# Startups Don't Matter #

TL;DR

Startups Don't Matter - We have developed a misguided obsession with startups and entrepreneurs. It has shifted our focus from the innovation to the vehicles and people who create it. It has made us accept the unacceptable failure rates and inefficiencies.
We need to stop idolizing the startup and entrepreneurs and realign out focus on what really matters - high-impact innovation.

1. 90%(?) of Startups Fail - We should not accept that lying down

Well, let's start with the fact that this stat is, as often happens with stats, made up. The real numbers are both higher and lower than that. How can that be? well, hear me out.
If we look at the data we'll see the actual failure rate is around 60% (sometimes higher - never 90%: https://goo.gl/tbVDji). That's still pretty high. Again, think about it, to start a venture that is more likely to fail than succeed - pretty depressing.
If we consider the pre-incorporation startups, the numbers are way higher. We all have an idea for an amazing "new thing". Something we toy around with. talk to a friend about. Consider doing. That by itself is not a startup. But, what happens when we start investing our attention, time and money in it? What happens when the thought turns into a hubby and the hobby turns into an unpaid job? I live in Israel. Not far from Tel-Aviv. I meet these early-early start-ups all the time. They are the funnel that leads to that 60% stat quoted above. They spend months fighting to get recognized and get some seed money. During that first year of pre-seed / pre-incorporation are they not a startup? Of course, they are, and they fail in droves. Some because they have a problem in perception of reality and are simply way off the mark. Most, because we live in a society the glorifies the heroic act of fighting the odds, however ridiculous they may be.

The true numbers of startup failure are difficult to estimate, but they are, no doubt greater than 60%, and in my estimation way bigger than 90%.

That sucks!

We got used to it sucking - so we don't think about it so much.

We should.

2.Fail Fast!

Think about it. I mean, really think about it. It makes no sense. Fail fast? What kind of an aspiration is that? It makes sense only in the narrow context of incredible risk. Since we all got used to most startups failing, it makes sense to fail fast and not over-invest. So, if it DOES make sense in this context, why do we hear it all the freakin' time? Why is it so important for everyone to keep saying it? The answer is trivial - It is really hard to fail fast. It is hard to let go of what we invest in.

Here is my point - the "Fail Fast" expression is already an example of the misguided focus. The subject of “fail fast” is either the startup or the entrepreneur. “Fail Fast!” exists and is so important because entrepreneurs have egos and startups are designed to survive at all cost. Innovation can’t fail. Innovation is or is not. It can be surprising. It can inconsequential. It can have massive or no impact. Failure is simply not a relevant attribute.

3. The Startup as a Metric

The startup is the most prevalent unit of measurement in the entrepreneurial ecosystem. In fact, it has become a very strong metric for other domains. For example, countries measure their innovation with the number of startups they host (god know Israel does that). Patents used to be a metric and have since lost their allure. The "startup" has become synonymous with creativity, innovation, disruption and all sorts of glorified concepts.

Why is that?

I think it is because it is easier to use the startup as a unit of measurement and so we have.

So? What if we do use it as a metric? Why is that a problem?

• First, the startup itself, nor its success are good measures of innovation or impact. That should be reason enough. Below, I delineate what the startup is.
• Second, by having done so, we lost track of the fact that the startup was, is and will always be, at best, a proxy for the things that really matter. It divorces us from the true source of value and impact - the innovation itself. It means that instead of accelerating, investing in and celebrating the innovation, we focus on the startup and many times either abandon the innovation or deliver a subpar, subservient-to-the-startup, innovation.

4. The Survival Conundrum I - A Going Concern

Most startups are "for profit" legal entities. They are designed to deliver return to their shareholders. Even if we consider more evolved forms of incorporation, such as social ventures and concepts such as stakeholders and holistic view, etc. - the purpose of the legal structure is to realize its function and deliver value to its owners. Moreover, if we consider the "Going Concern" accounting principle - the assumption that an entity will remain in business for the foreseeable future - we can see the survival Conundrum. A startup, as an entity, as a group of people, as an organization, is a self-perpetuating organism designed to capture value (not create it), indefinitely. No matter who sits at the helm, because of investment bias and because we get used to things, being seduced by these directives is almost impossible to resist.

5. The Survival Conundrum II - The Entrepreneurial Ego

Entrepreneurs are gamblers of social capital. Their chips are trust and disappointment.
They make promises - to their investors, to their families, to their employees, to their customers.
It is a heavy burden. It is why we plead them to fail fast. Because they are on a track that cannot accept failure. They cannot be responsible for disappointing so many. They must charge on.

They must deliver.

They must invest - against stupid odds.

Must they?

When we consider startups, we consider the ego of their entrepreneurs. It is a salient part of the startup equation. It should not be a salient part of the Innovation development - or at least should not impede it. They say that the top two reasons for startup failure are cash flow and partners meltdown (I suspect they are connected).
(To be clear, I am not saying they (we) have an abnormally inflated ego. I am saying that the startup circumstances put emphasis on these elements of their ego.)

6. Accelerators are Designed to Fail

Accelerators are the most obvious example of this misguided startup obsession. They, as their names imply, accelerate startups. They are the temples in which we all celebrate the wrong thing. As servants to the startups (or their investors - which is the same thing), they are obsessed with their survival and measure their success with RoIC. Incubators are only marginally better because they tend to work with more nascent ventures and focus on technology as well (The problem is that most incubators are simply accelerators with a different name)

7. We Got Used to Accepting the Unacceptable

People, I included, invest everything they have into startups and in an ecosystem that has misaligned incentives. The result is an extraordinary inefficiency. It is wasteful. It is slowing us down.

8. What Now?##

The word “Innovation” has a hype cycle. Every few years it gets discounted for overuse only to resurface a few years later. We are in one those ebbs now. (Although I think that the word “Disruption”, being celebrated, has simply become a replacement to the word Innovation).
I am wondering if it is not time to revisit this word.
Innovation is the fuel of progress. Creating and inventing and realizing new things that have a positive impact on our lives is a valiant endeavor. That is the true measure we were looking for. That is the source of value behind the RoIC. This is the prime directive of the creative mind. We should return to those basics and discard the startup as a unit of measurement.
We should embrace high-impact innovation as the metric.
This does not mean that we do not need startups. It does not mean we discount what they do. In fact, it means the opposite. In order to respect the startups and the entrepreneurs, what we should do is give them better odds. Create an environment that celebrates what they do and not the legal framework in which they do it. Help them transcend the startup and focus on the impact of their labor.

How?

Well, I have an idea. I’ll be back soon to tell you more about it.

Some cool tidbits

The word “Entrepreneur” comes from French and originally meant "one who undertakes or manages"
The word “Entreprise” comes from French and originally meant "an undertaking"
The word “Innovation” comes from Latin and its root means "to change; to renew"

Until next time

Shahar