Second order implications of the shrinking size of startups
There has been some cause for concern over the potential for economic recovery in the United States lately related to the role of the small business, and particularly new startups as a subset of that group, in fueling the job growth necessary to put some of the estimated sixteen percent of Americans who remain unemployed back to work. It has long been recognized that small businesses are the job creation engine of the country, employing, by some estimates, nearly 90% of all workers. This has lead some pundits to suggest that perhaps federal backing of venture firms to raise new startups might be a way out of the recession. But, quite apart from all the other things wrong with that idea, it also turns out that the startup/employment ratio has been shrinking in recent years… perhaps signaling that the association of job growth with small business is a thing of the past.
While this is cause for concern among economists and those minds charged with shepherding our country through these trying times, it has different implications for the entrepreneur… namely, that everyone else out there is doing more with less. If you were still dreaming of the late nineties startup glory days, swank offices, pool tables, everybody gets a window, you're going to get killed. Your competitors are bootstrapping out of their basements, skipping the secretary hires, getting lean and committed to the business tasks at hand. If you want to be competitive, you'll need to go the same route. Ultimately, failure isn't going to help the economy, even if you fail big.
April 12th, 2010 at 9:24 am
Hi Scott,
You make a great point. I see a lot of start ups that are coming from a position that they have to focus on revenue and sales generation first and foremost in order to prove themselves before they even think about raising finance. It’s become rare and very expensive.
Adrian
April 12th, 2010 at 10:37 am
Hi Adrian,
Thanks for the comment! I think your observation is dead on, and it leads to an even more interesting question, which is that if you have solid revenue and sales before you even get to the financing stage, then ultimately is the financing all that important after all? What’s the point of giving up control of your company if you are already growing without outside investment? We’ve gotten used to the Twitter/Facebook model of going big, forgetting that the original “big” startup, Microsoft, got there without needing significant outside investment at all.