Startup Philosophy in the Tight Money Era

Ultimately, how you choose to lead your startup in the post-2022 Tight Money Era depends on what lessons you’re taking away from the 2018-2022 Loose Money Era, and where you’re at on your own leadership journey. In this post, I’ll describe where my stance is at the end of 2022 with respect to a systemized study of new venturing knowledge.

How We Got Here: The Loose Money Era

Money was cheap between 2018 and 2022 [1]. Stupidly cheap. You know how I know money was cheap? Check the links: Intensely. Stupidly. Insanely. Idiotic. Terribly. Sweatily. Moronicly. Cheap. Cheap money enables radical conservation of thought. (I’m picking on scooters because it’s physically obvious, but there’s plenty of incredibly silly things going on that are below the surface.)

Cheap money drives misallocations of capital. That money is gone. And not even the memories remain. Not much was learned. It was the era of Judd. Does Herman Judd strike you as a particularly reflective person?

There were good, deep, wicked, structural, reasons for cheap money.

Low interest rates, cheap money, meant that too many dollars were chasing too few entrepreneurs with too few dynamic capabilities [2] and too few good ideas. Fast-follows proliferate in this environment. Niches worked to exhaustion.

Three exciting forms of death caused the end of The Loose Money Era. The first was COVID, the response to which, at first, created a pulse of cheap money (Insert some reference to the printing press goes brrrrrrrrrrr meme right about here). Then the CCP’s chosen policy response, Zero-COVID (and antecedent foreign policy choices) caused a double digit drop in exports. The second form of death was the Russian Federation’s choice to send its boys to bake to death in tanks and to be blown apart by drones. The third form of death has been with us since the Baby Boomers and the CCP decided not to replace themselves with children. Shrinking exports, shrinking security, and shrinking populations are driving the end of Loose Money.

Where We’re Going: The Tight Money Era

Interest rates are rising wherever central bankers are able to increase interest rates. In part, death and its side effects knocked 10% of the productive capacity of the planet offline, so the associated demand needs to be destroyed. Central bankers are obliging. The fiscal responses on the political side, in some instances, like in the United Kingdom, lacked synchronization with the monetary response. This is the limit of my diplomatic ability.

You may be able to estimate which kinds of demand I think need to be destroyed. Enough with the scooters and the scams. More value. Less weird cultish bull. More invention. Less Judd. More thought. Less SBF. More integrity. More quality attributes that matter. To echo the rallying cry of a generation, and every twelve year old playing a multiplayer online game: “Let’s goooooooooooooooo”.

Startup Philosophy

A philosophy is a systematized study. I’ll start this section with a description of the philosophy I was using from 2006-2019.

Beinhocker [3] had an outsized influence on how I thought about entrepreneurship the first time out. So much so that I simply assumed a competent management team and focused exclusively on business planning and customer development. That’s the core of Beinhocker: it’s about the business plan and competently executing it.

After I sold my company, I embraced Blank [4] and went harder on TAM estimation. I went hard. I wrote simulations. I had a crazed focus on TAM. As late as 2019 I was still refining methods for risk estimation by using techniques drawn from Roger Martin. The development of facilitation skills and executing the knowledge funnel to discover new typologies for market creation were bricks on the Beinhocker foundation.

Filion [5] might characterize this behaviour as classic operator. Waddock and Steckler [6] may classify it as classic Wayfinder behaviour, as opposed to orthodox Visionary behaviour.

I’m going to use Filion-Waddock-Steckler as a way to pierce into Beinhocker. Some entrepreneurs will find this uncomfortable.

I find it very difficult to deliberately hold two or more contradictory ideas in my mind at the same time and resolve all the paradoxes that follow. It takes a lot of energy. I need quiet. I need space. I need time. And there are always demands and constraints on all four of those things. There are always constraints on energy and how you manage your state. It’s easier to be at centre than reactive. It’s easier to be at centre than creative. It’s easier to be in creative than in unitive. I can only get into a state where I can resolve two or more contradictory ideas on rare occasion, in the unitive state, and I have to be deliberate about it.

There is a core paradox at the intersection of the Wayfinder mindset and the Visionary mindset. The Wayfinder is incrementing towards knowledge of valuable need-solution pairs. The visionary knows there is a need-solution pair, it’s just a matter of willing their solution into existence. This section expands on those mindsets.

Let’s begin with Bay Area myths. There are the stories entrepreneurs are told and tell each other. Most stories are those of the Visionary variety. It’s typically in the format of “I alone had a vision. Everybody without exception told me it was a bad idea. They were wrong. I was right. I persevered. I was right. They were wrong. All glory unto me.” Peacocking. Hero narrative. Linear story. All action. No inner transformation. Very Marvel. Very commercial. Popular business press lit. It caters to a very specific kind of neurosis.

By contrast, you’ll have a very hard time finding Wayfinder stories. They’re harder to tell. They don’t have simple morals. They don’t augment the status of the storyteller. These are stories in the format of “Our team had an idea. It turns out that it was a great idea but the market wasn’t ready for it. We learned this thing though. And then we learned another thing that didn’t make sense. Then another thing. Then a few of the puzzle pieces came together. Had it not been for this one piece of knowledge getting connected to another piece of knowledge this other person had, we wouldn’t have figured it out. We failed. We persevered. We have a few ideas about how you too can work together to learn things too.” The market for these kinds of stories is much smaller. You won’t find these on the shelves of airport bookstores.

The expectation and subsequent modelling of Visionary mindsets is that of dead reckoning. You’re expected to project blind confidence, so you do. You’re expected to be emotionally so turned up to eleven, so you are. Everything is fantastic, awesome, amazing and incredible. Unless it isn’t. Then it’s the world turning to ash and the ritual drowning of cats in orphan tears. Intensity. Magnitude. Pop Pop.

What incentive is there to learn when you already know the outcome?

The Wayfinder, on the other hand, is always sensitive to signals. They’re always looking for information that either confirms or rejects the small bets they’ve placed. A Wayfinder that is using the wake of an incumbent to learn is often suspicious if the company they’re fast following. Are they leading in the right direction. First to market isn’t always first to market domination.

The Visionary is decisive. The Wayfinder is indecisive. The Visionary bends the universe to their will, and in extreme cases, believes that they are the Universe. The Wayfinder reacts to the universe. The Visionary is an innovator. The Wayfiner is an imitator.

Crying yet? I’m about to peel back one more layer to this onion.

What’s motivating the mindsets?

Commercial markets have a commercial bias. Just because the market appears to serve both sides of the status seeking motivator doesn’t mean that that is the only motivator that exists. It merely dominates what we see, hear, and feel when you engage in the business pop literature and take it too seriously.

The Visionary mindset is tremendously liberating, isn’t it? The ability to create compelling futurescapes [7] is just an insane amount of fun. There’s nothing quite like futurescaping with a team, the way you can achieve a kind of deep alignment, relating to people, is great. A lot of social entrepreneurs are motivated by visions of increased equity and justice. A lot of good people are doing a lot good things. You just don’t ever get to read about them very often.

The Wayfinder mindset generates a lot of certainty, doesn’t it? The opportunity to try hundreds of experiments, lay down a lot of chips in order to see how the dice have been microwaved, how the wheel is crooked, how the decks are stacked, is fun. It is liberating. Just not in the same way as a Visionary mindset is liberating.

The Visionary mindset generates a feeling of certainty. I alone will predict the future because I alone will create the future. I assert that there will be a market for icecube sandwiches because I alone thought of it in the shower. I decree it. I command it. You will eat icecube sandwiches and you will like them. Of course, this is false certainty most of the time. Delusion isn’t reality. (You can tell because the suffix of illusion is contained in the word delusion). Just because you feel confident that there will be a massive market for icecube sandwiches doesn’t mean that there’s certainly that a market for icecube sandwiches will exist. Anybody telling you they don’t want to buy an icecube sandwich is a moron, loser, and a hater. They’re just jealous because they ain’t us.

Expressed differently, the Wayfinder mindset assumes that there is a demand surface that must be explored. Needs matter. The Visionary mindset assumes that the demand surface can be manipulated, even dominated. Needs matter, and I say that they need this. If there is no demand for icecube sandwiches, the Visionary assumes that they can make a market want one [8].

Different motivators can drive different mindsets, and different motivators can reinforce different mindsets. And those mindsets drive different behaviours.

Why should behaviour matter at all? After all, you’re just loading a business plan into a management team, and that team is just going to execute.

It’s the behaviour that matters under the condition of uncertainty. You could build a business plan based on a vision, but if the plan contained no margin for learning, either the team gets lucky, or it doesn’t. The Visionary mindset is dead reckoning. The Wayfinder mindset navigates it. These are major differences.

Attitudes Toward Risk In The Era Of Loose Money

The best summary of Blank and Dolf, the mother sauce of the system called Lean, is: Are you sure? Looks like you got a nice vision there. Are you sure? Are you sure there aren’t any other competitors? Are you sure you can identify quality attributes that matter to customers? Are you sure you can get customers? You know scaling is expensive, don’t you? Are you sure you have sales materials that can scale? Are you sure that customers will really buy? Better check again. Are you sure?

The best summary of Hoffman and Yeh [9], the mother sauce of the system called Bliztscaling, is “go.” Pull all the levers of growth. Go. Market share is everything. Go. Let fires burn and ignore the customer. Speed is everything. Warp Speed! What are you waiting for? Go. Go. Go. Go. Go.

Blank and Dolf: are you sure?

Hoffman and Yeh: shut up and go.

Blank and Dolf were forged in the ashes of the dot com bust. Hoffman and Yeh in the blast furnace of monetary expansion.

Guess who dominated thought in the era of cheap money? Hoffman and Yeh. Even though there were obvious problems with it [10, 11], it reinforced a bunch of other myths in the Unicorn’s Shadow [12].

There was enough money to fund dozens of teams pursuing the exact same hypothesis. It was all about speed of execution, not validity of insight. Lean warns that scale is expensive. Blitzscaling agreed. But money was cheap. So sure, why not fund over twenty four teams with the totally unique, unquestioned and unquestionable vision to put scooters in public spaces.

Startup Philosophy in the Tight Money Era

The adjustment to startup philosophy is going to be slow in part because status is important and a lot of money bankrolled a lot of face. Depending on your perspective, Ideas are either stunningly slow to diffuse or they diffuse too quickly. I reckon this will be a slow one to accept. There’s going to be a lot of convenient post-hoc justification for what went on between 2018-2022 in particular and 2012-2022 in general.

I don’t believe that the best of the Wayfinder mindset and the best of the Visionary mindsets can be boiled and combined into a metal alloy that is far stronger than each part. You’d simply be destroying the essence of each. I don’t think an alloy is desirable or even possible. One is oil. One is water. These two things don’t like to mix. Well, how do you combine oil and water?

You shake them.

It takes energy to keep both Wayfinding and Vision in your mind at the same time. And that’s just what it’s going to take. Get into a state to shake.

This is likely to be an important skill: to be able to hold both mindsets at the same time.

There’s less capital for premature scale. So that would lead back to Blank styles startup teams. Groups of three, four or five, engaged in discovery work for periods in excess of what founders tolerated 2012-2022.

There’s more patience for the thoughtful deployment of capital during the scale phase. Once a compelling solution-need pair has been discovered, there will be a need for blitzscale [9] in order to preserve first-to-market [4] advantage. There may be a return to a more nuanced form of the burn-your-customers stance [13] in that process. Even if it is truly is the case that many innovators are harbinger customers, the process of burning them may be slower. It may be the case that more entrepreneurs spend more time in teams of three or five, discovering compelling need-solution pairs, before the scale. This will be comfortable for entrepreneurs that came up 2008-2012 and frustrating for those who came up 2018-2022.

Smaller teams may offer more entrepreneurs more opportunity in absolute terms, and more opportunity to grow as leaders [14]. In part, the culture war creates some opportunities, and there are advantages to be found in his chaos [15].

There is emerging rhetoric emphasizing the primacy of builders. There’s a way that this language is weaponized that is unfortunate. It doesn’t need to be so. Indeed, if we reject kings, presidents and voting, embracing rough consensus and running code, then the principal output will be rough consensus and running code. This will have an exclusionary feel to it because not everybody writes code. Some people intend to exclude. Others don’t.

The barriers to creating minimum product are coming down. The barriers to learning quickly are coming down. Blitzscaling becomes blitzlearning. Small teams with very little support and very little bureaucratic baggage ought to be able to learn faster. Strong vision and strong listening in balance.

The incentives for fast following will increase. There’s less risk there. There was a lot of sharing economy niche filling during the loose money era because there was less originality. Uber for dogs. AirBnB for pools. AirBnB for pools in Thailand. Uber for dogs in Argentina. Scooters for Singapore. There was a lot of more niche filling in other areas. CRM for car dealerships. CRM for veterinarians. CRM for dog breeders. It’s pretty inevitable that there’ll be an effort to displace incumbents where the money is at, likely using new generative technology. Another wave of newsreaders, another wave of stock photography sites, another wave of couponing apps, another wave of instant messaging apps, another wave of dating apps, another wave of email marketing apps, another wave of adtech arbitrage apps. Another wave of trashboards. More imitation. As always, those that innovate will win. Some that bundle will win. There are great ideas waiting to be envisioned and willed into existence.

Those that successfully shake Vision and Wayfinding mindsets may be likely to be able to see something different. At least that’s why I’ll spend the energy on it. There are several megatrends that are coming together to create interesting opportunities: decentralization, stable diffusion and generative media, aging workforces, and deglobalization to name just five. Those that discover new need-solution pairs and execute well should thrive.

Shake it up.

[1] Van Overtveldt, J. (2022). The Mystic Hand: How Central Banks Shaped the 21st Century Global Economy. Agate Publishing.

[2] Wang, C. L., & Ahmed, P. K. (2007). Dynamic capabilities: A review and research agenda. International journal of management reviews, 9(1), 31-51.

[3] Beinhocker, E. D. (2006). The origin of wealth: Evolution, complexity, and the radical remaking of economics. Harvard Business Press.

[4] Blank, S., & Dorf, B. (2005). The Path to Epiphany: The Customer Development Model. The Four Steps to the Epiphany, 17-28.

[5] Filion, L. J. (2004). Operators and visionaries: differences in the entrepreneurial and managerial systems of two types of entrepreneurs. International Journal of entrepreneurship and small Business, 1(1-2), 35-55.

[6] Waddock, S., & Steckler, E. (2016). Visionaries and wayfinders: Deliberate and emergent pathways to vision in social entrepreneurship. Journal of Business Ethics, 133(4), 719-734.

[7] Liubertė, I., & Dimov, D. (2021). “One tiny drop changes everything”: Constructing opportunity with words. Journal of Business Venturing Insights, 15.

[8] Ramadan, A., Peterson, D., Lochhead, C., & Maney, K. (2016). Play Bigger: How pirates, dreamers, and innovators create and dominate markets. HarperCollins.

[9] Hoffman, R., & Yeh, C. (2018). Blitzscaling: The lightning-fast path to building massively valuable companies. Currency.

[10] Kuratko, D. F., Holt, H. L., & Neubert, E. (2020). Blitzscaling: The good, the bad, and the ugly. Business Horizons, 63(1), 109-119.

[11] O’Reilly, T. (2019). Blitzscaling: The fundamental problem with Silicon Valley’s favorite growth strategy.

[12] Mollick, E. (2020). The Unicorn’s Shadow: Combating the Dangerous Myths that Hold Back Startups, Founders, and Investors. University of Pennsylvania Press.

[13] Moore, G. A., & McKenna, R. (1999). Crossing the chasm.

[14] Laloux, F., & Wilber, K. (2014). Reinventing organizations: A guide to creating organizations inspired by the next stage of human consciousness (Vol. 1). Brussels: Nelson Parker.

[15] Schumacher, E. F. (2011). Small is beautiful: A study of economics as if people mattered. Random House.