Sledgehammer's Cycles

Sledgehammer's Cycles
Sledgehammer's Performance and Custom Cycles

Monday, November 12, 2012

The end of growth

Via Aretae (whose wife just had a baby, stop by and wish him well) I found a very interesting site discussing the core dynamic of startups:
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.

If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.
I've spent the last 15 years in Internet Security startups, so have some experience on the topic.  This is absolutely correct.  I remember one of the company executives telling me in pre-IPO days that they were being careful "not to go profitable too early" - that sounds incredible, but when you consider that the decisions you make that help you be profitable are sometimes in conflict with decisions that make you grow, it makes complete sense.

Of course, if you don't get growth, the whole thing falls apart, but that's part of the startup game.  High risk, high reward when you win.  I've seen both sides of that, and it's what you simply don't ever get working for the Government (which is low risk and stasis - this year looks a lot like last year).

Well, we're seeing the end of the high tech revolution that began in the 1980s.  What fuels startups - what allows them to run in the red in pursuit of crazy growth rates - is Venture Capital.  That's drying up:

When the National Venture Capital Association in July released its second-quarter MoneyTree report, which tracks nationwide investment by VC firms, the only bigger bummer than the industry's ongoing slump was the fear that things would look even worse in the third quarter.
Mission accomplished. With investors feeling cautious amid a slow economic recovery, venture funding dropped in the latest quarter from the previous three months, according to the most recent NVCA report.

Venture firms invested $6.5 billion in 890 deals in the third quarter, according to the report, which the association prepares with PricewaterhouseCoopers using data from Thomson Reuters.

That's down 11 percent in terms of dollars and 5 percent in terms of deals from the second quarter. And it's substantially down from the third quarter of 2011, when $7.3 billion went into 992 deals.

Nor was the MoneyTree report the only industry tracker that reported declining investments in the third quarter. According to a rival survey by Dow Jones VentureSource, the number of venture investments in U.S.-based companies dropped 32 percent in dollars and 9 percent in deals compared to the same quarter last year.

A 32% decline in dollars invested will translate into a roughly comparable decline in startup activity.  The regulatory climate is what's doing this, as the evil businessmen are targeted to "pay their fair share".  And that's Q3 numbers.  Just wait to see what Q4 looks like as said evil businessmen look to shield assets from the new year's tax regime ...

But then, government is really all about the next election, isn't it?  Politicians don't care if they kill off the last remaining vital industry in the economy, so long as they have plausible deniability to dodge the blame.  Philosopher Kings.

Expect more "unexpected" bad economic news over the next decade, not to mention a bunch of chin tugging "How did the rest of the world pass us by in Internet technology" from the Usual Suspects.

1 comment:

drjim said...

I've also worked for several start-ups, and found the experience less than satisfying.
Of course I wasn't the person starting the company, so I suppose I have a very different point of view, or maybe I just picked the wrong ones to help get going.
In two out of the three I worked for, the owners were some of the most immoral, lying, cheating, bastards I've ever met in my life.
The third one *was* a very satisfying experience, and that owner was also a mentor of mine.
Strangely, his company did far better than the other two, and with far fewer legal problems.
I understand about making decisions that may seem deluded at the time, or totally bass-ackwards from what would "seem" to be the right thing to do. The ability to look far down the road will determine those decisions, even though most of the workers might not understand them, and not all owners have the same ability.
In two out of those three companies I worked at, I got screwed out of overtime, promised bonus, and my out-of-pocket expenses. I watched the owners of those companies lie, cheat, and (literally) steal their way up their ladders.
Guess maybe I'm a far better Engineer than judge of character, but the experience has left me very wary of ever working for a start-up again.