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What's wrong with startups
In the late 1990’s, I worked at a number of dot coms, including a custom software development agency in New York City. We built websites and back-office management tools, and I was the senior developer, on a team of 20 developers, after being there for six months.
It was an interesting time.
When the current year is in the 2010’s, “1990’s” sounds so ancient.. I could say 1890’s, and it would sound about the same.
But, I did live through the 1990's, and here were some excesses of yester-decade that I personally saw:
- One client received $15 million of funding, and every table in their huge loft office had solid copper legs.
- Another client rented two stories in a posh Manhattan mid-town location, threw extravagant parties and filed for Chapter 11 bankruptcy protection all before making a nickle of revenue. They did avoid paying their contracting bills to my company and others, who built their website.
- Property managers, when approached by startups about about new leases, required 5 years rent, all paid in advance.
After the dot com collapse, I met a Wall St. banker, and listened to his war stories from the past few years. He kept saying that all it took for a dot com to get funding was, “Three MBAs and a Powerpoint.” With famous yet strange or even non-existant business models such as Kozmo.com (one-hour delivery of say a 79-cent bagel with no delivery charge), AllAdvantage.com (spent over $100 million to pay people to take surveys, then procured no buyers for that market research), and I think a travel company that gave away free vacations (and planned to make the money back on "volume"), "Three MBAs and a Powerpoint" has stayed with me.
Fast forward to today. Generally speaking, there are currently two general approaches toward building a startup. In my opinion, neither one has it quite right.
The Silicon Valley approach
The Silicon Valley approach is almost one of an idealistic dream state, ranting on about "disruptive technology," TED talks and the like.
The Silicon Valley approach suffers from what I call the Buckminster Fuller syndrome: great ideas, with potential to be real game-changers, and ruined by an absolutely terrible business acumen. If you study the life of Bucky Fuller, which I did, you will learn that he repeatedly came up with great inventions but also repeatedly made horrible business decisions (such as how he implemented the Dymaxion car, which later became the VW bus. But he didn’t profit from it!). A lot of technicians are guilty of the Buckminster Fuller syndrome.
Even Google has been guilty of the Buckminster Fuller syndrome, pouring massive amounts of time and money into ideas that ultimately had little effect, financially or otherwise.
At its worst, the Silicon Valley approach results in academia-sized egos, and a sort of pretentiousness that pressures people to “look disruptive.” Not to be disruptive, just to look disruptive. It’s worse than Los Angeles, because at least with Hollywood, there’s actual money to be made. It’s strange, but going on and on about being disruptive feeds the social food chain. I apologize for typecasting, although I have seen it in practice, and many who are truly revolutionary in their thinking get ignored because they don’t know how to talk that kind of talk.
Again, that is at its worst. I applaud the desire that many share, to make the world a better place through innovation of technology. I just think such people would be far more effective if they acknowledged, through their actions, that we live in a world denominated by commerce. Exceptions to this denomination exist, but are rare.
The New York approach
A few years ago, I had an idea for a new website. It ultimately failed, but I met some interesting people along the way. Including a woman who ran an angel-round funding company.
She said she would take my idea, copy the most popular features from comparable sites, ramp it up and then sell it off to the first bidder. Listening to her, I felt like she was from the Department of Motor Vehicles reading a script. It was very pipeline, it was very cookie cutter, and it was our last conversation. She was completely uninterested in how this idea could be used to make the world a better place, or become a ten billion dollar company as well as a thought leader on the edge of pioneering technology.
Again I apologize, rather than ask permission, for typecasting.
New York treats startups like an assembly line factory: take an idea that is working, ramp up a similar concept as quickly as possible, sell it off and repeat. How many online coupon service sites have started up during the past two years? How many questions-and-answers sites the two years before that?
There is no ingenuity, except for perhaps creating a more efficient assembly line. There are no game-changing ideas, as that would be too big of a risk. In New York, it’s all about the money. And not long-term, solid business model, built to last money, but short-term, milk it while you can money. People go into starting a business here with the intention of flipping their business like a condo in Florida.
Another thing about New York. What exists in the New York tech scene is Social Darwinism at work. It’s all about who you know, who you are able to impress, and bragging about having got funded which seems to be the regarded as the holy grail. There are people who act regal and spend their lives practicing the various tactics of Robert Cialdini’s book Influence (social proof, scarcity, and give-and-take), but behind all of their smoke and mirrors, they actually provide very little of value to anybody.
In my experience, the (lack of) community in New York is more interested in feeding off of peoples’ ideas, than in supporting peoples’ ideas. And while this New York culture has succeeded in establishing lots of a certain kind of social proof amongst themselves, it really has not succeeded at much else.
There are people who are fighting the good fight in New York (you know how that goes). And, there are efforts in New York to bring in more of the idealistic, Silicon Valley type of disruptive ideas. And, I have yet to see any organized effort, anywhere, to create a culture that supports a blend of the best of both worlds: the make-a-difference mentality combined with a solid and well-executed business model.
Build a company Warren Buffett would buy
So what should startups do, besides be a good citizen? The answer is easy, of course: create a business that Warren Buffett would buy.
If Warren Buffett were to visit your company, what would his answers be to the following three questions?
- Do I like them?
- Do I respect them?
- Do I trust them?
If a potential company falls short on any of these three questions, Mr. Buffett soon ends the conversation with, “Keep at it.”
The problem is that many startups don’t qualify under ANY of these questions! And it is no surprise they are weak.
When putting on your entrepreneurial hat, return to business fundamentals:
- Make a profit, instead of make a splash.
- Provide value, instead of create hype.
- Build relationships, instead of train yourself to pitch to impress.
I remain an optimist at heart. I have already alluded to my formula for success but here it is:
- Focus on game-changing ideas
- Apply a legitimate business model to these ideas
- Execute well
One thing, that both Silicon Valley and New York do well, is they both properly value the importance of great execution. Now if only they could combine the rest of what constitutes a healthy approach.
Jason
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