A good old startup myth-busting

Yesterday in DC, I had the honor of talking about startup eco-systems and the mechanics behind hypertribes like Startup Weekend. As part of our discussions, I addressed my favorite subject: Startup Mythbusting.

I’d like to share with you some of the major myths I’ve been fighting against in the past 5 years. Most of them rely on some solid academic observations (and others are just from me ) Please share these around to make the entrepreneurial world a better one!

Steve Blank’s statement is an important one as it opens the door to rethinking our academic teaching methodologies. While Startups are earlier versions of large corporations, they do not behave the same way and they are not achieving the same function: startups are about searching business models while large corporation are about surviving as a leader. Read his book if you have not already (co-written with Bob Dorf)

Noam Wasseman, who famously wrote The founder’s dilemmas, addressed the main reason why 65% of VC-backed startups failed. Resolving issues within startups’ core teams is more important than finding customers. If you’d like your venture to survive, be sure to focus on finding the right co-founders.

Amar Bihde in his classic (and very dense) The Origin and Evolution of New Businesses studied that almost none (less than 5%) of the Inc 500 took VC funding. Quoting him (p. 15): “More than 80% of the Inc. founders I studied boot­strapped their ventures with modest funds derived from personal savings, credit cards, second mortages, and so on; the median start­up capital was about $10,000. Only 5% raised their initial equity from professional VC. “

Jared Konczal, who works at the Kauffman Foundation, wrote this important blog post analyzing some of the existing (yet rare) accelerators’ data. In a time when everyone is praising and launching accelerators, it might be a good thing to remind policymakers and VPs of large corporations that if you exclude Y-Combinator, startups accelerators are not doing an excellent job at creating startups! The same goes for Venture Founds making less money than they are spending on startups (cf this Kauffman paper)

I pitched this one with Marc a while ago (2009), and most of the people would boo at us. This is a direct result of the same observations made by Eric Ries: Startups are search engines dealing with the extreme unknown environment. While business plans make sense for restaurants, your startup business plan will be as good as following the directions given by a blind chimpanzee. Or like Steve Blank puts it : “No business plan survives first contact with customers”

Let’s face it: “mentors” might be the most over-used word after “entrepreneurs” in our little Startup world. Who here is not already a mentor? However, like with mushrooms, be careful: Some are good but most of them are trippy or even worse — toxic. A real mentor is someone who has done and achieved what you’d like to become. Most of the greatest mentors rarely provide an advice, yet they’d ask the right challenging questions and hopefully open their amazing connections if they end-up liking you (again it is not about your startup!)

Robert E. Litan (formerly Dir. of research at the Kauffman Foundation) recently co-wrote this paper. . To keep it simple, he explained that never before in America we’ve seen such a low level of new business creation across all industries. Worse, when people loose their jobs it takes them forever to relocate. Meanwhile you hear and see hundreds of stories about new startups and a booming new economy! Remember this is the side effect of VCs’ distorting the field of reality: if we want our economy to grow (especially in Europe and America) we need to go mainstream and share the lessons learned by the Tech Startups with every type of business!