Why startups aren’t cool

Many people think startups are cool. This post will tell you they are not. It will tell you that being a startup is something to be avoided. In the process you will learn about nuclear research, the birth of the world wide web and meet the first cool tech founder. In the end, founders will know what to focus on. Focus is everything. Do it.

The bombing of Hiroshima and Nagasaki started a war. A war that is still being fought today.

The instant cremation of thousands of people from only 64 kg of uranium highlighted the power of science and technology.

Europe was quick to respond. In 1954, twelve European states met and formed “Conseil Européen pour la Recherche Nucléaire”. Or more commonly known as CERN.

CERN was created to make Europe leading in nuclear research. To win the war of science and technology. But fate had another plan for CERN. It would make tech startups cool.

The first of the cool

Ten years before startups became cool, a CERN employee made history. Tim Berners-Lee invented the world wide web.

Tim was proud of his invention. He described it in detail, but only few people took notice. Among the few was a young American. His name: Marc Andreessen.

Marc was a geek. The opposite of cool. But that was about to change. Because Marc would do something no one had done before.

Marc took Tim’s invention and created the world’s fist popular web browser. Mosaic. But equally important, he became the first young tech startup billionaire. In 1996, Time Magazine had him on the cover. Marc Andreessen was 25 years old.

And so it happened. Tech startups became cool thanks to CERN and Mark Andreessen. Today, Silicon Valley is a hit series on HBO, Snapchat founder Evan Spiegel is dating Hollywood star Miranda Kerr and fashion model Tyra Banks invests in startups. But startups were never supposed to be cool. In fact, they are as uncool as can be.

Startups are Marky Mark

Steve Blank has the following definition of startups: A startup is a temporary organization used to search for a repeatable and scalable business model.

The key word here is temporary. A startup is temporary because it doesn’t generate enough revenue to sustain itself. This situation only has two end-games. 1) the startup closes down 2) the startup begins to make money.

Either outcome is actually good. If the startup cannot find product market fit, the best thing is to close down as quickly as possible. If the startup finds product market fit and make money, it morphs into a business.

The startup phase should be as short as possible. But the recent hype around startups creates the opposite incentive. To embrace the startup identity.

The startup identity lures founders into a dangerous reality. A world where it’s okay not to have revenue. Where failure is accepted. Where burning cash is natural. But where press, cool conferences and C-level titles are abundant.

The startup reality is deceptive. Like teenage life. No responsibilities and many parties. It feels cool, but adult people know it’s not. Its a phase that you need to go through. Mark Wahlberg (in the picture) would agree.

Instead of embracing the startup identity, excellent founders do the opposite. They shun PR, conferences and fancy titles. They know it’s a dangerous waste of time.

Excellent founders do the uncool. They do cold calls, suffer tons of rejections, sacrifice friends and family, assemble Ikea furniture in the middle of the night. They forget about saving for pension and delay buying a house. They hustle and barter. But most of all they worry.

They worry about being startup. They want to grow up. Like Marky Mark.

Conclusions made:

  • The startup identity has become cool.
  • The startup reality lures founders into embracing the startup identity.
  • Excellent founders focus on becoming a business.

Check out Accelerace. We invest in tech startups.

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Why central banks hate startups

This is a useless blog post. It won’t help you succeed with a startup. Neither will it help you invest in startups. Instead it will make a connection most people haven’t seen. It will expose who really rules the world and how startups are changing everything we know about economics. In the end, you might see the world differently.

Nine years ago the world changed. We got a new ruler.

Regime changes happen when existing power structures break down. Like the French revolution and Arab Spring.

In 2008, the financial sector broke down. In the chaos following, the new ruler came to power. The central banks. And their leaders became household names. Today, most people know of Janet Yellen and Mario Draghi.

Like any new regime, the new rulers portrait themselves as saviors. And they were.

The world was headed for a 1930s like depression. Banks would freeze our accounts. Pensions would evaporate. Governments would have broken down.

Central banks emerged from obscurity. They stepped onto the world stage to shield us from chaos and anarchy. To restore order and confidence.

People embraced the new ruler. In return, central banks quickly and decisively saved banks, companies and governments. They did so by printing money at an unprecedented scale.

So far the ECB and the FED has printed more than $4 trillion in new money. Yes, that’s a lot.

Money printing is not bad in itself. It did save us. The problem is knowing when to stop. And if history has taught us anything, it’s that regimes never step back down. Central banks are no different.

The power of central banks

Central banks have stayed in power since 2008. They have declared state of emergency and taken control of our economy. The free market has been suspended. Prices of stocks and bonds are now under central bank control.

The price of stocks and houses are at historic highs. Not because the economy is better than ever. But because Janet Yellen and Mario Draghi keep printing money.

The reason why they keep printing so much money is because their instrument tells them so.

The instrument is a thermometer. It sits in every central bank. And it measures the temperature of the economy. Or so it’s believed.

The thermometer looks like this: high inflation – moderate inflation – deflation. High inflation is bad. Moderate inflation is good. Deflation is the really bad.

The thermometer tells central banks to aim for moderate inflation (around 2%). If the thermometer falls below their target, they print money.

And money printing always works. Except for the past eight years, it hasn’t.

Instead of inflation, we see clear signs of deflation. And Mario Draghi and Janet Yellen don’t know why. So they keep printing even more money. Sadly, it’s a futile act.

But to understand why, I will take you back in time to see when the misconception started.

Classic entrepreneurs made new products

In the late 1890s, there was a farmer named Henry. The thing about Henry was that he hated farm work. So he started dreaming about building a machine that could do his job.

Henry started to materialize his dream. After a long day of farm work, he would go to his small shed to work on his machine.

Then one day it was ready. He turned it on, and it worked. Henry had built a vehicle running on a gasoline engine. It marked the beginning of his later company. The Ford Motor Company.

But Henry Ford was just one of many entrepreneurs inventing new consumer products. In fact, the following decades would see a flood of new products. Like sewing machines, washing machines, personal computers and smartphones.

The new products provided vastly better solutions to our problems than the existing products did. Cars outperformed horses. Sewing machines outperformed handheld needle and thread. And the personal computer outperformed typewriters and calculators. The inventions created entirely new product categories that consumers were willing to pay premium prices for.

A car was more expensive than a horse. A sewing machine more expensive than needle and threat. And a personal computer was more expensive than a typewriter and calculator combined. But that didn’t matter, because new categories have no existing price anchors. The inventor is free to set a high price.

In the age of product innovation, rising prices became synonymous with economic health. A healthy economic environment had rising prices. In large part due to the many new and better products being introduced on the market. In other words, the age of product innovation was a world of inflation.

New entrepreneurs disrupt industries

The evolution of entrepreneurship can roughly be summed up like this: The first generation of entrepreneurs created new products. The second generation created digital tools. But the third and current generation does something no generation of entrepreneurs have attempted before. They redefine established industries. And the change of focus matters greatly.

The highest valuated startups are currently Uber (2009) and Airbnb (2008). Both were founded in the aftermath of the great recession. And they have inspired and defined the new age of entrepreneurship.

These startups showed aspiring founders that startups can do more than just make tools. They can disrupt and redefine the very pillars of our society. Such as: transportation, housing, banking, legal processing, energy and even space exploration. These industries are so important that their institutions have (almost) become political establishments. Disrupting them is the most daunting task ever taking on by startup founders. And it’s also the most important.

But disrupting industries has a very different economic impact than creating new product categories and creating digital tools. New categories are inflationary. Digital tools increase productivity. But redefining existing industries have a very different effect. One that Janet Yellen and Mario Draghi fear the most. Deflation.

The age of deflation

When startups disrupt and redefine existing industries they are not inventing new product categories. They are reinventing the way existing product and services are being produced.

Uber fundamentally delivers the same service as taxi companies. But they have redefined the underlying infrastructure behind the service. They have applied technology and utilized excess car capacity. The result is transportation that costs half of a taxi.

Airbnb fundamentally delivers the same service as hotels. But they have also applied technology and utilized excess capacity. The result is overnight stays that costs half of hotels.

But these companies are merely the front runners of a seismic wave of startups attacking the very pillars of our economy. Startups like Impossible Foods is redefining the way we produce meat. The result will be high quality meat at a fraction of the current price. Robinhood is attacking the financial service industry and eliminating fees for trading stocks. All of these startups have one thing in common. They lower the price on things we already spend money on. And that has a name. It’s called deflation.

It’s the thing central banks fear the most. And they will fight it with everything they got. But what they fail to understand is that not all deflation is created equal.

Why deflation from disruption is different

Economic theory stipulates that deflation leads to deferred spending. If apples are cheaper tomorrow, we will wait buying them. That’s obviously bad for economic activity. But this theory builds on a critical assumption. The assumption is this: we can anticipate the price decline.

If we know that apples will be cheaper tomorrow, we will surely wait buying them. But deflation from disruption is fundamentally unpredictable.

No one saw Uber or Airbnb coming before they were actually here. No consumer thought: I will wait booking my vacation until some startup emerges that will utilize spare bedrooms to offer cheap stays.

This means that deflation from innovation won’t lead to deferred spending. And this also means that Janet Yellen and Mario Draghi are looking at an obsolete thermometer. In other words, they are dead wrong.

Disruptive startups will define our future

Central banks have pledged to keep printing money till they reach their inflation targets. But they are fighting the force of human innovation. A force consisting of entrepreneurs from across the globe hell-bent on disrupting the establishment. Janet Yellen and Mario Draghi have brought a knife to a gun fight. And they will lose.

What central banks will get instead is something worse than deflation. They will get bubbles. All the money flows into stocks and cheap housing loans. Prices on stocks and houses will detach from the true state of the economy. They will bubble up to levels so high, that central banks will have no choice but to keep them high.

Janet Yellen and Mario Draghi will find themselves in situation they cannot get out of. All of it because they don’t understand that the world has changed. That they actually aren’t in control. But that disruptive startups will define the future economy. And it will be deflationary.

Conclusion made:

  • Central banks rule the current economy by intervening with printed money
  • Central banks want inflation because inflation used to show economic health
  • The new generation of startups creates deflation
  • Deflation created by disrupting startups doesn’t lead to deferred spending
  • Money printing will only lead to bubbles
  • Startups will succeed disrupting industries and thus create deflation

 

Check out Accelerace. We invest in tech startups.