Startups? More like where is the exit...

Startups in the technology space are the very definition of cool and trendy in our industry. I have been fortunate enough to have worked for three successful startups (or startup-like environments) during my relatively short time in the industry. One of them ran a very profitable IPO and the others were acquired by the market segment leaders. 

The energy and buzz that comes with working at a startup is a massive appeal. A single, clear and determined mission statement being pursued tirelessly by dedicated and passionate professionals with one vision - A BIG PAY DAY! that's right, most startups in today's VC orientated funding era are no longer interested in building a company with a unique culture or long term vision, its all about the big EXIT.

For my non-business readers. Startups are usually funded by Venture Capitalists. These are groups of people who either have the cash flow or can provide it to a startup for a share in their business (a little bit like Dragons Den but on a much larger and more considered scale). The problem with VCs is that they are usually established and mature businesses (hence they have access to funding) and as a result, they think and act like any other successful corporation that makes investments - they want a return and they want it as quickly as possible. 

The 'exit' is exactly what you would expect it to be. It is the terminology used in business when the founders and investors of a startup looking for a way to exit the business they created whilst recouping their investment and making significant profits. I like to think that most entrepreneurs or technical geniuses set out, in the beginning, to make a difference and establish a legacy somewhat more remarkable than a big bank balance. Unfortunately the culture, for one reason or another, has shifted away from conceptualism and idealism and moved squarely onto the output, the money! The RETURN!

I don't think it is a coincidence that this shift in culture has led to the highest startup failure rate since we have been measuring. Some measurements suggest that the failure rate is around 90% but I am more inclined to believe it is actually around the 75% mark - there is a good article here that expands on the details. 



What makes a startup so unique and more likely to be successful is the ease of which a high trust culture can be implemented, where employees are empowered to pursue the mission statement in a way that uses their subjective talent in a customer-centric and agile manner. As soon as you involve a heavily invested VC there is a very real danger that the VCs 'understandable' need for clarity on the business plan and processes to achieve milestones will shift the culture away from high-trust and customer-focused toward low-trust and transaction-focused. I am not suggesting all VCs behave this way, but with the amount of data and analysis available in the area of startups these days, combined with the potential rewards on offer from the exit (facebook, twitter, etc) means that you end up with with a lot of accountants and statistics-orientated investors chancing their arm with startups -playing the percentages but adding no real value. It's like any trendy wave, there are some very good VCs and also some very bad ones.

The problem with a low-trust culture is that the business becomes seriously hamstrung by internal checks, procedures and policy. I've worked with some great sales leaders during my career but no-one has ever topped this particular analogy that came from a chap I worked for at my last employer (who got acquired): 

"Working at a startup (or in new business scenarios) we need to spend as much time as possible feeding and fattening the pig (building the pipeline of business) and the least amount of time possible weighing it (measuring output, reporting back to VCs, evaluating processes, etc). This is because all the while you are weighing the pig, you are not feeding it."


To make sure you spend your time 'feeding the pig' it is important for Startups to hire the right people up front. Then you simply tell them the mission objective (the goal), the resources available to them (funds, people, partners, etc) and the constraints they have to work within (deadlines, laws, etc) - stand back and let them get on with it. You simply don't have time to manage how they go about contributing to the goal. It's important for any VC backer to understand this approach and be comfortable with it - particularly when the going gets tough. There is also something to be said for taking as little funding as possible from VCs -defying current trends to maximise it. This approach ensures the startup keeps a good level of autonomy and freedom. Startup guru Paul Graham expands on this approach in more detail here. 

So where am I going with this?

I am the kind of guy that will always support the underdog. I love the idea of a small startup blossoming into a great and significant company. I am even supportive of entrepreneurs who set out to create genuine lifestyle businesses that might not change the world but will always be around to service their customers. The startups that I loathe, particularly in the technology space, are those that are purely focused on the exit and have no intention of continual development with regard to their product, services or focus on the customer. These serial startups create technologies that have a unique advantage within a particular point in time and then look to leverage that advantage by securing a big exit - usually an acquisition by a market leader or an overblown IPO that should never have been. Often this creates a situation whereby the customer, who bought from the startup, is left with a product that isn't properly supported, has no solid roadmap for development and it ends up being the larger corporation (who bought the startup) that is left holding the proverbial 'screaming baby'. It's easier to dislike big institutions right? It's less personal...

Having said all of this, customers (technology buyers) are starting to wise up to these startups now and know that the good ones are out there but require a bit of due diligence to find - likewise with established companies who are looking to buy startups to add to their portfolio of capabilities. It is absolutely essential for an acquiring company to keep the people with the skills and knowledge of the startup to properly develop their ideas further. 

This brings me to my final point...

It is possible to have a startup mentality without being an actual startup. 


Many large companies have proven it is possible to retain the culture that took them from being a startup to being a market leader - Google & Apple would be two very good examples of this. There are other companies that are also doing a cracking job of redefining themselves through acquisitions. EMC (I must declare at this point that they are my employer and remind you that my views are my own) for example have made some great acquisitions like VMWare, Data Domain, Isilon, RSA, etc... and have learnt that they need to give the startup they bought room to breathe but also the financial and marketing backing for them to grow. Creating an incubation area within an established company for newly acquired startups is beneficial to both the customer, the acquirer and the startup. It just works and I am pleased to say that there appears to be a general trend with big corporations to focus on retaining the talent they acquired by buying the company rather than just the lines of code in their software or the engineering in their hardware.

Anyway... it has been a long one, but it has also been a long time since I have published a blog. I have a few more brewing and hope to get a few more out soon.

Thanks for reading :)

Chancey