Startups are, by their nature, unreliable. They are temporary companies looking for product/market fit. They try to, as quickly as they can, make something that solves a problem (product) for a group of people who have that problem (market). Sometimes they don't achieve that and sadly they close. Good founders will return any remaining capital back to their investors. Early customers then get a product they like taken away. This sucks but ultimately it's good.
Initially, sales are easy to come by for startups because they're selling to crazy people. These crazies are called earlyvangelists or "innovators". They're the people who always sign up for beta releases. They don't mind trudging through support docs. They don't mind a poor experience. They like to tinker. They share the startup's vision of the product. But you can't just sell to these people because they make up a really small part of the market.
it will only take so many shutdowns or sales before the public starts to realize that startups cannot be trusted.
The vast majority of people already don't trust startups for the reasons in the article. They make up early majority (pragmatists), late majority (conservatives), and laggards (who typically never buy tech products anyway). They need a better price, a better use case, the "whole product", or more certainty that the product will stick around. Marketers call this "crossing the chasm". If you can sell your product to early adopters, there is a better chance that you can sell to late adopters which is required to sustain product/market fit.
Why is this good? Products that don't solve a problem, or solve a problem that no one has, distract the market from products that do solve a problem customers have. This is the "invisible hand of the market" at play.
Wow, what a great response Mitch. You definitely nailed it here. I would love to have you add this as a response on medium so more people could see it. There's a lot of really solid points in here that are worth considering for anyone reading the article.
That being said, I don't feel like it's really only "crazy people" or techies and early adopters that are using these startup products today. Most tech startups that take on VC money don't market themselves as half-baked or exploratory, they typically feature slick professional designs and bold claims about functionality and features. Many of them genuinely offer good and well-crafted experiences. I have used a number of startup products that have been crafted in a truly professional manner and offer me tons of value and a great experience, some of which have been shut down and others which have been not. Hell, this very post is written and distributed by one, and there are plenty of non-crazy people who use it as well as me.
While I certainly don't deny that the nature of startups is that many will fail, in this article I was merely aiming to outline a point about responsibility and trust. I am not proposing a solution, nor am I claiming that the world could be coerced into working in a different way. The piece is really just presenting what I see as a problem, and something that we can and should think about and discuss.
There's a lot of love and tongue-in-cheekiness with the "crazy people" remark. That's what Steve Blank calls earlyvangelists. The point is, they're very enthusiastic about new products.
That being said, I don't feel like it's really only "crazy people" or techies and early adopters that are using these startup products today.
If a startup fails, most of the time it's because they didn't achieve product/market fit. Which means, they didn't break into the early/late adopter market. They couldn't 1) build a product that solves a real-world problem and/or 2) convince most people to buy it. If that happens, they shut down or pivot. This leaves the earlyvangelists in lurch but they typically aren't too upset. They're so enthusiastic about new products, they'll just wait for the next thing.
I don't entirely agree here. Most VCs are not ok with startups doing "fine", they want to only back companies that are massively successful because of the way they calculate risk patterns. If you are doing ok as a startup, even well enough to be profitable, you can still be forced to sell (then usually shut down the product), because doing just ok is not good enough for VCs to continue investing in, so they would rather cut their losses. So a lot of products that are entirely solid are removed from markets this way.
Also I don't think its so clear of a difference between "early" and "late" adopters as you outline it here. I think it's just straight up number of adopters. I hardly think that if you ask anyone they would classify themselves as an early or late adopter. It's more along the lines of simply how many people see and use the product. And if they don't have a certain number of people, or specifically a certain exponential looking growth pattern of people, VCs are not interested and that's the end of the business, as mentioned previously.
I also disagree that all people that use startup products are "earlyvangelists", for the same reasons outlined in my previous reply. I also don't think that these people are not too upset and are content to wait for the next one. I think the interest in this article alone shows that many people are actually concerned about this issue. While I currently lack the data to back up this assumption, I do think it would be interested to do some sort of post-mortem survey when a startup shuts down, and figure things like this out.
All in all, this is kind of a silly back and forth as neither of us have any data to back up what we are saying and its based purely on assumptions. But with that in mind it would be pretty fascinating to get some more data on this area!
You hit a very important nail in the head. I was actually involved in a couple of those situations, perfectly viable business that were cut short because didn't look like possible unicorns from the start.
The technology adoption curve is a fairly well understood model, going back to the 1950s. The psychometrics and behaviors of those models might not be perfect but they're useful. To clarify: I'm not saying all users of startup products are early earlyvangelists; they're just the first customers. With the goal of breaking into the majority later on.
As for why startups fail: http://autopsy.io/
Just scanning through this list, two reasons stand out: 1) Ran out of money (VC) or 2) No product/market fit. This is inline with what I was saying before.
I can't think of a company that was shut down because it wasn't doing "well enough". Maybe if the company had been around for 7-10 years and still didn't produce the growth required to IPO or be acquired, then maybe the VC would shut it down. But I can't think of an example.
Ultimately, as you said, we don't have the data. If a startup is growing and maintains product/market fit, and it's acquired, it might get shut down, either to acqui-hire the team, integrate into buyer's product (e.g., Sunrise) or to prevent competition (maybe?). But it's hard to know for sure because the financials of these companies aren't made public (as they haven't IPOed).
Sometimes I'm trepidatious to put money into a startup (not as an investor, just a consumer) because so many get bought and subsequently shut down that I worry it won't be here in a couple of months.
No business is reliable. It requires constant adaptation and driving, pivoting and evolving because if you don't do this the business will die in matter of days.
I don't disagree. My point here was that venture backed startups are significantly less reliable than most other businesses.
I don't have data to sustain your point, but think about the amount of companies (small, medium and big) that open and close each year can be much higher than the amount of startups with funding or investment.
I'm not talking about absolute numbers, I mean relative. As in X% of businesses shut down within Y amount of time. My assumption is that X is much higher for venture-backed startups than it is for any other business. While I also don't have data to back this, it's almost certainly the case because of the nature of venture capital, as explained in the article.
I can relate. After a couple of shutdowns/acquisitions without proper export options in the "bookmarking design inspiration" area, I decided to go with the service least likely to shut down (pinterest) instead of another service that fit my needs better.
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