Well, let me just begin by saying that I’m not against growth. After all, as Paul Graham defined, growth is what sets a startup apart from traditional businesses. But what else a startup has to do?
It has to bet on the future. On how the future will look like years and decades later. And I think that there’s something wrong with the marriage of the old corporate code with the new digital economy that needs to be looked at. And I’m convinced it presents boatloads of opportunities for both new and established founders to create value in entirely new ways.
So, as Douglas Rushkoff explores in one of his latest books,
But the corporation has no choice other than to exercise the four sides of its original tetrad: extract value, squash local peer-to-peer markets, expand the empire, and seek personhood — all in order to grow pots of money, or capital.
Rushkoff, Douglas. Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity (Kindle Locations 1223–1225). Penguin Books Ltd. Kindle Edition.
And this presents the stark insider reality of corporations. Now it goes without saying that the odds of making it big are against a startup from the beginning. But what founders fail to notice early is that a whole set of new problems only begins once a startup is successful.
And I think it goes something along the lines of the classic wealth vs. control tradeoff. But even if a founder chooses the first, the same is not guaranteed due to the ‘externalization of costs’. I’ll get to this in a while, but for now, it’s worth recalling Peter Thiel’s insight on this.
Growth is easy to measure, but durability isn’t. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports. However, you can hit those numbers and still overlook deeper, harder-to-measure problems that threaten the durability of your business.
Masters, Blake. Zero to One: Notes on Start Ups, or How to Build the Future (Kindle Locations 488–491). Ebury Publishing. Kindle Edition.
So, the point of my argument is twofold. One, a founder has to sacrifice control for growth, and two, he can hit the growth targets, yet cannot remain sure of the durability of his business. A classic example of this is Zynga. It first ran the headlines with games like Farmville, but later struggled to keep producing fresh content for a fickle audience.
But it gets worse. Earlier I mentioned ‘externalization of costs’, so let’s get to that. When many firms replaced the receptionist with the auto attendant technology in pursuit of growth, the caller ultimately had to pay the price, costing more time and money to everyone involved.
But in the longer term, and especially in a highly connected digital economy, nothing is external. The time and expense that a company passes on to its customers, suppliers, and vendors eventually come right back in the form of reduced sales volume, higher costs, and less feedback, respectively.
Rushkoff, Douglas. Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity (Kindle Locations 258–260). Penguin Books Ltd. Kindle Edition.
The point of my bringing this up is threefold:
Well, this one should be pretty obvious, but it is not. Too much optimism abounds in the early stages of a startup. No one cares to think of what could go wrong late in the future. But the entire burden has to be shouldered by the founders who are there right from the start. It is their responsibility to connect the dots into the future and ask this question of what could go wrong. Not only the successful founder has to give up control, but also peace of mind.
All this requires the founder to predict the internal conflicts that are bound to arise due to misalignment in interests between ownership, possession, and control. This also requires the founder to ask the durability question unless his only motive is to get acquired fast and get rich. And finally, this appeals to an increased moral clarity of the founder’s values.
Well, my answer to Peter Thiel’s contrarian question is that everyone thinks the future will be defined by growth, but I think it will be defined by sustainability. The territorial space for old capitalism to expand into, both in the physical and the digital worlds, is running out. If we are yet to have a future, it should rest in a new emerging kind of growth that is rooted in sustainability. Call it social entrepreneurship if you want, but the point I’m trying to make is that one’s chances of making $10M this way are much greater than making $10B the old way, given the old way is dying.
All the tech giants are bloating with frozen capital, knowing not what to do with the accumulated stock value.
And personally, I don’t see why this should come as bad news to founders. Instead, the same it turns out presents a whole range of new opportunities, as over-capitalism always has, which brings me to my next point.
The fact is, the current digital economy has very different potentials than the one it has replaced, albeit not successfully. The true potential of the internet and the IoT at large consists in their ability to make true point-to-point connections, something that has not been properly utilized ever since the advent of the internet. It must not be about extracting value, but creating value, or rather enabling people to create value on their own, in ways that were never before possible.
This explains the success of the new platform scale business model to a degree, which has been replicated countless times. But the lesson for founders here is that they need to be more aware than ever of the hidden pitfalls that can alter the course of their nurtured businesses, due to the reasons mentioned above.