The end of the (startup) world as we know it

End is near "well I think this calls for a little celebration"If you follow high tech startups at all, it was virtually impossible to have missed all the discussions this summer regarding disruptions occurring in the startup environment, including the role of investors, the wisdom of "Lean startups," and bemoaning the fall of the "big win" mentality.  As I sad in a Venture Beat article, when in the midst of change, it's difficult to know where you are in the curve.  It's also difficult to discern whether something is an instigator of change or the result of change.

I think it's important to understand that there is a new startup reality, that this reality is not based on fads, but represents a fundamental shift -- i.e., there is no going back.

First, startups are a global phenomenon. If you don't believe me, hitch a ride on one of Dave McClure's Geeks on a Plane trip or note the different languages used to tweet about Lean Startups.  Not only are entrepreneurs creating new startups around the world, but the ability to hire quality resources and manage remote teams improves every year.

Second, startups are cheaper to start. By now this is stating the obvious, but with open source platforms and tools, the relative ease of building product (including hardware) compared to a decade ago, the emergence of social media and marketing analytics, and again, inexpensive global resources, mean that founders can get up and running toward proving elements of their business model for thousands of dollars.

Third, startups are social. Back in the day, the sole purpose of networking events was to exchange business cards and exercise ego.  It was about "what can you do for me."  Today, it's about "what can I do for you."  In my experience, entrepreneurs today embrace the ethos of "providing value," with the belief that value will someday, somewhere be provided back.  There is a desire for real entrepreneurial community that creates an incredibly fertile environment.

Fourth, startups are data-intelligent. While there's always the risk of drowning in data, the fact is that entrepreneurs have an incredible amount of intelligence about their customers.  From resources that today seem incredibly mundane like dead-simple survey tools, to narrow, but powerful apps to test and measure user experience and interface design, to sophisticated analytics around marketing funnels and product feature usage, startups are able to "build, test, measure" like never before.

Fifth, startups are savvy.  By this I mean, that they are a smarter about building startups.  Not because they are more intelligent, but because they have 1-4 above.  They are more worldly-wise, they are open, they share, they are eager to learn and they have access to incredible mentoring.

Barring some global catastrophe like, I don't know, the ice caps melting or something, none of the above is reverting back to the way it was in the past anytime soon.  Unable to predict the future, I'll leave open whether bigger trends emerge.  But so given the above, what can we discern?

The macro changes described above have created a perfect storm for disruption to the startup environment.  It has given rise of the "super angel."  Is has resulted in an explosion of incubators, accelerators, co-working spaces and mentorship programs.  It has enabled the successful emergence of the Lean Startup methodology. While in the micro- sense, as individuals, Eric Ries and Steve Blank are changing how startups are build and Dave McClure is helping change the investor landscape, from a macro- point of view, they are the result of disruption, not the cause.

I point this out not to diminish their accomplishments, but on the contrary, to argue 1) criticisms of their activity largely miss the real point; and 2) we don't know yet how the environment will look, only that it won't be the way it was before.

So with that, I will go ahead and predict where I think we're headed.

Already, college students worldwide graduate believing they will launch a startup.  Go to any Startup Weekend or Lean Startup Machine event and listen to interesting pitches being made by weekend warriors.  It's incredible.  Hundreds of thousands of would be startup entrepreneurs emerging globally every year.  We are witnessing a fundamental shift in power from investors to entrepreneurs.  Local communities are forming everywhere with entrepreneurship as their focus.  These ecosystems are emerging to support "grassroots entrepreneurship."

All these startups cannot be funded by institutional investors.  Friends and family investors is already an accepted first effort, though VCs were preaching otherwise as recent as a couple of years ago.  Perhaps some still do.  The rise of early stage (even 5-10K) investments through wealthy individuals, angels and incubators is already occurring.

No matter how much some bemoan "dipshit" companies, sorry brother, they are here to stay.

The fall of the "big win" is permanent.  Investors, find a new model.  You can't just bet on the needle in the ever-growing haystack.

The role of M&A will increase.  Big companies will struggle to keep up with both sustaining and disruptive innovation.  Acquisition is their only hope.  Secondary equity markets to merge synergistic startups will rise in prominence.

On the entrepreneurs' side, Founders will continue to need to prove business models to get funding, so the use of Lean Startup or Lean Startup-like methodologies will accelerate, as well bootstrapping and crowdsourcing.

While some of this may seem obvious and some wild speculation, the fundamental factors driving the disruption are pretty indisputable.  And it's important to distinguish between what we can do and changes we can drive versus what is changing us.  Such a perspective can help us at the very least, to picture the forest if not actually see it.

What is being created, in my estimation, is an innovation machine.   High-powered Lean Startups -- fast pivoting toward product-market fit and capital efficient -- are like "Moore's Law for Startups": increasing output on decreasing input, over time.  Imagine an environment where we embrace dozens of startups attacking similar problems, but with different solutions and targeting different segments.  Large businesses are perhaps constructed from small wins.  Big businesses innovate through acquisition.  Such an environment can only lead to more and faster disruptive innovation.

The real question then becomes, perhaps, how does society handle an increasing rate of disruptive innovation?

Right or wrongly, Thomas Robert Malthus (1766-1834) is held out as a representative of inevitable doom and gloom scenarios involving human existence.  Critics often point to technological advances as examples of how humans continually postpone, if not vanquish, Malthus' scenarios.  There will always be those ready to declare, The End is Near! But there's no denying the world faces extraordinary problems.  And I can't help but feel that when you have a powerful groundswell of entrepreneurship occurring on the one hand, and an absurd peak of celebrating ignorance in our society on the other, that we are perhaps reaching toward the next epoch of innovation and enlightenment.

15 COMMENTS ON THIS POST To “The end of the (startup) world as we know it”

  1. abby, the hacker chick blog November 11, 2010 at 1:08 pm

    This article NAILS it & I can’t wait.

    Funny… last week someone asked what my “theme song” would be if I needed a song to inspire me and what immediately popped into my head was “It’s the End of the World as We Know It (and I feel fine)” – I must have been foreshadowing. 😉

    • brantcooper November 11, 2010 at 5:12 pm

      Nice! I loved having that run through my head as I wrote the post. : )

  2. Todd Wyder November 11, 2010 at 2:41 pm

    Three cheers for dipshit companies. And bootstrappers. And lifestyle businesses. VC’s are not the center of the universe. They are a part of it, just like the dipshits and their ilk.

    Great article Brant! I think we are seeing a democratization of the startup world, where regular joes and janes can get something to happen. I think those things were always there, but not on the scale that we are seeing now because the barriers to entry are collapsed.

    I also think that although, things are very different in the investment world right now, in the long term having all these different types of startups will end up yielding a much, much bigger farm team of scalable organizations as well.

    • brantcooper November 11, 2010 at 5:14 pm

      Agreed. Thanks for the comment!

  3. francine hardaway November 11, 2010 at 5:03 pm

    I can’t wait for this to happen, because the economy of the United States NEEDS this.

    • brantcooper November 11, 2010 at 5:15 pm

      Yes, Brad Feld commented in San Diego last week that the government was finally starting to understand that startup <> small business, and that startups are where the real jobs growth comes from.

    • Eric Keosky-Smith November 11, 2010 at 7:01 pm

      Francine, it’s happening. It really is. Ironically ‘it’ (this evolution of the startup) may be the best thing to come out of the recession! Great analysis too btw @brantcooper!

  4. Gavin McLelland November 11, 2010 at 5:06 pm

    Change is here. At my startup I base my products on this thought:

    Foster Agile Innovation for Social Impact; Productivity directly increases the chances of positive Social Impact being reached through Innovation; Code & Profit

    I’d like to think I am seeing a constant positive trend in the Startup world that goes beyond the 10 year financial mess we have all put ourselves in. We don’t need VC to succeed, believe in yourself and your ideas then execute them.

    • brantcooper November 11, 2010 at 5:19 pm

      Good point, I didn’t even touch on the positive social impact of many of today’s entrepreneurs. VCs and capital markets have their role. Scaling once you’ve learned how to go big often requires capital. Institutional capital is necessary for the development and success of a great many innovations yet to come both inside and outside the high tech world. Also I’d say, believing in bad ideas does not make them better. Believe in yourself, test your ideas. Thanks for the comment!

  5. Denis Baranov November 21, 2010 at 6:31 pm

    Brant, I agree with you on the general trends. However, your support for dipshit companies puzzles me. Maybe it is because I see them as utterly pointless, “I can do this, too” creations of eager engineers who have no idea that a business needs to solve a problem in order to survive. If I am not mistaken, these were called “feature not company” during the first bubble.

    The thing is that the more of these are created, the more of them are funded, and the more of them go bust. And although only dipshit companies will go bust the shock wave will impact the whole market.

    • brantcooper November 21, 2010 at 7:06 pm

      Thanks for the comment, Denis. So you think companies that “aim to get acquired by Google for 20M” are utterly pointless? Because that’s Arrington’s definition of “dip shit companies” to which I refer. Bottom line is that I think it investors should be funding companies that prove their business model regardless of their likely ability to achieve 100M in revenue, the typical definition of the “big win.” The responsibility of the entrepreneur, on the other hand, is to build products people want through lean methods that prove their business model before getting funding to scale.

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