On Software Startups - CEOs & Founders: Creative Destruction is the Job ....or said differently.... There is No Comfort in a Tornado

When people found or join a software startup or any startup for that matter, no one wants to simply hit a single just to get on base. We hope and dream of swinging for the fences. To beat the baseball analogy to death, along the way companies pull their swings, cramp up, or take their eye off the ball. Perhaps worse yet, they get comfortable hanging out in the dugout drinking ice cold Gatorade.

No one means for this to happen, but it happens nonetheless at a staggering rate. According to Failory.com and their sources, 9 of 10 startups fail (Startup Genome ), 7.5 out of 10 that are venture backed (Shkhar Ghosh – HBS ), 2 out of 10 new businesses fail (Bureau of Labor – Raw Data ), and 1% of startups become Unicorns (CB Insights ). If you happen to be in the office (rare these days), look at the directory of companies in the building. Out of 10, only one will remain. Insane. Why then are we so shocked by layoffs, downsizing, or business closures? I think it is that we fail to recognize that we have joined a sector of the economy whose essence is creative destruction . We try to kill old business models and each other in perhaps the most Darwinian approach of all the Darwinian analogies for business. By design, there is no comfort in this tornado.

Yet somehow comfort does happen. A further staggering number of companies simply hide out in the undergrowth attempting to avoid predators and maintain the status quo with a false sense of security. This happens for a lot of reasons. Roman candle competitors go up in flames having raised too much money and too many expectations leaving you one of the few creatures left alive. Markets make go into stasis for a period of time as Venture Capital focuses on other things. Founders drink the Kool-Aid of their funny money valuations and fear rocking the boat that keeps their monopoly money millions dry. Sadly, though, in addition to all the failure, for the survivors there are probably 10 walking dead companies for every actively growing one. Frozen in place, they wait to be recycled by private equity or buckle in for a painfully slow or shockingly abrupt ride to the bottom. This begs the philosophical question, if you are a zombie, do you know you are a zombie? I would argue no.

?Fractional assistance may help you hang your Dorian Gray mirror to give you this reality check. More importantly though, founders and leaders need to ask themselves, what am I going to do if I get the zombie diagnosis? In my view, there are only 2 options sell or double down. There used to be a third – smother it in lipstick and dump it as a SPAC to the general public. Thankfully this cynical system of outright deceit and thievery has been discredited again (for the moment) and is now only the choice of criminal gameshow hosts who dream of being president. IPOs are nearly impossible to pull off for zombies, and if you have a real stake in the company, it could be worth just pennies on the dollar by the end of your lockout period if you take this route.

Sell – If you are thoroughly convinced that your monopoly money is real and you want a relatively low risk way to lock it in with going through all the pain it took to get you to where you are all over again, then selling is a real option depending on your timing. Provided interest rates are low and VC & PE coffers are flush with cash, you’ll get a quick reality check as to whether your pastel-colored notes can be converted at a reasonable exchange rate for actual money.

Double Down – If selling isn’t what you want to do or won’t return what you expect, the only real viable option is to double down. Sure, there is the pivot, for discussion purposes, this is arguably a flavor of doubling down. This move takes extreme courage. You must accept that what you have isn’t particularly valuable and that you are once again willing to bet the farm on creatively destroying yourself or your space to build something even more valuable and relevant. Most will never have this courage and the creative destruction will happen organically like a leaf on the forest floor or a twig carried away by a flood.

While there are no easy answers here as the root cause is an unholy conflagration of the minefield of rose-colored glasses, reality checks, grit, and determination battling out in multiple people’s skulls, there are some helpful considerations that are likely part of the list of things entrepreneurs should wrestle with.

Consider these facts/ideas:

Your 409A Valuation is Likely Not Accurate – This private company valuation process is beyond flawed and frothy, and it mints rose-colored glasses. Dollars to probably a box of donuts, it is wrong. It should not be your guide for anything but the strike price of employee options or a thumbnail milestone as input for your next fundraise. It is likely not worthy of being leveraged for a strategic decision.

Birthing Companies is Hard – You aren’t done when it is born or usually when it hits, 3, 7, 10. You’ve got to get it into college and ensure it graduates. It is likely true that despite your heroic efforts to date, your hardest work is probably ahead of you and not behind you.

Somebody Somewhere Wants to Eat your Lunch – Again, there is no comfort in a tornado only the calm before yet another storm. There is likely someone hungrier than you who has fresh money and talent who isn’t in your rear-view mirror, they come from an adjacent space or technology with either a deliberate or unintentional strategy to wipe you off the map. Here I channel Andy Grove from the from another universe repeating his mantra that “only the paranoid survive.”

You Signed Up to Work in the Creative Destruction Economy, so Live It – Software startups, in particular, are really no place for a lifestyle business. Stasis is slow death as it can rarely be maintained at even a constant rate of decay. It is the false sense of safety that so often seems to hold people back from the bold decisions they should be making. The other force at play is that humans are hardwired to hate change even if you work in a company whose raison de etre’ is change. Nonetheless, you this lack of permanence is what you pledged to be part of as you pursue something better for your customers or a whole industry.

The act of creating a startup or choosing to work in one provides the intellectual freedom to color outside the lines of the existing world. The countervailing reality is that statistically you won’t be successful. Only by bending the will of the universe through a thoughtful strategy and often inconceivable amounts of hard work do you get the privilege of changing some aspect of how we work or live. This means likely having to double down, often more than once, and facing the real possibility of failure many times. It is an act of perpetual courage. It can be a heart wrenching gut punch with only brief moments of joy or respite. It is swinging for the fences, or it is the soil on which others will. Success in this domain is both a calling and a deliberate choice.

-end-

#CEO #Leadership #Startups #vc #privateequity

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Ken Pulverman is a Silicon Valley software executive with more than 20 years of leadership experience in large and small software companies including multiple C-Suite roles in both Product and Marketing in growth companies resulting in three successful exits and an IPO. In addition to the software industry, his work has included the Manufacturing, Logistics, Banking, Insurance, Pharma, and Travel & Transportation industries, as well as & Education. He has helped grow, build & improve product offerings at large organizations like Oracle, Siebel Systems, DHL Airways, and Stanford University as well as successful startups like Model N, Vendavo, & Parsable. His consulting brand is www.sagecxo.com where he and his partner provide hands-on services to unstick any software company to help them seize the day - from message to product to technology.