Alex Payne is a software engineer (& Scala fan), an early Twitter employee, and now an angel investor: he writes succinctly and well, while pulling few punches. His excellent recent post “On Business Madness” tries to nail a number of Big Bad Ideas floating around the startup business noosphere. I’ll Powerpointify his major points first so I can get on to discussing them properly.
(1) Payne berates all “the chest-beating sound bites fed to hungry reporters” (what Eric Ries, bless ‘im, calls “success theatre”), and thinks that nobody in startups has any real idea what they are doing: “we mistake dumb luck for a machine that produces success”.
(2) He thinks VCs try to justify their herd behaviour by somewhat laughably calling their decision-making process ”pattern matching” when it’s nothing of the kind (well, to a computer scientist, anyway).
(3) He thinks startups who believe tech clusters cause success (a foolishness even the UK government has promoted to the level of national policy in the last 12 months) have got it Just Plain Wrong.
(4) He thinks that Eric Ries’s Lean Startup, Steve Blank’s Customer Development, and even 37signals’ methodology are “process cults”, more useful for finding like-minded co-founders than for building proper businesses.
(5) He concludes by dismissing Facebook’s “hacker way” as a soon-to-be-discredited heir to such business cults as Taylorism & Japanese management theory, and thinks that the only probable business essentials are “a good idea, great people, the willingness to work hard, and an absolute shit-ton of luck.”
–> (1) As generally practised, startup success theatre is deeply insincere: this promotes unsustainable relationships not just between between entrepreneurs and the press, but also between entrepreneurs and investors. Here in the UK, business angels routinely (and openly) divide projections given to them by entrepreneurs by three or more, numerically encouraging entrepreneurs to give them ever more inflated figures to compensate for this systematic pessimism. Similarly, somewhere along the line angels now routinely expect to see slideware pitches telling them of their likely 10x or 20x return, as if every single startup they’ll see is going to be that 1-in-a-1000 outlier!
Yet if as an entrepreneur you try to break this cycle, you can quickly find yourself accused of lacking ambition or - worse still! - of pitching a niche business. Though I have always tried to be utterly honest about my own startup’s situation, assets, and potential, I can’t help but wonder whether I’m missing the Painfully Big Inference: that lying slideware has become so endemic to the startup ecology that honesty in pitching actually moves you backwards.
–> (2) (As a UK entrepreneur, I have no real opinion on VCs. You might as well ask me what I think about Peruvian microbiologists – they have just about as much to do with early stage startup investment as Euro VCs do.)
–> (3) In my opinion, tech clusters are more likely to be the sign of a tech neighbourhood dying off than of being born (i.e. it’s a trailing indicator rather than a leading indicator), and in particular of rents rising to a level that non-vanity startups can’t afford: so I agree with Alex Payne. It all seems far more likely to me to be a logical fallacy: that success leads to tech clusters than tech clusters lead to success.
–> (4) Don’t get me started on process cults (particularly the whole Lean Startup thing) - tiny techy tails trying to wag big complex dogs, driven by people brandishing back-to-front telescopes all claiming to have invented a new way of seeing the business world. Yup, Alex pretty much nailed this one too.
–> (5) Here’s where I diverge slightly (but not actually too much). I personally think luck is something entrepreneurs contrive to make – or, more precisely, that a startup is best seen as an arena carefully laid out to enable lucky things to happen within. Entrepreneurs who try to define success in terms of their monolithic Business Plan are Big Fat Fakes, because life never, ever works that way: rather, the best business plans are ones that have wide-open holes large enough for Fate to enter through.
Hence, I think the only real question to answer when assessing a business proposal is: does this leave plenty of space for luck to happen, or is it determinedly driving into a wall it will never be able to break through? Of course, no angel would ever openly agree that this is right because their thinking is still so hugely dominated by the Oh-So-Foolish Cult of the Business Plan. But perhaps they might get better results from their portfolios if they did…