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Eric Ries

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Startups: Winter Is Coming

Posted: 08/10/11 02:46 PM ET

It doesn't matter if you call it a boom or a bubble. The startup business moves in cycles, and what goes up will eventually come down. We're in summer. One easy way to tell: notice all the startup experts and prophets that have sprung up in the last two years (myself included). Notice how many of them made their money during a previous boom. George R. R. Martin would call them summer's children.

Summer will end. When, how much, and why -- I don't know. These are questions for financial analysts and investors, people with their ears (and attention) much lower to the market-ground than entrepreneurs can afford. But the signs of winter are all around us: persistently high unemployment, market shocks, ill-timed austerity measures. For a while, startupland can stay insulated from these broader forces, but not indefinitely. The LP's that fund booms are, after all, pension, municipal, and sovereign wealth funds. Consumers need disposable income to invest in the latest products, as do the companies who serve them and advertisers who reach them.

We've enjoyed these years of summer. But winter is coming.

Entrepreneurs should be prepared. Obviously, those who depend on raising money at a specific time in the future should be on their guard. Anyone whose plan is to "raise money in six months" is really saying, "I am planning on no significant financial crises happening six months from now." I wouldn't want to be making such specific predictions right about now. As every expert has been saying: if you can raise money on fair terms right now, do it. If you can spend money fueling your engine of growth, do it. If you need to double-down on a major pivot, on a drive to hit product-market fit, do it.

But we have much bigger questions to tackle about what will happen in winter. For example, entrepreneurship will suddenly stop being cool, and go back to being seen as risky, a little crazy, and a little dangerous. Those of us promoting the idea that entrepreneurship is a viable career option need to be ready. Right now, the "startup career" is an easy case to make. It's going to get harder. We need to be ready.

Those people working to nurture and support new startup hubs may see all of their hard work destroyed. I am especially worried about the burgeoning scene in places like New York. Will Union Square become another Silicon Alley? I hope not. We need to be thinking about this now. The endless networking groups that thrive on hype and sizzle will suddenly wither. Do we have enough groups that are focused on the nuts-and-bolts of real entrepreneurship to keep those ecosystems vibrant? Which kind of group are you investing your time and energy into right now?

I expect that a shocking number of the current crop of incubators, accelerators, and other startup-support programs will suddenly disappear. In summer, it's all-too-easy to have your program look like a success, because there is an endless supply of talented people becoming first-time entrepreneurs and an endless supply of investment dollars chasing them when they graduate. It's hard to know, in summer, which of these programs actually add value and which are glorified admissions officers. Winter will tell. If you depend on one of these program for support, be ready.

This may sound like all doom and gloom, but I'm feeling personally very optimistic. Hype gets in the way. Every ounce of energy invested in vanity metrics and success theater could have gone into building real value instead. As I've been saying in my talks for a while now, the real entrepreneurship -- not the caricature from pop culture and mass media -- is boring, tedious, and extremely difficult. It's anything but cool: product prioritization meetings, deciding which customers to listen to and which to ignore, and valiantly trying to keep the vision alive in the face of contradictory facts. To recruit people into that business, the real innovation business, should be our goal. I hope all of us are ready to reach out to those founders and would-be founders and nurture and support them through the hard times. That will create real value.

As I see it, the big opportunities to change entrepreneurship come in winter. During the last crisis, I was asked constantly for my advice on how to save money and cut costs. Most people didn't really expect my answer to be about the Build-Measure-Learn feedback loop and all the rest of the Lean Startup methodology. But the truth is: to save money, we have to cut any costs that are slowing down our ability to find validated learning about whether we're on the path towards a sustainable business. Cutting any other costs just help us go out of business more slowly.

But this begs the question: if we're spending money on something that is slowing us down, why are we doing it all? And why did we have to wait for a financial crisis to cut those costs? Why not cut them now?

Fall is a pretty good season to get serious about discovering which actions really contribute to creating value and which are waste. It's harder to act in a disciplined way in summer. All around you, you see excess and nonsense, companies being bought or funded for zillions of dollars without traction. It's hard to stay focused. Remember: most of those "lucky" companies die inside their new parent companies. Remember: in the long run, the surest way to be successful is to create more value than you capture. Remember: the truly great entrepreneurs didn't get in this to make money, but to change the world. Stick to that plan, and -- even if you fail -- you'll feel good about yourself in the morning, in any season.

This post originally appeared on StartupLessonsLearned.com

 
 
 

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