Startup
Are We Still Living in the Golden Age of Startups?
Why the hype may be over.
Every year Forbes puts out its 30 Under 30 list. Being named on the list is the equivalent to receiving a trophy. A validation for those who have ventured into the unknown and bring a light of hope to humanity. Those who made the list are destined to change the world. Or are they?
Startups were not a thing for me growing up. For my generation, if we wanted a job, we’d do it the old fashion way. We’d apply through newspaper advertorials, get recruited in universities, or ask our parents if they knew someone who has a vacancy in their office.
The choices we had were very limited. We could either work at a multinational company, generally reserved for those who have overseas university degrees. There’s also the option of working for a family conglomerate, which was often reserved for the best of the best university graduates in the country. And lastly, for those who neither graduated from overseas nor at the top of their class in the local university, the only thing to do was to work in an obscure local company with no prospects.
Thanks to startups, all this changed. The first startup I joined was nearly a decade ago. It was a last-mile delivery company. I still remember my first day there. It was nothing like I’d ever experienced before. The energy of youth, the hunger for success, and most importantly I learned the meaning of a flat organization. In short, it meant there was no archaic hierarchy. It was exhilarating. I believed I too was on my way to change the world and by extension, humanity.
Today, reality has set in. The ways of startups, may not be the thing that will save humanity after all. It is unrealistic to expect companies founded and run by naïve youths could go up against multi-billion dollar corporations and make a dent.
The creed of a startup has always been to be a disruptor and to change lives. At the risk of being a Debi Downer, we must admit that in the real world, money is the only thing that can create change. Just ask the people currently building The Line. Sure it takes good people, and great ideas, but above all else, to create change, it takes money. Lots and lots of it.
Looking back at all the startups I’ve been with. I have always felt that the startup world was such a close circle. It has its advantages of course but the downside of it is that it’s not business as we normally view it.
Let me elaborate. In Asia, most businesses were either in the construction or commerce field. Every single business started by building something or selling something whether it be goods or services.
The Crazy Rich Asians that you’ve read about, or watched on the big screens, at one point in time, their forefathers started the business the old fashion way. They either owned a small shop or a cart that then grew with time and eventually became a conglomerate.
There was no such thing as seed funding or angel investors. If these families expanded their business, it was because they were profitable. They took the profits from their first business and expanded it. It was simple and foolproof. Making money equals expansion.
This has never been the case with startups. There is only one aim for a startup: growth. Startups are expected and demanded to continually focus on growth with zero expectation to create profit. Many of the successful startups today have yet to make a profit. Take for example Goto, one of the biggest startups in my country which is a merger between the biggest ride- hailing app in the country combined with the biggest e-commerce platform in the country. Think of it as Amazon and Lyft merging and you have the equivalent of GoTo.
Everyone believed that the merger of these two companies would soar and create obscene profits. Shortly after its debut, GoTo was valued at USD 31,5 Billion. Fast forward three years to today, they are still not profitable and are currently having a net loss of nearly 570% — I never realized that percentages could reach that low into the negative.
Which raises the question, how will these companies then survive? And the main question now becomes, if they are not profitable, how are they able to create impact which was the main objective?
My best friend, who has been heavily involved in the startup scene for the last decade, shared with me an insider tip, that “Startups and Venture Capitals (VC) have an unwritten code. The recipients of Venture Capital funding are often friends of the owners of these VCs themselves. So what often happens is because the founders were not properly vetted due to the friendship with the head of the VC, there have been instances when the startup fails and then the founder disappears with the money.”
This shed a new light for me on why so many startups fail. Just because someone has a good idea and knows the right people, doesn’t mean that that idea would be successful. Even in today’s tech-filled world, execution, and drive still determine success and failure.
“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions” — Steve Jobs
What is the key to a great execution you may ask? Simply put, experience. It doesn’t matter which Ivy league university a founder graduated from, or which family he belongs to, at the end of the day, experience is still the best teacher any of us will ever have.
What has always amazed me is how much currency a founder’s charisma has when it comes to startups. With no experience and often lacking any type of real expertise and skills, these founders are given funding only due to their image. It still baffles me how so many startup founders have bigger than life personas and bring about a cult like following. They are seen and treated as demi gods, when in fact do they even merit such treatment and admoration?
Take for example WeWork (a.k.a WeCrash), Theranos, FTX, all larger-than-life companies that made headlines worldwide daily. Do you know what they all have in common? Great ideas and great founders. Aside from ideas and god-like founders, how did their business execution go?
After being in several startups over the years and looking at how some startups have failed and how some have become multi-billion dollar businesses, it is clear that there are four main reasons why startups will continue to drop like flies if they continue on their current trajectory.
Founders Are Not CEOs
The investors in startups often forget one thing, founders are not CEO materials. The trend has always been that the founder is also the CEO of a startup company. There is no distinction made between coming up with a brilliant idea and running a business. When in fact, those two things are as different as water and oil.
The best example of this would be the mighty Elon Musk. Does he have great ideas? Absolutely! Is he a great CEO? Look at Twitter and the Tesla Solar Roof then decide for yourself. Some other examples of charismatic founders who thought of themselves as great CEOs: Elizabeth Holmes, Adam Neumann and Sam Bankman-Fried. Needless to say, we all know what became of them.
To be a CEO, just like being a pilot, a person needs to have their flying hours clocked in. Nobody can fly a wide-bodied aircraft after five minutes in the simulator. Might as well give a seven-year-old keys to the Rolls Royce Phantom and let the child drive.
The truly amazing CEOs of the world, they’ve clocked in their miles. Take for instance Bob Iger, the CEO of Disney. He single-handedly crafted and elevated Disney to the brand that we know today.
He saw what no one else saw and made calculated acquisitions of Pixar, Marvel, and Lucas Film in a time when comics were only for teenagers. Today these studios have created endless amusement park rides, merchandising opportunities, and even film franchises that become spinoffs in Disney’s streaming platform. That type of vision and arc can only be conceived by a true CEO who has had countless successes and failures through several decades. Not a fresh-from-the-oven man / woman child who covets being on the cover of magazines and being photographed having a coffee chat with their mentor after giving a talk to their tribe.
The only source of knowledge is experience — Albert Einstein
Startup Fatigue
Before COVID-19, every single media outlet focused on startups. The same way they focused on NFTs and Crypto (you know when those two were still a thing and haven’t gone bust!). Coding classes mushroomed around the world. It seemed as if humanity’s survival hinges on the next startup to reach Unicorn status. The messaging was loud and clear coders and programmers were going to save us.
When COVID hit, guess what, none of the coders, programmers, founders, or startups saved us. It all came down to the scientist, doctors, nurses, and people doing manual labor jobs such as cashiers and delivery people. All of these were considered relics of the past by the tech world. These traditional occupations were viewed to be the Dinosaurs of our times. In the eyes of many Gen-Z and techies, manual labor could be easily replaced by robots and AI for efficiency. Tech was the future and startups were the light at the end of the tunnel. Or so it seemed at that time.
Today, as we face even bigger problems than the pandemic such as inflation, climate crisis, pollution and wars, everyone finally realizes, on a global scale, startups and their founders are not going to save us. Startups can’t stop wars from happening nor can they negotiate peace on humanity’s behalf in conflict areas around the world. The only true startup making a dent in the world was OpenAI with the revolutionary Chat GPT. However that was put on a halt. So all this talk of disruption and making a difference, when it really matters gets halted? Where is the disruption and change now?
In addition to lack of real impact the startups are creating, the major challenges facing humanity, the ones that still need solving and yet remains unsolvable, still needs to be dealt with the old fashion way. The way it has been done for centuries. We need scientist working long hours studying diseases, diplomats locked in rooms for endless days negotiating peace treaties on our behalf.
In my personal experience, founders often looked down on the non startup crowd not only because we are not out to change the world the way they perceive the world needs to be changed, but because most of us did not attend the ivy league universities they did. We are not their tribe. We are not their people.
Founders in general never took anyone’s opinion seriously unless it was coming from a prospective “mentor”, a VC head, or an “influencer”. And yet, now, when the world is on fire and humanity is preparing for the next global disaster, such as a global water crisis, not a single startup founder has been able to create a solution to address all these issues and create an impact the way traditional scientist and ordinary people have.
When startups first came globally popular around 2012–2022, they were marketed and branded as future companies that was destined to save the world, to be a disruptor and to impact change.
Today we now know the true purpose of a startup. The endgame was never to disrupt, it was to make bank! Startups have always moved from funding to funding until they become publicly listed companies with an IPO. After an IPO, the next goal is to make that company into a global Fortune 500 company looking at the bottom dollar. All that talk about change, impact and disruption, is just that, talk.
The world is currently experiencing startup fatigue, recently the Guardian came out with an article came out examining “why so many of Forbes’ young heroes face jail”. In addition to that, let’s not forget the fact that 90% of startups fail, crash, and burn faster than a meteor descending on earth.
Furthermore, the fact that these Fortune 500 companies are now doing business as usual similar to a normal company is what disappoints people the most.
A few months back, a Google employee said he was disappointed in being let go so abruptly over e-mail because the motto of Google had been “Don’t be evil” and yet there he was, locked out of the office and his computer without any explanation. What he failed to remember was that Google had officially removed their “Don’t be evil” in 2018 from their code of conduct and changed it to “Do the right thing”. The change was brought on so that Google could work with the US Military on an autonomous weapon project.
These startups that were meant to be different from traditional companies, at the end of the day are doing the same thing, only packaged with better tech, and business casual employees with offices equip with masseuses, game rooms, and free fitness classes.
We can now see through the smoke and mirrors these saviors are hiding behind. Too much fluff, and not enough substance. And above all, not enough impact.
We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline, and effort. — Jesse Owens
VC Funding Is Drying Up
Money is running out. Or at least it feels that way.
Global inflation has choked every single business and person on the planet, but it is particularly choking the startup world. Having been part of several startups, I know firsthand that it’s all about the funding. Startups rely solely on VCs for all of their funding needs. Sure there are angel investors here and there but mostly, VCs are keeping the lights on for all of these startups.
“Free Money”. That was the official name for money received from VCs. Unlike traditional banks, the money from VCs came with barely any strings attached, with no need for collateral, interest rates, or any of the normal practices involved with borrowing money from a financial institution. What the VCs demanded in return are often stocks. Stocks in the company early on so they can get a piece of the pie when it became successful.
These startup companies never actually had to focus on making money. Their focus had always been to spend and burn money as fast as possible to reach the next level of funding. Now that the era of “Free money” is gone, these startups will have to do something they have never done before: survive based on the profits they are making.
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” — Warren Buffett
An Unrealistic Business Model
If you’ve ever worked with a startup or just read a lot of tech news, you will know that there is only one goal for a startup, at all stages. Growth.
In a traditional business, the progression of a business had always been very straightforward: create and sell a product or service, be the best at it, be known for it, and then expand.
Whether it be a second restaurant in the same city or a branch in the next state. Traditional business models had always been “If your first store is successful and profitable, then you can have a second one”.
Not so is the case with a startup company.
Remember the biggest tech company in my country which I had mentioned earlier on? GoTo. Well in April 2022, GoTo was the fifth-largest IPO in the world. Surprising considering it hails from a lower-middle income country.
With such a bright future ahead of it, what could go wrong? Well apparently, the main issue for them is that the company is still not profitable. Referring to the graph below, a street vendor selling dumplings (a.k.a Jualan Siomay) is more profitable than a multi-billion dollar company. What surprised me most was finding that apparently, it is possible for a company to have a net loss of approximately 570% — Wow!
Upon review, I can’t help but think how unsustainable the startup business model is. Having worked at a Multilateral Development Bank, I have learned first hand that providing loans comes with complicated calculations for the Return of Investments for the bank/loan provider.
Imagine my surprise, looking back knowing that the startups I was with were getting “Free Money”, all they had to do was prove “Growth”. The definition of “Growth” itself varied depending on the business.
In short, these VCs had no guarantee they would make a return or a profit with the money they gave out. It would have been easier for those VCs to take all their money and go to Casino de Monte Carlo in Monaco or any casino in Macau and take their chances on the Black Jack or Roulette table. They would have had the same odds for their ROIs as if they had invested in a startup.
Based on all the evidence we have seen, the idea of a startup was a noble one. However, along the way, its execution, growth, and pivoting into a Fortune 500 company always leave something to be desired.
Unless startups and their ecosystem double down and deliver what they promised: disruption, change, and impact, it seems the golden age of startups is now behind us.
Then again, is it behind us or was it never there to begin with?
You decide.
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