My take: Way too many Startups, Nowhere near enough traction

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.

Can You Develop a Breakthrough Business Idea in 21 Days?? I’m not sure I can…

A Breakthrough Business Idea In 21 Days? How to Improve the Odds

By Bob Dorf and (mostly) Bryan Mattimore

Over breakfast last fall, I shared an increasingly gnawing concern with an innovation doctor I knew well from our hard pro bono work together expanding, improving and marketing the local homeless shelter.  No, not for-profit homeless shelters at all…but the need to have the ideas “entering” the customer development process enter with greater strength and uniqueness.  After all, shouldn’t a startup idea be as truly distinctive and exciting on its way into the customer development process to make it strong as possible coming out the “other end” of the process.

In a word, too many of the ideas were just plain ordinary, obvious, or done and done and done again, just like a shoeleather steak.  As I told Bryan over breakfast, “If I see one more idea for a new iPhone cuisine app from my students, I’m gonna burst.  There are 850 or more already, and this category is growing at a rate of 12 to 15 new apps a month, very few of which are selling.”  I personally interact with about 750 startup teams all over the world each year, and if five or eight percent of the ideas in any group are really exciting on day one, that group is at the top of the heap. “It’s gotta get better on the way in,” I said.

This led to a challenge for my friend: “Can you create a workshop that teaches aspiring entrepreneurs how to generate truly big/breakthrough ideas for new businesses?” I knew well Bryan Mattimore’s  ideation and innovation consulting work with hundreds of major brands in corporate America, as well as his new book, Idea Stormers, How to Lead and Inspire Creative Breakthroughs.  Shouldn’t the same powerful ideation techniques apply to startups, even before you put the pencil to the business model canvas for the very first time?

Bryan said “Creating a Breakthrough Business Concept in 21 Days” was the workshop, thinking program, and new book (once I write it) that came out of breakfast that morning with Bob.  He continues…

To develop the course content for this workshop, and “walk my own talk,” I conducted an interesting experiment:  I set a goal for myself of generating an original, “big idea” for a new business every day for 21 consecutive days. There were dozens of insights, learnings, creative thinking methodologies, and yes, big ideas that came out of this experiment. Here are four.

1) Focus is important.

To prepare for the 21-day experiment, I identified seventy possible arenas/frames for the new business “big idea.” These frames varied widely, but were also specific enough to potentially inspire a new idea. For instance, creating a new:  1) beverage, 2) health services concept, 3)social media idea for Millennials, 4) clothing/fashion idea, 5) sports/exercise program, 6) service for retirees, and 7) transportation invention.  All were all on the list.

By having these specific arenas to in which to think creatively, it both focused and freed my mind. I knew my list would also help aspiring entrepreneurs identify the kinds of businesses they might have a passion for creating; and even more importantly, those they wouldn’t.

2) New/Provocative Stimuli are Critical

One of the keys to a successful corporate ideation session is to have the right stimuli that will trigger new connections. I quickly realized that if I were going to succeed generating 21 big ideas daily, I would need to dramatically expand my own creative stimuli: specifically, what I was reading. So, to discover creative thinking nuggets in the world of fashion, I read Seventeen Magazine and Vogue. To find exciting new technologies, I read Popular Science, and New Scientist. To inspire new service ideas, I read everything from AARP magazine to The New York Times, Cassandra Daily (on-line trend newsletter) to the Futurist.

3) Reading with a Entrepreneurial Mindset

Besides reading more broadly, I also realized that HOW I read needed to change dramatically. No more reading like a passive sponge, simply absorbing provocative, entertaining or fun information. Rather, I consciously and consistently set my mind to proactively identifying creative building blocks that could inspire a new product or service concept. A good example of this creative shift was my reading of an article in the NY Times entitled, “For Medical Tourists, Simple Math,” on the trend for US patients to travel abroad for low-cost surgical procedures. Reading this article with an active, entrepreneurial mindset, I created I-MONE (International – Medical Option Network): a referral service from US Hospitals that would form alliances with, vet, arrange travel for – and take a cut of – medical operations for US patients in overseas hospitals.

4) The First Idea is Only a Starting Point  

Finally, I confirmed what I knew from facilitating ideation sessions for corporate America: the initial idea is frequently only a starting point in the creative thinking process. To create a big idea, you have to evolve and develop the idea by adding increased specificity, uniqueness, and/or consumer benefits.

A good example of evolving a preliminary idea into a bigger one: From my reading in technology, I discovered that an Israeli inventor had invented a $12 water-resistant bicycle constructed almost entirely of recycled cardboard. I set a goal of creating 20 products that could use this new cardboard technology: everything from wheelbarrows to sand sculpture molds, flip flops to baby strollers. Fine, but these were only preliminary ideas. Pushing to develop the stroller idea, for instance, led to the concept of a “Fun Stroller”: a low cost, baby stroller that could be used as a creative activity center, complete with stickers, crayons and paints that would enable kids to create their own, unique moving works of art.

So, what was most important learning from my 21-day “big idea” experiment? A quote I created for Bob’s next crop of entrepreneurial students at Moscow’s School of Management “Startup Academy,” “Richard Dyson is the only person I know who can create new ideas in a vacuum.” I’m pretty sure Bob would agree.

 What do you think? Either post your comment here or write Bryan directly…BMattimore@growth-engine.com.