The Startup Bubble is Real & We Have to Do Something About It

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Today hasn’t been a good tech day. First that confusing as hell story about Google, then the news that a company named Zirtual literally imploded in the matter of a weekend. According to many stories in the media, including this one on CNN, Zirtual CEO sent an email at 1:34 AM to clients announcing they would no longer be in business. Employees weren’t even notified. Many found out from clients, social media, or when they tried to log in to start their work day. Who the hell does that!? Shame on you Maren Kate Donovan. And to add insult to injury, she went on This Week in Startups and wasn’t exactly truthful. I’m going to leave it there because she’s getting bashed enough by the rest of the world.

I’m sorry. This is bothering me and not just because of Donovan. Many of you know I am a loyal mentor to startups and I love my role as a mentor with Straight Shot Accelerator. Let me state for the record though, none of the companies who have gone through Straight Shot has ever experienced any of this and I am glad to continue as a mentor with the program.

I’m a tech head and an avid supporter of entrepreneurship. But each week there is another story about some craziness going on because founders are incompetent and/or quick to blow investment dollars. They don’t ask for help nor are they honest with their investors about the realities of what’s going on. And it’s sad.

This is why I consult with clients beginning at the three year mark to help them plan for responsible growth and scale, and identify problems and obstacles before they become insurmountable. (Ask for a consult).

That said, these valuations are so beyond out of hand. You guys have heard me ranting about this for the past few years. It still boggles my mind how some of these people pull these valuations out of their behinds! If they put a number out there, people believe it as if it’s law. It’s irresponsible. Of course people like him get in early and get out quickly once a company goes public or gets acquired. Everyone else is left flapping in the wind.

Bright eyed startup founders break their necks to get funding and be the next Facebook, Uber, Amazon, *insert company here* and it forces them to move too quickly, unprepared, and not do what they’re supposed to do…build loyal paying CUSTOMERS. A business cannot run without revenue. Even non-profits have expenses to pay. They don’t plan for scale, they don’t plan for strategic growth. They want everything NOW because people put out this narrative that “tech moves fast”. And it does. But common sense business shouldn’t move fast. It should move steady.

People want to point to failures in the startup graveyards. But it’s not entirely their (founders) fault. This inflated sense of entitlement and bravado is crazy. I’m all for taking risks and jumping in head first on something you’re passionate about. But don’t forget the basic business rules and foundations! Virtual for instance, why the hell would you hire 400 EMPLOYEES when you haven’t even figured out your structure? Knowing you’re struggling financially you shouldn’t have hired so many. And you should have been focusing on customer acquisition AND pricing strategy. Low cost services, sharing economy, and all of that is very noble. But the balance sheets almost never balance out!!!! Math doesn’t lie. Yes, you may get a great interest in people wanting to pay lower fees, but can you make it up in volume to sustain that? And can your workforce keep up with that?

And let’s not forget investors. Shiny new object syndrome is not cute when you’re investing. I don’t know about you, but I’d prefer putting my money where I know it has a shot of growing. And if there are some bumps in the road, better believe I’m sitting down with the founders and we’re going to figure this out together. It’s called protecting your investment. People like Thiel may can afford to lose a few million, but I can’t roll like that. And even if I could, I wouldn’t want to. I can think of plenty of things I could put that money towards, like helping viable startups and underprivileged children. Do your due diligence. Yes you should invest in people, but please leave your heart out of it and use your brain and eyes. Numbers don’t lie.

We need to do better. We can’t keep throwing good money after bad. I’m all for fair playing fields and I want to see startups thrive. Believe me I do. But those of us in investing and advisory roles must be more diligent and responsible. I don’t advise just dismissing startups. What I propose is much bolder. Instead of telling them they can’t succeed, how about helping them understand where they’re going wrong and how to course correct? Sure, this will shake out the startup tree a bit. But it will also bring companies with a chance to the playing field. We can no longer allow startup founders to go crazy, nor can we allow investors to contribute to the implosion of the startup ecosystem by blinding throwing money at “the next big thing” without ensuring there is an education element in the mix.

I’m sure I’ll get a lot of blowback from this, but I’m tired. Enough is enough. I don’t want to see a bubble, but hell, maybe that’s what we need to shake out the flowers from the weeds.  Stop glamorizing entrepreneurship and startup. It’s hard work. It’s compromise. It’s learning restraint and budgeting. It’s living like many won’t in the short term to live like many can’t in the long run. Somewhere along the line, we’ve forgotten that. Every idea isn’t viable. But it doesn’t mean we can’t mentor and guide the founders until they come up with something that is viable.

Til next time,

Adrienne Graham
Always plan your growth!

 

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Adrienne Graham is the Founder & CEO of Empower Me! Corporation (www.empowerme.org), a Growth Strategies consultancy for high growth companies. She provides Strategic Business Growth consulting services to companies with high growth potential to assist clients in creating processes and strategies to effectively scale, run, grow and position their business for success. Check out her radio show Views From the Top on Blog Talk Radio & iTunes. Adrienne is also an avid techie dedicated to promoting diversity in the tech community. She is steadily building her empire one company at a time. And her company CurvyGirlCloset.com helps turn closets into commerce for the plus-sized fashionista. She is also a Mentor for the Straight Shot Accelerator in Omaha, NE, which helps guide startups into successfully launched ventures.

 

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