Last week I read an article that says that Europe will be the next startup scene. It pointed out some numbers of successful businesses in countries like Slovakia or the Netherlands. At this point, the focus should not turn into the locations of these startups, instead, it should focus on their purpose as a business. And that’s where it gets tricky.
Here’s a few points that are defining the global business scene right know:
1. Remote collaborations.
2. Increased specialization
3. Self-investment: customers pay for the product (crowdfunding)
While we could write an entire book talking about specialization, what’s interesting here is to analyze the points of locations and investments.
On the one hand, even though geography used to be important in the past (if you were not in California you didn’t even enter into the game), today is becoming less relevant. Being in the right environment is critical to become the kind business you want to be, but specially in this decade, we’re seeing how startups grow from nowhere with remote teams from all over the world, and with less than a 100 bucks can reach millions of people. It doesn’t matter if big corps are calling employees to work at the offices and not from homes (just like Yahoo did several years ago and IBM just communicated). That won’t get them on the wage. And we have excellent examples of people with small companies and remote teams, doing excellent work, like the guys at Basecamp. Then moving to Silicon Valley is not a smart thing to do.
On the other hand, the important thing to consider about the startup scene, is that investments are getting out of hand. There’s no longer difference between Wall Street and Silicon Valley–their purpose is not building a sustainable business or change the world, it’s the Wall Street philosophy of getting a huge IPO and sell. (I know, it’s not new.)
We’ve got a problem. We all do. Talking about bubbles might be considered as a bubble itself. You name it in the way you want it, but the number of companies focusing on that are increasing exponentially. Dan Lyons in his book Disrupted describes this scene by his personal experience in a well-known startup, putting into context what’s out there. Investors look for startups with young founders, they put a lot of money and pressure seeking growth, aiming to a huge IPO. And while they offer company stocks to their employees, when the bubble bursts, investors and founders (maybe) get rich, while employees are the ones that get the worst part.
Let’s put some context in here with this map. In blue we have California, and in red, the only countries with a GDP bigger than California:
What does it mean? Every single investor is trying to get a hit in Silicon Valley. Wall Street is there too.
Here we should emphasize two points:
1.- Startups no longer seek revenue, they seek growth. There’s nothing wrong with the pursuit of growth, it can be a great strategy. But when the objective is to make as much money as possible in an IPO and then discard the company, you’ve built a house of cards and contribute to a fake model that spreads like cancer.
2.- People are treated like puppets. Make the world a better place they say. Sometimes I’ve been stupid enough to believe that this time was different, but these companies weren’t created to make you happier, they were created to make money by selling you. You’re the product they’re selling.
If you’re not paying for something, you’re not the customer; you’re the product being sold. —Andrew Lewis
To be clear here, just because a lot of startups are doing this doesn’t there are no left great companies. And the problem with this is that you create a model that future entrepreneurs aim for. Every young entrepreneur jumps seeking values that are getting out of hand. And since Silicon Valley is the highest failure ratio it’s something that should be aimed for.
The world doesn’t need the next Silicon Valley. We need the next doing things right. And in order to do that you’ve got to answer this question:
Where does money come from?
Because if you want to make the world a better place, you’ve got to make money first of all. You can’t pay the party if you don’t have money. And when you get investors money, in nine times out of ten, you’re doomed.
There are of course exceptions as always. Jeff Bezos has been increasingly over the years raising money, investing heavily into the business. He’s building a long-term-ambitious strategy. But he did his homework and figured out where money came from.
However, other businesses haven’t figured out that point, and it’s a shame that a lot of businesses answer that question with we’ll figure it out later.
And it’s not where it comes from, but also when. It should be mark in your calendar. Otherwise, you make the same mistake as any unicorn out there. If you keep repeating we don’t need money, only investors–that’s where you know you’re doomed.
As Seth Godin says: “If your marketing strategy requires you to hit #1 in order to succeed, you probably need a new marketing strategy.”
We don’t need to know where is going to be the next Silicon Valley. We need to focus on what matters and not become a variation of Wall Street.