Common Problem of Many Startups

Over the last 10 years, I have heard over 50 entrepreneurs pitch to me about how a niche of their startup is that their management staff consists of former big shots of so and so fortune 500 company. Little do they know that it's a red flag for me when I hear a pitch like that.

This is why:

1. They over reference how things were done at the fortune 500 they were working for (ie. At Microsoft, this was how it was done..." 10 times a day! Get over it... you are not at that company anymore and this startup is nothing like it!

2. They have no idea how a small business should be managed. Their team building skills in startup environments is particularly weak. They also want everyone to do things the "big company" way even when it doesn't make sense to do so.

3. They carry over bad and illogical habits from their fortune 500 experience. ie. being overly political about everything that just doesn't need to be.

4. Their bandwidth for managing multi-facets of the business is usually very low because they are used to the blinders that they have to put on when working at a fortune 500 or otherwise spoiled by having other departments to take care of some of the responsibilities of a manager in a startup. ie. What? I have to worry about chasing after my employee's benefits paperwork? Or what? We need another IT guy for 20 extra hires?

5. Communication is not fostered by them. ie. Let's keep the information to ONLY the people that ABSOLUTELY have to know. Well, news flash buddy, a lot of other people need that information too if you just put yourself in others' shoes to analyze overall information needs and distribution. For example, I once worked with a startup that fired people and didn't announce it hoping that it would just blow over... Imagine that. They apparently didn't understand that this method of terminating employees only leaves others feeling like they don't know when they will be let go of too for whatever unreasonable conspiracy. Former fortune 500 managers also often forget that because the company is so small, even employees from other dept also feel near and dear about why another employee at another dept is fired unlike a large corporation where segregation makes it none of their business. The result is that, when you asked the employees what they thought of the manager who did the firing, 80% of them used the word "shady" to describe the manager. The issue then was that there was no more trust within the organization and morale for the company as a whole became extremely low.

These are just some of the reasons why I am not a big fan of most former fortune 500 executives running their first startup. I say the word "most" obviously because not all of them are the way I describe them to be. However, I bring this up because this has been responsible for too many growth stunnings of startups from what I have seen. Of course, even with all that said, there are also many other counter factors that can make a startup successful even with such management personnel but I will leave that for another post.

Thoughts on Venture Capital & the Current Market

I have been meaning to write something about this topic for a while and finally decided it's time. I think the kicker was definitely from reading this blog entry.

If you scroll down towards the readers' comments after reading the blog entry, you will see an individual commenting on the fact that NWVA is failing because of its investment strategy. I am not dismissing that there's the possibility of that being a partial cause of failure but I am more supportive of Simpson's explanation. Here's why:

The market is saturated and full of failing ideas because:
1. There are too many individuals with great ideas "playing business" when they are blatantly not ready and haven't the slightest idea about what they are getting into.
2. Most of these same individuals described above are extremely outspoken and can easily manipulate investors even though they have no viable execution plan.
3. Simpson is right in that, there are too many "me too" companies. Everyone seems to think "I can do better." Face it, it's not that easy.

This is largely fostered by an influx of venture capitalists as described by Simpson who are just throwing money left and right. When the supply of funding became greater, the natural market reaction was that the minimum quality of what investors demand decreased by a mile. I think most of you would agree with me that some of the business ideas that were funded in the recent years are just absolutely ridiculous.

In my opinion, everything is interrelated. There's always a cause for every effect. In this case, I would say the current business trend caused by many of the factors mentioned above has created a broken down economy. The only reviving chance is if more realistic and experienced entrepreneurs step up to supply us with some breakthrough businesses to stimulate our downward curving economy.

By break through, I mean business ideas that are less trend aligned. I have never really been a big believer of business ideas that are heavily aligned with the latest hype such as a good number of the web 2.0 businesses out there. Sure, they make money and I am definitely not denying the success of trend catchers. However, I truly believe that a great business idea is something that's timeless. Of course, maybe this is most likely derived from the fact that I am more or less a traditional and conservative businessman.