September 2, 2014
Posted by: Monica Selby
‘Tis the season for accelerator graduation. As programs come to an end, Demo Days are popping up everywhere, proudly displaying the companies they’ve built in the last 3 months.
With the influx of new startups entering the ecosystem, you have asked yourself if any of it really matters. Will any of these companies accomplish their goals or make even marginal profits.
Startups are cool. And glamorous. And super sexy. In 2014, everyone wants to “start up” and create the next (insert hot company here).
The problem, of course, is that startups are leeches.
The process of starting up is difficult and time consuming. Most early stage startups have budgets of $0 and can’t afford the basic services needed to get started.
So, law firms and accounting firms donate services. Mentors donate time and expertise. Accelerator programs risk time, expertise, and capital on companies that may or may not get off the ground after Demo Day.
All of this investment in startups is wise, of course. Services firms hope to win big on a few startups and end up with huge contracts with successful companies, and “giving back” always looks good. Good accelerator programs act as investment firms and are betting on big returns on a few companies.
But, it’s still undeniable that at the earliest stages, startups take more than they give.
Along the same lines, startups don’t create jobs.
Yes, eventually, upon funding or profitability, a startup could be a good employer in a community. But, again, at the earliest stages, it’s the founders working like maniacs to get off the ground. And with a 95% failure rate, it’s a good bet they won’t ever be big local employers.
So, am I saying startups are worthless?
Of course not! I love startups, and here at DevDigital we love hearing and working with innovative new ideas.
The problem comes when we focus on “starting up” and not “building a business.” We’re all starry-eyed over $1 billion+ exits, but that brand of startups is rare. (That’s why they’re called unicorns.) Startups going that route serve more as R&D for the Googles and Apples of the world than as viable businesses in their own right.
While there’s nothing wrong with chasing an exit (we encourage it!), focusing on quick money does not a successful business make.
Paul Singh talks about the need for fewer startups and more “tech-enabled small businesses.” With this mindset, “startup” is a phase, not a long term reality.
And, as every American knows, small businesses make the world go ‘round.
Got a great tech-enabled small business idea? Give us a call at DevDigital. We love talking to entrepreneurs and will be happy to help develop your concept.