An Entrepreneurial Counter Culture is Looming – The Startup Market is Not OK
siliconangle.net
siliconangle.net
1) You'd presumably want to make the offering mass-customizable, like a typical residential mortgage. There are a few levers to play with, sure, by 98% of the contract got vetted by the company lawyers once as being Good Enough and folks can take it or they can leave it. This allows you to close deals quickly, avoid spending much time teaching buyers about your process, and have the deals offered by junior staff. Most home buyers want a house, they don't want a mortgage. Most startup founders have a business to have a business, not to raise capital.
(Note that this would make "comparison shopping" easy.)
2) Automate and outsource more of the process. Banks can profitably do loans for $200,000 houses because there is an infrastructure of people who can say "Yep, this is a $200k house" and FICO scores, which let you push a button and get a quick estimate of my propensity to default in a second. I know we all think we're beautiful snowflakes, but I'm willing to bet there is a function which can be evaluated cheaply that is unfair, misses all sorts of edge cases, has numerous theoretical problems, and nonetheless is Good Enough when only $200k is at stake.
3) As you reduce the amount of marginal effort in each deal, it becomes possible to scale it to the moon, in a manner similar to e.g. mortgages and mutual funds. (The fund has a lot of money, the individual investors have comparitively little money and reduced exposure to any single investment, etc.)
Without collateral of some sort this will not work. And if you have collateral you could simply either sell that or mortgage that (and plenty of founders do).
However, a VC or hedge fund might get into it, as long the investors are millionaires who can afford the losses and presumably have or can buy the educated understanding of the risks.
On the other hand, if there were some sort of club or co-op I could join, that I could pay a small monthly fee, and that would then invest the aggregated fees in a new startup every couple of months, I might do that. Especially if I got to attend a monthly meeting, hear pitches from various people, network with other members and people in startups, and hopefully have an "in" should I ever apply for a job at one of the startups.
There are more companies these days, but VCs are funding the same number of companies as before with the same huge expectations. Why not instead fund more companies with a lower amount of cash so as to not miss some opportunities.
My answer: putting all your eggs in one basket in a competitive environment will likely lead to better results than spreading the money out among a bunch of different baskets. Most startups are going to fail anyways, even with $200K of funding because the markets they are hitting are not that huge, not to mention all the other hurdles. What funding a bunch of different companies does is make a clear market winner harder to come by, which screws everybody. It's better if there was one clear winner sooner rather than later. My bet is handing out smaller investments like $200K would actually make the IPO market worse since most companies would get too tired to ever make it big enough to IPO.
The quick answer to why IPOs have not been good recently (other than the economy sucking): Sarbannes-Oxley made it very expensive to IPO with big requirements which means that the next best exit is selling. To sell, you have to get big fast to become attractive to suitors. Profitability/revenue is not a requirement/important for selling to a larger company (they use startups to cheaply get new talent and good ideas rather than quickly adding new revenue streams). So why don't more companies focus on revenue as a backup plan? It's very distracting and doing so means you might only scrape by. With such a do or die environment, the goal is not to create good businesses which will survive, just ones that will become great.
The good thing is that as it has become cheaper to run a startup, people have more options and can create self-funded sustainable businesses aimed at smaller markets. You won't become a billionaire doing that, but you'll get by. That's fine with VCs though, they are after big returns. If you are comfortable with creating such a business, by all means do so, but don't be pissed when a VC is not interested, even if it does make a little money. There is clearly room for both. If you do hit on a massive market opportunity, they can always catch up with you later.
So what is something like Y Combinator? It is a cheap way to vet companies for VCs and angels who see too many startups without enough information on them to make a good value judgement on whether they'll succeed. You don't need $200K to do that, you just need a small amount of money.
How true is this? Sounds like wishful thinking from a non programmer to me.
(Please note : I am not saying that marketing/product engineering is not important. They (obviously) are. I just think "Technology, however, isn’t the driver any more for startups" is too broad a brush)
Steve Blank would say there's Market Risk (will your customers want it?) but minimal Invention Risk (can you deliver it?). Contrast this with biotech where you're trying to cure diseases. Minimal market risk, tons of invention risk. Read more here: http://steveblank.com/category/vertical-markets/
Maybe, but that isn't what "Technology, however, isn’t the driver any more for startups" means. "Technology" is a lot more than "scaling on the web", even in software based startups.
"Steve Blank would say there's Market Risk (will your customers want it?) but minimal Invention Risk (can you deliver it?). "
Steve Blank is also careful to qualify that statement with "for some types of startups" (unlike the author of this article, hence my "too broad a brush" judgment). Assuming every software startup, even when the web is used as an interface, is a "web 2.0" startup with minimal Invention risk is intellectual laziness.
"The scarce talent is business model engineering and product marketing"
This doesn't have any supporting arguments/evidence/data. sounds like something a non programmer MBA type person, for whom of course programming is easy and programmers are commodity hires (like say receptionists) would say. I'd like to hear a supporting argument for why great programmers, who are what startups are usually desperate to hire, are not "scarce talent", but marketing folks are. Sure, for some startups, that is no doubt true, but as a generalization it seems too broad, which was my point.
So yes I've read Steve's book too and like it a lot :-), but I don't think this dichotomy of risks supports the original article much.
.... but if I were to interpret that sentence and edit it to better clarify meaning (which in retrospect, I probably should have done since I'm the site's editor), I would put the qualifier "most" in that sentence, so it would read:
"Technology, however, isn’t the driver any more for [most] startups."
We see that to be quite true when you look at the base building blocks of many web startups. They're largely the same underneath the UI, same development environments, same infrastructure, and many even run on common CMSs, and it's the positioning (i.e., the marketing) of the startup that's the key differentiator.
That marketing influences the community that floods the site, how they perceive the site, and thus how they use the site (which affects the iterative direction of the site).
Well that is marginally better, but it still assumes a certain kind of startup as evinced by the statement "that marketing influences the community that floods the site,".
You don't need a "flood" of a site by a "community" to have a successful startup. You need customers . Whether customers are pulled in my deliberate "marketing" or technological superiority providing differential capability depends on the exact offering.
If you confine the technology behind a startup to things like using open source CMS es as "building blocks", then of course technology and programming are commodities, and the "scarce talent" is indeed marketing, not programming.
I could continue, but my original point was that it was an over broad generalization, which is addressed if you are talking about the kinds of startups using off the shelf building blocks as their "technology" and have no real technological differentiator, and therefore don't need excellent programmers (who are very hard to find- just ask anyone running a "non cms" startup.)
Under those circumstances, (in other words, with a narrower focus than implied in the original sentence ) the original claim is completely valid. Under those assumptions, technology is not the driver and "scarce talent" is indeed marketing. I concede the argument.
This is our world, and though the Silicon Valley startup world encompasses more than these types of companies, this is what was likely in his mind when he wrote it (and the context by which I interpreted the post).
I mostly agree with his sweeping generalization if applied to, say, the subset of startups that get coverage on Techcrunch.
Yes we are.
"As I do for all blogs, I just assumed the courtesy implicit prelude: "This is my opinion shaped by my experiences and most likely only applies to the system I'm currently interacting with.""
As did I, but if, as a writer, I made an unqualified claim (even if true) that is completely out of whack with my readers experience, I think it is fair to get push back. This is perhaps due to my coming across this article on HN vs directly on the original site.
I think the article is a decent one (not great, but decent).
"I mostly agree with his sweeping generalization if applied to, say, the subset of startups that get coverage on Techcrunch."
As would I. But this is HN. :-)
This is again, over simplification. (as a matter of fact the exact same oversimplification made by the author of the original article.)
The relative difficulty of "Making it" vs "selling it" depends on what "it" is.
Without a qualifier narrowing down the "it" (e.g another social networking site with no real capability difference from what exists today. In such a case, marketing is much more important than technology) what you say is wrong.
This interestingly follows my own career growth. I was the tech lead responsible for scalability/reliability at IMVU for a long time, but eventually our bottleneck clearly shifted from reliability back to marketing/product development. Around that time I switched teams, and have since been the tech lead for our marketing team. It might sound less sexy to other engineers, but getting to be on the bleeding edge of marketing for virtual economies is constantly challenging and fun; especially with IMVU's data driven culture.
I wasn't the one who came up with the idea for this feature. The initial version of IMVU had this feature, so it's at least 5 years old.
If you came up with this independently you may want to look into to the Xanadu project for more inspiration along these lines, it is definitely very interesting reading.
"I was the tech lead responsible for scalability/reliability at IMVU for a long time, but eventually our bottleneck clearly shifted from reliability back to marketing/product development. "
I read it as, "Once we got reliability sorted out, the bottleneck moved to marketing/product development."
He never said IMVU could have been built without good programmers(of which class, he is an instance), but product dev/marketing became (or were) equally important (or more important) and so he moved to that team. At least that's how I read it
to me the biggest issue driving this counterculture that I'm seeing is "trust" of the capital markets. Especially since most of the productive actors in this marketplace have lived in a successful open source movement culture for 25 years. The capital markets (VCs) are at odds with this culture.
There are many other points in the post that I would be happy to discuss if there is interest.
This trend seems to align with John's key point.