How many start-ups are too many? At a time when we desperately need new jobs, what possible downside can there be to the current extraordinary wave of interest in launching new businesses, especially in the tech industry?
Quite a lot, if experience is any guide. We've had 'start-up bubbles' before, and although many great businesses emerged from each, they also left a trail of ruin and broken dreams for the vast majority of people who got sucked into the start-up vortex.
Don't get me wrong, I'm a huge supporter of start-ups: I've started 42 businesses in my own right and with others, and for eight years I ran a global incubation company that helped launch hundreds of new businesses world-wide. It's precisely because of that prolonged exposure to the dynamics of successful start-ups that (unfortunately) I foresee a train wreck ahead for many now moving into the start-up space.
Here's what happens when the froth surrounding start-ups begins to bubble up as it has recently:
1. Money gets easy (or easier)
That's a good thing, right? Start-ups need money more than anything else, so surely more money equals more good businesses get launched? Well, up to a point, Lord Copper.
For the truly determined entrepreneur, better access to capital is undoubtedly a good thing, yes. But the influx of Angel money that we're seeing right now also sucks in a lot of people who, frankly, aren't truly determined entrepreneurs -- they're more akin to bandwagon-jumpers. As Carol Roth, business strategist, investment banker and author of the book The Entrepreneur Equation says, "It's always tempting to jump on the latest trend, especially when a metric ton of investment capital is being thrown at it, but it doesn't take away the need to be the right person, or you will end up in that 90% of businesses that fail within five years."
2. Entrepreneuring becomes cool
The process of launching a successful start-up is at the most fundamental level a tortuous, obscenely exhausting, all-consuming wrestling match with mundanity and brain-numbing detail. Carrying the process through to a successful conclusion (getting out of what I call 'early struggle' into the first-growth stage, which I call 'fun') requires dedication and relentless focus.
One of the by-products of 'start-up froth' is that the need for that dedication and focus gets lost behind a veneer of sexiness. A lexicon appears (reappears, actually): words, phrases, models, concepts, theories, meetings, meet-ups, communities, practices... all of which are pretty and exciting and entertaining -- and yes, occasionally somewhat helpful to the determined entrepreneur -- but which also draw in the band-wagon jumpers: people who are fascinated by the sexy lexicon in and of itself, but who don't actually possess the key fundamentals to launch a successful new business.
In other words, becoming infatuated with the newly-sexy concept of entrepreneurship does not make you an entrepreneur. Carol Roth again:
"Truly successful businesses happen when there is a market pain point or need and a true entrepreneur brings a unique and compelling set of experiences and resources to solving that need. There is no easy answer or silver bullet in entrepreneurship; it's about leveraging your strengths and executing day-in and day-out".
3. The goal is lost
There is only one goal for any start-up: to find a profitable, sustainable market before the money runs out. Simple as that.
For any new business there is no future with any viability whatsoever other than to stop being a start-up. Successful entrepreneurs know this intuitively -- they know that when they are in start-up mode, their one purpose in life is to get out of the early struggle and get into the post-start-up, early-growth fun stage.
But guess what happens when money gets easy (or easier) and entrepreneurship becomes cool? When that happens it becomes possible to be so infatuated with hanging around in the 'start-up space' that the goal of leaving it becomes lost. I call the people that succumb to this "ESO's": Early Struggle Obsessives. They love the sexy vibe, even the drama, of being a start-up, and frankly, don't want to leave. They like the community, the camaraderie, the models, the blogs, the events, the war stories. Many times, they suck one startup dry (without ever getting it out of early struggle) then move on to another, leaving co-founders and funders sucked dry like an extra in a Twilight movie.
Bottom line: don't get sucked into entrepreneuring because it looks like fun. It isn't (mostly) and it'll spit you out like a mouthful of curdled milk. Get into entrepreneuring because you know you'll go crazy if you don't.