Every year, countless Caretta Caretta turtles hatch from their eggs and stagger awkwardly towards the waterline in the moonlight of southern Turkey. Fighting against seabirds, sharks, motorboats and human predators, it is estimated that only one or two in a thousand hatchlings reach adulthood.
Fortunately, nature takes precautions and allows 70,000 tiny turtles to crawl into the sea yearly in Belek, Turkey, alone. However, what is a tried and tested strategy in nature to maintain the population and ensure the species’ survival cannot work in the long term in the economy.
Nature is only responsible for itself. The economy, however, has an obligation to people. And the more people there are and the more complex their living conditions become, the less wasteful the economy can afford to be and the more efficient it has to be.
From this perspective, the current start-up culture can only be seen as on the wrong track. An aberration that burns up more resources than it generates meaningful disruptions.
Imagine if you were a producer who always produced 80 to 90 per cent rejects or a farmer who had one failed harvest after another. Instead of risking ruin, you would undoubtedly do everything in your power to get things under control as quickly as possible to operate profitably. However, derailed measures of success in the start-up scene are far removed from this common sense. Here, success is the exception, failure the norm.
The start-up ecosystem is often praised as a driver of innovation and economic growth. It is said to stimulate creativity and promote the development of new technologies. But behind the shiny façade lies a gloomy reality: 80 to 90 per cent of start-ups do not survive 10 years, the majority not even five years and many only 18 to 24 months. Although this is a profound structural problem and a collective nightmare, the mass death of start-ups does not seem to alarm anyone.
The damage to the established economy is enormous when new, inexperienced entrepreneurs are constantly flooding the market with immature, “disruptive” ideas and undermining fair competition.
The current start-up culture is causing disproportionate collateral damage to the economy. Time, capital and other resources invested in these failed projects are irretrievably lost. Employees urgently sought after by solid, established businesses are tied up in adventures doomed to failure.
Meanwhile, failure often causes suffering and trauma for the founders themselves. It leads to risk aversion and damage to entrepreneurial potential, self-confidence, careers, livelihoods, health and families.
Maintaining a functioning economy is too important to be able to afford all this. Start-ups are only good, welcome and important if they work successfully on crucial issues in a well-thought-out, serious and well-founded manner. Anyone who founds a start-up should do so to make a useful contribution in the long term − in the knowledge that serious entrepreneurship requires much of effort.
The media is full of success stories that portray building a successful start-up as ‘a piece of cake’. This selective reporting reinforces the hype and creates unrealistic expectations among young entrepreneurs. It suggests that anyone with a seemingly good idea and a little willingness to take risks has what it takes to become the next corporate giant.
The reality is different: for every success, there are many times more untold failures. However, as these are not told, the existing start-up culture is glorified.
People dream of quick money, fame and the imminent billion-dollar valuation of their own ‘unicorn’, which only happens 0.00006 per cent of the time. Even the quick exit and the successful sale of the founder’s start-up shares that make them multi-millionaires only happen in 0.005 per cent of cases.
This disparity between perception and reality leads to a toxic distortion that drives inexperienced founders into risky ventures that cost them their lives financially.
Apple founder Steve Jobs took a clear stance on this in his biography: “I hate it when people call themselves ‘entrepreneurs’ when what they’re really trying to do is launch a start-up and then sell or go public, so they can cash in and move on. They’re unwilling to do the work it takes to build a real company, which is the hardest work in business. That’s how you really make a contribution and add to the legacy of those who went before. You build a company that will still stand for something a generation or two from now.”
For every success, there are many times more untold failures
With an alarmingly high failure rate of over 80 per cent, start-ups are not beacons of success, but rather a reminder of a misguided culture. This statistic exposes the rampant denial of reality that encourages irresponsible optimism, while ignoring the hard facts of entrepreneurship.
What is being fuelled around the current start-up culture is the dangerous illusion that failure is something completely harmless, while the value of crisis-proof, long-term, successful entrepreneurship is underestimated.
But there is another way. A transformation towards a solid start-up culture, that ultimately makes success the norm again, would be something other than rocket science. Realism, sustainability and true values must be established as guiding principles for a future-proof start-up ecosystem. There is no great art to success. The great art is to maintain success in the long term. This is a permanent challenge that works according to its very own rules and mechanisms, especially the following four:
1. Mindset: Founders should view a start-up as an experiment with an uncertain outcome until it proves its long-term viability. This requires time and perseverance, because good companies are not created overnight.
2. Entrepreneurship expertise: Young founders need more expertise and naturally, experience. You don’t become a safe car driver by studying the car manual and highway code, nor become a good doctor by just being trained in a lecture theatre. Because practice breaks theory. This is why many entrepreneurship education programmes fail. The fact is that the average of the most successful founders have at least 15 years of professional experience.
3. Innovation: Start-ups need convincing, well-thought-out innovations with real customer benefits. However, many fail due to immature or problematic pseudo-innovations.
4. Funding: All too often, start-ups with ambitious business plans concentrate on acquiring venture capitalists or public financing instead of first building a profitable business model and demonstrating traction with, for example, supportive pilot customers. Yet, there is no solid evidence that venture capital is more helpful or propelling success.
Many VCs bet on start-ups like horses at the racecourse and hope for a high win rate on at least some of their horses, ideally from Mavericks, because the betting odds are all the higher.
This casino mentality of the OPM (other people’s money) entrepreneurial culture is taken to the extreme on TV shows like Dragons’ Den or Shark Tank, where marriage and dowry are virtually negotiated and decided within 20 minutes during a speed-dating session. This is precisely something that a born entrepreneur would never do.
Ultimately, the start-up sector also cannot ignore sustainability. However, this only works if the focus is on true values, rather than making a quick buck. Daring turtle strategies and horse betting are definitely the wrong approach.
Reinhold M. Karner, FRSA, is an entrepreneurship and start-up evangelist, multiple chairman (e.g. AP Valletta), corporate philosopher, entrepreneur, author, university lecturer and fellowship connector of the Royal Society for Arts, Manufactures and Commerce (RSA) for Malta and Austria. This article was first published in German in the speaker’s corner of the magazine managerSeminare.