Beware of Startupland's hero entrepreneurs

Things might get broken when disruptive startups start disrupting the incumbents, but they don't have to be chaotic. That's just down to bad management.
Written by Stilgherrian , Contributor

I've written previously about some of the dangerous myths of Startupland, including the faith-based ideology of big data and the disruptor pop culture. Here's another one: The entrepreneur-as-hero narrative, which blipped up during a presentation at the DisruptoCon conference in Sydney on Tuesday.

Simon Cant, co-founder of Reinventure Group, was explaining his company's model for helping established corporations defend themselves against the threat of lean, mean startups disrupting them out of business. It's a model for self-disruption, if you like. Much of it is based on the lessons learned from the failures of Fairfax Media, one of Australia's biggest newspaper and magazine publishers.

Put simply, Fairfax failed to adapt when all of the classified advertising moved to the internet, taking its "rivers of gold" revenue stream along with it. Fairfax tried to create some sort of disruptive innovation internally, in the way that all big corporations do. They threw insane amounts of money at it -- like $100 million for the CitySearch startup -- because it's easier to justify a massive one-off capital expenditure (capex) than a continually increasing operational expense (opex). But then, stifled by a fear of cannibalising existing business units, Fairfax under-spent on growth.

The other two major media groups, Rupert Murdoch's News Limited and Kerry Packer's Publishing and Broadcasting Limited (PBL), had less classified advertising, and they had less to lose, so they didn't do the big money throw. They acted more like venture capital (VC) investors. They set up separate operations, such as REA Group for real estate and Seek for employment, respectively. The initial investment was limited, and follow-on fundraising and investments happened as needed. The result was a series of lean, mean startups that ran circles around Fairfax's efforts.

"Entrepreneurs are inherently given this fantastic constraint, which makes them lean in the way they approach any business model," Cant said.

Reinventure's model, which has been given the unfortunate name "Corporate VC 2.0", is really just an evolution and codification of these ideas. Reinventure works with its self-disrupting corporate partners to set up its own VC investment fund, with independent management and external investment partners to give it a more realistic world view.

These funds are then invested with proven entrepreneurs who are prepared to share the risk, investing where the corporation can add value. They aim to spot potentially disruptive innovations as early as possible, move fast, and leverage whatever local advantages they might have.

Reinventure is currently working this way with Westpac on the bank's self-disruption. It seems to be working. Everyone's happy. All well and good.

But towards the end of his explanation, Cant's narrative drifted away from this fact-based reality into the hero mythology.

Fairfax's innovation had failed for another reason, too, he said. "Last but not least, you have salaried execs competing against entrepreneurs on sweat equity," Cade said, referring to entrepreneurs getting equity in a startup through their work efforts, rather than by buying into it with money.

"So as the entrepreneurs in the room will know, when your life's on the line, and potentially you stand to make a fortune, you will work all hours of the day, right?" Cant said.

But, he said, when internal startups are being run by salaried executives on $120,000 or $140,000 a year, those executives will end up working the same 9 to 5 day as the rest of the employees.

"People who are essentially working a normal day job [are] competing against entrepreneurs who have everything on the line, everything to gain, and everything to lose."

There are two wrong-headed ideas here: One, that the only way to motivate people is with a wheelbarrow full of cash; and two, that the effectiveness of management and executive work is measured by how many hours of toil you put into it.

These ideas were countered most eloquently by Daniel Petre in his 2004 book, What Matters: Success and Work-Life Balance. Petre was chairman of PBL Online, and founded PBL subsidiary eCorp, developing it to become Australia's leading technology-focused investment company.

Before that, Petre was vice-president at Microsoft, becoming director of Advanced Technology. He was derided as "Microsoft's 9-to-5 VP", because he worked normal office hours, noting that he made quicker and more effective decisions when he was properly rested and had a whole human life, including family time, rather than lurching sleeplessly from crisis to crisis for 20 hours a day.

These ideas were countered less eloquently, but with more swearing, in my 2008 essay, Jason Calacanis and the Evil Cult of the Internet Start-up.

Cant went on to say that corporations often have no idea how important the entrepreneur is to the startup.

"Again, as many of the entrepreneurs in the room would know ... you don't really build the processes and systems into a startup for many years. If the entrepreneur leaves most startups within the first two or three years, the startup will essentially crumble," he said.

What I would say is that these "entrepreneurs" are just bad managers. They've failed to plan. They've failed to identify and document the routine processes that make up the majority of a business' operations, and delegate them to the ordinary salaried employees that Cant despises.

If, after three years, the company can't operate unless the entrepreneur is there to juggle the crockery personally, then they're just plain disorganised.

"This 'entrepreneur as hero' narrative is, shall we say, self-serving," I tweeted. "Also, nausea-inducing."

Or, as one senior executive from a successfully self-disrupting company described it over coffee with ZDNet, "It's bull****."

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