Startups: Tool for Economic Development?

Article originally published on June 2012 in Women 2.0 & The Next Woman.

In a sluggish economic environment, how do we generate quick economic development in societies where both skilled and non-skilled labor are predominantly outsourced?

The answer seems to be, launch a startup, raise some capital, come up with an exit strategy, give your investor a 30X return and repeat the cycle all over again.

I seriously question whether this approach is sustainable in the long run.

As argued by several investors and other types of “startup connaiseurs“, we will hit a point, sooner than later, where the cost of starting a business will be rapidly surpassed by the high cost of getting traction and keeping it sustainably. Then what? Go cry in grandpa’s shoulder to get some extra funding?

There are several flaws with attempting to be the next Instagram, Facebook or Groupon. Opposite to what the media portrays, it is not easy to follow these models. It is well-known that for every ten startups that emerge, nine fail. It just so happens that the media chooses to focus on those few examples that really make it big in a short period of time. Creating a brand and creating valuable customer experiences are processes that should take time to develop.

1. As a rule of thumb, value creation doesn’t happen overnight. Instead of focusing on pleasing investors via a fancy exit, startups should be focusing on improving the quality of their business and financial models. They should focus on creating sustainable revenue overtime. As a society, we can’t really create real economic development if we focus exclusively on intangible assets and non-existing revenues. It seems that a fair amount of new startup revenue models are advertisement-based. Forgive my ignorance, but I don’t see how this model can be sustained overtime. I used to be very much into Facebook three years ago. Currently, I spend at most 15 minutes on it per week.  I have never bought any services out of Facebook and I couldn’t tell you what their targeted advertisement looks like. I’ll be interested in learning whether I am the only dinosaur out there. It is possible.

 2. I compare today’s startup frenzy and its desperate desire for funding with the well-known desire of many women to quickly lose weight. Neurologically speaking, all species are coded to find the best possible solution using the least amount of energy. As such, many women try fancy diets, pharmaceutical products that promise an accelerated weight loss, surgeries and many other techniques that provide a quick return on effort. In reality, losing weight requires a change in behavior. Scientists have shown over and over that a change in behavior actually requires a change in brain patterning. This process does not occur overnight. Nothing in nature occurs overnight.

 3. Entrepreneurs should be focusing on growing businesses organically. What is the point of creating a startup as fast as possible if you will be giving a large percentage of equity away in your desperate attempt for funding?  Spending so much energy in growing quickly reduces the enjoyment of being an entrepreneur. Not all societies put such emphasis on quick large returns.

 4. The pharmaceutical business is a multi-billion dollar business because in large part, it relies on our human desire to solve an uncomfortable situation fast. We want to lower our blood pressure, kill cancer, stop smoking and overall feel better without putting the time and the effort that it takes to be healthy. Being healthy requires a tremendous amount of mindfulness and effort. Health, however, is the greatest asset that we humans can have. As entrepreneurs, we need to bring mindfulness back to our daily startup creation process. If you approach creating a startup in the same way as you approach being healthy, you might not need to frantically focus so heavily on whether you will have access to funding in the future.

 5. Emerging markets have always relied on creating organically grown businesses. Most people don’t know that slow growing small businesses are responsible for a large percentage of the world’s GDPs.

 I fear that developed nations are putting too many eggs on an unsustainable accelerated way of growing startups. An “exit strategy” should not be considered an end all be all.