Lessons from Startups on Steroids

A somewhat mysterious story appeared on a small cycling blog a month or so back. It exposed a POV I found as enlightening as it was troubling. We often read the headlines and see the reports of doping in sports, but very little has been written beyond denials or acknowledgment of their use.

So when Chris Hayley, a former competitive cyclist, took to his Facebook page in April the details he shared about the feelings and effects of his doping were fascinating:

EPO and what the facts are about the edge you get, you keep hearing about the tests and the suspensions….but the riders never tell you what the effects are…..Your bones are hollowed out because the renal gland in your kidney secretes EPO to tell your bone marrow to make blood…check out the guys who are suspended and how often they break collar bones when they hit the deck…bones are brittle with EPO abuse.

As part of our Indie.vc project, I’ve had the opportunity to speak candidly with a number of founders of recently fallen high flying startups. With many, the experience is still raw but the high level take aways are eerily consistent. To most, their biggest regret was developing an early and frequent dependency on outside funding to fuel growth.

Too often the hockey stick graph became proxy for the health of the business. And “health of the business” was all to frequently code for the business’ ability to raise more and more funding at higher and higher valuations. Once that money was in the bank it felt almost irresponsible not to spend it in order to hit the next fundable milestone and increase the valuation once again.

As with the effects of EPO, this left the startups these founders were building hollow shells of businesses. A slight chill in the funding environment or a modest downshift in growth sank many of them into the depths of the dead pool.

Interestingly, their takeaway was NOT that they would never raise VC money again; rather, that they would be smarter about how much of the foundation of their business they would have in place, and how clear a view into a VC sized outcome they had, before bringing investors onboard.

Their takeaway feels like the right one.

In business, as in sport, there is a time and place and person for whom dosing can give a tremendous edge. From a recent article on the use of steroids in weight training:

These drugs were invented to be a facilitator for training, not a substitute. The drugs allow the body to recover much faster, which in turn allows more intensive and extensive training than would be possible otherwise. In interviews, you still hear users try to deflect aspersions about their drug use with statements like, “No, I don’t use drugs. I just train awful hard.” The assumption here is that training hard and doping are mutually exclusive. In reality, they are mutually necessary.

Move faster, train harder, recover quicker, grow bigger.

All sound like the aspirations of elite body and company builders.

We’re deep in the EPO Era of startups where the aspirational short term effects and availability of capital make this form of doping seem widely appealing and additive.

But, the side effects are real and have long term consequences. And, as the numbers confirm, the short term tradeoffs can often do more harm than good. As we see more companies fold, get put on the block, or postpone then indefinitely delay IPOs in anticipation of a “window” opening up we’ll likely see more and more clearly the effects of this EPO era.

The bright spot in my conversations with these recently fallen Unicorns suggest there may be a new wave of founders who value organic over anabolic growth.

There will always be poseurs looking to use VC money to look big without putting in the work. But there’s value in that slow, painful, tedious work that will be felt long after the anabolic effects wear off.