28. August 2012–
This is a guest post by Adam Fletcher, creator of Berlin Bingo an authentic and humourous guide to Berlin. He is also the author of the book A Picnic For Perverts, confusingly neither about Picnics nor Perverts.
I know my last post here on Startup Hipsters could be construed as somewhat mocking in tone and before I start another, I want to make something clear – I really enjoy being around startup businesses and entrepreneurs. Entrepreneurs are uniquely positive people. They've stepped outside of the blanket of safety of normally salaried job offers and are trying to create something, where previously there was nothing. They want to change the world. Or at least, their corner of it.
That's a beautiful thing and I've the upmost respect for it. They have to get up and do it every day, deafened by the sounds of naysayers, naysayers like me, who tell them whatever they're trying, probably won't work. However, putting all that to one side, it feels to me that parts of our internet startup culture are becoming ever increasingly delusional. I don't want to exaggerate, but I don't think there's been Kool-Aid this spiked since Jim Jones threw that summer bash. Here's why:
A startup is the exception, not the rule
Let’s take a little trip back – way back, before the internet. I know, it was a cold, dark and scary time in which us savages made phone calls to each other from large boxes on the street and wrote letters to each other, with pens – we were practically monkeys.
In this ancient time there were businesses. They came in a few varieties, but like Coke at the movies, mostly just in Small, Medium and Large. You knew where you were with Small, Medium and Large. Then the internet came along and beat the stupidity out of everyone with its all-knowing, interconnected, pipey genius.
How the startup scene... started up
The rules of the game changed for most industries and no-one knew what the new rules were, so we all tried to figure them out together... which resulted in a lot of misguided fumbling, a few massive successes (Amazon, eBay, Google and so on), many, many modest successes and a big giant pile of failures we try not to talk about all that much.
In between all that succeeding and failing were a large number of businesses who didn't really know what they were doing yet or how they would do that thing profitably. So, weren't really businesses in the traditional sense and we needed a new word with which to call them.
In our infinite wisdom, we took "startup", really just a phase that traditional businesses went through in which they were "starting up". But these new internet businesses might be doing that for a long time, since they were still figuring out all that rule stuff and had lofty world improving goals, so it was appropriate enough.
Small business or scalable startup?
Now it's 2012. We've a pretty good idea what's going on. We should be able to separate what is the start of a small business from what is a startup. In fact, Steve Blank does a good job of separating the two here, into "small businesses" and "scalable startups".
Yet I only ever seem to meet people here in Berlin who claim to be starting the latter. Their ideas often sound like giant vague guesses, but sometimes also like perfectly good ideas for a small business, only dressed up so grandly and apparently needing hundreds of thousands of Euros to get started. Their idea of getting started being the idea of on an endless cycle of investors meetings.
The problem I have with that is that by having created this separate "startup" terminology, we're often using it as a crutch, an excuse for a poorly defined business plan, a sort of "get out of not knowing what we're doing by playing an investment card."
Having a website or an app does not make you a startup, owning leather does not make you Batman
These startups can bumble along for years seeing "significant traction" and "double digit user growth" through various funding rounds. Not everything is a startup. Having released an app, does not make you a startup. Have a website where people can share photos does not make you Facebook. Owning leather does not make you Batman.
Some technologies and ideas are genuinely disruptive and huge and need funding and time to become businesses. They're the exceptions, the rest of us, well, we're starting internet businesses, we have to follow the rule of old, which is – find a problem and get people to pay for solving it. If that problem is big, we first have to take a smaller chunk of it and solve that, then expand. When people pay us more than our cost for solving it, we win, when they don't, we lose. Simple.
We're drawn to long shots
I have a friend that had a bad gambling problem. One that pretty much bankrupted him. His undoing, and the undoing of many like him, was accumulator bets. These are where you stake very low sums on a series of events which, if you predict them all correctly, wins you an obscenely large amount of money.
No matter how much you're down, the accumulator is always there, dangling a possible, however unlikely, massive payday. It's like the lottery for sports, only with the illusion you're using actual skill. Gambling addicts, like entrepreneurs, need to be incredibly optimistic people, any small defeat or challenge must be seen as only a hurdle you'll have to overcome before your eventual success.
If you doubt yourself, doubt your system, well you would give up and go do something much more financially rewarding with your time, like getting a real job. As a result my friend amassed a large collection of accumulator winning success stories.
People overcome spectacular odds in their favour only to triumph and collect giant sums of money. Like the guy who bet £50 and took home a million. In moments of self-doubt he used them to remind himself that if they did it, he could too. He hadn’t memorised so vividly the stories of the tens of thousands of people like him each day, who bet on a six-horse accumulator and lost. No-one likes an unhappy ending.
Looking at the world through Instagram-tinted glasses
Startup culture is the same. We collect these success stories. Shit like “A million dollars isn't cool. You know what's cool? A billion dollars.” They're damaging because they make what is impossible look easy, or at least possible.
I've looked, I can find no evidence in the entire history of humanity, where a company with no revenue has been sold for $1bn (YouTube might be the closest, they had revenues at time of sale, but are considered to have been a tiny fraction of the purchase price).
The sale of Instagram is about as relevant to the average Joe Bloggs business founder as those news stories you hear about hailstones as large as baby heads falling in a freak storm somewhere in Arkansas. While interesting for a brief moment, there's no reason for us all to rush out and trade our cars for tanks. It was just a freak occurrence that's distracting us from the simple task of finding a problem and getting people to pay us for solving it.
The best source of capital is profit
Not every new internet business is a startup. In fact, they’re the exception, small businesses are the rule just as much online, as off. There’s no shame in just starting a small internet business. The best source of capital is profit, not investment. It's better to go create your own paycheck, than wait to win any funding lottery.
What do you think? Do you agree with Adam's view? Or are you a startup evangelist? Have your say below...