The evolution of the startup ecosystem is a joy to watch. Barely a decade ago each new company and fledgling founder was learning almost independently, perhaps with some input from experienced business minds drawn from an existing network. Fast forward and we can today survey an impressive global startup universe, comprised of a number of community-based planetary systems nurturing, supporting and feeding off each other.
The development of the startup ecosystem has been rapid and the learnings have come in volumes. Yet, I believe we have a ways to go to develop surround-sound expertise in creating viable and sustainable companies with reliability. For all our collective efforts, startups are still failing in big numbers; as days go by, this troubling issue is becoming more of a part of the content-sharing narrative. There have also emerged platforms that track such failures, while also cataloging sound bytes of explanation. It seems there is a critical mass of examples out there such that we can now place failures into distinct categories. More on that later.
For some insight into where gaps exist, I draw comparison to my career experiences in TV and motion picture content licensing and marketing. This business has been around for nearly a century and while success with content still comes with risk, it has a much more evolved way of operating.
No, you can’t approach financiers with your awesome movie idea, storyboarded and rationalized for its commercial potential in a slick powerpoint. I stopped telling people in LA that I worked for Warner Bros for this very reason. Many people have even a developed idea that they try to enthusiastically shove down my throat, but thoughts and pluck are in this business essentially vapor.
No, you gotta really show not only that you are fully invested but that you get it—that you can connect your ideas to an audience. And you do that by crafting a script, which takes about half a year of sweat to produce even a first draft. You’re not shooting for an MVP here, you’re really going for it to demonstrate you not only have potential but have honed your craft.
If you’ve done it right in this environment, you’ve burned your first few drafts and started from scratch, learning from your mistakes to formulate something of breakthrough value. And then you shop it. And shop it. Even then, if you’re sitting on the Mad Men pilot, you can only hope to have someone take it on six years later, when the market is ready for it.
If you’re relatively new to the business, you are paid a few shekels for your material and sent on your way. You are to have practically no role in the creation of the final, commercial product. You don’t know how. The business of assembling a team and mastering the thousands of decisions that need to be made until the content is mastered and released to an audience is for the professionals only. If you’re lucky you get to watch or be allowed to engage only in ways that can’t do any damage. You’re just the ideas guy – and someone who knows the film equivalent of a few thousand lines of code.
We’re just not to that level of development yet in the startup world, in terms of where the bar sits to get off the ground and how we get to market with a winning product. The steps to becoming a founder are by comparison rudimentary and the seed money is flowing pretty well at present. Startups are sexy right now; we profile them in movies and we make TV shows out of the process, as if there are only a few (although sweaty) hurdles separating an unassuming product prototype and Buffet-esque wealth.
There is an untapped ocean of well-off business people looking for investment vehicles outside of stocks and real estate which have been unpredictable of late. Good times. Startups are feeling an inordinate amount of love because of the perfect storm of perceived opportunity relative to alternate investment vehicles married with the head-scratching phenomenon of seasoned investors willing to throw money into spaces they may not understand. So much for the motto of only buying into what you know…
That the market is enamored of startups will not be an eternal dynamic. As founders are sharing learning, so, too are investors. If consistent returns are not forthcoming, we risk seeing a more judicious easing of seed money for new ventures. But I don’t see that lake drying up completely by any stretch. Instead, the various stakeholders will be put under a more powerful microscope for their rate of accomplishment earlier in the process. Collectively, we will look for more predictors of success in both people and businesses as we consider these key players in the startup universe:
We will start to more readily embrace the notion that the terms ‘founder’ and ‘C-level exec’ are not interchangeable. What connects the two would be a beautiful mind of an entrepreneur that can be monetized as a business over the longer term.
Sadly, a toolbox consisting of a great idea, passion and the guts to work hard and stick it out just won’t be enough. On a sports team that might get you to the level of a role player at best. Your Steph Currys (we just got out of the NBA finals, so bear with me…) have talent, sure but also the ability to mobilize an entire team. They not only play in the present but also can see how the play is developing several steps into the future; they in turn leverage their on-court vision and insight into the players on the floor to construct a scoring formula before anyone else sees it coming. And they do it over and over again.
Yes, founders need to be special, or at least incredibly adept at compensating for their liabilities. Somewhere in the growth chain, if the need for funding continues, they are likely to be displaced or relegated to a more junior role if their skillset can’t keep up with the pace of growth.
The theory is that a starer’s pistol is fired the second the first check is cut. From that point on it’s a bit of a bootcampy, three-legged race; the founder must quickly develop the tools to grow and run a company long term before the venture turns to dust or the cash just plain runs out. That’s the game. I expect that going forward the system will be able to assess the net business sense in and potential of those leading the charge before any bets are placed on a project.
Inasmuch as almost anyone can become a founder, so, too can someone become an advisor (::: sheepishly raising my hand ::: ). The credentials are not standard. Some form of relevant and deep business background or startup experience of any kind (good or bad) will do the trick. And of course opinions – need lots of those. Still, advisors can play a critical role to incubate an idea or take it to scale in early phases.
But the dynamic between founder and advisor is a tricky one and from what I have seen is still sorting itself out. I have found my role to work best when I give feedback and advice on how to optimize the path forward…or give visibility to phenomena that threaten to take down the company. The common reasons are usually highlighted in a list such as this:
Challenges usually arise in one of two places: 1. When founders ignore advice because they are married to their ideas or hesitant to change course….or 2. When founders become so reliant on advisors that they effectively cease to behave like founders. I have found myself in both situations, the latter because I naturally think like a founder and am apt to re-imagine a startup’s whole reason for being. I have to keep reminding myself to play my role…and let the leaders lead.
For now, advisors play the role of another voice with feedback for founders to consider. Not easy to tell some of the good ones from the weaker ones. I counsel leaders to consider carefully the why behind the advice they get more than just the what. That’s where the magic occurs. And this why will over time play more influential roles as they come from emerging experts in verticals and sectors. Yes, advisors will more universally develop the catalogue of expertise that just doesn’t exist right now at a deep and broad level in the brief history of tech startups. They (we!) will become real agents of new trajectories and outcomes.
Incubators and accelerators.
Maybe I’ll just pick on accelerators since incubators do God’s work. I mean the concept there is to pull out the stops to make a business idea viable until real money in spent. Who can’t support that??
The accelerator at its worst is a case of the path to hell being paved with good intentions. Pull pre-qualified founders together into a nurturing and collaborative shared space and do what you can to enable quicker success. Formalize some of the learning while the rest is organic. Love it.
But the fun ends there because for the 4-6 months of residency the accelerator can only do so much. As discussed earlier, not all learning is standardized, and unless the accelerator grows to specialize in very specific business spaces it can only create and instill so much custom education.
What’s more, they might be dealing with one or more founders who need much more business education and experience than half a year can provide. Somewhere I think there’s room for more bootcamping (hmmmmm….) to not only help more novice founders get the 10,000 customers but also get the 101 on how to run a scaled up company. Bootcamp, startup, real-world MBA: From Founder to CEO. There I just named it (insert lightbulb emoji). I’m on it.
The money that might be left on the table with any given accelerator is the result of an environment of both communal and institutional learning that may not add up to a cohesive whole. And, because you are running 20-40 companies through the grinder at one time you risk having to implement templated approaches. Maximum efficiency, but sub-optimal impact. Still, for now, governments and businesses are funding them….because it’s the right thing to do. But soon, success rates will start to be more closely metricked, which might instigate upgrades to the accelerator services. Right now I don’t see such success rates or other metrics of impact heavily publicized. I see that more as a reason to pause than simply an oversight.
Any way you slice it, it’s a tall order. Stimulate and enable rapid growth for not only the company but also the expertise and readiness of the leadership team. Quickly.
Fascinating challenge. And one I want to be more a part of.
Conferences and events.
This is another good news / bad news scenario. To me, it all boils down to making sure you as the casual attendees go for the right reasons, while being flexible on your expectations for outcomes. I know many people who now only attend select events, having experienced poor ROI on time by their own definition.
Most people go to conferences to network and/or to learn, with many sub-agenda items within those general objectives. On the networking front, events have not leveraged technology enough and on a consistent basis to help the right people in a room of 400 find each other. (I’m sitting on a business idea to address this although I know I’m not the only one. Regardless, call me if you wanna get this going aha.) The community needs to come together to close this gap so that there isn’t so much opportunity left on the table when the event is over. Tech TO here in Toronto is now color coding you based on your objective for attending. While they are indeed on to something, it also becomes glaringly obvious they are only scratching the surface of addressing attendee expectations. But at least it’s a start. Still, at these events I’m seeing more circulating than connecting so far.
Keynote presentations can be rather inspiring. Hearing about how companies address their challenges and opportunities…or how individuals have built their career can just fill you with good vibes. The part that leaves me wanting a bit more lies in how learning are captured and shared. The focus is more on story-telling versus generating deep insight into the successes and failures although there’s definitely some rich content to be had. What the audience craves is a framework or toolkit to understand the business situation and implement the key elements at home. As a result, I have on countless occasions witnessed both the ecstasy and agony of audience members who try to reconcile the awesome learning with the challenges of incorporating it. There’s upside in this area as well, to maximize participant satisfaction. For now, events are careful to cater to speakers and presenters more, since they are volunteering their time.
The ecosystem is a work in progress but I must so far commend all parties for upping their game to create more success as each year passes.
But, you know, timing is everything. And as it turns out I tend to come across some rather telling and parallel content to whatever it is I’m working on myself as is the case with this post that I have been playing with for a few weeks. I’m speaking of this article about a new venture that is itself developing model to predict startup success. Seems they are pretty far along, and they look to be getting traction.
Startups happen because there is a marketplace opportunity. And, failure is one real juicy type of such opportunity. And, there must be enough of it that people are taking notice and thinking it’s a big enough problem such that there’s money to be made in fixing it. I feel validated.
Yes, we’re creating but we’re also failing. I’m expecting a shift in the current common tepid narrative of ‘oh well, we tried, now on to the next one’ will change to ‘shame on us for not seeing this coming’. To put it bluntly, some part of this ecosystem needs to capture and impress upon a company what precisely will be required to succeed along with what environmental phenomena can cause the demise. We simply gotta get good at isolating and activating against these factors on a customized level…and with surgical precision.
All that failure you see celebrated out there in founder posts will cease to be a badge of honor as it will become less of an option, not to mention a strike against you on your resume for when you pursue the next new venture.
It’s time for all of us to wage a more purposeful battle against failure before investors discover more fertile grounds to generate the consistent returns they want. Our startup communities are for now thriving in their proliferation and are inspiring to be a part of. I’d hate to see them begin to dissipate.
This May 2017 article points out that since the cost of starting a company is decreasing, VCs are taking a ‘spray and pray’ approach, knowing many will still fail.
Great insight. A couple of thoughts:
1. The startup ecosystem is teeming with entrepreneurs who have created companies based on what they need is a good idea, rather than something that has the potential to turn into a business. In most cases, their idea is not solving a big enough problem or pain. It’s a nice-to-have, rather than a need-to-have proposition.
2. Having spent six months working for an accelerator, I agree that institutionalized learning has its drawbacks. It means programming needs to be customized and the people leading the program need to have different types of experience to provide insight and direction, as well as have advisors and mentors who can fill in the gaps.
I do believe entrepreneurs will need to harden their ideas before they seek funding. As an optimist, I’m hoping it will strengthen the ecosystem, rather than throttle innovation.