The many delusions of Startupland
There’s a place I call Startupland where everyone has bought into a fever dream. It’s sometimes referred to as Silicon Valley but it broke free of the Bay Area’s geographical boundaries long ago and now exists as a kind of religion where everyone believes they’re the chosen one and business fundamentals don’t apply.
Most of you reading this are already members of the church of Startupland but if you haven’t yet been indoctrinated and want to see some examples of this magical thinking in action, all you have to do is watch a few episodes of Shark Tank. You can always pick out the Startupland entrepreneurs by the ludicrous and completely unjustified valuations they place on their nascent companies when compared to the sane entrepreneurs on the show. Let’s countdown a few of the other misguided delusions of Startupland.
Delusion #5. Entrepreneurship is booming. The tech press, and increasingly the mainstream press, would have you believe that entrepreneurship is hotter and easier than ever. Headline after headline tell stories of twenty-somethings who raised millions with the implied message of, “if they did it so can you.” The reality is that entrepreneurship has been declining for over 30 years. For most of America, starting a new business is more difficult than ever. Only in Startupland can people get VC money for little more than an idea. The rest of the world has to pay their own way.
Delusion #4. Tech startups are the only startups that matter. From the food we eat to the clothes we wear to the houses we live in, almost everything we need comes from companies that have little to do with internet related technology, and yet Startupland dismisses any business that isn't tech as unworthy and second class. I once told someone in Startupland that I had spent most of my career as a bootstrapped brick and mortar entrepreneur and he replied dismissively, “yeah, being an internet entrepreneur is different” and then quickly moved on to another conversation. If you want to be taken seriously in Startupland, your only option is to make people think you’re a tech company even when you’re not (pretty much all the DTC brands selling physical products online).
Delusion #3. Raising VC money automatically makes you a winner. From top to bottom, everyone in Startupland uses this as the only measurement that matters. Think about how many articles you’ve read touting how much money some startup raised. Rarely do you hear anyone talking about actual profits. Building and running a profitable company means nothing in Startupland but if you raise a truckload of cash, even if you burn through that cash with little to show for it, you’re a hero and the world is your oyster.
Delusion #2. Crazy is always a good thing. Apple’s old “Here’s to the Crazy Ones” commercial has essentially been turned into the gospel of Startupland. While I completely understand the allure of visionaries, most of the time crazy just means ill-conceived and wasteful. Exhibit A. According to the Wall Street Journal, Masayoshi Son told Adam Neumann “he needed to be crazier” and we know how that turned out (I realize Neumann walked away with 1.7bn but WeWork got exposed as a poorly managed sham). In Startupland, every entrepreneur thinks they are Steve Jobs and VCs convince themselves they are writing a check to the next Elon Musk but in reality the vast majority of them are much closer to Adam Neumann or Elizabeth Holmes. Crazy isn’t always visionary, it’s usually just plain insane.
That brings us to Startupland’s Delusion #1. A company with no path to profitability is still worth millions or billions.* I put an asterisk on this one because it’s often true right up until the point when the greater fool theory runs out. Startupland is mostly built on convincing acquiring companies and/or public markets that money losing companies will eventually turn the corner to massive profitability. Sometimes they do, those companies are now household names like Amazon and Facebook, but most of the time they don’t and someone else is left holding the bag. When an acquiring company buys into Delusion #1 the money pit is usually quietly written off and we don’t hear much about it after the initial sale, but when the public markets realize they got hustled into believing Delusion #1 we get treated to a stock collapse. When it happens en masse we get the dotcom implosion of 2000 that crushed the life savings of millions.
Perpetuating, or perhaps more accurately perpetrating, Delusion #1 on the rest of the world is what makes all of the other delusions possible. As long as Startupland can continue to convince other people to keep funding their losses everyone can keep living their fever dream.