Sunday, April 17, 2011

A Few Observations

So I’ve recently spent a few months working in a very young software startup.  It’s utterly fair to say that I was not successful, although there are a variety of reasons for that, it doesn’t help, and for the purposes of post mortem examination, I won’t examine those that are external.  In the final analysis I had a pretty profoundly exciting opportunity and was unable to make the management team see me as a valuable contributor to the effort.

A great deal of that is nothing more than my unfamiliarity with the whole startup ethos, and that’s the focus of this particular examination.  Because it’s not at all what I thought it was, but rather something a good bit seedier, less honorable and and quite a bit less admirable than what I previously believed.

First, the concept that this is some kind of small, narrowly focused team is not only false, but actually flies in the face of the psychological makeup of the participants.  It’s chaos.  Not a team so much as a loose affiliation of desperately greedy and hopeful players, most of whom have ridden this treadmill multiple times and have lost sight of any normal approach to business in favor of chasing that magic billion once again.  They operate independently, and while they speak highly of one another, there is an endless process of preening and positioning as they try to be one of the people with a seat at the table when the music finally stops.  And that can require a particular kind of almost psychotic ruthlessness.

Second, there is a disproportionate focus on the development team.  Sure, without them you won’t have a product, but all the product in the world won’t do you a bit of good if you can’t monetize it or sell it.  The assumption is “our developers are good so therefore our product is good and therefore we have something the market will pay for” contains more than one critical fallacy.  I watched as our vaunted developers released a major upgrade to our core product that was just catastrophically buggy.  And all the brilliant code in the world won’t make a successful company if you give it away.  The challenge of monetizing open source software is a brutal one, where no matter how much expertise you hold within the commercial sponsoring organization, if the product is successful the market will produce experts outside of that organization, and then, unable to monetize the product OR the expertise, the organization founders.  Red Hat is both the prototypical example and the exception, and it cannot be argued that a free operating system is in any way like a free database or a free application.

Third, there is the problem of funding.  I come from a long historical understanding that in order to grow you had to increase revenues and, drawing from that organic source of funding, invest in capital equipment, personnel and and marketing.  That’s long been the model for American business, and that is as it should be because it makes sense and is sustainable.  Which brings us to the inside view of a venture funded company.  A venture - funded startup feels a bit like a heroin addict, except the substance is capital, not drugs.  I was frankly gobsmacked to find that revenues weren’t considered important, and there was absolutely NO discussion of profitability.  Rather, everything hung on convincing the Venture Capitalists to invest more money in the organization.  Revenues didn’t matter, something opaque and ill-defined we called “bookings” mattered.  And more than half of those bookings were bullshit.  But that didn’t matter, you see, because it wasn’t about generating revenue, it was about convincing the venture funders to invest more money.  And I’m sure they aren’t stupid, and they understand the game that’s being played.  Which means that the goal isn’t to EVER be a profitable business, but rather to be bought out by a larger company.   And that would generate individual wealth, justifying the chaos and positioning and bullshit.  Or something.  Now, this might be a viable business strategy (although I can think of some reasons to question that premise), but from the standpoint of recruiting, training and motivating a sales staff, it’s toxic.   I mean, what do you do?  Do you tell them you don’t give a shit about revenues, or do you try to pretend you do, and if that’s your strategy (it’s the one I observed) are you capable of actually sustaining that falsehood, participating in the negotiations and helping your sales team close actual deals?  It turns out, at least in this case, that no, that isn’t something that is important enough to deal with.  Even if it means closing an 80 thousand dollar deal.  That’s just weird.

Now I suppose my experience wasn’t representative of all tech startups, and I’d certainly join another one, this time better prepared to operate within the realities of that environment, rather than drawing from an entirely different experience that seems not to apply.  But I think one thing to watch out for might be an organization comprised of serial startup workers - and that was what I found myself a part of.  At some point, after going through the process a number of times, creating the image and getting the funding and building the narrative and getting acquired by a bigger company - something most of my colleagues had experienced multiple times - an understanding of building a business, selling and delivering a product or service, building long-term relationships and making good decisions about supply chains, vendors, partners, customers and pricing models just fades away in the chase to generate wealth from nothing more than a well-told story.  I don’t know.  It may very well be that I’m not suited for this.  I have spent decades in a work environment where you could look at my monthly and quarterly billings and tell whether I was successful or not.  I generated plenty of revenue at this gig, and that wasn’t enough.  Indeed, it may not even have been what was expected...


  1. ...just fades away in the chase to generate wealth from nothing more than a well-told story.

    It could also be true that this is what their investors are after, as I'm guessing the buyout from a bigger firm is a success story far more common than building a profitable business from scratch.

    I can say from my experience in working at varied profitable financial firms that there are still many perverse incentives that occur, and are acted upon.

  2. "the buyout from a bigger firm is a success story far more common than building a profitable business from scratch."

    Here to tell you THAT'S a stone coldbtruth.

  3. I am super sad for you Mikey.
    Let me know if you need anything....