I recently asked a smart young CEO with an excellent startup about his operation plan for if and when the bubble bursts. I expected him to give me an equally smart strategy, but he just sat there in shocked silence.
But I can’t quite criticize him: After years of coddling from a vast support network devoted to fostering, promoting and even glamorizing startups, it must seem strange to even momentarily consider the end of the current boom time. However, as evidence mounts of an imminent correction or outright collapse, we are all past due for some soul-searching about our startup culture, most of the entrepreneurs it has produced, and what we’ve missed by investing so much of our attention on them.
I started working in tech many years before the first 2001 crash, and while it’s too early to tell if the next bust will be as brutal, it seems clear that startups will suffer the most when it does. VCs invested more money last quarter than any since Q2 2001; at the same time, their performance at IPO (for those that even reached this stage) has rapidly declined.
After the next sharp tech-stock drop, even startups confidently on an IPO track will likely need to delay their plans. As this happens, startups that have acquisition as their revenue model will struggle to find suitors. With billions already spent, the Internet giants will quietly close their checkbooks.
The Lost Boys of Silicon Valley struggle to succeed while operating under highly unrealistic assumptions.
It seems inevitable that we’ll reach this point soon, but after years within the neverland of our startup-centric culture, that has been easy to forget. Thanks to accelerators, VC firms and a veritable cottage industry of enablers, we have thousands of early-stage companies led by extremely inexperienced CEOs, overwhelmingly young and male. These Lost Boys of Silicon Valley now struggle to succeed while operating under highly unrealistic assumptions, among them:
Mistaking buzzwords for sound business management: Freshly minted from accelerators, or flush with seed money from an angel fund, far too many new entrepreneurs are flitting to the newest, shiniest buzzword (growth hacking! lean startups!) without really understanding their business or product at a fundamental level, leaving them unable to even articulate a simple mission statement.
Lean and agile — but not monetizable: The obsession with “lean” and “agile” is largely an outgrowth of accelerators and angels, and it tends to benefit the investors (who have more than enough money set aside to bankroll innumerable “lean” failures) at the expense of the startup. Not every company is a good fit for agile, and approaching a product with a lean mentality does little good if it loses you users who never come back. But after getting past the accelerator phase, most startups don’t even have a strategy for selling their product.
Acceleration to reach no particular end: With so many startups operating with acquisition as their end goal, the core purpose of even existing at all gets lost. Even those few that are acquired often get subsequently killed, which leaves me wondering what the purpose of the startup was at all — just a resume item?
While our startup culture is to blame for these bad assumptions, the explosion of mobile and social over the last several years has also been a key factor. They offer a deceptively simple means for launching and marketing a product, but as business prospects, they are actually much more hit and miss. Easily lost in the shift to social and mobile are old-school business principles. (A lean startup might be able to make an app, but it can’t manage the processes needed to mass-produce a new piece of hardware.) Easily misplaced as well is the ethical piece of entrepreneurship, a dedication to sound policies as ends in themselves.
Consider what a tech culture devoted to profitable, established, mid-sized companies could be. It would look serious, thoughtful, established.
If you had talked to me when I first started my agency in 2007, you would have heard a much different story. Once one of the biggest boosters of startups, I’m now acutely aware of their weaknesses, and look in vain for well-run startups — excepting those run by seasoned CEOs, who grow weary having to manage Lost Boys. (“I don’t want to go babysit children anymore,” one CEO groaned to me recently.) While a few startups will occasionally transform the industry in a meaningful way, it’s unlikely that we’ll see another Zuckerberg anytime soon. And with notable exceptions like 500 Startups, much of the accelerator ecosystem will wither, as will most “Disrupt”-type contests.
But if we turn our focus away from startups, where should we look? That takes me to my last point:
While most of us have been focused on massive acquisitions and IPOs, something very interesting has been happening at the periphery: Mid-sized tech companies, many several years old or more, long outside the top-of-page headlines, often not based in Silicon Valley, have been quietly making and raising money — often lots of it. Companies like Atlassian, Chegg, DuckDuckGo, SendGrid, and Vidyo, not widely seen as “sexy,” run by veterans of the industry who have little to prove to anyone beyond their core constituents, are putting in solid performances where they matter most.
Consider what a tech culture devoted to profitable, established, mid-sized companies could be. It would look serious, thoughtful, established. Some of them would still IPO or get acquired by the giants, but these moves would (finally) seem sane. It would look like an industry that was genuinely interested in making the world a better place — which begins with treating customers, employees, and investors with respect. It might no longer be centered around the Valley and San Francisco (already an economic inevitability) and that will be good for tech too. The Lost Boys may think they never need to grow up, but we do.