A Little Hardship Goes A Long Way
In response to my last blog post about the startup ecosystem in Europe, my good friend John Girard, CEO of Clickability, sent me the following thoughts:
Here's the flip side: when you have a little too much help, you do more harm then good. Two examples: (1) small business subsidies don't work and (2) "incubators" suck.
You can see evidence of #1 in a lot of Europe. It's not that they don't want start-ups, but they have gone about seeding them in a bass-ackwards way. Money given away to small biz is money thrown away. They haven't figured out the incentives yet in any real way.
For #2, look at the incubator craze in silicon valley in 99/00. Granted there was a lot of air in a very big bubble, but my pet theory is that incubators made it far *too* easy for companies to start-up, and as a result otherwise good, capable companies tanked.
The reason: it just wasn't painful. And without pain, there is no resourcefulness. And without resourcefulness, there is no growth. I remember going to a meeting with a semi-competitive company back in 2000 that was being "incubated" and seeing all of the aeron chairs and the foosball table(s) and thinking "these guys are screwed." And in fact they were. . . Meanwhile, we were eating top ramen and had 9 people working out of a $1500 a month apartment in the mission (where 3 of us were also living). Now we're not microsoft yet, but we have certainly outlasted those other punks :)
There is little question that John and Clickability have done a great job of making it through the nuclear winter that was the early 2000s and building a meaningful and growing business while many of their competitors, incubated or otherwise, have disappeared. But I have a different theory about incubators.
It isn't necessarily a problem that incubators make things too easy for startups. The problem is that they don't promote true independence. It is one thing when an incubator provides fungible services (accounting, HR, etc.) to its companies. It is another thing altogether to provide help with core functions like strategy, business development, engineering and the like. These are critical skills that each startup requires, independent of the incubator. Yet, often times, those areas are supplemented by resident executives from the incubator. Sure, those execs may do a great job in the roles, but they will not be members of the permanent team and are therefore doing a disservice to their incubated companies by playing any core role whatsoever. When it comes time for the baby bird to leave its incubator nest, it won't actually know how to flap its own wings and, rather than soar, will fall like a rock.
Regardless of what are the true failings of incubators, I ultimately completely agree with John. Traditional incubators and economic grants can do more harm than good to a startup culture when there is not already a well-engrained and robust entrepreneurial ecosystem upon which these startups may grow and thrive.
I love the bird metaphor... Makes me think of "Are you my Mother," except this time it'd be ill-prepared entrepreneurs wandering around going "are you my business model?"
"Um, no, I'm a snort."
As a European Entrepreneur(otic) = multiple start-ups and a successful IPO in London. I had the pleasure (and pain) of raising money in the Dot.Con era for a pharma start-up when everyone was getting money for adding ".com" to their crazy idea. It wasn't easy and it wasn't with any incubator or government subsidies.
Bottom line it was an Irish ex-plumber ex-investment fund manager (still have my qualifications in HVAC) Entrepreneur, returning from UK, funding three Czech Scientists in Prague, for a technology that stopped bleeding and had potential for other medical benefits that ultimately delivered 44 global patents.
But back then to investors it was simply a nutter with a vision that did not include ".com".
400 shareholders before IPO (Initial Panic Offering)
Funding was beg, borrow, scrape, cajole, avoid the revenue sheriff, or whatever to get the company over the line and eventually IPO.
Survive or Die
Therefore I absolutely agree without the pain, the slow burning, the long nights and early mornings starting from a kitchen, moving into a few rooms above a Pizza parlour there would never have been products around the world with the technology in them...
Soft-loans totally mess up a start-up (see German Biotech Industry as a classic example).
The current start-up I am involved in, Guru Manager has been passed for government support, but the costs associated with the grant were too expensive. With out-sourcing around the world, I save many hundred of thousand dollars. Had I taken the grant, I would be resitricted to hiring local labour at 8 times the cost for the same expertise.
With India out-sourcing growing at 32% in the quarter April-June 2006, start-ups are no longer required to be in physical clusters when you can have your expertise 2 seconds away or 36 hours by DHL.
I envy the start-ups in the Bay-Area as you describe in your post, but acknowledge that most Entrepreneurs are somewhat pioneers and used to getting along just fine and work on the basis of "some you win, some you lose - and maybe one or two you make a killing"
Regards, Gerry Brandon
As a European Entrepreneur(otic) = multiple start-ups and a successful IPO in London. I had the pleasure (and pain) of raising money in the Dot.Con era for a pharma start-up when everyone was getting money for adding ".com" to their crazy idea. It wasn't easy and it wasn't with any incubator or government subsidies.
Bottom line it was an Irish ex-plumber ex-investment fund manager (still have my qualifications in HVAC) Entrepreneur, returning from UK, funding three Czech Scientists in Prague, for a technology that stopped bleeding and had potential for other medical benefits that ultimately delivered 44 global patents.
But back then to investors it was simply a nutter with a vision that did not include ".com".
400 shareholders before IPO (Initial Panic Offering)
Funding was beg, borrow, scrape, cajole, avoid the revenue sheriff, or whatever to get the company over the line and eventually IPO.
Survive or Die
Therefore I absolutely agree without the pain, the slow burning, the long nights and early mornings starting from a kitchen, moving into a few rooms above a Pizza parlour there would never have been products around the world with the technology in them...
Soft-loans totally mess up a start-up (see German Biotech Industry as a classic example).
The current start-up I am involved in, Guru Manager has been passed for government support, but the costs associated with the grant were too expensive. With out-sourcing around the world, I save many hundred of thousand dollars. Had I taken the grant, I would be resitricted to hiring local labour at 8 times the cost for the same expertise.
With India out-sourcing growing at 32% in the quarter April-June 2006, start-ups are no longer required to be in physical clusters when you can have your expertise 2 seconds away or 36 hours by DHL.
I envy the start-ups in the Bay-Area as you describe in your post, but acknowledge that most Entrepreneurs are somewhat pioneers and used to getting along just fine and work on the basis of "some you win, some you lose - and maybe one or two you make a killing"
Regards, Gerry Brandon
I just posted a comment about a similar topic on my blog a little while back about making do with your existing capital titled, "Why all the fuss over financing?" Despite the natural tendency to rush for as much funding as you can get your hands on - raising money can definitely make one "fat and lazy" - and if you raise enough money to get a nice office - you don't have a chance!
This is a great post... I started working for an incubator a few months ago, which then made the hard decision to shutdown and push the startups out, sink or swim style.
In our new company, we're still working on swimming. (We've had no funding since... mid-July) But it's not just the money-- we're learning how to be a business, too. I think that, as you explain, if an incubator shields the entrepreneurs too much from the pains of standing on their own and operating successfully, they also kill the new endeavor's ability to BE a real business.
However, without guidance and direction, new companies kill themselves by making simple & avoidable errors that more experienced business people already know and would prevent.
Maybe a better alternative is for new startups to take advantage of local/state/national organizations, individuals, and literature that mentor entrepreneurs, but don't baby them through the process. A bit of support, a lot of pain, and then survival of the fittest takes over to weed out the ideas and organizations that can't learn to operate & support themselves long term. ;)