3 Ways Entrepreneurs Can Overcome the Startup Drought
It's still possible to create a Silicon Valley success story. But to do that, your company is going to have to be scrappy.
Since the 1970s, Silicon Valley has been a place of innovation and promise where driven individuals with an entrepreneurial spirit could realize their visions, even if those visions emerged from their parents' basement or humble garage. Apple and Microsoft were amng the earliest of these companies with humble beginnings. And, since then, giants like Google and Amazon have followed in their wake, also rising to global prominence.
Today, however, startups seem to be in a slump. Although 558,000 new companies formed in 2006, only 414,000 businesses launched in 2015, according to the most recent U.S. Census Bureau data. Since Facebook became an established tech power 13 years ago, it seems that the biggest companies have done an excellent job predicting threats to their dominance -- and quelling them early.
Related: 10 Ways to Fund Your Small Business
As a result, startups have greater hurdles than ever to overcome in their climb to relevance. Yet, pushing a startup to success isn't impossible: Business leaders just have to be quick to identify new opportunities and follow a few strategies to think -- and grow -- outside the box.
It's still possible to create a Silicon Valley success story; it's just that the enormous scale of the companies mentioned above hasn't happened since Facebook. Take Airbnb, for example: It's one of the most valuable tech startups in the world, but the company's $31 billion worth is a paltry 6 percent of Facebook's $500 billion market value.
And consider Venmo's success in the person-to-person, or P2P, payment space: Since its pioneering development of that industry, Venmo has enjoyed a level of success not many startups achieve. But competitors are on the case: Since Venmo's purchase by Paypal in 2013, its P2P payments feature has been duplicated by Square and Snapcash, among others.
And Apple will claim its own piece of the pie by incorporating P2P payments into iMessage. That adoption is a late one but nonetheless demonstrates the ability of large companies to incorporate features of their smaller competitors and make competition more difficult.
Even if your own idea is promising, your startup likely won't stand up to much scrutiny from investors if they're comparing it to Facebook, Airbnb or even Venmo. It might be tempting to accept the first funding offer you receive, but if all you really need is money, you're better off just heading to the bank. Hold out for an investor who doesn't expect your startup to become the next Apple, and emphasize that you're willing to earn investment equity with your own sweat equity.
Funding isn't the only means you'll have to compete with larger brands, and getting funding might feel downright easy when it's time to hire new employees. Competing for talent against Amazon, Facebook, Apple or Google is almost impossible. No matter how attractive tech graduates find your company culture, your salay scale will inevitably fall short of their expectations.
To acquire talent, you'll have to get to those talented people earlier and more creatively, using events such as hackathons and other competitions. Have your executives or other leaders reach out to promising candidates to make a better impression than the run-of-the-mill recruiters employed by the bigger companies.
Surviving the startup dry spell
Competing might be difficult, but there will always be entrepreneurial opportunities for those willing to dig for them. I'm a firm believer that the internet will continue to change the way we live, from helping us find instant answers to our questions, to making shopping or business operations ever more convenient. Artificial intelligence will also open doors, and despite a certain level of fear surrounding AI, there's nothing all that scary about computers unearthing deeply hidden patterns that humans themselves are unable to spot.
No matter what the market in which you hope to establish yourself, competing against major companies will always be an uphill battle. In addition to old-fashioned grit and determination, here are a few more strategies to help your startup gain a foothold:
1. Be scrappy. Getting things done is easier -- and cheaper -- if you use some street smarts. We bought all our office furniture with rewards points from corporate credit cards, and we use deliveries from Amazon Prime Business so that valuable employee time isn't spent on an office paper towel run. Instead of an expensive coffee service, we bought a Keurig and stocked up on pods from Sam's Club. If yours too is a small business, try not to overpay when you can save with minimal effort.
Of course you can't always avoid spending money, but you should explore all your options before you sign up for something big like a subscription to workflow management software. You can get most of the same features from an option such as Trello for free and then spend more down the road when you have the cash for it. Almost 30 percent of businesses will run out of spending money before they can generate a sufficient level of income, according to CB Insights. Don't let your business fall into that group.
2. Seek out local talent. With any luck, you'll be able to find employees already living in your area who aren't willing to relocate, no matter what the salary. Not every person trained in technical industries, for example, wants to move to Silicon Valley or the East Coast just because the pay is right. Many people love where they live and will gladly accept positions they're qualified for that are located in their own backyards.
Find these potential employees through advertisements posted to your industry's local message boards and free social media posts. You can even get creative: Zeefo CEO Alex Stepanov was the first business leader to start recruiting tech talent outside climbing gyms. Climbing gyms! What began as a somewhat unorthodox practice is now being imitated by recruiters from companies of all sizes. Don't hesitate to go outside the traditional avenues of LinkedIn and email listings. Creative efforts will yield better results.
3. Listen to your employees. How do you react when an employee brings a great idea to the table that goes against your company's mission? Change is hard, but if you can identify a long-term value proposition in a controversial idea, it could be time to chart a new course. A willingness to listen signifies a critical shift in leadership, from directing to coaching, and demonstrates to employees that they're more than just bodies at desks.
Far from frightening off enterprising entrepreneurs, the current climate of startup drought should instead inspire more intelligent innovation. Large companies might have seemingly endless resources at their disposal, but they don't have you.
Combining thoughtful leadership with hard-won capital investment and enthusiastic employees is your recipe for achieving the next level of startup stardom that's overdue for the current decade.