Innovating is an endless game

What better time than Christmas to talk about games? Besides wishing a happy holiday to those who  will read this post (even in other times of the year), I take this opportunity to debunk the myth of the (Santa) Silicon (Claus) Valley. I know, I am a horrible person and I understand if someone does not want to continue reading.

The (Santa) Silicon (Claus) Valley

Personally, I do not believe that importing models that originated in contexts and markets very different from ours can take root successfully, at least not without leaving significant social consequences. I also have 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, definitely simpler like that of Santa Claus, has not found the same application worldwide, how can we hope that one which is far more complex and demanding, like Silicon Valley, will?

Let's start from the origins of this myth, that is, the definition of startup (in other words, 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 to what extent? Until when and under what conditions? Let's examine this together.

Doing business is an infinite game

As Simon Sinek states, "doing business is an infinite game". This means that "the number of players is not fixed, nor are the rules or the duration of the game itself".

Conquering an entire niche market and maintaining that position over the long term is practically impossible unless there is a continuous and constant push for innovation. At that point, it only becomes difficult to the point of indifference, with increasingly growing difficulties as the propensity for innovation of competitors operating in the same niche increases.

So why does the startup world have a culture of triple-digit growth year over year at all costs, until all competitors are eliminated? The reason is that there are players for whom the game is over—at least in terms of time: investment funds. They act by applying (imposing?) the rules of a finished game to an intrinsically and undeniably infinite game.

Sometimes they come back

The reason is quickly explained: the startup must grow rapidly and triple digits to allow the fund to achieve returns on investment to distribute to its Limited Partners (or LPs) and usually must do so within a well-defined time frame that coincides with the fund's expiration (tip for founders: always inquire about the remaining useful life of the fund you are bringing in).

The US-centric culture of "Go big or go home" and "Fail fast" does the rest, completely excluding the possibility of more measured growth, perhaps while waiting for more favorable market conditions.

However, not all negative outcomes are harmful.

Failing quickly often allows for a fresh start with something more "sensible" for the market, especially when market fit has not been found. But after finding even a semblance of fit, what sense does it make to always and constantly teeter on the brink of the abyss? Nowadays, even the other myth of investing whatever it takes to then grow vertically does not hold, because at some point, a systemic crisis occurs and breaks the game (despite the fact that optimists are never lacking).

So why this obsession with hyper-growth?

Considering that the goal does not exist (infinite game, remember?), that at best we are talking about surviving until others withdraw, that playing is quite exhausting and that those who win (or think they have won) are less than 0.1% of those who play, I would say that the meaning is to be found solely in one's propensity for self-harm (a component present in every entrepreneur to some extent).

“How human of you!”

A study by the Canadian Mental Health Association (CMHA) in 2019 found that as many as 62% of entrepreneurs feel depressed at least once a week. The figures are higher for smaller businesses. And a startup founder feels depressed at least once a day (the latter is without a source; I added it myself, but the sample is composed of dozens of direct acquaintances). Fortunately, an entrepreneur's life is not solely marked by stress, otherwise, no one would do it anymore, but the phenomenon should not be underestimated.

I also do not doubt that stress is also part of the life of the Managing Partner (or MP) of a VC fund, but then why not try to innovate the system by which innovation is done? And I am not just talking about the mission of the fund, which can also have a social impact, I am talking specifically about the model of the fund itself.

Investing in socially impactful initiatives while stressing founders with triple-digit growth, I believe, somewhat contradicts the original mission. The invitation is also directed to Limited Partners: continue investing in impact funds, but ensure that they have little effect on the lives of those being funded.

Hands on!

Practically all existing VC funds inherently have a Pareto distribution of returns: they all push for growth because they know that out of 100 players, they just need to find 1 or 2 that can sustain themselves with growth in the 4 or 5 figures to ensure a positive fund performance (average multiple of at least 2x).

However, only 5% of VC funds in the world have performances >3x (source)

The same performance can be achieved with 6 exits at 20 million on 10 initiatives, or 3 exits at 40 million on 10. Is there really a need to push the system to its limits to chase unicorns? No, there isn’t. Additionally, there are plenty of Co-Founders who would gladly pocket 3, 5, or 10 million without necessarily risking their mental health in pursuit of mythical creatures (and without having a magic wand either!).

There is, however, a great need for boutique hands on that are not purely financial but actively support initiatives by diving deeper into operations. In other words, getting in the game to play alongside founders, because we either win or learn together.

Creating zebras (what are they?), rather than unicorns is part of the mission we have set for ourselves as Startup Bakery. And in doing so, it can be discovered that the game is even enjoyable, as well as beneficial, as it allows for concrete innovation even within a fabric of SMEs that often has no way to benefit from best practices in open innovation.

The end of the game

In reality, an end exists (this post is full of twists and turns) and it is called exit, but this does not necessarily mean the end of the game. Many initiatives (in the scene, it is said even more than 8 out of 10), even after an M&A, actually fail (so unfortunately for them, yes it is the end). The causes are many (you can find some here) and are not relevant in this context. What matters instead is that those who do open innovation should be quite concerned about this, because since the game continues, in the long run, trust in the innovative tool might be lost.

All players, whether founders, funds, innovation managers, or others, should be more concerned about the quality of the initiatives produced, measuring them not only with economic-financial KPIs but also social ones and, especially, the well-being of the individuals involved. Because the only way to ensure that the game remains infinite is that it is worth playing for everyone.

Startup Bakery is the Italian startup studio specialized in creating SaaS B2B companies with Artificial Intelligence. We offer aspiring  Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We assist companies in the innovation process.