Startup Speed Is Not A Virtue But A Survival Necessity

That is true, but I think it is a “speed” choice reached after everyone worked backward, and backward again, and backward again, from several surrounding conditions, rather than something that lies at the core of the definition of “startup” as a whole. Let me sort this out below.

＜There are always several other teams thinking the same thing＞

I remember a friend who once received support from 500Startups telling me, “In the same batch, there are at least two teams working on the same idea as us.” As I mentioned in another section, ideas with truly outstanding novelty essentially never exist. So most business ideas are applications of similarities from other categories, or minor variations in which domain a new technology gets applied to, or a focus on a market that hasn’t drawn much attention yet and fulfilling a need that exists there — rarely anything that turns the world upside down. Given that, people thinking along the same lines are bound to exist by the tens of thousands across America, across the world.

Now put yourself in the shoes of a customer actually considering adopting a service. Being told “It’s currently in development, and we think we can hand you a beta version in six months” is quite different from being told “The implementation is basically finished and we’re now running it through evaluation — if an evaluation version works for you, we can issue an account right here on the spot.” The former team may well be building something better, but that difference is small and hard to convey. The customer will inevitably lean toward the latter proposal, thinking “well, at least let’s get as far as evaluating it.”

Also, thinking about fundraising scenes, an acquaintance of mine, Mr. T, told me he built the prototype for his first round of funding in two weeks. He raised 700 million yen in that first round, and at that point the team consisted of just two people: Mr. T and a CTO who was about to join. With people operating at this kind of speed, if you think “let’s carefully polish the prototype before bringing it to investors,” your competitor will already be two or three laps ahead by the time you’re done. Naturally, if a few months later you bring a slightly higher-quality prototype with a similar business idea to Mr. T’s, the VC that has already invested 700 million yen in Mr. T is, frankly, going to give your pitch no reaction at all.

＜No money＞

In most cases, startup founders are nobody in particular at that point in time. Just a graduate student, or a third-year salaryman. So while it might be possible to scrape together a few tens of thousands of yen, raising hundreds of thousands or millions of yen involves serious difficulty.

No money = no time.

After all, as long as you’re alive, you need to eat, drink, and have somewhere to sleep.

The very first office of the first startup I joined in the Bay Area was a cramped little office above a pizza shop, so small that it filled up with just three people inside. It was a corner room overlooking Castro Street, and across the way was a company run by two Indian engineers. They always sat facing their displays, just the two of them, without ever turning on the lights. How do I know? Because their door was always left wide open. Why? I think it was probably to save on electricity (the hallway had air conditioning running).

One day they suddenly disappeared. It turned out they had secured funding and moved to a bigger office. It’s a fairly moving story, but that kind of thing happens all over the place in the startup world.

By the way, Castro Street was a famous restaurant row in the Mountain View area, but I never once saw them go out to eat, nor did I ever see them eating in their room.

＜The matter of fund redemption deadlines＞

VCs (venture capitalists) have an inseparable, deep relationship with startups, but their funds generally come with set time limits. VCs raise money from partners and put it into investments. When raising this money, you’ll often see terms like “Fund No. X,” and a redemption deadline (the point at which the fund is dissolved and money is returned to everyone) is always set. So VCs must produce results by that deadline as a basic premise (there are plenty of exceptions, but I won’t go into them here since that would be redundant).

When investing in a startup as well, VCs have to weigh that deadline carefully in deciding where to invest. In other words, “a startup likely to produce results within the redemption deadline = one planning to compete speedily” naturally becomes a constraint (a basic premise).

Of course, there are all kinds of VCs in the world forming funds with all kinds of redemption deadlines, so a startup just needs to choose one that seems like a good fit for them. But naturally, the more short-term the plan to compete is, the higher the probability of being viewed favorably — and everyone knows this. It’s as simple as that.

I’m often asked, “Is it true that startups have to exit within 2 or 3 years?” The reasoning behind it is exactly what I’ve described above.

As organized above, I don’t personally believe that speed is an essential MUST requirement inherent to the nature of startups. That said, I do feel it’s a problem, personally, that various environmental factors have narrowed down the range of choices to roughly this.

The content of this post is an excerpt (original text) from the following book. If you’re interested, please consider purchasing it.

The Shape of a Happy IoT Startup

The Shape of a Happy IoT Startup

Originally published in Japanese at https://clazytech.com/2022/10/1242/. Translated with LLM assistance and reviewed before publication.