Are We Failing to Fail?

The greatest attribute of the technology industry is that failure is appreciated. There are very few places in the world where it’s a badge of honor. But in technology it’s fine. Or at least it was.

I keep asking myself as I look at the industry as to whether or not we’ve lost that edge and in so doing we are hurting the industry and the success of growth-stage technology companies?

This issue revolves around talent. Talent is currently a finite resource. The fact is that we have a shortage of solid people in the technology industry – developers, designers, architects certainly - but frankly it’s also bleeding into the commercial side – marketing, sales, and product. That doesn’t mean we can’t solve this problem – we could relax visas, we could a MUCH better job of education and encourage students to go into the field, we can train them - but the fact remains today there is a shortage. I do not know of a single company that isn’t looking for good people. That isn’t just a Chicago problem – it’s a national issue. Which of course is amazing given our unemployment rate and it’s only going to worse as the boomers start retiring.

With all that being said, is the lack of failure of startups putting pressure on those companies that actually have a chance of making it?

The software industry is cyclical. A bunch of small software products are developed where each solves a unique issue but most are a point solution not a viable company. What’s happened in the past is that these companies would merge, be acquired, fold together to build bigger solutions that were a viable company. If they didn’t, they died. There are very few tech companies that have gotten to $1B in revenue fully organically. They mega-company would go forth and prosper and the talent that was acquired after staying around for a bit to vest would spill out and start again, starting the cycle again. Point – Mega – Point – Mega and so on. It’s happened 5 times since 1980.

The cycle above was driven mainly by risk. The cost to start a company and keep it going was high. As such they failed quickly or were eaten quickly. The talent that was in those startups was then absorbed in to the larger entity building its success. The larger entity prospered with the skills and ideas of that talent for at least as long as they could keep them around. They became growth stage businesses as a result and moved on to 100M+ in revenue. Today that isn’t the case and the larger entities are starving. 1000s of companies are being funded at $25, $50, $100K and because the risk is so limited, they are living on for years. Every week I see a company that if folded into a larger entity could be transformative but the founder believes he is the next Instagram. Instead of plying their talents to a larger beast they are holding out for the brass ring. They are GREAT people, but they are addressing little problems. As such, growth stage companies can’t get them. They are all starving when together, neither would be starving.

If we failed faster, would talent be freed up? Would growth companies prosper faster? I am guessing it might have a significant impact.

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© 2020 | Fred Hoch

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