The (Re-)Rise of Start-Up Culture

Are we closing in on a sustainable model?

Eric Ries
Eric Ries

Remember the Nineties? That was when all you needed for a start-up was one smart innovator with one smart idea, and the money would come rolling in, right? Ask Eric Ries, author of The Lean Startup, and he'll tell you straight: It never happened. In his words: "There's no documentary evidence that I'm aware of for the heroic 'great man' theory of entrepreneurship."

That's the message he'll try to get out to every bright-eyed innovator at the Startup Village, South by Southwest's new hub for wannabe entrepreneurs at the Hilton Austin Downtown (www.sxsw.com/interactive/startupvillage). According to SXSW Interactive director Hugh Forrest, the village has attracted more attention than any other component of the convention, and the reason is simple: "The general economy is fairly stagnant, but the start-up market is very robust, very vibrant, very sexy."

But sexy can be dangerous. TechCrunch Editor-in-Chief Erick Schonfeld has warned that while there may not be a new dot-com bubble, there's definitely some worry frothing in the start-up market, and someday soon, the froth is going to pop. Ries says, "I always tell entrepreneurs to be ready, that winter is coming. Because the seasons will change at least once more before we get to a sustainable way of working." That's why he's organizing the official SXSW Lean Startup track. Last year, he and his fellow innovation experts led a one-day event out at the AT&T Conference Center designed to help change how people think about new businesses. This year, they relocate to the Hilton, right at the heart of the conference. That's where Ries wants to be, and it's not because he'll be closer to the parties. "We're in a battle for the soul of the industry right now," he says.

His concern is with the number of smart, creative, hard-working people laboring on projects that are "fundamentally doomed ... I'm not talking about the people who are trying to invent teleportation and the science is too hard. Those people get a special exception because that's a noble fight. It's everyone else that's working on a consumer product and customers just don't want the thing."

It's not that these start-ups are run by idiots but that there are still no clear metrics to gauge their success. "In a normal product, you make it a bit easier to use, you make it a little bit better and customers are happier," says Ries. "In a start-up, you're making something that nobody wants. So making it easier to use just makes it easier for them to not want it." He argues that firms need new ways to research what works, dump what doesn't, and, in his terms, pivot the company: staying true to the strategy but changing the tactics. By sticking to old business models, he says, "We're in The Twilight Zone, where things that are normally seen as virtuous don't help."

The struggle to change the model is not helped by the hagiographic coverage of start-up icons like Jobs and Gates and Zuckerberg. For Ries, it's all summed in the montage sequence in The Social Network. "They're writing on the windows and they bang on some keyboards. We skip over that part because it's much too boring to fit into the movie, but actually the decisions that get made during the montage are all the decisions of consequence." Take the first flush of private Internet service providers in the Nineties: "Talk about being in the right place at the right time," Ries says. "You have the foresight and the vision to create an ISP at the dawn of one of the biggest booms of all time. And yet most people that I knew that created an ISP at the right time made very little money." No one writes Oscar-winning screenplays about the slow-and-steady sloggers or the exciting failures. Instead, all the glory goes to the self-promoters getting rich off an IPO. Ries says, "For those of us who have start-ups that fail, it gives us the instant and best excuse ever. 'Oh, I guess I just wasn't destined for success.'"

That leaves a lot of entrepreneurs struggling in the dark, and Kathryn Minshew has been through those wars. The founder and CEO of The Daily Muse grew up around hardware start-ups, her father was an electrical engineer. "He often played a [chief technology officer] role," she explains, "but as a kid, I never really knew much about it other than he worked really hard and that it was risky." However, even that personal experience did little to prepare her for the emotional impact of her own start-up experience. "So many people in start-ups learn the hard way how partnerships and relationships can go wrong," she says. In her case, she missed obvious warning signs and failed to protect herself, "and that lead to something that was personally pretty devastating."

For Minshew, the biggest perils are a lack of coherent planning and internal structures. "I see so many companies that are started as three people who all make decisions, or even worse, four people or five people," she says. When it all implodes, people internalize the blame. "There's this common sense that they're alone, that what happened to them is particularly embarrassing because they're sure that it couldn't have happened to anyone else." Some solutions – like keeping accurate accounts – are fairly obvious, but Minshew warns that every decision needs to be "an active decision, rather than a passive decision." For a start-up, that should even extend to picking who attends SXSW. Her first trip took place because she was the only one in her office who wanted to go. She says, "I've known of several situations in which one person attends and starts to meet people who can help the business, who might be partners or investors, and if it's not really clear who in a team whose role it is to have those connections and manage them."

If partners are bad, customers can be even worse. At accounting service FreshBooks, Head of Magic Saul Colt deals with entrepreneurs carving their own niches in the market. The big plus for start-ups is that there is always an eager crowd looking for the next big thing. The downside is that these early adopters are also early abandoners. Colt says, "We find something really shiny and it captures our hearts and minds for 30 days, 60 days, 90 days, and then there's something just a little bit different." That said, Colt believes those fickle adopters give tech companies a real advantage over traditional firms. "If I open a chair company or a bookstore, I don't have 10 people who are waiting for me to open my door in the morning, but [in the tech community] there are probably 10,000 to 20,000 people who will try anything." The key is to not confuse dalliances with worthwhile business relations. "You try to get as much information out of them as far as how to make this product better, and then you go find your real customers."

For Colt, the question any start-up needs to answer is simple: What do they want? "If your plan is to be successful and sell and flip the company, then you've got an 18-month window," he says. "Otherwise, you're deemed not cool or shiny or fancy." The tougher job is making something that will really last. Rather than running for media glare, true innovators may want to avoid the spotlight. "No product is great when it first comes out. It's a lot of trial and error," he says, "but if you're looking to build something a little more long-term, you invest in your customers way before you invest in PR."

It's that kind of hard-fought wisdom that Ries hopes SXSW will highlight. That way, firms may be able to make better decisions. He says, "I wouldn't call us good at it by any stretch of the imagination. I think we're at the beginning of a transformation, not the end of it, and there will be a lot more fraud and nonsense between here and there."

Related Panels

Startup Marketing: Big Results With a Small Budget

Friday, March 9, 2pm

Hilton Austin Downtown, Salon D

#StartUp

How To Lose Co-Founders and Alienate Startups

Friday, March 9, 3:30pm

Hilton Austin Downtown, Salon D

#cfdisaster

The Lean Startup: The Science of Entrepreneurship

Friday, March 9, 5pm

Austin Convention Center, Ballroom D

#LeanStart

The Lean Startup

Saturday, March 10, 9am

Hilton Austin Downtown, Salon C

#SXLeanStartup

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KEYWORDS FOR THIS STORY

Startup Village, start-up culture, Erick Schonfeld, The Lean Startup, Eric Ries, Kathryn Minshew, The Daily Muse, Saul Colt, Freshbooks

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