Today’s startup obsession with hitting it big at all costs is breeding a free-spending entrepreneurial culture that is frankly, not sustainable. Cash-flush, free-spending twenty-somethings — this is often the image that the term “startup” conjures up for most people these days. And that image is a problem.
The Allure and Deception of Billion Dollar Ideas
“Metaphorically speaking, these founders are like batters who only take ‘hit-it-out-of-the-ballpark’ swings. And if you follow baseball, you know that batters who always swing for the fences strike out most of the time.”Most tech startup founders not only want to be the next Mark Zuckerberg; but they are also thoroughly convinced that they will become a billionaire once their idea makes it to market.
This misplaced notion creates an entrepreneurial culture that is solely, and detrimentally, focused on the billion dollar idea. This prompts groups of young founders to operate their startups as if they were already wealthy tech moguls. Metaphorically speaking, these founders are like batters who only take “hit-it-out-of-the-ballpark” swings. And if you follow baseball, you know that batters who always swing for the fences strike out most of the time.
Much of business success is about hitting singles, and running your heart out to beat the throw to first base. It is a lot of hard work, unglamorous duties, and smart choices. Today’s startup culture seems to have forgotten this.
Startups have somehow changed the traditional, widely-accepted notion of building a burgeoning business from one’s hard work, careful planning and financial bootstrapping. Instead the message of razzle-dazzle ideas and venture capital fundraising magic, interspersed with Fast Company and TechCrunch headlines is the perception of choice.
Startup Realities and Fast VC Money
“Burning through venture capital funding during the startup phase should not be a badge of honor. Rather, founders need to begin valuing VC funding as if it was their own — not a money tree they can shake at will.”The first reality that startups need to understand is this: there are very few billion dollar ideas out there.
The chance of becoming the next Mark Zuckerberg is one in a million. Realizing this at the outset, and adjusting expectations to a more rational level, will help budding entrepreneurs succeed.
Building a successful mid-level business is not a failure. The U.S. economy is composed of millions of successful small and mid-sized companies. Hitting a single surely is a success, and certainly should be respected much more than three, big, strike-out swings.
The other reality is, startups have to be more careful with their investors’ money. Burning through venture capital funding during the startup phase should not be a badge of honor. Rather, founders need to begin valuing VC funding as if it was their own — not a [money tree they can shake] at will.
Startups can learn a lot from a long line of successful companies that started without being handed millions of dollars before even creating a product. Lavish spending before a product is created or before revenue comes through the door should be a warning sign to investors.
Startup founders should be willing to put in hard work, assemble a team of experienced business advisers and mentors, and have the tenacity and discipline to create a product that can carve out its own spot in the marketplace without relying solely on being acquired by a larger company.
These kinds of changes in today’s startup culture are important because startups are a vital and energetic source of economic advancement. We need young entrepreneurs who are willing to take calculated and responsible risks on innovative ideas. We also need investors who are willing to back those ideas with capital that will transform innovative concepts into profitable companies.
Cavalier Startups Be Forewarned
Cavalier founder behavior, lavish spending of venture capital funding, and startups that, accordingly, crater in spectacular fashion undermine the faith that investors and the public at large have in the startup economy.
We need to begin rewarding innovators that toil the hardest, surround themselves with the best mentors, and do the difficult work to develop comprehensive business strategies. We should be willing to fund the $3 million, $5 million, and $10 million ideas — not just the billion dollar gamble.
Our startup culture needs to mature and be more responsible when evaluating risk. It needs to focus less on glitz, glamour, and image, and more so on the nuts and bolts of business. These changes will go a long way to making the startups, particularly in the tech sector, less of a flash in the pan, and more of a long-term, sustainable source of innovation and growth for our economy.
Named as Fortune’s 2012 Most Powerful Women Entrepreneurs, Theresa Fette is an enthusiastic motivator whose creativity propels business to new heights. Fette is the CEO of Provident Trust Group LLC, an INC 5000 industry leader in retirement investments through self-directed IRAs, trust services, and escrow services. Licensed to practice law in Arkansas, Kansas, and Missouri, she has cultivated expertise in the areas of Taxation and Trusts, as well as both Estate and Business Planning.