Just read a very interesting article on Steve Blank’s blog (link tweeted by @ericries) called “When It’s Darkest Men See The Stars“, but which left me with a curiously bittersweet aftertaste.
The title of his post is taken from Ralph Waldo Emerson (though to be precise, Emerson wrote “When it is darkest, …”), because Blank wonders – at length – whether this coming decade might be both the darkest hour for the American economy and the moment that startups & entrepreneurs lead it out of recession / financial stagnation into a bright new future.
So, not only do startups have to (somehow) get funding, (somehow) grow rapidly, and (somehow) be hugely successful, they now have to (somehow) fix the global economy too. It’s a pretty tall order for a tiny bunch of spirited renegades working outside the system, however bright and connected in to their target market they happen to be.
All the same, even though I take his overall point, I then left a comment to the effect…
Great, great post. If only it were true…
Outside the writhingly empty froth of social media and the short-term buzz of ‘hot’ sectors (geolocation, etc), now is actually a lousy time to be an entrepreneur. The vast majority of plays I see being pitched are simply value chain optimization rather than innovation – sure, people are daring to dream, but most of their dreams are stultifyingly mediocre.
Surely the right question to be asking is how best to channel entrepreneurial spirit and angel finance into things that actually produce new wealth rather than just optimize old wealth? Otherwise the distinctive feature of the decade will turn out to be a glut of sub-par entrepreneurs and fallen (broke) angels.
Really, what I’m saying is that I think we should politely pre-disqualify (if not actually kill) startups that don’t dare to dream that they can produce dramatically new wealth in the world economy. Such companies don’t (usually) serve society particularly well, and leave themselves wide open to being cut out of the loop by other (typically more cut-throat) value-chain optimizing companies slightly further down the line. Dress up their core marginality in Web 2.0 clothes all you like, but you can’t really hide the fact that raw optimization is very rarely a dramatically new form of good. I’d say that the biggest millstone being carried around right now by entrepreneurs is a failure to dream – and arguably the much-talked-about business ‘bootstrapping’ culture merely helps minimize the scope of those few dreams that do still get dreamed.
And what is worse is that the finance problem here is that extraordinarily few angels now seem to have a grasp of the difference between money extraction (i.e. reslicing an existing pie in a financially creative way) and wealth creation (i.e. creating something genuinely new that can then be sold). Perhaps this is simply a hangover from the curse of financial services – that, having spawned a generation of angels who have got rich off (what are essentially narrow variations on) marginal financial service plays, it is only natural that they seek to replicate their successes by investing in yet more marginal financial service plays. Really, why should people unskilled at investing in the physical ever be expected to invest in physical startups?
Interestingly, one particularly thing Blank points out (which has exercised my mind for the last four years, but which very few people seem to have fully worked through) is that Chinese manufacturers have created a two-year replacement cycle for consumer (and even semi-pro) electronics, based around the triple play of volume production, narrow margins and limited life-span components. It’s simultaneously a market position and a self-reinforcing mindset, which (together with all the MBA apologists for universal outsourcing) has served to define the world economy for the last 10-20 years (depending on which sector you’re looking at).
Bucking that whole flawed global system (as Nanodome valiantly attempts to do) comes down to a sustained exercise in engineering for reliability (which only a handful of German manufacturers seem able to do) and local manufacture (or, at least, late local assembly). However… having now pitched ‘reliability-by-design’ to a long succession of angels, I can tell you that regardless of how much this is good for the National Debt and rebalancing the global economy, it is almost impossible to make it sound like a ‘sexy’ or ‘hot’ play to anyone. Oh, I do my best, but… sorry, Steve, it’ll need both switched-on startups and switched-on angels to make a macroeconomic difference to that imbalance, and right now we’ve only got a tiny handful of the former in play.
(In many ways, all of this means that arguably my startup’s spiritual home is in Germany: perhaps I should properly learn German and go pitch there? Something to consider…)