, which typically are different from the goals of the venture itself. Our goal at Flux7 was to create a life changing outcome for ourselves while creating a workplace that we wanted to go to every day. We took it further to define what a life-changing outcome will be in terms of money. Having this clarity really helped us along our journey in making the right decisions.

Most tech entrepreneurs typically think of the world as black and white. They either see high-risk high-reward businesses like Amazon that make headlines – or lifestyle businesses that they see daily on the roadside. The first seems too big to take on. The second is not so exciting. They do not see the middle, which are life-changing businesses but not headline grabbing. 

These can produce a $5mm-$100mm outcome for its founders in typically less than a decade at medium to low risk. This is where we feel ETS comes in. ETS is a medium-risk medium-reward class of startups. ETS businesses trade at 3-6x revenue, have a 75% chance of success, and can typically produce a life-changing outcome for its founders in a 5-7 years time frame.

This is why we have built Vixul, to help these founders achieve their goals. A recap from the last blog that ETS businesses are fundamentally different from traditional professional services so if your impression of a services business is pre-2018, you should read up our previous post, Emerging Technology Services, a new opportunity?, to understand the differences.

We are really excited about ETS because we see it as an excellent opportunity for aspiring founders or existing ETS founders who want to take things to the next level. The rising valuations and high demand is certainly providing an interesting inflection point.

Stay tuned for our next blog on ETS valuations and in the meantime, let us know your thoughts in the comments!