The startup lie

Have you ever been tempted by a lie? If you’re a regular reader of Tech in Asia or any other site like us, the answer is probably yes.

The lie takes many forms. It can be an image, a mirage: you as the successful tech entrepreneur worth billions after a couple years of hard work. It can be a message – an exhortation – from VCs: scale fast or die out. It can be the peer pressure you feel from colleagues and fellow entrepreneurs at tech conferences.

The startup lie is that everyone ought to aim for a massively scalable, massively valuable business. Go unicorn or die trying. The startup lie is that anything less than Jack Ma or Mark Zuckerberg levels of success isn’t actually success at all. The startup lie is that you can have all of that if you just work hard enough.

The tech startup failure rate is ridiculous

There’s no denying that compared to other industries, new businesses in the tech sector do terribly. Most estimates put the tech startup failure rate above 90 percent. And that’s not just a cliche: a Startup Genome study of more than 3,200 startups from a few years ago found that more than 92 percent of startups failed within three years.

If you’ve been working in tech a long time, that probably seems normal to you, but it isn’t. The three-year failure rate in most other industries is less than 50 percent. If you do a tech startup, you’ve got a 90 percent chance you’ll be out of business within three years. If you choose do start a new retail business, by contrast, you’ve got a greater than 50 percent chance you’ll still be alive at the three year mark.

What’s killing tech startups?

So what makes starting a new tech company so much worse than starting (for example) a new mining company? Answers vary, but let’s return to that Startup Genome study. It found that the number one cause of death among failed startups was premature scaling: spending too much, expanding too fast, and hiring too many before you’ve found a workable business model.

So what causes premature scaling? A lot of things. But I believe that a major contributor is the general culture of the tech startup industry. We drool over unicorns. We worship at the altar of companies like Facebook, companies that expanded rapidly and aggressively with no real interest in generating revenue. And while that approach did work for Facebook, it has failed for countless, countless other companies.

We also idolize men like Steve Jobs, who have achieved tremendous financial success, but only at equally tremendous personal cost. He reportedly often worked 15 or more hours a day, was considered by many of his colleagues and employees to be a total jerk, and in the end was so dedicated to his work (and to his misguided belief in alternative medicine) that some medical professionals have suggested he basically killed himself. In fact, these kinds of sacrifices – working extraordinarily long hours, never taking vacations, destroying relationships with friends for the sake of shareholder value – are actually celebrated in our industry.

It’s all part of the big-picture startup lie: sacrifice everything, and you can have everything. Of course, that isn’t true. There are many founders who’ve made equally huge personal sacrifices, worked dangerously long hours, and destroyed relationships with friends and family all for startups that failed miserably. That is, after all, what happens to most startup founders.

What’s in a name?

None of that is totally tied to tech, of course. There’s plenty of money-worship and long-hours-equals-successful-role-model nonsense in other business sectors too. But I think the tech industry is the worst because our unicorn-obsessed culture sets its sights sky-high, and some of our most successful businesses have succeeded by pretending they weren’t businesses and ignoring revenue, sometimes for years at a time.

This is even reflected in our language. In most industries, a new business is just called a new business. As in: “My brother just started a new construction business, so I’m going to go work for him.” But in the tech industry, we don’t have new businesses, we have startups.

You don’t have to be a unicorn