The Problem With Startups

Hey. Just a quick note about supporting startups as a strategy for creating jobs. This may sound cold, but it’s huge waste of time and money. Here’s why…

  • Startups are fragile. Most of them will go out of business within 12 to 36 months. Then what? Some startups – like the one in our featured image – will succeed, but those will be few and far between and you don’t have any reliable way to pick the ones that will survive.
  • With rare exceptions, they’re critically undercapitalized. They can’t take a hit. Any serious market or management problem can put them out of business.
  • Management is inexperienced. The harsh reality is that you can’t bet your jobs program on owner-operators who themselves need on-the-job training.
  • Demand for the products or services of startups is unproven. In fact, their whole business model is untested, based on spreadsheets, a wing and prayer.
  • Established competitors can lower prices, out-advertise their new competitors and take other actions to protect their market shares. They’re not going to cut the new guy a break.
  • Startups are needy, requiring mentoring and other support that established, more mature companies don’t.
  • Startups are often small, too small to have enough employees to make any real difference. Too small to do enough business to generate significant secondary (“indirect”) effects.

A post like this is reality check. It’s not what you want to hear. If you’re already an elected Taharka Bros. Ice Cream official or candidate, it’s hard to say “No” to good, hard working people who want help starting their own businesses. Or maybe you’re thinking that the more businesses in the neighborhood, the better, regardless of their size. You only have so much money to spend, so better to use what you have to help a relatively large number of very small companies?

If that is what you’re thinking, you’re wrong. Your program is going to fail. No disrespect meant.

However tempted you may be, ask yourself, “Other than the owner, how many jobs am I creating, at what cost to the city, with what beneficial impact on the neighborhood and city economy – relative to the size of the problem I’m trying to resolve? Does my startups program make a real difference or am I just diverting precious resources and energy to a program that’s no more than nice?” Your well-studied answer will invariably favor the aggressive, creative recruiting of established companies.

As a practical matter, if you’re running for office, talking about helping a relatively large number of startups may get you a few votes. Some people may be impressed by the number of companies you’re talking about – without understanding how little difference, if any, the program will make. Sure, a startups program may get you a few votes, but then talking about igniting a self-sustaining, all-inclusive economic recovery that really will create thousands of jobs will get you elected.

As we like to say at Baltimore Rising, “Big problems require big solutions.” It’s not just political rhetoric. It’s a fact.

The reality is, landing a small number of larger, well-established, already profitable businesses is a far more effective means of creating significant numbers of direct and indirect jobs for your constituents than trying to help any number of startups and very small businesses, the individual impact of which is immaterial and whose survival is highly uncertain.

Creating jobs and initiating an economic recovery is tricky business. If you’re a candidate or just an interested visitor to our website and you’d like to talk about it, just send us an email or give us a call.

Working together, we’re going to put our city back to work.

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