Difference Between Funded and UnFunded Startups: Resource Constraint (aka Creativity Seed)
Apart from the obvious difference, i.e. the VC money, I see couple of very subtle difference between the funded and unfunded startups. As always, I am looking for more insights from the readers.
Unfunded: Barcamp – Funded: TiE
Unfunded Startups visit Barcamps, while the funded ones are a regular face @ TiE sort of events (read “page 3″ kind).
PR: Self or ..?
Now, this is a trend I have been witnessing for quite sometime. The unfunded ones take the pain of sending their product/feature release details to bloggers personally (mails do read as “Hey Ashish”) – quite a personal touch et al.
What about the funded ones?
Well, they hire a PR agency or a PR person and the mails read as “Hello “.
Stationary or Branded Stationary?
Funded startups have branded stationary and all their pen, pencil suddenly starts showing their brands, logos, punchlines and what not.
While the poor/unfunded ones still prefer the plain/blank envelopes.
Are these points really that significant?
Yes. Very much. Read on.
All I am trying to say is that many funded startups start losing the ground touch in due course of time (owing to VC money? Not sure of the perfect correlation, but there is some correlation for sure).
Call it the sudden awakening (that Barcamps are for geeks, branded stationary is a no-brainer), I see whole lot of startups simply wasting VC money and in the process, creating a need for new (IMO: redundant) roles like market consultants, researchers, PR execs etc.
And that results in more digression from the ground reality..suddenly they start living on ‘borrowed (fake) insights’, start adding bureaucratic positions and in the process, end up building gaps in their offerings.
And a “red carpet” welcome for a smart startup to turn the table (feels like deja vu?).
I believe, resource constraint is what makes one think out-of-the-box and many a times, VC money removes that constraint.
“I don’t believe in total freedom for the artist. Left on his own, free to do anything he likes, the artist ends up doing nothing at all.
If there’s one thing that’s dangerous for an artist, it’s precisely this question of total freedom, waiting for inspiration and all the rest of it.”
- quote by Federico FelliniShakespeare’s sonnets in iambic pentameter. “Rough winds do shake the darling buds of May”
Ditto applies to startups too.
What’s your take?
“start adding bureaucratic positions”: Best example is FriendSter: Key points of failure seems to be a disastrous in the initial architecture that just could not scale & a succession of high profile but out of touch CEOs:
1]. Tim Koogle,
2]. Scott Sassa,
3]. Taek Kwan
They all infighting at the executive level:mainly in betwn the VP Product and VP Engineering and a general level of arrogance at the board & exec level.
Read Here
I have personally experienced this. Initially when I was starting out I needed huge money for content development for GIN Schools/Parents.
Since we didn’t have it we were forced to explore partnerships with leading publishers, and we managed to get some. Also ended up developing system to aggregate educational content from the web. Not only it saved all that money (which we never had anyways) but more importantly several months of our time.
Resource constraints also make us think about alternate versions of the product which can be made and sold faster. All this is probably overlooked if a lot of money is already available.
Well Said Ashish
Poor/unfunded will certainly learn a lot from their constant struggle with
limited resources, and If they could fetch value out of that would be
more glorious…..
Haven’t you heard of Garage startups !!!
Hey, great post! Actually, it is very tough to categorize things as black and white especially in this area.
Let us say, a startup receives funding and does all the things mentioned above (hiring a PR agency etc), their success would still ultimately depend on the quality of their product, and not on out of the box thinking. This holds true for an unfunded startup too. So the failure of many funded startups cannot be attributed solely to the lack of innovative thinking.
Of course, there is a big factor that determines whether funding will eventually mean success- How important is brand recognition in their business? And the second question- How important is high traffic to the website? If both factors are important, then PR and marketing becomes more important than out-of-the-box thinking. After all, money makes the mare go and it is very tough to market your brand on a zero dollar budget. For instance, it would be impossible to market a website like Big Adda on a shoestring budget.
Of course, it is not enough to get eyeballs on the website. If visitors don’t keep coming, the initial investment serves no purpose. It is here that innovative thinking and quality of the product play a big role. And here is where most startups falter after they receive funding- new positions, bureaucracy, red tape and so on. As you have rightly pointed out, innovation and resourcefulness get diluted along the way.
Before I wrap up, I also wish to add that sometimes, out of the box thinking is overrated. Take the example of Craigslist. They have a concept and they work around it. Not much has changed on Craigslist for a long time and according to some recent interviews, not much will change, as long as the market stays the same.
I will sum up and say- Whether your startup will benefit from funding or not would depend on your business model. But once you receive funding, success will hinge on effective utilization of resources and future strategy, which does not necessarily have to involve out of the box thinking:)
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I think some kind of resource constraint always breeds creativity and out-of-the-box thinking. But taken to another extreme, too little money is also pretty bad. Since, too little money also changes the focus and the team starts focusing more on the survival then what they had initially set out to do.