Why You Shouldn’t Join The Startup Bandwagon
What is the American Dream? Popularized in 1931 by James Truslow Adams, he described it as,
“Life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement -regardless of social class or circumstances of birth.”
If you were to ask Americans today, I bet many would add that the American Dream is also the ability and opportunity to start ones own business and to have the freedom to be free from working for large corporations or government businesses.
So what changed since 1931?
In one word? Greed.
Sociologist Robert D. Putnam writes in his book Bowling Alone (2000) that in 1975 when Americans were asked what the elements of a good life were, 38% stated “having a lot of money.” When the same question was asked in 1996, nearly 63% said “having a lot of money.”
While this change in the populations perceptions can’t be narrowed down to one specific causation, I’d bet that a large influence on people’s thoughts has been how the media idealizes wealth and material goods. From extravagant music videos to some of the lavish lifestyles of corporate CEOs, Americans have come to believe the American dream is being able to live this lifestyle of the ultra rich.
And how does this relate to startups?
Well.. with the media celebrating the success and lifestyles of these individuals, some have started to believe that building a business is so easy anyone can do it.
I’m sorry to be a downer, but that just isn’t true..
The Beginning of the Startup Community We Know Today
The “startups” as we know them today, started gaining traction in the 1970s with the birth of venture capital and private equity. In 1995 you have ~$8bn being invested in startups. Jump to 1999, and startups received nearly $55bn in funding — a roughly 700% increase over the prior four years. That number increases another 100% by 2000 after the number of internet company IPOs goes from around 40 in 1998, to over 270 in 1999.
As you now know, this wasn’t sustainable. However, that was just the beginning for some of these startups..
After a drastic drop in venture investments in 2001, the money being invested in startups through traditional VC funding stayed around $25bn per annum from 2002 through 2012. Even through the 2008 collapse, capital deployed stayed close to $20bn as investors looked for alternatives to the stock market.
The Flock to Startups & Venture Capital
The year 2000 began the flock to startups with people seeing how “easy” it was to “go big” in an IPO. But history tends to repeat itself if you don’t learn from it. Through the next 13 years, with increased access to capital, startups gained more popularity. With the “help” of the 2008 collapse, many people lost trust in larger corporations, and soon began to realize that there’s often a better ways to do things.
With the growth in technology, access to information and data became easier than ever before. Where the large corporations were once holding onto consumer data, soon the small mom & pop business’ were able to access information to leverage and grow their business — and often for free!
This access to information, in the “Information Age,” helped build the boom in startups. In 2014, VC deployed to startups rose by roughly 70%, from $30bn to $51bn. Then up another ~17.5% to $60bn in 2015.
For some perspective, the US Total Stock Market Capitalization rose ~300% from 1995 to 2015, going from ~$7 trillion to ~$20 trillion. While funding in startups through venture capital rose 750% between that same period, from ~$8bn to ~$60bn. In addition, US nominal GDP increased only ~75%, from $10,284.8bn to $17,947bn.
Back to the Media…
With familiar startups such as Uber, WeWork, and AirBnB constantly in the media, it’s no wonder people have become obsessed with them. The problem is the way they are presented.
All too often, they’re shown with excitement and almost a sense of praise around their valuations. Uber at $62bn. WeWork at $20bn. Airbnb at $25bn. Many forget what it takes to get there. And for many, unfortunately, they will never surpass even a $1,000,000 valuation.
These “unicorns” are businesses that have changed industries forever, and they are an oddity. Purposely trying to think of a business idea, with the intent to be valued at >$1bn will never work. It’s the startups that are founded with the intent to solve a problem, or fundamentally change an industry that make it the furthers.
Nowadays, everyone wants to join a startup because they imagine it being something like a Google office. And while I can say that the startup culture is often a unique one, it isn’t always what it is made out to be. Everyone is jumping on the startup bandwagon, because to some, it appears easy to build a startup, and then you can say you own your own company.
But what is a company that doesn’t go anywhere?
Mark Cuban say’s it best, don’t be a “wantrepreneur,” be an entrepreneur. Don’t do it solely because you want to get rich. Don’t do it because you want to become famous. Don’t even do it just because it looks fun.
Do it because you have an idea that can change the world. An idea that you believe can revolutionize an industry or make a difference in people’s lives. That is what I believe is the American Dream. That’s when you’ll be truly successful, and the fame and money comes to you.
