We’ve seen it multiple times in movies, TV shows, and pop culture. The image of a group of friends, starting a company in their garage, working day and night to build something that makes them overnight millionairesand lets them retire early. It’s the image a lot of people have in their heads when they decide to quit their jobs and start their own company.
Here at Speer, all of us have past experience working with startups. Some of us have even founded our own to various levels of success! But we’ve all learned the hard way that there are a lot of exaggerations and falsehoods in what people get told about startups.
We thought we’d try to do our part in clearing the air. So without further ado, here’s 3 common myths about startups!
MYTH #1: A startup is a company that was just founded
There’s a really popular portrayal of startups as being an overnight success; of founders starting a company and quickly raising millions of dollars in funding, and securing billion dollar evaluations.
But if you think about it, a startup is defined by its growth;, not by its starting date. This is the entire reason why investing in startups is so appealing to investors; you have the potential to invest in something that could multiply in value at an exponential rate.
As a matter of fact, a lot of the famous startups that people know today for being “overnight successes” actually took years and years to become successful:
Facebook took 9 years until it grew big enough to launch an IPO.
Square was founded in 2009, but didn’t IPO until 2015.
Microsoft was founded in 1975, but didn’t go public until 1986, making Bill Gates an “overnight success” of $350 million.
Google was founded in 1995, but it didn’t go public until 2004.
Rovio was founded in 2003, and built 51 other games before they finally released Angry Birds in 2009.
… and these are considered some of the fastest growing startups!
To be sure, there are companies that have become successful in shorter time frames. Brex>, the corporate credit card company, took under 2 years to get a billion dollar evaluation. But they’re the exception, and for good reason. Brex’ founders, Henrique Dubugras and Pedro Franceschi, had started a successful FinTech company before (Pagar.me) and had successfully got it to the point where it was processing $1.5 billion in transactions when they sold it. They already had credibility in the FinTech space before they started Brex; they weren’t learning the ropes on the job like most of us.
MYTH #2: It’s all about the idea!
While a good idea is definitely a requisite for having a successful startup, the metric that really counts is less about the idea, and more about the execution. Ideas by themselves are worth nothing, but the execution - how you bring the idea to life is the foundation of a great startup.
Think about it- Facebook wasn’t the first company to come up with the idea of a social media website. Google certainly wasn’t the first to come up with a search engine. But what made these companies successful was how they brought their ideas to their users, and created a user experience that made them want to come back again and again.
Startups are indeed rather unfortunate in this respect- you don’t get much credit for trying. You don’t even get much credit for being the first. You only get credit for succeeding, nothing less.
MYTH #3: Startups are a good way to become rich
There’s an incredible initiative being done to quantify the success of startups, called the Startup Genome Project. The results they found were pretty eye-opening. According to them, 90% of all startups fail. Of those that manage to secure some kind of funding, 70% fold within the first 18 months. This means if you happened to join a startup at random, there’s an overwhelming probability of failure that just doesn’t go away.
Even for investors, the picture doesn’t look much better. The vast majority of Venture Capital Firms actually lose money! There are actually quite a few reasons for this:
1) Most VC firms use a “spray and pray” approach, investing in a large amount of startups but only writing smaller cheques and grants of $5K, $25K and $50K. This isn’t a smart strategy given that most startups fold (resulting in a complete loss of investment capital). The ideal strategy is to invest in only a few companies that you’re highly sure will be successful.
2) The most promising startups with high potential are most likely to go to the most established VC firms first when seeking funding. And as soon as they secure funding, they’re no longer looking for investors. This means that most VC firms only see the startups that have been rejected and passed over by the bigger firms- so the least likely to succeed.
3) Most new VC firms don’t have any distinguishing factors. This means that there’s no reason why an entrepreneur with a great idea would approach them at all. Think about it- if you’re an entrepreneur with a great startup with a good growth rate, and everyone’s offering you money, wouldn’t you accept the money of the person who’s offering you not just money, but more resources (credibility, connections, etc).
If you have a startup idea, don’t let this discourage you! Society has, and always will, continue to reward those with empathy, ambition, intelligence, and the desire to solve other people’s problems. I think this quote by Margaret Mead says it a lot better than I can:
“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it’s the only thing that ever has.”