Startup Meltdown – When the Business of Technology Meets Failure
April 6, 2010
I’ve heard some VCs are unhappy about The Funded, the website where venture-backed companies and entrepreneurs can rag on their investors. It’s to be expected. Technology investors are in the business of failure. Successful innovations are rare; many are mistakes, most fail. Most startup companies flare up and flame out. The companies like Google and Microsoft are the rare exceptions. The entrepreneur is playing the startup lottery and most don’t have the winning ticket.
Customer (e.g. the entrepreneurs) dissatisfaction happens when a company (e.g. the venture capitalists) is in the business of failure. Despite the customer’s knowledge of failure, they believe they will be in the minority. They will be one of the very few who succeed. The weight loss industry, on-line job websites, and dating services are such businesses. Only 4% of job seekers find jobs through online job boards. The majority of users are disgruntled. Likewise with weight loss, 95% or more of clients do not lose weight or if they do lose weight, it is only a couple of pounds, yet the average client wants to lose 50 lbs. The number of repeat customer among weight loss programs is less than 1%. The result is unhappy customers. In weight loss advertising, there is a reason why all ads state “results not typical”, and it’s the same with venture capitalism. Venture capital is just another industry characterized by the business of failure.
Every entrepreneur who receives funding from venture capitalists or angel investors believes they will be the successful one and that failures will happen to the others. In my personal observation, the more funding a startup receives and the more rounds they obtain, the surer the entrepreneurs and team become of their success, and the more disappointed they are when it fails. When a round of funding is secured, the first response in a startup is a sigh of relief with the belief that life can return to its comfortable day-to-day routine. The second response is for the employees to calculate how much their stock options are worth based upon the value of the round.
It is estimated that in Silicon Valley there are 6,000 new start-up ideas being proposed at any given moment. Silicon Valley also has the greatest regional deal flow for the venture capital industry. Last year, venture capitalists funded less than 150 new startups in Silicon Valley. To get funding, one must have an unwavering belief that their product is the next best thing. The entrepreneur must be outgoing and persistent. Investors also have an affinity for youthful entrepreneurs and for those with good salesmanship skills. Now fast forward from funding to failure. Youth often lacks discretion and has grown up with social networking, and voila – you have result on The Funded.
How many decades have people complained about news stories focusing on the bad things that happen to people or the despicable behavior of people, not the good things in life? Controversy builds notoriety. Negative campaigning works. The Paparazzi purposefully upset celebrities just to get the picture of them in an emotional state. People find mudslinging entertaining. Tabloids, newspapers, reality TV shows sell well and are profitable. The limelight can be profitable, complimentary and ugly at the same time.
Filed under: Funny Stories and Humor
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