May 29, 2014
Like all passionate communities, the startup scene has a gospel. But according to entrepreneur and advisor Paul Orlando, we shouldn’t listen to the Silicon Valley preachers.
“There is a mainstream story told across the startup world that may hold true for the few lucky ones, but which doesn’t always hold true for the rest. But ‘the rest’ represent the majority of the startup community, although they receive minimal attention,” he writes. “For many of them, the mainstream story is harmful. Let’s change that.”
That story includes where you should startup and what your goals should be. It includes which experts you should listen to and where you should get your funding. It’s a script that many entrepreneurs unconsciously follow.
Most recently, Orlando started an accelerator in Hong Kong and refined some of his sacrilegious ideas about what makes a startup scene great. You can read about them in his book Startup Sacrilege for the Underdog Entrepreneur, or check out the interview below to learn what’s wrong with tech celebrities, big exits, and accelerators.
Tech Cocktail: Why should local startups scenes ditch the obsession with tech celebrities?
Paul Orlando: One reason, especially for the smaller tech locations, is that startup celebrities don’t invest in the success of the locations they visit. They don’t stay behind and invest financially, spend much individual time with companies, or have anything on the table so that it is in their interest for any location to grow. They are usually only marginally aware of local conditions. Of course there are exceptions to this description, but it’s safe to say that startup celebrities don’t know as much about your community or your work or do as much for it as the locals.
I say develop your own local heroes who understand local community conditions and who can make things happen. These local heroes can come from outside the startup world.
Tech Cocktail: Startup lore tell us you should aim for a big exit. What’s wrong with that idea?
Paul Orlando: Think about who is better served by going for the big exit. Is it the founders, who can still earn life-changing returns from a smaller exit or who can succeed by just running their business? These are the people who may lose everything if they raise more capital and try to scale massively to take a shot at a big exit.
The entrepreneur may be satisfied with a smaller exit, but the investor often is not. The investor wants the big hit and may need it more than the entrepreneur. The “typical” tech investor would rather invest in a series of low-probability/high-valuation-potential startups than put the same amount of dollars to work at high-probability/low-valuation-potential startups. Startups who go for smaller goals are accused of selling out early.
I suspect that many more entrepreneurs than admit it prefer a likelier moderate success over an unlikely gamble on a big win. At least, that’s what I’ve heard from founders privately. Those going for big wins talk about it openly — that’s what’s expected and it sends the desired signals to the market. But many startup entrepreneurs, even though they operate scalable businesses by default, often prefer to have sustainable startups, even if that means they are smaller startups. That option really only exists for those who bootstrap. The term “lifestyle business” (itself a mischaracterization) is an epithet because the term is framed by investors as unattractive and small-thinking. True, this may not provide an investor a good ROI, but it may provide a good, stable business for a team.
We know that going for the big win doesn’t pay off often. About 75% of startups don’t return investor capital and 95% don’t reach growth targets, according to industry research. Premature scaling, which you can only do with funding, is the biggest reason behind startup failure.
Tech Cocktail: What’s wrong with the traditional accelerator model?
Paul Orlando: Accelerators help a lot. But there is a lot to be gained, especially in smaller tech locations, by avoiding the generalist accelerator model to instead build a program with specialist knowledge and grounded in advantages of the local area. I’ve spoken to accelerator program founders who connect local manufacturing resources with a hardware accelerator, or who connect health care industry knowledge with a digital health program or even here in Los Angeles, playing to the strength of the media industry in the MediaCamp and Disney Accelerators.
So, stop trying to build another Y Combinator and build something that works for your location instead. Otherwise, you see generalist programs unable to help move their graduates on to the next level, be it funding, customer growth, or revenue targets. Having a great demo day presentation should not be the goal of any accelerator startup. Instead, the goal should be to grow a business.
Tech Cocktail: What are the advantages of starting up in an underdog city?
Paul Orlando: As entrepreneurs I know who locate themselves in places of natural beauty, from Southeast Asia to northern Canada, you can avoid the noise of the tech hubs and keep your costs way down. In those locations, if growth capital is not an issue, you can either build a distributed team or hire locally as a big fish in a small pond. If you can be creative about it and be willing to ignore conventional wisdom, there are opportunities for you everywhere. I even had one serial entrepreneur tell me that once he established himself, he chose to build outside of the tech hubs because he could still attract talent and his investors did not require him to stay close by.
Tech Cocktail: Why does the startup world have a gospel in the first place?
Paul Orlando: I take “gospel” to refer to the unquestionable facts we accept even when there may not be proof. “Startup gospel” is a reaction that comes from trying to make sense out of the opaque situations and unpredictability of the startup world. Humans seek clarity, cause, and effect and will invent explanations when none are known. It’s a natural reaction.
But when a gospel emerges, it also means there are opportunities for those willing to do something other than what the crowd takes as accepted fact (and possibly risk looking odd for doing so).
While there is a lot of talk and writing interpreting the startup world, much of it is skewed toward gut reactions and hearsay or even the interests of specific groups. That’s understandable since there is limited good data available for private companies and investments in an environment of change. As a result, even though people talk about startups all the time, the talk is skewed toward commonsensical platitudes that can apply in any situation. And like financial market experts, predictions and explanations are rarely reviewed after the fact to see how good they were.
Instead, the startup world should embrace the unavoidable uncertainty and founders should be willing to act counter to conventional wisdom. Some founders do this already, even if they outwardly present themselves as operating within accepted wisdom.
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