The Disposable Startup Redux

A few years ago I wrote a piece called The Disposable Startup. The piece was an appeal to let young startup founders explore and have fun building new things (like the college bands I remember), rather than see a need to provide adult supervision and oversight into every aspect (like college today). This is a continuation of some of those thoughts, with another new type of “disposability” that I noticed before but didn’t want to write about until now…

Mutually Destructive Creation

I’ve long ranted against startup events and the way investments are typically made. Short explanation: events benefit their organizers more than the attendees and investors are often still traditional and herd-focused in their process. But there is a byproduct of events and investor attitudes that changes the behavior of startup founders themselves.

Unless a competition has a financial prize I discourage startups from applying and spending time to pitch. Truly competing requires a lot of time away from building a business. But where there is a fit, I love it when a startup I advise takes prize money from these competitions. (“My” advised startup win rate is currently 80%, which is a recent decrease.) The other impact that these competitions have is in multiplying the willful creation of startups purely for the purposes of shutting them down. This is how the process goes.

• The startup community event. Startup founders attend. They listen to a speaker (often someone with more or less celebrity status in the community). Nothing will be different about the way they operate after the event, but they will meet two people over beers while there. Those two people build their network.
• The competition. Startup founders apply. Some are chosen to pitch. Some then win. Those who win (and often all) get some exposure from their participation, even if it only means that they have shaken hands with a few judges and investors. They have something interesting to say — they’re working on a startup, after all. Those judges and investors build the founder’s network a little more.
• Winning the competition / Awarding the prizes. The cycle requires that there are one or more winners in an event. When there are prizes, some prizes fall into the type that sound good on but which are actually of little to zero value (a 30-minute follow-up meeting with one of the judges, free hosting etc). Some prizes are cash, or the appearance of it. Especially at universities, cash prizes are dispensed carefully. As one administrator said to me, “we require invoices to reimburse them for specific approved cost items. We can’t have them spend the prize money on beer…” But chances are if you can’t tell if your award-winner is serious enough to be thoughtful on how they spend money (or if you care that they will spend it on beer) you’re not running competitions as well as you could. The other reason of course is that not all awarded prize money gets paid out, which helps keep down the costs of the competitions while not diminishing their status.
• The founders’ bigger networks. After, say, half a year on the startup circuit and spending a lot of time meeting people, founders can build up networks that they never could have otherwise. There can be a real benefit to spending your time networking rather than with customers and working on the business itself. You know where to go, who to ask, how to get connected further, how to talk about their work. The goal is to become known.

Dispose of the Startup to Create the Next One

The process above can be good for founders who really want to give it a second shot. They have a network now. They know how things work. They’ve had the experience of pitching 100 times and hearing no each (or almost each) time. They have gained some respect. Going at it the second time will only be easier. If their failure were costly (money, respect, trust), then their actions would be different.

I’ve seen this type of disposable startup, done intentionally  or unintentionally, many times now. Seen up close it bothers me a little when I catch myself caring more about the success of the business than the founders. I’ll always try to help founders, but disposable startups are one of the reasons that when I do help them, I focus my efforts on the ones that are past the disposable stage.