Startups And The Cyclical Nature Of Business

There are many reports available letting you know venture capital investors are pulling back. Investment levels are down over the last year. Don't worry about it. I'm here to tell you everything is just fine. That's won't make the panic any less real. So let's look at some facts.

Constant Growth Is Unsustainable 

The startup mantra of grow or die is true, but it's financially and theoretically impossible to perpetually increase anything. At some point that market will saturate. There aren't enough good ideas and quality founders to make it work. Combine that with investor FOMO (Fear of missing out) and you get lots of bad investments into bad ideas.

This means startups fail and investors lose money. When investors lose money they get scared and pull back. That's natural. A great example is the proliferation of co-working spaces. Upon their inception, they served a need by bringing like-minded and talented professionals under one roof for a fee.

Many people jumped on the bandwagon. There are businesses whose sole focus is building these spaces. Everyone has a better delivery method than the last one. Until you can't make money and have to sell the space to someone else. This is what happened to Work In Progress in Las Vegas.

Another example is the explosion of accelerators around the country.  According to Angel List, there are 467 startup accelerators in the USA. Given the flighty nature of creativity in general, there just aren't enough good business ideas to consistently sustain that many accelerators.

I follow The Mill in Las Vegas. I'm rather fond of them because Sara Hill responded to me on Twitter when I was just starting out. My posts about their first startup pitch night were the springboard for starting this site.

In a recent email exchange, I asked about the date for the spring cohort. I want to cover it again and better engage the community down there. Sara said they were combining both cohorts into one pitch night in the fall. 

My initial reaction was concern. Why would a startup have to attend a cohort in the spring for 12 weeks then wait another six months to pitch to investors? Maybe The Mill didn't get enough applicants for this round. Maybe with Work In Progress having issues there wasn't enough space to work. 

Survival Of The Fittest

I doubt very much The Mill is going under. Work In Progress was bought by another company and will be just fine. Tony Hsieh and the other investors won't let this part of the Downtown Project fail after just a year or two. This whole thing is just a downturn in the cycle and the market correcting itself. 

For all the altruism surrounding the startup community and modern business in general, at some point products and ideas must deliver. When they don't they die. That's ok. It doesn't mean people are horrible. It's just how the market votes. It's not fair and never is. Timing is everything, and sometimes your timing sucks.

Like I always tell my kids: Life isn't fair, and fair is in August.