How to (not) help founders build Great Companies?

We get what we measure, but do we measure the right things, when it comes to helping startups generate growth, as 90% of them keep failing? Do we realise that by simply increasing the funding and training available, we’ll only get more of the same? It pays to remember that Einstein defined insanity as “doing the same thing over and over again and expecting different results”.

I once overheard two developers discuss their new project at an airport: “What sucks in writing a new code is how you must begin by breaking something that works well for many, and to what people are used to. If you don't do this, you can never replace an existing code with a new one that is better for everybody.”

It struck me how the startup ecosystem has become captive to a “vicious code” and how utterly fundamental change is needed, if we truly want to help founders build Great Companies. As is, startups are used and founders programmed to help financiers reach their targets. Practically all the help founders receive is geared to serve what financiers need. Founders learn what to promise to get funded, but not what – and who – they themselves need to build a sustainable, scalable business. Not before it’s too late.

This article sums up decades of personal experiences as VC, professor, and entrepreneur; research, statistics, and cases; and private discussions with fellow founders, enablers, and financiers. While the conclusions are mine alone, this is making visible what is shared by many, but just not often publicly voiced. Some of you know how I’ve been vocal on the issues – but I have also been part of this myself, all these years.

Where is our ambition?

The “existing code” takes as given that 90% of startups fail – either before or after they are funded. We’ve fixed mortal diseases, put man on the moon, and created AI, but keep accepting the startup failure rate as if it was a law of nature. It is not. Building Great Companies is difficult, but the failure rate is self-inflicted and not fixing it hurts – besides founders – taxpayers, the investing public, and economy at large.

We require disruptive innovation, multiple competences, and “a song and a dance” from founders, but do we require enough impact from those whose job is to help them? Now that politicians across Europe are waking up to lack of growth, it is high time to raise the question.

In a startup ecosystem, there is a multitude of enablers who operate between founders and financiers: individual coaches, advisory organisations, accelerators, and various support agencies and projects. What financiers measure, the enablers deliver. But do financiers measure the rights things, if the true goal is to produce Great Companies?

What financiers measure?

Public financiers measure the number of new startups, funding applications, participants in training events, and euros invested in startups.?Growth in these numbers is viewed as success.

By delivering these numbers to financiers, enablers can serve startups “from arm’s length” and grow their own business even if 90% of startups keep failing. Even if just 10% of startups survive and 1% emerge as Great Companies, the activities and calls for more of the same remain justified.

Private financiers – apart from business angels who invest their own capital – measure assets under management and funds invested, as their management fees are tied to these numbers. These are logically their main driver. Because so many startups are accepted to fail, exit proceeds can mainly be factored to pay back a fund’s capital to its investors.

Some enablers earn success fees from getting startups funded. Their key is to pick the startups whose founders can learn the fastest what financiers need to make an investment. Regardless of how many of the funded startups will ultimately fail, this creates further ground to call for more of the same.

Founders pay the price

Until financiers change what they measure we keep getting more startups, “big talk activities”, and founders who know what to promise to get funded. But we get very few teams built to keep the promises and create Great Companies, healthy growth, profits, jobs, and tax income.

Founders have little means and enablers little reason to complain and request a new code.

Founders are often specialists of deep technology domains and almost always beginners in company building. They must rely on the help that is available. In the worst case, they end up as passengers in their own car: Pitching go-to-market plans, milestones, and projections drafted by outside professionals to serve what financiers need.

In consequence, 90% of startups keep failing, but this does not negatively affect the enabler’s job or business – quite the contrary. As long as the failure rate is taken as given, there is a logical and justified pressure to lure ever more smart people to get a startup going. Inevitably, the focus remains on quantity, not quality, in all related activities.

Who holds the keys?

In a market economy, supply follows demand.

When it comes to the startup ecosystem, financiers hold the keys to what founders and enablers primarily produce. To be more precise, policymakers hold keys for public financiers and institutional investors hold keys for private financiers.

The existing code will prevail until policymakers and institutional investors decide we need to break the vicious circle and that founders – and enablers – deserve a more impactful code.

It does not at all require investing more money in startups or support activities. The current resource is more than enough, if the focus is changed from helping financiers fund startups to helping founders build companies.

What do you think? What would turn the tide? What would improve the efficiency of startup funding and all the support activities? What would help enablers improve their impact? What could we all do differently to truly help founders build Great Companies?

In the next article, I’ll discuss potential solutions and how to get started, one startup at a time.