Why do we teach founders that all startups must scale exponentially? Who decided that the hockey-stick growth curve is the only viable outcome for an emerging venture?
The era in which an app can be built in a basement and rapidly scale to millions of users with little marginal costs is long over. To achieve hockey-stick growth requires massive amounts of cash and even more good luck. I doubt that the basement-to-riches growth curve is even possible in today’s reality. The rules of the game are not set up to favor the startup entrepreneur.
I’ve coached hundreds of startups through the years, all outside the reality distortion fields of Silicon Valley and its Canadian equivalents. Only one startup I’ve coached has achieved the hockey-stick, and that’s because they decided to go to Y-Combinator and connect with the network in the Valley. I say good for them. It was the right thing to do for their market and business model.
But dozens of others whom I’ve coached are also growing very happily. They found the right growth curve for them, on track to meet the OECD scaling model of 20% growth per year for three consecutive years. They are vibrant, value-generating businesses that have achieved a sustainable momentum without spending time, money and effort chasing investors. They are a valued member of their market’s value creation chains.
I hear from founders who have an idea that can change the status quo for people, who then participate in the top business accelerator in my city and graduate convinced they have to raise a $1M pre-seed round before making any sales. This breaks my heart. Effort that would be better spent validating problem-solution fit and building the first version of their offer is now dissipated in the search for investors. Whether selling equity or signing SAFEs, they are still giving away too much in return for too little. Their belief in the myth of scaling leads them to mortgage their future.
The myth of scaling says that the only viable goal of a startup is to be a unicorn (or a narwhal for those in Canada). And the only way to achieve this goal is to hoard as much cash as possible as early as possible so that you can outspend everyone else to get to a scale where you are still losing money day after day (see Uber as the poster bro for this). The only people who stand to benefit from the founder’s hard work are the investors. Everyone else loses.
Being a startup is like being a baby. You don’t want always to be a baby. You want to evolve into a mature business that walks, talks and thinks for itself by creating and delivering value. Scaleup is the awkward puberty stage of a venture, a physical and mental transformation as the startup develops its foundation, skills and systems to mature as a viable company. The myth of scaleup leads to shortcuts to accelerate this growth; however, in the same way that steroids can damage young people’s health, the race for cash can set up a venture for failure.
The idea that the only badge of success is to be a unicorn is a fatal one. Too many otherwise good businesses are led to flounder and die because the DNA of their job-to-be-done, market, and business model is not intended to dominate the world. That does not mean that they don’t deserve to grow and generate value for those users and stakeholders who recognize the value they offer and who are ready to buy.
I intend to break the “founders and funders” mindset that leads too many founders astray. I want to inspire us to wake up from these unicorn fairytales, stop pretending as wannabe speculators, and do the actual, necessary and gratifying work of developing into enduring value creators. We need many more of these kinds of entrepreneurs and enterprises to grow our economy and society in these turbulent, unpredictable times.