One of the most frequently asked questions of today’s startup economy, no? Invariably, we discuss capital, talent, and ambition, frustrated with our own communities’ lack thereof, perhaps. And yet, is that really what’s at the heart of making a startup community work? When you think about it, the access to and significance of capital available is merely a result of the opportunity and reward to investors – they aren’t incapable of their own job… they know how and where to make capital available. And arguably, the same is true of talent, if your community is frustrated by a lack of talent, likely two things are happening… either the ecosystem doesn’t effectively reward talent and thus it is indeed going elsewhere, or the talent is there (what I think it most likely the case) but most ventures fail to appreciate that not being able to attract talent and partners may in fact be a significant proof point, validation that your idea or traction thus far isn’t appealing.
If those thoughts are sound, that capital and talent really aren’t what makes startup communities work because capital and talent naturally follow reward, what is at the heart of why startups seem to work so well in Silicon Valley? Are the rewards indeed greater and if so, why?
Culture, philosphy, and industry
90% of startups fail.
Neither access to capital nor talent changes that much, and frankly, it’s easier and cheaper to start some thing almost anywhere else in the world, certainly so here in Texas. Practically the golden rule of entrepreneurship, not only do 90% of startups completely fail, 90% of those that survive, become mere lifestyle businesses capable of employing people, but not really rewarding them. Only 1%, the unicorns as they’re called, truly and significantly reward individuals for the sacrifices and risks involved in working in early stage ventures.
With so much failure inevitable, the answer to the question obviously doesn’t lie in a success rate any more than it does in the amount of capital or talent available; so start by taking a look not at the significance of rewards where you live but at how people treat failure.
How people deal with, react to, and even expect failure is a sign of the culture and philosophy wherein you live, with regard to entrepreneurship.
The Valley has a unique culture in that embraces that you will fail. In the years that I spent there, the discussion is rarely about your business, your idea, and the company you’re trying to build because it’s going to fail. Instead, Silicon Valley constantly talks about innovation, bettering the best, people, and even “The Valley” at large and growing the entirety of rewards as an economy.
In recognizing and appreciating failure, the culture of the valley looks not to what you’re doing now but what “we’re” doing next – learning from failures and never giving up; simply moving forward until we find success.
While it seems to me that most other economies tend to strive for the success of a business, the Valley strives for the success of people and the economy itself by expecting that every venture is so revolutionary, so disruptive, that it SHOULD fail, otherwise you’re certainly not striving for something as great as a unicorn.
Think of the implications of that culture of the experience you have raising capital. Do investors typically ask “what” and “how” or do they prefer “why” and “who”? In a culture where failure is avoided, returns are never likely as great, simply because entrepreneurs aren’t pushing hard enough – they aren’t trying to better Facebook or Google, they’re simply trying to learn from that success and do something good enough.
In asking first “what” and “how,” they aren’t seeking the unicorns, they aren’t seeking the risk taker and the dreamer, they are avoiding the risk and failures – is this business you are building clear, valid, and monetizable so that my investment is safe? Does your venture community stress revenue and being lean or does it stress market share and disruption? When 90% of startups fail, the investments in those “safe,” lean, revenue focused businesses lose focus on market share, innovation, and disruption and should they succeed, they’re worth far less, they can support employees but not truly reward investors and talent for their sacrifices. Their philosophy is different.
Perhaps you caught on to an underlying message in my exploration of how people deal with failure. More simply put, there, failure isn’t even a word; there is no fail. Investors are seeking the WHY and the WHO and those things can’t be wrong, only WHAT and HOW can be proven wrong and truly fail. Entrepreneurs who do what they love rather than trying to build a business with a product/market fit, can’t fail. Don’t misunderstand, they can be wrong, they can make mistakes, but they never fail; those entrepreneurs will endeavor in their venture until the day they die – it’s who they are. As a result, their businesses don’t really fail, they simply evolve (pivot). Perhaps a brand name shuts down, a company is closed, but the venture moves forward as the team reorganizes, revisits the market, and endures.
Of course, that’s not true of everything there and assuredly you can give examples to refute me. My point isn’t black and white, the point is merely an example to help understand the philosophy there. Investors invest more often, in greater amounts, because they will get a return of some kind, even if that’s just a great team or some partners who carry forward ultimately getting investors their return.
If you live in an ecosystem where WHAT and HOW are the questions asked, where entrepreneurs are encouraged to avoid failure, get revenue as quickly as possible, and stay lean, businesses fail. What and how can be proven wrong and when the entrepreneurs and professionals within the ecosystem don’t instead believe in why and how, a product/market fit proven wrong is the end of the line. Why? There are NO new ideas. Hopefully you don’t live in an startup community where NDAs and IP are still the norm – your idea is not new, your WHAT and HOW is not new. Rewards come from bettering the best, from the teams with the passion to excel.
But what does it take to transform an ecosystem from building businesses to building teams and dreams? It takes industry.
I have to chuckle, far to frequently, when I hear people tell me they are going to San Francisco to raise Silicon Valley capital. Does your community think in terms of it’s city, your city, or does it realize that Silicon Valley is distinct in that it isn’t about San Jose, or Palo Alto, or San Francisco, it’s about Silicon Valley – the cities are irrelevant. Indeed, the cities aren’t themselves sufficient to create an industry and I’d hazard a guess that neither is yours.
I’ve talked quite a bit about industry here, and the role that it plays in economies. In Austin, arguably, are the world’s eCommerce and Social Intelligence industries. We all know Texas is home to the oil and energy industry but those industries aren’t in Austin. What’s in San Francisco, alone, is insufficient to foster the culture and philosophy that we’ve discussed; the rewards that make startups work, but they don’t think in terms of the industries of their city – they think in terms of the industry of Silicon Valley.
Industry, experience, thought leadership, media attention, and public interest, gives entrepreneurs a distinct advantage simply be being where teams are easily made, mistakes avoided, and traction and market share almost a forgone conclusion because of the attention placed on the entrepreneurs and ventures within an industry.
Startups that would fail elsewhere find success in Silicon Valley for no other reason than the media covering things more prolifically, experience helping avoid mistakes, and old coworkers sill at it and partnering with you.
That doesn’t mean you have to be Silicon Valley, let’s be crystal clear, in fact, increasingly so is that you should not be in Silicon Valley because of the cost of doing business there, and their loss of the monopoly on technical talent. Your community exists within an industry, the question to ask is whether or not you realize it, whether or not the entrepreneurs embrace and support that, and whether or not ideas are prolifically shared to build teams, find partners, and even cooperate in competing with one another. Are you focused on your city and the success of businesses therein or are you truly working together, to develop an industry?
To leave you with a parting thought, I love the brilliance of Miguel Arias, a Spanish investor and mentor, in exploring the European community. Give him a read and ask if he’s not referring to the distinct culture, philosphy, and industry that makes unicorns possible, rewards greater, and startups work.