Hope can be a great thing. False hope can destroy lives.
Such is the case with what an esteemed colleague wrote on Fast Company about how startups should build the next Tabasco rather than shoot for the next Instagram. The idea is simple: build something that will last. Don’t shoot for the quick cash. Buyout should be an option, not a goal. Ideal world this, utopian society that.
The reality of today’s ultra-competitive startup world is that the quick in, quicker out companies like Instagram are the only examples that startups should be following. While it’s nice to believe that companies have an opportunity to build something that will last as Tabasco has lasted for nearly 150 years, it’s unrealistic. Here’s why:
Investors want returns yesterday
It’s not uncommon for investors to start questioning the future of their investments months after forking over the cash. They expect that whatever idea they heard that made them want to take a shot will translate into returns many times over in a short period of time. People who want to invest long term will hit the stock market. They’ll buy gold. They’ll sink their cash into futures.
They won’t invest in tech startups.
People who invest in tech startups are in it for one of two reasons: the money soon and the money sooner. There are a select few who definitely invest out of passion but even those noble souls want their money back and then some within a couple of years.
It’s a matter of recent history
When a Silicon Valley startup hits its 4th birthday, it’s either made it or it’s on its way out. Four years is an eternity in Silicon Valley. There is no patience because history has shown that any startup that lags in its returns or at least a promise of near-future returns will fail after 4 years.
The over-used phrase “jumped the shark” is the worst nightmare of any investor who hasn’t seen the money yet. MySpace jumped the shark and News Corp lost hundreds of millions. Digg jumped the shark and may be the rare case of rebounding. Most others who make it to their 4th or 5th birthday without turning a profit are doomed.
Long term is riskier
There’s simple math that can be applied that will make the entire Tabasco argument invalid. The longer a company must spend growing, the more likely it will be that they’ll hit a roadblock, trap, or competitive weakness. Nobody in tech can give more than a decent educated guess about what the various industries will look like in 2 years, let alone 5 or 10. Any plan that looks that far into the future is doomed if they’re trying to build in tech.
Technology outside of Silicon Valley is much more predictable. We know, for example, that the next generation of car will be more connected to the internet, have better fuel economy, and be more automated in diagnostics and corrections. The technologies that are being built today to those ends will be valid in 3 years, maybe even 5. Long term investments make sense there.
In computers, the internet, or social media, the entire landscape will likely look completely different in 18 months. Planning for something that is longer-term than that is foolish.
Wishes, dreams, and rewards
The concept and desire is not lost on everyone. There are definitely those of us who would love to see Silicon Valley companies that focus on the deep future, that are truly trying to build something the way that Bill Gates and Steve Jobs did in the early days of their companies. There simply isn’t enough patience in Silicon Valley or Silicon Alley investors to look beyond the immediate future. Their risk grows exponentially once their startups’ plans extend beyond 2 years.
Building is no longer a startup endeavor. The real innovations will have to come from established companies. Investors are there to take chances, but they’ll only take chances if they are sure there’s a chance of something special happening in 24 months or less.