Funny Things Entrepreneurs Do These Days
Looking at the flurry of activity in start-up land all over the world, I sometimes wonder what people think of all the ‘buzz’. I am a big supporter of entrepreneurship and risk taking, but there are times when I feel that the world is getting a bit carried away with all the hype.
Pick up a newspaper and the business section is full of stories about young companies getting ‘funded’ or ‘acquired’, and very occasionally, about them going bust (more on that in another post).
Here is a list of ten observations, especially with regards to the mindset and thinking that prevails in the minds of many (young) entrepreneurs.
- They seem to focus more on acquiring ‘users’, who may or may not pay to use the product.
A lot of users indicates a lot of activity. But this does not guarantee that you will make money. It now takes a LOT (millions) of users to make money from a platform which does not charge its users.
Why do you think on line publications like The Economist and Financial Times charge you a subscription? Because even with millions of readers, advertising is not a sustainable business model.
2. They celebrate when they get ‘funded’, and subsequently inundate your social media feed with the names of the investors.
In accounting theory, capital is a liability. Which means that it represents money you owe someone. You have to give it back to the person who gave it to you. And investors don’t just expect to be paid back, they expect to be paid back many multiples of what they give you! So why celebrate and tell the world that you acquired a liability?
3. They often believe that if they build it, the customers will come.
But more often than not, nobody comes.
Back in the day, an entrepreneur saw an unfulfilled need and stepped in to create the supply.
These days, entrepreneurs create the supply and then go looking for somebody who will pay them for it.
The start-up world even has a complex sounding term for this — they call it ‘looking for product-market fit’. Also known as PMF.
Business schools nowadays teach entire courses on how to achieve PMF.
4. Instead of focusing on bringing in revenue in the first few months, some of them spend a lot of energy and time into being accepted into an ‘incubator’ or ‘accelerator’.
If you are not familiar with these terms, they’re basically organizations which give you a little money, take a big slice of your business in return and ‘support’ your business for six months to a year. Entry into these programs is highly competitive and even if your business doesn’t suggest that you’re a good entrepreneur, getting into an incubator will signal to the world that you are brilliant.
I would love to ask Richard Branson if he ever considered an incubator when he was starting up. (As an aside, he is the only person to have built 8 billion dollar companies in 8 different sectors)
5. They boast about how special they are because they are ‘bootstrapping’ their business.
Back in the day, this was the only way to build a business. There was nothing unusual about this. You had to somehow scrape together an existence until your customers started paying you.
Being ‘funded’ is now the rage, never mind that this funding comes at potentially a very high cost.
6. They think that the success equation looks like this:
High valuation = Big success.
Well, here are two examples (of hundred) of companies which had a high valuation but no longer exist:
Solyndra, a solar technology company which was valued at over $2 billion in 2011, went bankrupt the same year after spending $1 billion of venture capital funding.
No wonder the term for use of capital in the start-up world is ‘burn rate’.
Fab, an e-commerce site set up in 2011, raised $336 million at a $900m valuation in 2013. A few months later, Fab, or what was left of it following a spending spree of $200 million on acquisitions, employees and fancy offices in NYC, was sold to another company for $15 million.
Key takeaway? Valuation is just a side effect of building a business. Making it a goal in itself is plain stupidity.
7. They think that starting up is ‘cool’.
From speaking to older entrepreneurs who don’t exhibit the above traits, I have noticed that almost all of them say this:
Building a business is heart-breaking, back-breaking and the most stressful period of their lives.
So quit wanting to be cool. Please.
8. They think that the VCs are on their side.
The VCs are out to make money.
And people who are out to make money don’t take sides.
9. They pay insanely high salaries to acquire ‘talent’.
And then they get rid of this talent as soon as things become hard, as they inevitably do.
And then they issue statements like this one.
“We see this development as a positive move towards growth…” Really?!
10. They seem to operate as though they are flies; with very short term goals and performance yardsticks.
Flies have a lifespan of 15 to 30 days.
Entrepreneurship demands that you think like a whale.
While the world focuses on irrelevant metrics in the short run, you have to think long term.
Blue whales live 80 to 90 years.
Jack Ma told his first employees that he wanted to build a company that lasts 100 years. At the Ali Baba IPO, he told a reporter, “We are only 16 years old, so we are just getting started”.
Do you want to be a fly or a whale?
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