Startup Founders, Keep On Burning Cash, Growing Fast & Thinking Big
On the 11th of July, Damien Morin, CEO & founder of Save (repair shops for smartphone) announced their safeguard procedure.
On the 26th of July, Adrien Roose, the co-founder of TakeEatEasy (food delivery) announced the filing of bankruptcy. The game was over for them.
A few weeks later, numberless articles started to flow throughout our feeds, followed by lively discussions. In short, everyone could (finally!) share their core beliefs: tech = bubble.
Young people raising sh*t-ton of money, recruiting like hell and flooding our underground with ads, this can’t be serious.
The collective postmortem series led to an era of “open pragmatism“ fueled by many self-proclaimed pundits, based on four lessons:
- companies should be managed by well-educated, seasoned managers,
- honorable companies should not lose money,
- business models should be straightforward and risk-controlled,
- you can’t fund an ambitious startup in Europe (especially in France).
But before focusing on these fallacies, let’s consider the underlying principles that makes the reactions we have witnessed regrettable.
1. You can’t predict the future
It is always surprising to hear how obvious are the outcomes once the story has ended. Yet when everything moves fast and a larger scale, prediction becomes very hard. Digitalisation has increased the complexity of our world and that made things very tough for pundits or strategists.
If prediction, complexity and business management interest you, you can read my article about complexity and our obsession for efficacy on Paristechreview. If you’d like to know more about the challenges of forecasting and the way to improve it, you should read Superforcasting. In the meantime, keep in mind that:
Most people don’t forecast the future better than random guesses
2. You don’t have the complete picture (don’t draw conclusion without a proper instruction)
This is something that is also very surprising. No one would accept a trial without a proper instruction of the case, but we are inclined to draw conclusions without having the intel. We shouldn’t put too much faith into simple causal chains and generally agreed explanation. Or worse, with the story shared in the media (blogs & social media included). Or even the public postmortem from CEOs. (Hint: the real story behind Save might surprise you.)
3. It is not good for the society
It is very detrimental to hinder people from trying to put themselves into risks. Not only it favours comfortable lifestyles -which are quite easy to chose- but it even promotes freerider behaviours.
I’m happy that people invented the Web and smartphones (however foolish the journey might appear beforehand). But I’m VERY happy that the inventors didn’t trust people that told them it wasn’t possible.
Saying to someone that he should not learn to code or launch a company is also a big disfavor to the whole society, because great developers and great founders needs not-so-great developers and not-so-great founders. Let’s consider the wise words of Saint Exupery in The Wisdom of the Sands, IX:
“For you cannot divide men up, and if you will have none but great sculptors, you will soon have none at all… The great sculptor springs from the soil of poor sculptors… Likewise the best dances come of a simple zest for dancing; that fervor insists that everyone, even if he have no skill in dancing, shall join in the dance. […] One may hit the mark, another blunder; but heed not these distinctions. Only from the alliance of the one, working with and through the other, are great things born. The vain effort furthers the successful, and the successful reveals the goal they both are seeking.“
When we tell people they should not dream big, when we tell themstartups are not fit for everyone, our contribution is slowing the rise of French tech champions, because fewer people will enter the race and the players in the field will lower their expectations.
4. It is not good for the people
Ask entrepreneurs who failed how many “I told you so“ they heard.
Ask entrepreneurs who are building their companies how many “you’ll see“ they hear.
“I told you so” and “you’ll see“ are the two sides of the same syndrome. And this syndrome is a weird mix of self-reassurement & bitterness.
And sometimes these soothsayers are right. And their motives could be not so dark. They might try to do what’s good for the other people. But they don’t.
The very act of telling someone a life advice is flawed
(more about life advice in this incredible letter from Hunter S. Thompson’s to his friend Hume Logan).
And advising not to dare is perverse. To the people who tried and fail (“I told you“). To the people who tries and struggle (“you will see“). Send good vibes to the past, today and future risk-takers, this is the least we can do. They don’t need to spend their thoughts and energy on hearing such toxic discussions.
Ok, we’ve seen the 4 principles why I don’t like to read crappy articles and discussions about why startups that failed had to fail.
Pragmatism, my ass
As we’ve seen, the discussions might take many forms, most of them will essentially incorporate the same four principles of pragmatism.
1. companies should be managed by well-educated, seasoned managers
First thing to clarify, the average age of French founders is 40 and the average age of startup employees is 31 (France Digitale barometer, slides 22 & 27). And 75% of them have at least a Master degree (slide 20). Self-proclaimed pundits should forget the clichés about startup folklore.
That being said, European unicorns founders had on average 32 when they founded their company. And many incredibles founders were very young. Mark Zuckerberg is 32. He founded Facebook at 20. Sergueï Brin and Larry Page were 25 when they co-founded Google.
Lesson learned: thou should (also) trust young people.
2. honorable companies should not lose money
I’ve talked a lot about this topic in my series of article The Hidden Magic of Startup Funding, and even made a summary (Slideshare below).
Bottom lines are in slides 8, 14, 23, 29, 39, 46 & 55:
For a good overview of how tech companies reinvent corporate finance, you should have a look at this article from Nicolas Colin and that one for a better understanding of the financial architecture of tech companies such as Amazon (“balancing the Northern Side & the Southern Side“).
3. business models should be straightforward and risk-controlled
When you start discussing about high growing startups, people will always ask you “but how do they earn money?”, “are they profitable?”, “what do they sell exactly?”
Well, late stage companies better have an answer for most of these questions, but a startup is by nature in the search of a scalable business model. And very few innovative company will end up with the business model they thought. Ask Criteo. They’ve made 4 pivots. They started in the entertainment industry. Business model are discovered, not chosen while you write your business plan.
4. you can’t grow an ambitious startup in Europe (especially in France)
I often hear that there is not enough money in France. But the venture capital ecosystem has never been better in France: €1b have been raised in 297 operations in just the first semester of 2016 (EY barometer), new funds are created and lots of foreign VCs are active in the ecosystem (Index, Accel, Balderton, Mosaik, Cherry, GFC, Point9 and many more).
The whole ecosystem has never been stronger, with incredible startup builders (TheFamily, efounders, numa, 50partners, soon-to-be station F, etc.), events (Hello Tomorrow Global Summit, France Digitale Day, B2BRocks, etc.), schools (42, epita/epitech, webschoolfactory, etc.). More about Paris tech scene in this presentation from Index & TF.
And you might tell me that failures are evidences that we have not a mature enough ecosystem. This is all the opposite.
First, the development of high growing startups that are fueled with cash (= VCs are making bets) is a sign of maturity. In the 2000s, you couldn’t raise money easily if you had no revenue and it was very hard to raise big round of financing.
Second, let’s not forget that in a world of winner-takes-most® it wasn’t clear that M&A or another round of funding was the good choice for TakeItEasy. The best way to lose your return is to keep on refinancing all your portfolio companies when you are a VC.
Third, there are a lot of HUGE failures in Silicon Valley. Jawbone is a zombie. And it burned A LOT of cash. But this is how a healthy ecosystem works: lots of risky bets, some succeed, many fail. (And start again.)
I think you got my point. I spent a wonderful summer not reading the articles about the French tech. But I lost my temper when I heard these endless discussions about Save, Chictype and TakeEatEasy.
NO, these stories are not evidences that we should stop thinking and acting big.
Incredible European entrepreneurs are building the next world champion. We should not waste their energy.
And we should definitely not prevent the next tech heroes to found their companies, to burn cash and to grow fast.