An Entrepreneurial Counter Culture is Looming – The Startup Market is Not OK

There are more companies these days, but VCs are funding the same number of companies as before with the same huge expectations. Why not instead fund more companies with a lower amount of cash so as to not miss some opportunities.

My answer: putting all your eggs in one basket in a competitive environment will likely lead to better results than spreading the money out among a bunch of different baskets. Most startups are going to fail anyways, even with $200K of funding because the markets they are hitting are not that huge, not to mention all the other hurdles. What funding a bunch of different companies does is make a clear market winner harder to come by, which screws everybody. It's better if there was one clear winner sooner rather than later. My bet is handing out smaller investments like $200K would actually make the IPO market worse since most companies would get too tired to ever make it big enough to IPO.

The quick answer to why IPOs have not been good recently (other than the economy sucking): Sarbannes-Oxley made it very expensive to IPO with big requirements which means that the next best exit is selling. To sell, you have to get big fast to become attractive to suitors. Profitability/revenue is not a requirement/important for selling to a larger company (they use startups to cheaply get new talent and good ideas rather than quickly adding new revenue streams). So why don't more companies focus on revenue as a backup plan? It's very distracting and doing so means you might only scrape by. With such a do or die environment, the goal is not to create good businesses which will survive, just ones that will become great.

The good thing is that as it has become cheaper to run a startup, people have more options and can create self-funded sustainable businesses aimed at smaller markets. You won't become a billionaire doing that, but you'll get by. That's fine with VCs though, they are after big returns. If you are comfortable with creating such a business, by all means do so, but don't be pissed when a VC is not interested, even if it does make a little money. There is clearly room for both. If you do hit on a massive market opportunity, they can always catch up with you later.

So what is something like Y Combinator? It is a cheap way to vet companies for VCs and angels who see too many startups without enough information on them to make a good value judgement on whether they'll succeed. You don't need $200K to do that, you just need a small amount of money.

Maybe, but that isn't what "Technology, however, isn’t the driver any more for startups" means. "Technology" is a lot more than "scaling on the web", even in software based startups.

"Steve Blank would say there's Market Risk (will your customers want it?) but minimal Invention Risk (can you deliver it?). "

Steve Blank is also careful to qualify that statement with "for some types of startups" (unlike the author of this article, hence my "too broad a brush" judgment). Assuming every software startup, even when the web is used as an interface, is a "web 2.0" startup with minimal Invention risk is intellectual laziness.

"The scarce talent is business model engineering and product marketing"

This doesn't have any supporting arguments/evidence/data. sounds like something a non programmer MBA type person, for whom of course programming is easy and programmers are commodity hires (like say receptionists) would say. I'd like to hear a supporting argument for why great programmers, who are what startups are usually desperate to hire, are not "scarce talent", but marketing folks are. Sure, for some startups, that is no doubt true, but as a generalization it seems too broad, which was my point.

So yes I've read Steve's book too and like it a lot :-), but I don't think this dichotomy of risks supports the original article much.

I wasn't the one who came up with the idea for this feature. The initial version of IMVU had this feature, so it's at least 5 years old.

.... but if I were to interpret that sentence and edit it to better clarify meaning (which in retrospect, I probably should have done since I'm the site's editor), I would put the qualifier "most" in that sentence, so it would read:

"Technology, however, isn’t the driver any more for [most] startups."

We see that to be quite true when you look at the base building blocks of many web startups. They're largely the same underneath the UI, same development environments, same infrastructure, and many even run on common CMSs, and it's the positioning (i.e., the marketing) of the startup that's the key differentiator.

That marketing influences the community that floods the site, how they perceive the site, and thus how they use the site (which affects the iterative direction of the site).