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Emperor's new clothes - naked start-ups
Criteria for the sustainability of new companies
Dreams that leave most people out in the cold
In a recent survey of some one thousand individuals in Switzerland, it was striking to note that although a vast majority of the people questioned were convinced that the future lay in the new economy, they had little clear idea of what it was and, furthermore, were convinced that they would not be a part of it. Intuitively they are probably right. The so-called new economy resembles a gold rush that captures peoples' imagination, but clearly can't be for all. Yet politicians, the media and certain commercial interests are holding up the "start-up" as a model, implying that it can be expanded to include most activities to the benefit of all. Let's have a closer look at the start-up bonanza to see if it is sustainable.
When people talk about start-ups - and they seem to do so more and more these days - the typical start-up is something of a caricature. There are the young, heroic managers, the passionate entrepreneurs riding out to defend their idea and to fight to get rich quick. They work extremely long hours under considerable stress. A recent CNN documentary had Silicon Valley entrepreneurs attending singles parties to meet people other than those from work. One interviewee admitted, however, that such parties are also an occasion to develop leads and find investors. It is tempting to exaggerate and see these would-be heroes as Faustian figures that have sold their soul to the market place and lost all sense of human values in return for the promise of quick but massive returns. The warning of weather-beaten entrepreneur during a course on entrepreneurship in Neuchâtel should not be taken in vain: "Be sure you have a very solid relationship with your wife. You're going to need it!"
Break-neck speed and big numbers
And what about the company? Speed and large numbers are everything for our start-up caricature. It has to launch its idea at break-neck speed, borrowing money or selling its shares so as to clock up the highest possible market figures before would-be competitors catch sight of it. A whole speculative business has developed around start-ups in which investors accept risks in return for high returns in a near future. Note that the company doesn't necessarily have to make a profit, it has to present big numbers (as Kenichi Ohmae put it) generally in terms of the mass of users they can capture.
An unsustainable aberration?
Is such a system sustainable? Its manner of working, for example, detracts from the quality of human relations and the development of social cohesion. Just think of how the media gleefully tell us that people are lured away from other companies only to be subsequently disposed of without ceremony. Not to mention the impact on social life and the wider community of a vision based only on competition and profit. In economic terms, such companies are not a sustainable model that can be generalised either. Only a very small number of companies can follow the dreamed-of road to supposed "success" and an IPO. Most of the new companies will never go public nor even be bought out by a larger company. As such they are of no interest to venture capitalists and will not be able to raise the masses of capital that are said to be necessary to conquer the global market. Yet all young companies are measured against that measuring-stick and most efforts addressed to creating new companies follow that model.
The driving force
The driving force of modern-day start-ups is not so much the idea that has to be brought to the market - sure it is a source of excitement and stimulation - but rather the belief that profits can be made quickly and that the entrepreneur can be one of the lucky few. Making a sustainable model of such a lottery system in which only a few can ever win seems somewhat dubious.
A new model?
So what model can we devise for companies that want to bring their good idea to market without feeding on speculation or undermining social cohesion? How can entrepreneurs be encouraged to create meaningful work for themselves and others without destroying their health and that of others in the process?
If we could develop criteria for the sustainability of new (and old) companies we would be able to better guide our choices in setting up and running a company. Some of these criteria can be found in what we criticise about start-ups because those criticisms contain the values we defend. The positive side of the start-up myth is that hard working, innovative people are making a success of their ideas and creating work and wealth for others in the process. The less positive side of the story, which not surprisingly gets less press, is quite different. Excessive speed of action, disregard for the larger context, disrespect for human values, destruction of the social role of work, massive but circumscribed investment, doubtful concentration of markets in the hands of the few, poor redistribution of the wealth created,...
The sparing use of capital
One criterion has to do with capital and speculation. If we consider that speculation is not a sustainable activity (because it banks on fast returns for the lucky few) then that must colour our attitude towards investors and investment. Maybe we should consider capital as a scarce resource to be used sparingly. This in turn means a frugal relationship to expenditure. There is a tendency to throw money at things in the belief that it will work miracles. For example, gigantic marketing budgets are expected to bring people to buy even if the product is lousy or useless.
Relationship to needs
I wonder if we were to truly consider what people's needs are, would we get involved in trade and commerce at all. What could be meant by taking needs into consideration? It says something about dialogue with the customer. Remain closely in contact with customers despite the growing size of the company. This is hard to do. Size invariably cuts you off from those your are dealing with. One answer lies in having a distributed system in which local people sell and provide the service and they themselves are in contact via the network and occasional meetings. Anther aspect concerns being aware of needs and how you respond to those needs. One possible answer here is creating channels to ongoing client involvement. Making a sort of community around common interests and needs.
There is often considerable arrogance in the act of creating technology that feeds on a belief that technological experts knows better than others, especially those who are going to use the technology. We have to be able to listen to what users have to say, even when it seems naive or even misguided. In every comment, however seemingly misplaced, there is a valuable lesson to be learnt. Listening and creating occasions to be able to listen is a key activity of the sustainable company.
One of the major problems with the start-up myth and very often its reality is that work is quite unhealthy. Too much stress, too long hours, and somehow cut off from the rest of the world. One possibility is a more careful use of time and effort. Having lived through the start-up experience during a year as head of the company and now being involved in setting up a new start-up, I have the impression that in the fervour and excitement there is a great deal of waste of time and energy. Much of the ostentatious running in corridors is rooted in a kind of self-important scenario that is being collectively played out, rather than in a concerted drive to move things forward. If we consider that time is a particularly scarce resource, then a sustainable approach would seek to spare the use of time by more efficient planning and better communication between all involved. Rather like in some countries, where there has been a growing awareness of the need to recycle certain materials, there is a need to increase awareness of the need to spare time in a shared effort. The purpose is not to then fill up the rest of the time with more work, but rather free up the time for other activities. The problem with time and motion studies was that they were driven by a desire to make the most of the time that workers spent in the factory. Start-ups rarely have fixed hours. Overwork is common.
Excessive speed in decision-making
The haste with which things are done, driven by the supposed urgency of getting to the goal before competitors, is not necessarily conducive to sustainable decision-making. There is a generally held conviction that decision making has to be rapid and energetic. I suspect that such snap decision-making does not allow taking into consideration the more global and complex picture. Without such a global backdrop to decisions there is a serious risk that the course followed will not be globally sustainable. So how do we ensure that the necessary time is taken to encompass the global, complex picture? Beyond general awareness, one approach could be a discipline in decision-making that obliges the inclusion of the larger picture. This could take the form of a road map or a checklist that accompanies decision-making.
Alan McCluskey, Saint-Blaise.
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Created: October 24th, 2000 - Last up-dated: October 24th, 2000