Startups Do Not — Repeat, DO NOT — Prepare You to Create Products

Hear that? That’s the sound of me pulling on my asbestos underwear. I know that this is the the myth which is going to get me flame-broiled. But hell, it’s November, so let’s talk turkey anyway.

When we last talked, I was mythbusting a long essay by an agency owner who himself was trying to out the “myth” of the consulting agency-turned-product company.

Let’s pick up where we left off, shall we? Here’s a choice quote for starters:

“As mentors to TechStars, MassChallenge and other accelerators we’ve seen a lot of startups come and go. Their initial enthusiasm is often followed by waning cash reserves and one too many pivots. The reality is that only a small percentage of startups actually return anything to their investors. An even smaller percentage hit the big time. Being on the client [startup] side of the fence is way more risky than being the designer or developer [agency].”

Now, none of the above quote is myth; all of it is god’s honest truth, more’s the pity. As the real mythbusters say: Well, there’s your problem.

Think about it…

Imagine a world where every startup was expected to actually make money:

  • They would build things they could charge for…
  • They would charge for them from day 1…
  • which would, of course, cut the dream of hockeystick growth just to pieces

These startups (call them “businesses”) would make good, solid profit, grow slowly… and rarely get bought for a higher than 3x multiplier of yearly revenue.

The whole VC world would collapse.

VCs don’t like small sure things. “You have to speculate to accumulate.” They prefer a bumper crop of failure and one incredibly slim speculative chance at a 10x return. And there’s not much room for speculation when you know exactly how much a product is profiting today, and what its growth trajectory will be. (And by “not much” I mean “virtually none.”)

The only investors famous for betting on sure things are just like Warren Buffett — and nobody reads BuffetCrunch. There is no Buffet Disrupt. “My favorite holding period is forever,” says no VC ever.

Fact: Startups are intended to fail at incredibly high rates.

They are, by the kindest VC-provided definitions available, an act of frenzied hunting-around. No matter how much money or how many mentors you pump into them, that does not change the facts of their existence: They are inherently random and speculative. And thus wasteful.

It sucks to be cannon fodder, but that’s startups, for you.

If you try to emulate this cycle in your product business, you’re either a glutton for punishment… or poisoned by prolonged exposure to Other People’s Money.

Fact: Startups don’t — can’t — care about users.

Startups aren’t actually designed to attract paying customers — you can see that, above, in our little thought experiment. But, you may be saying, they’re sure designed to attract users! Right? Right?

Wrong.

Fact: Startups are designed to attract acquirers.

Yes, I lied a bit above… Startups are designed to attract customers. Or, well, one customer: The one who buys the startup. (In an ideal world, two customers, so they can create a bidding war.)

You know that saying, “If you’re not paying for the product, you’re the product”? Well, that’s not nearly cynical enough.

You’re not that desirable to the startup, really; it’s not even really selling you. If it were, it’d treat you at least as well as a prize show animal. You’d get premium feed and regular grooming appointents. No, a startup may be patting you on the head distractedly with one hand, but you are not its precious blue ribbon, not by a long shot.

You’re not the product; you’re so much lower than that. You’re destined for the grist hopper, to feed the actual product (the startup itself). Sometimes the startup smears buckets of your blood on its face and says

“Hey Google, look at my sexy bright red lips, I’m soooo fertile and full of users, don’t you want me?”

— but mostly it just eats you up and shits you out. For fuel. Thus, instead of special care and attention, you get abominable Terms of Service and monetized cow-clicking.

And that’s why…

Fact: Startups don’t have products.

A product business lives by the customer and dies by the customer. A product must attract, serve and retain many customers… by making them happy, by helping them do more, achieve more, earn more, save more.

Startups live and die by the customer, too — but their customer is Google or maybe Yahoo, which comes with a completely different rule set. This is the real reason most startups are doomed: their only survival strategy is a sugar daddy. And there are thousands of startups, competing for just two or three major sugar daddies. Not good odds, those.

This gets really confusing when you spend your creative career serving them. You find yourself thinking things like this, found in that essay I’m skewering:

“A dangerous side effect of the myth is that as product designers we think we are automatically going to be good at creating products for ourselves. Not true.”

*snap-checks asbestos underwear* OK, guys. Here’s the thing.

The dangerous side effect is actually this:

Fact: If you work for a startup, doing app design or development or something, you only think you are working on “product.”

But you’re not, because the product is the startup itself — all the shiny software is merely an asset. Why else would so many acquirers spindle, bend, mutilate and murder the software and services they buy?

If you work for startups, you and your work are lipstick on a pig.

If you’re lucky, your lipstick finds itself on a Berkshire pig, which Google will want for its tasty, marbled bacon, and maybe they’ll want you, too, to tart up other projects post-acquisition. But Berkshire pigs are rare; most pigs are simply, well, pigs. In reality, most of your startup clients/employers will pivot til they can’t pivot no mo’, and your hard work is extenguished, again.

Thus, it follows that if the vast majority of your clients go out of business — not because it’s your fault, but because that’s how startups are — then,

  • You can know that you’re good at making things from scratch.
  • You can believe you’re good at making things pitch- and investment-worthy.
  • You can even feel confident in your ability to make your clients happy.

But… you can’t say you’re good at product. Because you’ve never actually touched the real product.

Fact: Without long-term engagement with the real world — with many human customers — you have no idea if you are any good at making or designing products.

A product cannot exist in a vacuum. Without a customer, it’s not a product, it’s just a project.

As famed management thinker Peter Drucker wrote, “The purpose of a business is to create a customer.” He elaborated, later, that the purpose includes keep and serve a customer, too. All true. Sub “business” with “product” and it is still true… if not more so. It’s a statement so spare, and simple, that it’s undeniable:

Fact: The purpose of a product is to create a customer.

So, if you work for startups, and startups are designed to attract a single (institutional) customer, and yet they don’t even manage to achieve that…

You’re not working on product. Maybe it’s Maybelline.

Of course, when you go from this kind of consulting career to building products, it’s natural and expected that you’re going to do what you know. There’s just one problem…

Fact: What you think you know is wrong.

So, naturally you’re going to fail.

You might, for example, think that when attempting to bootstrap a product, this kind of approach makes sense:

“…Even when we spun out our ideas and brought on a full-time CEO and operations team…”

But it doesn’t. This kind of approach only makes sense when you’re risking OPM (Other People’s Money), and even then, only sometimes. As the author discovered:

“…we discovered that the funds needed to get to profitability would eventually bankrupt our core business.”

That’s the problem. VC is essentially a way to keep on doing something that shouldn’t survive, in the hopes that a rescuer will appear.

But waiting for your Magical Business Prince to come is a losing proposition.

Fact: If you treat a product business like a funded startup, you will fail.

Then, once you do fail, you may find yourself — having swum so long in the murky pool of startup effluent — colonized by beliefs that prevent you from learning, and keep you doing the same broken things again and again.

Beliefs like this one:

“Even if you’re supremely passionate and you’ve invested all your personal savings and hundreds of late nights to build a beautiful product it still might fail.”

This sentence sounds reasonable, on first read, doesn’t it? It sounds, in a way, humble, and honoring the truth of failure. It makes you want to nod your head and tweet things like, “This.” and “TRUTH!”

But it is full of lies.

How can I say that so confidently? Well…

Imagine a world where you have as much chance of selling your startup as you do of being struck by lightning.

And yet, there is an industry hungry for your labor. Yes, your labor. Everyone’s labor! The industry needs a 10x moon shot, but they don’t have a space program; all they have to bet on are horses. So, naturally, they want to bet on as many horses as possible, because hey, if a thousand monkeys on typewriters can bang out Love’s Labor Lost, maybe one of a thousand horses will turn out to have a rocket booster hidden in its ass.

If this were the world you lived in…

What would the industry need you to believe?

It would need you to keep trying and trying and trying and TRYING until you slip the surly bonds of earth… for them.

It would need you to believe that you need to be supremely passionate, invest all your personal savings, and hundreds of late nights… and you’ll still probably fail, so steel yourself, get up, and try again, there’s no shame in failure, you can do it!

Fuckin A, man.

So, sadly, you can only conclude that,

Fact: The advice, the beliefs, the truisms you’ve learned in Startupland will not only not help you, they will actively undermine you.

I know this is a tough nut to swallow for many; I know because they email me and tweet at me regularly and call me an extremist (and worse). Maybe you, too, think I’m being extreme. Maybe you think I’m biased.

Well, here’s a question for you: Where’s the customer?

In the 1,912-word post I’ve been debunking, the word “customer” appears just once.

Remember, now, that the post is a recitation of the author’s agency’s failures at making profitable (paying) products despite many attempts.

That’s a topic where you’d expect the word “customer” to appear more than once, don’t you think? Somewhere? But no — just once.

Is that single appearance about the author’s customers, or the customers they attempted to create with their doomed (but passionate!) products?

No, of course — rather than analyzing his own business, the author is arguing (poorly) that 37signals shot themselves in the foot:

“Now [37signals'] very customers were distracted from the [consulting clients] that made [Basecamp] necessary in the first place.”

I’ll leave it to you to decide if 37signals shot themselves in the foot, or if they are, in fact, more profitable than ever. Back to lexicological analysis:

  • “product” appears 36 times
  • “idea” appears 7 times
  • “passion” appears 4 times
  • “customer” appears 1 time

This is anecdata, I know; but it’s very, very strong anecdata. Go on, go read other popular startup blogs — you’ll find the ratio to be quite uniform.

This is the legacy of living too close to the nuclear reactor that is Startup Island. Your brain — irradiated with lethal levels of PASSION!! — has forgotten somebody. Who? Oh, nobody special, just the person whose Magical Wand of Commercial Alchemy can transform your fun toy project into a Real Business.

It’s so easy to overlook what isn’t there.

Fact: Peter Drucker is rolling in his grave.

But not because 37signals “distracted” their customers. No, Peter Drucker is rotating in his tomb because the startup world continues to perpetuate the lie that it knows anything about “products” — all the while de-skillifying the designers and developers who work for it.

All that said: There’s hope, you know.

Yes, you can overcome your startup roots and make things people actually want to pay for — and succeed doing it, too. Yes, you will have to unlearn a lot of things. Yes, you will have to become a beginner again. Yes, it will be hard and not especially pretty.

But, if you’ve spent your professional life claiming, “I love solving hard problems,” here’s your chance to prove it.

What should you do first? Well, for starters, you should steal this astute mantra from the 37signals:

We’re not designers, or programmers, or information architects, or copywriters, or customer experience consultants, or whatever else people want to call themselves these days…

Bottom line: We’re risk managers. Designers who sell ‘design,’ programmers who sell ‘code,’ information architects who sell ‘diagrams’ are selling the wrong thing. The thing to sell is reduced risk for the client. That’s what people want.

SvN, Aug 2003

This is the philosophy they evolved that enabled them to build a desirable product, Basecamp, which they used to lift themselves out of consulting. You know, the transformation that was “mythical”.

This philosophy does double duty:

First, it focuses the mind beautifully: What does the customer need?

Second, it also explains why consulting for startups is a mind-altering drug — and a dangerous one, at that:

Startups are made of risk. They’re risk generators. If you could actually reduce startup risk, does that even make any sense? A low-risk startup would make customers, make money, fund itself, and grow slowly. You might even call it a business. Which means it’s not a startup, just a business that is… new.

Which is why my motto is: Fuck startups. Focus on the customer. Relentlessly. That’s how you create something people want to buy.

Once again to quote Peter Drucker (the man was a genius):

Entrepreneurship is “risky” mainly because so few of the so-called entrepreneurs know what they are doing. They lack the methodology. They violate elementary and well-known rules. This is particularly true of high-tech entrepreneurs.

Thanks, Peter Drucker. We get the message.

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