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Silicon Valley's Big Lie
HughPickens.com writes: Danny Crichton writes at TechCrunch that startups in Silicon Valley run on an alchemy of ignorance and amnesia and that lying is a requisite and daily part of being a founder, the grease that keeps the startup flywheel running. Most startups fail. The vast, vast majority of startup employees will never exercise their options, let alone become millionaires while doing it. But founders have little choice as they sell their company to everyone, whether investors, employees, potential employees, or clients. "Founders have to tell the lie – that everything is fine, that a feature is going to launch even though the engineer for that feature hasn't been hired yet, that payroll will run even though the VC dollars are still nowhere on the horizon," writes Crichton. "For one of the most hyper-rational populations in the world, Silicon Valley runs off a myth about startup success, of the lowly founder conquering the world."
The graveyard from Santa Cruz, San Jose, all the way to Sacramento is huge, but this isn't amnesia. This is hope, and hope sells, and occasionally, hope pays off in huge ways. On the way through the graveyard, you get to learn what worked and what didn't.
Eventually, a handful get to the Holy Gates of IPOs, and maybe things go well from there. Slashdot, financially, is a mirror of being a member of this very set, a long ago huge IPO that kept becoming sold off in hopes of future success, but now itself is on the block.
---- Teach Peace. It's Cheaper Than War.
Nonsense. We will mine asteroids and colonise space.
Value needs to be extracted somewhere and if you're not the extractor then chances are you're the chump. The responsibility of not being exploited is mine, and if I drank the koolaid I know who the chump who did the drinking was. Maybe next time I'll learn that my l33t risk analysis skills needs a bit of tweaking, or even better, give up on the self-gaslighting.
People often refer to "Silicon Valley" as if it were a place, but it's more like a term for a generation of individuals and companies, rather than just a place. Confusingly, there have been 4 distinct generations of "Silicon Valley", all using the same name.
The First Silicon Valley was from the time of WWII to around 1980. This was the pre-Internet Silicon Valley, which was dominated by the defense industry, heavy manufacturing, and the electronics industry. Lockheed, Shockley, Fairchild, Intel and Hewlett-Packard were some of the companies from this time.
1980 proved to be a turning point. At this point we saw the rise of personal computing and networking. Computing was going mainstream. Defense and heavy industry gave way to light computer hardware and software. This was the Second Silicon Valley. Apple, Sun, SCO, Oracle, Cisco and NeXT made their names known.
Around 1995, at the dawn of the World Wide Web, we saw another transition take place. This was when Yahoo, Netscape, eBay, PayPal and other Web-related properties, whose main focus was software, took off. This was the Third Silicon Valley generation.
The Third Silicon Valley generation was pretty much destroyed by the tech stock market collapse in early 2000. For several years people were unsure if there would even be another generation of Silicon Valley.
Much later, around 2005, we saw the rise of the Fourth Silicon Valley. This is when companies like the revived Apple, Google, Facebook, and Twitter really started making themselves known. They aren't about software so much as they are about advertising and the collection of personal data, with computing merely a tool to enable this on a massive scale.
The Fourth Silicon Valley also corresponds to the influx of "Hipsters" into the industry. The focus of software and service shifted from being useful to the consumer toward being "pretty" and otherwise satiating the Hipsters' desire for "creativity". We all know the trouble this has caused, from Windows 8's awful user experience to the destruction of Firefox's UI, through to the utter decimation of GNOME.
With any luck, the Fourth Silicon Valley will be coming to an end soon. It has proven itself to be the worst so far, in terms of what it has produced, and the harm it has caused. Every industry needs a renewal periodically, and the Fourth Silicon Valley is due for one.
The Fifth Silicon Valley will likely be made up of companies like Tesla, who are trying to provide useful and innovative products to the masses. It should be noted that many of the people behind such ventures are from the Third Silicon Valley. Not being Hipsters, these are people who knew how to make a real difference, not just take the hard work of others and ruin it.
No, Fourth Silicon Valley, which is rife with Hipsters and social rejects, will not mine asteroids. But I think that the Fifth Silicon Valley very well could! Unlike the Fourth Silicon Valley, the Fifth Silicon Valley will likely be made up of people who truly are gifted, and who will bring improvements, rather than the devastation of computer hardware, software, privacy and usability that the Fourth Silicon Valley's Hipsters have subjected us to.
If you believe in the product you are creating, don't build it at a company whose vision is to build the company just to sell it or to IPO it. They don't care about the product, only selling the company. They will shortchange everywhere they can, cut corners, not test or QA, and eventually, once you have the product built, they will let you go before you get a chance to cash in.
If you are not allowed to question your government then the government has answered your question.
Elon Musk says shhhhhh.
There are a lot of reasons to criticize Silicon Valley, but being positive about a plan and having to deal with difficult term sheets are hollow complaints.
When you start ANY new project, there is a period of time when the project is not funded and does not have the necessary people to get it done. Startups are no different in selling a dream than any university professor, large company project lead, or government program manager.
The main point of TFA is that startup employees are starting to get more sophisticated in evaluating stock options coming from the common pool compared to investors' preferred shares. Preferred shares and liquidation preferences are tools investors use to reduce risk, and they are detrimental to employees (and founders) of a startup... except that without those investors, nothing could happen. Investors are going to get leverage somehow, and if you're smart, these clauses are not a problem.
Inflated valuations compound these issues. It should be obvious that early high valuations are bad for employees. Potential startup employees SHOULD understand that going to work for a company that is highly valued and has large investments offers much less financial growth opportunity than working for a company with a low valuation and small investment.
If you're a founder, keeping your valuation low during early stages of a startup company is much, MUCH smarter than arguing for a high valuation. This push for early high valuations is driven by lots of money sloshing around looking for a place to sit. That is a legitimate problem in Silicon Valley. As a founder, it may sound great to take in an extra $10 million, but if you don't need that money and can't actually justify that valuation, you've limited your company's future options (no IPO for you) and made it much harder to hire smart employees.
...and while it has significantly better odds than the actual lottery, it's much the same thing. Part of what drives the Valley -- and the IT startup industry in general -- is that it's very easy to track down large numbers of people who have, in fact, become millionaires (or better) through stock options and buy outs. It is a siren song that occasionally pays off.
The problem since the late 1990s is that vast amounts of capital have distorted the natural harsh realities of running a business, not to mention Economics 101. Too many tech startup business plans are, in effect, "Get funding. Create buzz. Get more funding. Sell out to a firm that actually makes money or go public." It occasionally works -- and all you have to do is read the industry press to see the multi-billion-dollar IPOs/acquisitions that never panned out.
Now, excuse me while I go back to work on my indie game and my graphic novel. :-) ..bruce..
Bruce F. Webster (brucefwebster.com)