Startups Take Longer These Days

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That’s why startups are raising so much money.

I was casually talking to my co-founder of Uncover, Mike Potter, yesterday about all the large seed rounds we’ve been seeing over the past few years. They’ve been getting larger and larger every month, it feels like. Two of the reasons often talked about by the media are that there’s just more money to be invested than ever before and that engineers and designers are more expensive because of such a high demand for them. Those answers seem perfectly plausible, but I’d like to add a new one to the discussion. I think it’s that startups just take much longer to get off the ground post 2010 than they did in the previous decade – there’s too much competition for peoples’ attention.

You can have a successful launch, get written up in TechCrunch, VentureBeat, and all the other tech blogs. Maybe the WSJ and NY Times will cover you too, but with so many articles being posted about the latest tech startup, press is becoming less and less effective in driving people to your startup. There are a couple hundred other articles that readers could be reading. You’re one startup out of hundreds of thousands, whereas once you were one in tens of thousands – or maybe better.

The pure volume of startups trickle down to whatever market you choose to approach. With more startups, it goes without saying that there are more in your market. There’s probably at least one, if not a dozen startups, doing the same thing (or similar) to what you’re doing. So, again, you need to raise more money to buy more time to get out ahead of your competitors in your market.

To me this is a sad state of affairs for the tech startup industry. It’s not going to end well. It doesn’t seem like it’s going to work out for any party involved – entrepreneur or investor – and we’re already starting to see the fallout. Startups are shutting down left and right, acquihires are the only sub-$50m deals I’m seeing, and only the few are getting rich with big deals.

Sales become a much bigger deal than they once were before too. New startups can no longer rely on organic growth. You need to put dollars and man power behind acquiring customers. The days of being “found on Google” or through “word of mouth” within the first few months of launch are far fetched at best. That takes time and time is why companies are raising so much money these days.

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Spencer Fry

I’m a 29 year old entrepreneur. A Business Guy turned Programmer. Co-founder & CEO of TypeFrag ('03 - '07), Carbonmade ('07 - '11) and currently Uncover ('12+). Uncover is everything you need to start and run an employee recognition program for your company. My hobbies are squash, soccer, cooking, music, and art. You should follow me on Twitter.

Comments

7 comments on “Startups Take Longer These Days

  1. Nice post Spencer!

    I couldn’t agree more.
    There’s so much noise out there these days it’s definitely harder to break through.

    It’s great that so many people are choosing to pursue entrepreneurship as a career. I just can’t help thinking how much could be achieved if some of the founders working on ‘me-too’ startups went and focussed on something big. Really big.

    We’ve got the people we need to solve some of the toughest problems in the world right now.
    They’re just misallocated.

    • Thanks for reading!

      I recently read an article somewhere — now I can’t remember where — that claimed that one of the biggest reasons there are more entrepreneurs is that entrepreneurship is now a third option out of college where only five years ago it really wasn’t. The other two being get a normal job or go to grad school.

      • I believe this was Paul Graham’s recent essay on raising funds (http://www.paulgraham.com/invtrend.html). But interestingly, I was going to refer to the same essay to suggest a counter-viewpoint to your article. While I agree that it probably takes longer these days to stand out from a growing crowd, Graham predicts that investors and entrepreneurs are only going to benefit in the long-run because of market dynamics changing the way they approach the funding table. In (very) short, investors will eventually start lowering their series A equity ask when they realize that entrepreneurs need less to start, not more. But interestingly this, Graham predicts, should actually increase the investors’ upside because they will successfully close more (and hopefully better) deals. It becomes a win-win.

        • I understand what PG is saying and it’s hard to disagree with him, but his view that more startups are going to need investment only reinforces my thinking. The more startups, the worse off we all are as entrepreneurs. More competition. More money to win the market. Fewer people to hire.

  2. “The days of being “found on Google” or through “word of mouth” within the first few months of launch are far fetched at best.”

    This is why startups need to build their audiences even as they develop their product. Having an audience is like having customers ready to buy. When you launch, you may not have to rely on TC or Mashable to get people to know you since you’ve been active on the web and you already had a name before you launched.

    • Very true. Building an audience is very important. The problem is that it takes years to build an audience and building an audience can often require you to be an expert in your field and/or have had some previous entrepreneurial successes. It’s a chicken and egg problem.

  3. I agree with Ali R. Tariq that I believe this was Paul Graham’s recent essay on raising funds (http://www.paulgraham.com/invt….
    But interestingly, I was going to refer to the same essay to suggest a
    counter-viewpoint to your article. While I agree that it probably takes
    longer these days to stand out from a growing crowd, Graham predicts
    that investors and entrepreneurs are only going to benefit in the
    long-run because of market dynamics changing the way they approach the
    funding table. In (very) short, investors will eventually start lowering
    their series A equity ask when they realize that entrepreneurs need
    less to start, not more. But interestingly this, Graham predicts, should
    actually increase the investors’ upside because they will successfully
    close more (and hopefully better) deals. It becomes a win-win.

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