It’s not exactly an “industry” per se, but from where I sit, the startup industry is in a bubble of epic 1999 proportions. Where do I sit? Across from literally several thousand entrepreneurs a year, usually in groups of 2, 5 or 25. In the past six months, I’ve been with startups in New York, Oklahoma, Moscow, France and Spain, to name a few. As I travel, I consistently see the same three problems: dispassionate entrepreneurs; startups that should but refuse to die; and startups that seem sexy, glamorous and “hot,” with no clear signs of product/market fit or a revenue model.
No doubt, there are plenty of bright, passionate, tireless, entrepreneurs out there with many startup successes ahead. The long-term future of this so-called industry, at least in my opinion, hinges on finding more of both.
The dispassionate entrepreneur
Clearly, there is a massive glut of startups in every city and town. And it saddens me that far too often, the startups are born for the wrong reasons. For example, it’s much more fun to say “I’m an entrepreneur” than “I’m between jobs,” and that has driven many thousands of mostly un- or under-employed people to start companies.
So what’s wrong with that, you ask?
Sense of entitlement: It’s usually unspoken, but too many founders believe that “If Mark Zuckerberg can do it, so can I,” and they enter their startup with the presumption of success. They feel entitled to a big victory, usually accompanied by a big payday, because they’ve “given up” the job they couldn’t find and taken on entrepreneurial risk. The challenges and demands of entrepreneurship are massive, and only the talented, passionate few — those with tenacity and breakthrough ideas — survive.
Race to the Finish: Everyone assumes entrepreneurs succeed by eating cold pizza, sleeping under their desk, and working ridiculous hours. Startups aren’t magic, and finding a startup with sustainable, repeatable, scalable profitability doesn’t happen quickly or easily (as outlined in excruciating detail in “The Startup Owner’s Manual” which I was proud to co-author with Silicon Valley legend Steve Blank). Founders race into production without asking such silly questions as “Who will buy this?” or “What will they pay?” or “What features do my customers want?” Most of those impatient entrepreneurs are far likelier to go broke than they are to get lucky.
“It’s a job.” Entrepreneurship is not a job; it’s a calling. It takes a determination, passion, and intense level of commitment that lasts years, not months or weeks. I want to throw up when I hear young people say they “want to be their own boss” and then tell me why: “Because I can work my own schedule, have weekends off, have lunch with my friends when I want to.” Good luck with that. I ran my first startup for 17 years, and worked the same 80+ hour weeks in year 17 when we were incredibly profitable as I did in years one through seven, when we weren’t.
Startups That Refuse to Die
A startup deserves to die if it has “flatlined,” a medical term for achieving no or negligible growth and just motoring down the road without radical changes (or pivots) to the product, the business model, or the team. Some of these startups are fortunate to be backed by (usually second- and third-tier) VCs who keep them going because they can’t afford to write them off. One such startup I sadly invested in for some years continues to operate, even though sales are now 20 percent of peak revenue and declining steadily and unprofitably. Why? The last investors standing can’t afford or acknowledge the write-off and sizeable loss that should rightly accompany this startup’s funeral.
In other cases, the founders have settled on “good enough,” often because they don’t have anything else to do. Mom will give us another three months of “investment,” or Uncle Fred will, or we’ll just stop paying some of our bills ‘til somebody notices. Nobody wants to confront the honest, ugly conversation that opens with “This isn’t working.” Easier to just keep pedaling downhill.
Where’s the revenue model?
My favorite examples of the “missing revenue model” are Twitter and Instagram, with others like Pinterest and 92.4 percent of all smartphone apps not far behind. It’s just wonderful to have millions of users, or tens of thousands of downloads… but how exactly will Twitter or Instagram ever convert that to sustainable, recurring revenue that investors ultimately need to see? Ninety-two percent of all app store downloads are free downloads — an astounding statistic in itself, especially with over 1 million startups actively engaged in making companies out of them.
In my view of the world, this is the pin that will prick the bubble. When Twitter’s next few quarterly statements come out, how good will that $50 share price look on the NASDAQ? And how many TWTR’s are “out there,” public or private? My fear is that there are dozens, if not many dozens, just pending this kind of realization.
What’s the answer?
Get serious, or get a “real” job with a W-2 and health insurance. Work your way up to Manager or Regional Manager at Starbucks if all else fails, or work up a sweat trying to make your startup great. To do that,
(a) get to work — harder than you’ve ever worked before
(b) get out of the building and get feedback on your idea from the only people whose feedback matters — the people you’re hoping will give your startup money, and (c) torture and iterate and pivot your idea until you see the “skid marks” on the highway as your company starts to get customer traction.
If only it were that easy.
…Bob Dorf–a 7-time serial entrepreneur–is co-author with Steve Blank of “The Startup Owner’s Manual.” He teaches, trains, coaches and speechifies about getting startups right and teaches Customer Development at Columbia Business School.