What better time than the Christmas season to talk about games? Beyond sending my wishes to whoever reads this post (in other seasons of the year too), I will take the chance to debunk the myth of the (Santa) Silicon (Claus) Valley. I know, I am a horrible person, and I will understand anyone who does not want to read on.
The (Santa) Silicon (Claus) Valley
Personally, I do not believe that importing models born in contexts and markets very different from ours can take root successfully, not without leaving significant social scars at least. I also harbour more than a few doubts about the legacy they leave in their place of origin, but I don’t want to go off-topic. If even a myth as decidedly simpler as Santa Claus has not found the same application all over the world, how can one hope that the far more complex and demanding one of Silicon Valley will?
Let’s start from the origins of this myth, that is, from the definition of startup (in other words, of the “toy”) that we find on Wikipedia: “A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model.”
But scalable how much? Until when, and under what conditions? Let’s look at it together.
Doing business is an infinite game
As Simon Sinek says, “doing business is an infinite game”. It means that “the number of players is not given, nor are the rules or the duration of the game itself”.
Conquering an entire market niche and holding the position over the long run is practically impossible, short of a continuous, constant push towards innovation. At that point it merely becomes as hard as you like, with difficulty growing as the innovation propensity of the competitors operating in the same niche grows.
So why does the startup world have this culture of triple-digit year-on-year growth at all costs, until every competitor has been eliminated? The reason is that there are players for whom the game is finite, at least in terms of time: investment funds. They act by applying (imposing?) the rules of a finite game onto a game that is intrinsically and undeniably infinite.
Sometimes they come back
The why is quickly told: the startup must grow fast, at triple digits, to allow the fund to realise returns on the investment to distribute to its Limited Partners (or LPs), and it usually must do so within a well-defined time frame, which coincides with the expiry of the fund itself (tip for founders: always ask the remaining useful life of the fund you are bringing on board).
The US-centric culture of “Go big or go home” and “Fail fast” does the rest, completely ruling out the possibility of more contained growth, perhaps while waiting for more favourable market conditions.
But not every cloud lacks a silver lining.
Failing fast often allows you to start again with something more “sensible” for the market, above all when market fit has not been found. But after finding even a semblance of fit, what sense is there in constantly standing at the edge of the cliff? By now, even the other myth of investing whatever it takes and then growing vertically does not hold, because then any systemic crisis comes along and breaks the toy (although the optimists are never in short supply).
So why this obsession with hyper-growth?
Considering that the finish line does not exist (infinite game, remember?), that at most one can talk about surviving until the others withdraw, that playing is also quite exhausting, and that those who win (or think they have won) are less than 0.1% of those who play, I would say the sense is to be found solely in one’s own propensity for self-harm (a component every entrepreneur is, in any case, endowed with to some degree).
“How human of you, Sir!”
A 2019 study by the Canadian Mental Health Association (CMHA) finds, however, that a full 62% of entrepreneurs feel depressed at least once a week. The values are higher for smaller businesses. And a startupper feels depressed at least once a day (this last one has no source, I added it myself, but the sample is made of dozens of direct acquaintances). Fortunately, an entrepreneur’s life is not studded with stress alone, otherwise nobody would do it any more, but the phenomenon must absolutely not be underestimated.
I also do not doubt that stress is part of the life of a VC fund’s Managing Partner (or MP), but then why not try to innovate the system with which innovation is done? And I am not talking only about the fund’s mission, which can even be social-impact-driven: I am talking about the very model of the fund.
Investing in social-impact initiatives while stressing founders with triple-digit growth, I believe, clashes somewhat with the original mission. The invitation extends to Limited Partners too: keep investing in impact funds, but make sure they have little impact on the lives of the people being financed.
Hands on!
Practically every VC fund in existence has, by its nature, a Paretian distribution of returns in mind: they push everyone towards growth because they know that out of 100 players it is enough to find 1 or 2 standing with four- or five-digit growth to guarantee the fund a positive performance (an average multiple of at least 2x).
And yet only 5% of VC funds worldwide have a performance above 3x (source).
The same performance can be reached with 6 exits at 20 million out of 10 initiatives, or 3 exits at 40 million out of 10. Is there really a need to always push the system to the limit chasing the unicorn? No, there is not. And besides, the world is full of Co-Founders who would gladly pocket 3, 5 or 10 million without necessarily risking their mental health in pursuit of fantastic beasts (and without being equipped with a magic wand, at that!).
What is greatly needed, instead, are hands on boutiques that are not purely financial and that support initiatives by stepping into the deepest operations. Translated: getting on the pitch to play the match alongside the founders, because you win, or you learn, all together.
Creating zebras (what are they?) instead of unicorns is part of the mission we have set ourselves as Startup Bakery. And in doing so, you can discover that the game is even fun, as well as useful, because it makes concrete innovation possible for a fabric of SMEs that often has no way to benefit from best practices in open innovation.
Game over
Actually, an end does exist (this post is one plot twist after another) and it is called the exit, but it does not necessarily mean game over. Many initiatives (in the industry they even say more than 8 out of 10), in fact, fail even after an M&A (so for them, unfortunately, it really is the end). The causes are many (you can find some here) and are not the point here. What is the point is that those who do open innovation should worry about it a great deal, because since the game goes on, in the long run trust in the innovation instrument could be lost.
All the players, whether founders, funds, innovation managers or others, should care more about the quality of the initiatives produced, to be measured not only with economic-financial KPIs, but also with social ones and, above all, with the wellbeing of the individuals carrying them forward. Because the only way to make sure the game stays infinite is for it to be worth playing for everyone.
Startup Bakery is the Italian startup studio specialised in creating B2B SaaS companies with Artificial Intelligence. We offer aspiring Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We help companies in their innovation process.