NANDINI VAIDYANATHAN explains why most unicorns and startups shut down as fast as they open up
In the last decade or so, two things have captured the imagination of industry, cognoscenti and media alike: one is that the birth of unicorns is an everyday occurrence; and two, that these unicorns come with their epitaphs written. Literally it is like the open graves of Auschwitz, entrepreneurial bodies and their tarnished reputations piled one on top of the other. In some cases it is the entrepreneur who has dug his/her own grave by spinning stories of products and their capabilities that existed only in his/her imagination; in other cases it is employees and investors questioning a particular leadership style. Either way, it is death-knell for the organisation. Ask not for whom the bell tolls; it tolls for the butcher, baker and candlestick maker – in other words, everyone – for the economy as a whole. And no amount of hype about being a startup nation will energise the GDP as long as the rot of these bodies remain a grim reminder of how wrong things can go.
What are the possible reasons for this kind of a catastrophe? We can write tomes about it, taking hundreds of these cases. But if you were to suss out the various causes from various scenarios, you can actually reduce them to two unquestionable reasons – ambition and ego.
It goes without saying that people become entrepreneurs because they are ambitious. They shun the everyday, cog-in-the-wheel existence and want to create meaning in society. Why are entrepreneurs obsessed with creating meaning in society? The answer is simple. They want to leave a footprint behind. They want to be remembered.
Entrepreneurs by definition are in-your-face kind of people. If they are mousy and self-effacing, they won’t raise a dime in venture capital and even if they do, they will be the first to be fired once VCs come on board. VCs like presentable founders and if the founder is not presentable, god forbid, but the product is brilliant, they quickly bring on board a poster boy/girl who neither has product knowledge nor knowledge of the market, but is an expert at making presentations and pitches.
VCs on the other hand are egoistic people who are delusional enough to think that they are the wind beneath the startups. And if the VC has even one successful investment to boast of, be sure he is insufferable.
He knows it all and he strides the world of startups like a Nostradamus, pretending to know what works and what doesn’t.
So you have an unpleasant situation already here; an ambitious entrepreneur and an egoistic VC in a Mexican standoff. The only question that the ambitious entrepreneur is not willing to answer is for how much longer he’s going to con his ecosystem in terms of what his product can deliver. The only question no VC invested in a startup like this is willing to ask why is there such a big gap between the business plan and actual performance.
Every time I see a report in the news media that a startup has gone belly-up, after making huge promises and raising tons of risk capital, I remember the famous quote attributed to Abraham Lincoln in the context of democracy: You can fool all of the people some of the time; you can fool some of the people all of the time; but you can’t fool all the people all the time!
In the startup world this is exactly what is happening. Ambitious entrepreneurs and egoistic investors together are fooling all of the people all of the time!
The postmortem analysis of the dead startups is a good script for stand-up comedy. Entrepreneurs came; they saw; they looted; and investors continued to chomp on their popcorn and looking smug that the burlesque being played out on the screen will yield yet another Chippendale!
Why is there no regulatory body for both entrepreneurs and investors? Many of the investors are repeat offenders. Many of the entrepreneurs have learned to sing Johnny Johnny Yes Papa exactly the way the investors want them to sing.
The tragedy is that in this completely selfish powerplay between the two, many a time, a wonderful product has been sacrificed. And every single time, the teams have taken a nasty hit.
Ask anyone who’s looking for a job from a company whose epitaph has just been written. S/he will tell you how they have become untouchables. To quote John Donne: no man is an island entire of itself, every man is a piece of the continent, a part of the main……Ask not for whom the bell tolls; it tolls for thee.