Time to Start A Company?

Business cycles get lots of press. But what about the cycles that characterize the business press? Could it be that business journalist group-think rises and falls in concert with interest rates and housing starts? How else to explain a rash of recent articles stating that "times are tough, therefore starting a company represents a greater leap of faith than ever?" That’s certainly the subtext of several recent articles that attack the straw man equating a moribund economy with lackluster startups.

First we have Stewart Alsop, a smart guy whose recent Fortune column thumbs his nose at those clueless East Coast editors who are apparently taunting him that entrepreneurship (which means technology-based activity, natch) is over. Nonsense, says our pundit: thousands of fledgling Silicon Valley behemoths are slouching towards Beta-hem to be born. "Silicon Valley’s next new really big companies are already being incubated," he boasts.

Also flogging this dead horse is a Wall Street Journal article touting Barry Cottle, a 41-year-old father of four who shucked a cushy job at Palm to launch a startup that fills a complementary niche for PDAs. Unlike entrepreneurs of the past few years, gee-whizzes the writer, poor Barry has had to husband resources, staying in cheap hotel rooms and sometimes even driving rather than flying to business meetings. But this sacrifice may well be worth it. The months of not seeing his family and taking no salary promise potentially huge payoffs for Cottle, and, by extension, society at large. "Again and again, whenever Silicon Valley has been left for dead, tenacious entrepreneurs such as Mr. Cottle have revitalized the area with new ideas and inventions."

Somebody say amen.

Or at least take a breath. Just who says that startups are dying on the vine in today’s challenging economy? Business starts are, and always will be, countercyclical. When companies are expanding in a growing economy, they tend to hire many of the individuals who might be considering the leap to their own venture. Promising entrepreneurs see more growth options joining fledgling gazelles than in launching entirely new ventures. Conversely, in tougher times, more individuals consider launching their own company as an attractive alternative to corporate life. They see more security in creating their own job than clenching at one that can be arbitrarily severed at any moment.

There’s something else going on with these articles (and others.) Could it be a prevailing bias that entrepreneurship is synonymous with fearless garage nerds whose gadgets will Change The World? (Gosh, didn’t this misty-eyed approach get a few folks in trouble about five years ago?) Far too much of the business press is simply bored with the vast majority of entrepreneurs—people who toil humbly on a daily basis chasing a simple opportunity that generates cash and enables them to stay connected to something they care about. It’s more exciting to place blind faith in would-be entre-celebrities.

Personally, I believe that the state of the startup is stronger now than ever—but in a humbler and more authentic manner. Why? First off, the Internet crash left a lingering bonus: a healthier spirit of entrepreneurship among millions of people who believe that they can launch a business…but are sensibly tempering their expectations. Some have actually learned lessons from the recent Internet Economy mania. Like: nobody gets rich on the basis of a good business plan; and short-term venture capital rarely produces long-term wealth.

In fact, the vast majority of successful startups follow a few basic rules. They husband resources. They fund growth through internally generated cash. They focus on meeting the needs of real customers who pay for goods and services from day one. Such are the findings of my favorite academic in this field, Amar Bhide, who year after year proves that the vast majority of successful startups (including many of the best-known technology companies) fall into this category.

Alsop’s column contains a lovely insight: that radically new technologies (such as railroads or electricity) take years to become assimilated by an economy, and often leave scores of companies in the dust. I agree, but think that folks focus on the wrong entrepreneurial thread from this theme. Rather than constantly seek the statistically miniscule companies that might grow explosively into big companies, one should look instead at how the continued expansion of information technology changes the ability of every entrepreneur to produce and market wares in an increasingly interconnected world. (see an article I wrote on this for the Industry Standard.)

It’s fun and sexy to equate all startups with high-tech high-risk ventures. But this coverage reminds me a guilty pleasure of mine, the TV show American Idol. You have 12,000 hopeful stars out there who try out before three judges who make instant pass/fail judgements, all so that ten members of this group can do a talent bake-off for ten weeks to choose a winner—an instant star. It’s kind of like suddenly landing $100 million in venture capital by writing a great plan and charming the bankers. But hey: successful musicians hone their talent and build an audience gradually, just like most startups create customers over time. We can’t all be VC-backed change-the-world-withgeewhiztechnology heroes. And we shouldn’t.

Writing about wannabe tycoons seeking to change the world and create billions is easy. Finding the drama and meaning in the daily struggles that most entrepreneurs face is hard. And, more important. I think more articles should inspire entrepreneurs to focus on a few solid principles. Focus on what you love. Find a winning business model. Execute. Persevere. Breathe.

Posted by tom at 02:03 AM | Comments (0)