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The Startup Racket

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"Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket" - attributed to Eric Hoffer.

I'm a startup junkie -- I love everything about how people can form together into small teams and change the world. To me it's the great untold story of the 20th and 21st century.

I also love writing. I have been a writer in some fashion or another for over 20 years, and loving every minute of it.

When I first started being serious about writing, I bought a copy of "Writer's Market", which would tell you where you could sell your writing. I subscribed to magazines like "The Writer" which educated me on all things a professional writer does and is. I attended conferences about being a writer. I sought out advice on how to submit, how to query, what to do or say and what not to do or say.

And a funny thing happened.

First, I became slightly successful. I wrote for local newspapers, regional magazines. Heck, I even did an interview of Clive Barker for High Society magazine. I realized that as much as I loved writing, it was a long haul and being rich probably wasn't in the cards.

Second I realized that I was consuming a vast amount of total crap in all the literature about writing. Take stories about what editors want. Some editor would write 500 words about what he wanted -- short cover letters, strong hook, yadda yadda. But what did he really want? He wanted a story to sell magazines. The story he was writing all kind of boiled down to "Don't pester me kid. I get a hundred like you every day, so write short letters, don't call, use an agent, do any freaking thing except for pestering me. I don't have time to sort through all of this junk I get"

Then there were the people who tried to sell me on making a living writing children's books. Or how-to books. But only if you paid them $99.95 for the full course. The deal here was that gee, there's no way all these folks are successful children's writers -- so where is the real action? The real action is selling courses on how to be a writer, not actually being one.

Lately, however, as much as I love startups, I've been seeing the same thing in the startup culture. As well-meaning as most people are, it's more of a racket than a help.

I read a recent post about "traction" -- the idea that your business is gaining more and more customers as time progresses. It was titled something like "How much traction is enough to talk to a VC? If you have to ask, you don't have enough"

Now this is like the bank saying in order to get credit you should already have plenty of money, or the editor saying that in order to pitch him you should already have an agent. It boils down to "Go do it on your own, kid. Then maybe we'll talk"

Nothing wrong with that advice. In fact I agree with it. But a VC's job (and an editor's) is to go through the slush pile and find gems that are going to help them grow. Only nobody wants to do that. It's too hard. Instead, everybody wants to find folks already succeeding and then pile on. Might make for a great bandwagon experience, but it's not being a VC (or angel)

Another article was about how to find and introduce yourself to an Angel. The gist? Already have a business making some amount of money, then use a personal connection to find an Angel. Once again, great advice -- lord knows if you are already making money and have a personal "in" with an Angel that's going to make the introduction go much better, but haven't we forgotten something?

If I'm making money, I'm not looking for cash to start a business. I may be looking for cash to grow a business, but I'm not looking for cash to start one.

Everybody wants the deal all wrapped up with a bow -- personal recommendation, cash flow, traction. Perhaps the founders have a lot of "moxie" or do a good interview. But the job description of venture investing is all about risk, not social engineering. If everybody goes for low-risk, highly social-engineered deals, what's the point? There's only so much room out there on that end of the spectrum guys, and it's already overcrowded enough as it is.

I spoke with a group a few months ago that was doing "early stage investing, covering the gap between FFF money (Friends, Family, Fools) and traditional angels"

First thing they told me? They wanted a business to already exist, have income and traction. By the way, they were really looking towards more high-end investing, say in the millions of dollars.

I'm seeing more and more websites -- some that require payment -- dedicated to showing you how to run a startup. More and more books about the magic forumla. More and more conferences and get togethers. More and more places where startups pay to be able to show their product.

There's lots of good people out there, even involved in all of these activities. But from the customer's standpoint, from the standpoint of whether it makes sense to invest time and money in all of this, there are a lot of rackets too -- places where you'll spend much more time and money than it's worth. After about the 100th founder's story you've read, at some point you should be doing some serious thinking.

At the end of the day, writing is about writing. You write because it is part of who you are. Startups are about startups. You create value from nothing (or attempt to) because it pleases you.

The goal here is to fail fast and learn, not to get a PhD in startups. PhDs in writing don't make any money, and PhDs in startups probably don't either. While the industry around startups will tell you they have useful information, most of them don't have a clue. It's like the guys writing "how to be a great writer" books. Totally worthless. Worse than worthless, because you waste valuable time consuming them. People get into this author and hero worship mentality and forget what startups are about.

I'm not down on the industry, and I apologize if this was a bit of a hurried rant. Most everybody I know in the how-to startup business means well. It's just that the industry has a lot of hidden flaws. Perhaps it's time to get them out into the open.

8 Comments

Thanks for expressing this, it needed to be said. When I started up my own PC repairs business, I was gunned at by a whirlwind of salesmen going for a stab at my start up business egg (a grand). They target new businesses as soon as you register with company house (UK).

My first 2 business customers, a plumber and photographer who had also built up their businesses from scratch told me it would take me 10 years. Simple as that, they were right. It was the only useful advice I got, and I got plenty of advice from all sorts of agencies.

Good post. For forever there will always be a content-overflow problem, everywhere. I think we're growing and adapting past the 300-page business book in some cases (Rework, Ignore Everybody), but similar progressions have to be made where even the blog posts supplying advice should be restricted to those who are worthy of giving it, as it is often difficult to make that assessment.

There have been blogs about blogging and writers who teach about writing and startups who claim to help startups forever.

As long as you avoid these guys and make sure to worry about your own business as well as you know how you might just be alright.

Good stuff, Daniel.
But wouldn't you say, the learning process for anyone is all about learning to sift through all the bullshit and find the gems?
There's a ton of advice out there. Almost none of which is applicable to you. But, if you sift through it, aggregate it, and continue to gain experience, you'll start to connect dots.

I like the writing/startup analogy (probably because I'm a writer and entrepreneur.) In my book, doing a startup is an act of creativity.
So this leads me to another side of these thoughts: By default, you can't teach creativity. So probably the best way is to go cause a ruckus and see what happens.

Kevin,

Good comments.

Perhaps in areas like this people absorb information from everywhere -- books, videos, blogs, etc, until they reach a point of understanding all the major patterns. Then, when you see an author starting down the same old path again, you realize that there are only so many ways to skin a cat. Or in other words, your career probably really begins once you start being able to sort out the useless from the useful -- at least to you. That doesn't mean you're going to be hugely successful. Not everybody is going to be Hemingway. But it means that learning the "meta" stuff is a finite game.

Along with this, some folks quit trying to learn the subject and instead just hero worship. That's cool too, but I think to master a subject not only do you need a deep appreciation for the masters, you also need a healthy skepticism. Everybody puts their pants on the same way each morning. Without this skepticism it becomes difficult to toss out information that is not worth your time.

The interesting thing here is that the gatekeepers in all of these sectors behave somewhat irrationally -- they pick previous winners instead of newbies, they go with the herd mentality, they create huge hurdles to prohibit access in order to make their life easier, they expect to minimize risk beyond what is reasonable in the venue they are in, etc.

I think to succeed you have to transcend the gatekeepers -- create something of value from thin air, talk about it, and let what happens happen. Sure, you can always be walked into a deal, and you can always be walked into a story, but the better strategy is just to learn to write well and don't worry about it. Once I realized I could never expect a break from an editor, I got a lot more practical about my writing and marketing efforts. It was a sobering moment. Kind of reaching the same place with the startup culture.

Haha, this is so true.

"But a VC's job (and an editor's) is to go through the slush pile and find gems that are going to help them grow. Only nobody wants to do that. It's too hard. Instead, everybody wants to find folks already succeeding and then pile on. Might make for a great bandwagon experience, but it's not being a VC (or angel)"

This part reminded me about a friend. He is a developer like me but every now and then says that he wants to eventually be the "idea guy." He doesn't want to do the programming, he just wants to come up with the ideas and have other people do it.

I respond by saying "So you want to accomplish but without doing any work?"

I guess that's the dream of most people no matter their background - become successful and rich without doing any work.

This is a good read for any budding entrepreneur, the conclusion is something I think everyone should take to heart, but in the middle part you're too hard on investors.

The job of picking gems out of the unproven hordes of starry-eyed wannabe founders is not just "hard", it's impossible. I'm not saying that the requirements of traction or revenue you cite anecdotally here are the right bar. But if someone wants to get funding without having a personal connection to vouch for them, then they better have at least proven they can execute.

If you don't have an existing track record or connections then you need to get your hands dirty first before you go looking for funding... build something cheap, work at a startup, build domain knowledge in an under-served industry. I don't care what it is—each path to success is unique—but I have no sympathy for anyone living the US wanting to do a startup who complains about not getting funding. It's not anyone's responsibility to fund you, you have unprecedented opportunity and low barrier to entry of any time or place in history, so just go out and do it already. If you have what it takes you can bet VCs will be tripping all over themselves to fund you soon enough. Being an entrepreneur is about overall resourcefulness and dedication, not an elevator pitch. There is luck, but no shortcuts.

Gabe,

Thanks for the comments and the defense of investors and praise of living in the states.

Just to be clear, this is NOT meant to be whining about not getting funding. The point here is that, at some point, you realize that the entire genre of startups is a freaking long-shot no matter how you slice it. Investors have figured this out and have set things up so the pain is as easy to take as possible. So when they write how-to articles about getting funding, they're simply conforming to the pattern that their segment has established to make life easier on them.

And it's not just investors. One of the killers here is the role that chance plays. Let's say for every "perfect" startup candidate you only have a 1-in-10 chance of hitting paydirt. So, by definition, even though you do everything right, only 10% of the time you're going to make it.

That means that if you are a successful startup and start sharing what you did to be that way, there's a hell of a lot of hidden selection bias going on in your advice -- and most of the time it's not clear to you that this is the case.

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This page contains a single entry by DanielBMarkham published on April 27, 2010 1:41 PM.

Will "White Flight" Strike the U.S.? was the previous entry in this blog.

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  • DanielBMarkham: Gabe, Thanks for the comments and the defense of investors read more
  • Gabe da Silveira: This is a good read for any budding entrepreneur, the read more
  • Matt: Haha, this is so true. "But a VC's job (and read more
  • DanielBMarkham: Kevin, Good comments. Perhaps in areas like this people absorb read more
  • Kevin Vogelsang: Good stuff, Daniel. But wouldn't you say, the learning process read more
  • Stacy Manners: There have been blogs about blogging and writers who teach read more
  • Ross Hudgens: Good post. For forever there will always be a content-overflow read more
  • Colin Copley: Thanks for expressing this, it needed to be said. When read more

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