Are We Wrongly Emphasizing Speed To Market Versus Fundamental Change?
Concerns over the next bubble have been growing recently as venture capital continues to flow into Silicon Valley. Whether or not there is a bubble will continue to be debated. However, one must wonder if the reason for this increasing concerning is the focus on where investments have been placed.
If one looks at today’s darling startups they notice that they predominantly are disruptors of established industries. Whether one is talking about Uber and how it is disrupting the transportation and logistics industries, or AirBnb and how it is disrupting the hospitality industry, there is no doubt that these startups have both accelerated the pace of disruptive innovation as well as forced innovation in industries that have previously resisted all attempts at innovation.
The question increasingly being asked is whether today’s startups are really innovating or disrupting the sectors they are finding solutions for or merely addressing small problems for short term profit and gain while sacrificing long term fundamental change.
Indeed, as many startup founders start looking for funding, they are increasingly pressured by venture capitalists to narrow the focus of their startup to a specific concrete problem. This viewpoint is aggressively pushed by venture capitalists due to a number of factors including:
- Short Term Investment Horizon: The timeframe that most venture capitalists invest in is usually within five to seven years. Driven by the speed of the capital markets and desire to earn returns on investment as quickly as possible, venture capital rightly looks at short term investments to achieve their short term objectives. This means choosing startups that are near market ready via the ability of the startup to demonstrate significant traction.
- Unexpected Delays and Challenges: While one assumes that this is a long time horizon, the reality is that it is quite a short one in order to conceptualize and operationalize a new product or service to market. The process of successfully conceptualizing and operationalizing a new product or service takes the entire three to five year timeframe. Whether it is a simple software app or a complex hardware component, the challenges, delays and frustrations are inevitable for startups as they attempt to achieve market traction and growth.
- First To Market: While a number of business gurus may argue that being first isn’t the best approach in business, it is one that dominates the current business environment and thus mentality. The initial first to market successes of Uber, AirBnB and Tinder have reinforced in the minds of both startup founders and venture capitalists that being first has its advantages. Not only is it easier to gain market traction and investment, the advantages of being considered a “visionary” or “disruptor” provides incredible financial and non-financial benefit.
- Need To Be Hungry: Whether you are a startup founder or a venture capitalist, one of the biggest mental focal points that is emphasized is the need to be hungry. For venture capitalists, being hungry ensures that startup founders continue to be focused on doing anything and everything necessary to ensure the success of the startup concept. In addition, it ensures that startup founders are laser focused on achieving their goals particularly if money is in short supply.
- Vision Doesn’t Make Money: To many startup founders and venture capitalists, vision isn’t something that you can tangibly sell or have quantifiable metrics. It is the “North Star” that points the general direction but it isn’t something that can be funded. What is fundable is a tangible product or service that is closer is a foundational move that might be many steps away from the “North Star” vision.
One could argue that this orientation toward short term by Silicon Valley is proven in the numerous successes that we have seen recently both in terms of startups (e.g. AirBnB, Uber, Tinder) and in new methodologies (e.g. lean startup). While these successes should be acknowledged, they do hide fundamental flaws with the short term approach.
There is no easy solution to this difficult and complex problem. Venture capitalists are justified in emphasizing short term results as they not only have to generate a return on investment to their shareholders but they have limited funds and virtually unlimited numbers of ideas and startups to invest in. Indeed, as any business-oriented individual will tell you having short term goals puts a little fire in the belly and drives individuals to do more in a shorter time period than those without those aggressive deadlines.
That being said though startups and corporations are starting to realize that setting short term goals isn’t necessarily the only way of motivating individuals. Giving them a vision or a problem to solve that they believe in can be just as powerful a motivating factor as is the creation of short term deadlines.
Indeed, increasingly individuals, startups and corporations are realizing that short term deadlines are not necessarily the greatest threat to return on investment or the best motivator. Many are turning their attention to antiquated rules and processes that impede development and growth and frustrate all entities from fulfilling their vision and strategy in a timely manner.
Whatever the outcome, the reality is that we are seeing the dawn of slower paced innovation amongst the startup community as the flaws of short termism are increasingly being brought to the surface. While there will always be a need for short term goals and deadlines, they need to be counterbalanced with the pursuit of noble long term vision.