Why “Startups” Will Destroy Us

What is the difference between a “startup” and a traditional business, like a local bakery or even IBM? This hard about this question.

The definition of a “startup” (and the reason I put quotes around it) is because in this context it implies a specific attitude towards doing business. That attitude is opportunistic, short-term, and focused on selling, going public, or cashing out in general.
You can see examples of this ridiculous lust for greed and instant fame in the tidal wave of startup companies and cash that have followed in the wake of behemoths like Groupon and Living Social.

We might be a little wiser from the absurd internet boom of 1999, but the hunger for quick money has erupted back on the scene as the economy begins to recover and success stories like Facebook, Quora, Goupon, and others are trumpeted in the media incessantly.

Too many new startups are being created now purely for the reason of quick riches.

One of my past business partners saw dollar signs from day one of our partnership. Success in his mind meant maybe 2-3 years of hustling and selling our software, and then an easy life filled with speeches and beaches.

This is similar to how the general consensus feels: speeches and beaches, and then maybe on to the next startup. And who buys these startup companies and what’s the net result?
Normally the founders quit after a year or two to get on to that “next big thing.” Many of the staff also quit or are fired and replaced by the acquirer’s personnel. In the end, these startup brands shrivel and die due to lack or nourishment by their new parents.

They also die from a lack of media attention having lost their sparkle. After all, a week after the checks are mailed to the stockholders, there’s bound to be something cooler to write or tweet about.

Contrast this with a more conservative or traditional point of view on business. This attitude is defined by patience over many years—decades even—by the stake holders. It is more about the slow, steady build: adding on a new layer of bricks, letting it dry and harden, and then repeating the process, getting larger and stronger each year.

The local bakery owner is more likely to hold this attitude than a startup founder is because, put simply, there’s less hype and sex appeal around the idea of starting a bakery. That fact attracts more level-headed investment. You start it, you grow it, you nourish it, and one day pass it on to your family or maybe start a franchise and open up a few more locations.

Great companies with great long term track records like IBM have a steady-build attitude as well, although sometimes the short term incentives to create results for stockholders can truly f*ck up their priorities.

Although I believe the steady-build attitude is better, is does have its drawbacks. It is usually more difficult for companies with this attitude to change quickly when needed.
However, the “startup”—go huge or don’t bother leaving home—mentality will wreak havoc on our economy in the long run if not balanced by more long term incentives and perspective.

For instance, the laser-fast pace at which technology is being developed and becoming integrated with our lives will have economic consequences. There are short term rewards for creating automated technology that eats jobs as a recent book by a famous investor suggests. But the short term repercussions of that will be more and more people out of work while new (hopefully, better) jobs are created in the long term one society adapts.

However in the meantime, an increasing number of people out of work will lead to any number of destructive effects: one classes of haves and another of have-nots; protests and violence against those who support the tech revolution underway that irrevocably “ate” their jobs.

This may seem far-fetched to some, but an unadulterated, lusty pursuit of new technology and fresh riches will have results like this if not balanced with long term incentives.

Long term greed is good. But short term greed is the canary in the coalmine, and the canary is starting to chirp again—albeit, softly—in startup world.

In the appropriate words of Warren Buffet, “Be greedy when others are fearful, and be fearful when others are greedy.”