How Killing the Angry Bird Will Save American Entrepreneurship

Hyper-connected tech blogger Robert Scoble, recently wrote about treating startups more critically.  Robert found himself meeting with lots of crappy, over-funded, digital startups that desperately need more time in the oven, an intervention by Dr. Drew, or more likely, Dr. Kevorkian. (My words, not Robert’s.)  Not only am I seeing the same things, but I’d take it a step further. I believe this current crop of entrepreneurs might actually be hurting America  - and perverting the very idea of innovation in the same way Beyonce’s Run The World is like kicking Aretha Franklin in the ribs…repeatedly.  All is not lost.  There are ways to take advantage of this situation, though it’s way too late to save this song:

“Innovation” for and by the YouTube Generation

Justin Kan, the bright young founder of video streaming site Justin.TV, recently wrote this about the current generation:

“We’re making our own way and making our own jobs…We don’t need your jobs, your advice, your instruction. Pretty soon we won’t need your music labels or publishing houses; we’ll be doing it ourselves on iTunes and Amazon.”

While I admire Justin’s can-do spirit and terrific achievements, he’s spent far too much time around other ambitious, hungry entrepreneurs. He is the exception, the elite. 99% of his peers are not peers at all. They don’t build streaming websites; they snack on Cheetos while streaming planking videos. They have the same sense of entitlement, selfishness, and ‘Screw The Man‘ attitude Justin alludes to, minus two important things – talent and the drive to work at it.

The latest US generation has led a life of leisure. Arab protesters carry swords and machetes, ours carry iPhone 4S’s in pink, personalized cases.  The resulting innovations and their inventors reflect that hardship-free aesthetic.  In many ways, this latest wave of digital entrepreneurs takes the easy path. It’s easy to start a web site. It’s easy to make an app. It’s easy to do anything that doesn’t require big capital investment, physical infrastructure, or a fleet of trucks driven by beefy, middle-aged men named Al or Tony.  Things like Angry Birds, coupon sites, and social networks look like the pets of America’s great inventions from the past – flight, electricity, assembly lines, cars, the internet, Ike and Tina Turner.

Ice Road Trucker (History Channel)

Hurting America?

From computers to office furniture used by cute digital startups like Pinterest or Oink or FoSchnizzle, – it’s all made possible by a superior breed of entrepreneurs and inventors. They toil away in relative obscurity, often in Asia, solving big, complex problems. They squeeze 64GB onto something a Ken doll might swallow.  Or, they make un-killable batteries that let Kim Kardashian tweet deep into the night. They even make solar cells viable and water out of thin air.

In the US, a stunning surplus of VC cash and leisure time feeds this feeble form of innovation – where getting something to scroll from left instead of right can be considered a breakthrough.  It’s not that the entrepreneurs themselves aren’t smart or impressive. The market simply doesn’t demand they try that hard. Why build a plant when someone will give you $300 million to collect email addresses for a daily deals site?

The risk is the same as what happened in the banking industry – easy money drives high salaries and diverts talent from productive industries to unproductive ones. There’s plenty of demand for top engineers and inventors to improve natural gas extraction or harness ocean water. Instead, that talent can be found gambling on fictitious investments or perfecting the trajectory of a dead digital pig. Multiply that by several thousand and you have:

  1. A country completely disconnected from real world problems faced by the rest of the planet – like no drinking water.
  2. Entrepreneurs missing out on a chance to make money solving tangible problems
  3. The US falling farther behind and deeper in debt as its top talent clicks away inside a dimming, narrow, digital consumer bunghole

I’m not saying there’s no room for entertainment or leisure-oriented innovation, but I am saying if we want to continue getting those Lenovo’s from China, they’re not going to accept our Tweets or Oinks as payment.

What’s next and so what?

As US incomes stagnate and emerging markets discover Prada and Pringles, American innovators will need to  start making things Indians and Chinese will buy. You and I know  what they won’t have any Pinterest in. China can and will clone its own Farmvilles and Facebooks. If we’re not careful, they’ll be selling us Tracy Morgan tweets and lead-infused digital carrots at half price.  In my book, Econovation I write about what innovations the next decade will demand.  As you stampede Barnes & Noble to buy dozens of copies for all your friends, there are things you should consider doing right now:

  • Entrepreneurs: Immediately start preparing your pitch for any kind of digital, social, mobile, adorable buzzword startup you have in mind.  The time will never be better to get it funded. For a little while longer,  it’s like taking candy from a baby. (Coincidentally, that’s the premise of my forthcoming mobile game startup, Furious Babies.)
  • Investors: You probably know that no one cares about that new RSS reader app you funded.  Save your money for a business that makes something tangible.  I know it’s not in vogue, but it will be…soon.
  • Inventors: If you can solve a real-world problem – and there’s no shortage of them, start now!  Dust off your soldering irons, Bunsen burners, and particle accelerators. Most important, find someone to help get your VC pitches ready.  Your time is about to come.  Even the government will dance the Macarena to help you.
  • Parents: Glue posters of real innovators all over your kids’ walls. I’m not above suggesting electrified security in case they try replacing them with Jonas Brothers photos.  Don’t settle until your kids do this when they see Ajay Bhatt:

by Steve Faktor

For more wit and wisdom, and to keep me posted on how your new startup is going, visit ideafaktory.com

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6 Comments

  1. ideafaktory November 25, 2011

    I'd like to share with you a conversation I was having on Linkedin in response to this post:

    Ben Appenzeller • The article's core point seems to be that American entrepreneurs and institutional investors are wasting their time on projects that are frivolous and don't add real, sustainable value to society. To me it feels like a cheap shot, though not entirely without merit. I find myself in half agreement with the article. There are clearly opportunities in creating solutions to waxing global problems. But, this is not a novel concept. The article does touch on a key point that I agree is timely and poignant. To be successful, any business, old or new, must have sound underlying financials and create real and sustainable value. Though many mobile apps fall far short of this threshold, I find the definition of such value in the article to be overly narrow. There are plenty of problems to be solved, and as long as you do an exceptional job of it, there will be room for your business (mobile app or otherwise).1 day ago• Like
    Steve Faktor • Ben, I agree that this is an issue that takes more than one blog post to cover. That is why I just wrote an entire book about it, Econovation. As for the post, on the surface there is nothing wrong with private capital chasing ever-finer digital minutiae for investment. But even at its best, only a tiny thimbleful of people will benefit from most of these app-based ventures. My bigger point is where real jobs will come from. It will come from big ticket items that ship. And those things are not being funded because capital is being almost mockingly misdirected.I just spoke to a reputable executive who invented and patented a combo water heater/electric generator that would cost $5,000 in to install in most homes, could be subsidized by utilities, and cut home fuel usage in half. He needs $16M to get up and running in 5 years. He's having trouble getting investment – on something that can be built here and exported. Am I to believe AirBnB is worth the $112M it raised in July for a better Craigslist for renting your apartment (illegally in NYC and several other cities)…and this technology doesn't merit a $16M investment. Misdirection of capital? You bet.Finally, we are at a point where rich investors are just chasing geeks with cash in hopes of striking gold. There are no business cases for 80% of these ideas, but that doesn't bother me. Private investors are entitled to lose their money. And they are entitled to do with it as they please. Still, I wait patiently for the bottom to fall out of these dumb companies so the smart ones, the difficult ones, start to get funded.53 seconds ago
    The original thread can be found here:http://www.linkedin.com/groupItem?view=&gid;=67985&type;=member&item;=81031341&commentID;=59355472&report;%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_59355472

  2. Author
    ideafaktory November 25, 2011

    I’d like to share with you a conversation I was having on Linkedin in response to this post:

    Ben Appenzeller • The article’s core point seems to be that American entrepreneurs and institutional investors are wasting their time on projects that are frivolous and don’t add real, sustainable value to society. To me it feels like a cheap shot, though not entirely without merit. I find myself in half agreement with the article. There are clearly opportunities in creating solutions to waxing global problems. But, this is not a novel concept. The article does touch on a key point that I agree is timely and poignant. To be successful, any business, old or new, must have sound underlying financials and create real and sustainable value. Though many mobile apps fall far short of this threshold, I find the definition of such value in the article to be overly narrow. There are plenty of problems to be solved, and as long as you do an exceptional job of it, there will be room for your business (mobile app or otherwise).1 day ago• Like
    Steve Faktor • Ben, I agree that this is an issue that takes more than one blog post to cover. That is why I just wrote an entire book about it, Econovation. As for the post, on the surface there is nothing wrong with private capital chasing ever-finer digital minutiae for investment. But even at its best, only a tiny thimbleful of people will benefit from most of these app-based ventures. My bigger point is where real jobs will come from. It will come from big ticket items that ship. And those things are not being funded because capital is being almost mockingly misdirected.I just spoke to a reputable executive who invented and patented a combo water heater/electric generator that would cost $5,000 in to install in most homes, could be subsidized by utilities, and cut home fuel usage in half. He needs $16M to get up and running in 5 years. He’s having trouble getting investment – on something that can be built here and exported. Am I to believe AirBnB is worth the $112M it raised in July for a better Craigslist for renting your apartment (illegally in NYC and several other cities)…and this technology doesn’t merit a $16M investment. Misdirection of capital? You bet.Finally, we are at a point where rich investors are just chasing geeks with cash in hopes of striking gold. There are no business cases for 80% of these ideas, but that doesn’t bother me. Private investors are entitled to lose their money. And they are entitled to do with it as they please. Still, I wait patiently for the bottom to fall out of these dumb companies so the smart ones, the difficult ones, start to get funded.53 seconds ago
    The original thread can be found here:http://www.linkedin.com/groupItem?view=&gid=67985&type=member&item=81031341&commentID=59355472&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_59355472

  3. Mark Montgomery February 22, 2012

    Enjoyed your article and inaugural webcast — book looks interesting. Thanks for your reply and links from MIT TR piece.

    Been at this a long time– founded one of the initial pioneering incubators spun off from business consultancy in early 1996, have tested most models, then founded an early stage VC firm working with typically deep tech commercialization and multi-disciplinary technologies — looked at many thousands, and over my career have identified quite a few pre-investment, but alas did not profit from most–including MSFT, Starbucks, Google, and Skype.

    First impressions —

    1) The two topics don’t mix well– fame in any medium and real business creation outside of that industry — which you touch on in webcast but think it could be defined more clearly. I am reminded of the negative impact of fame with VCs in the 90s and impact it had on the DotCom bubble– to include Wall St. analysts.

    2) The challenges in commercialization and scaling of new companies are quite complex, typically requiring many years even from the best of the best to understand, although a few ‘just do it’ and learn along the way. I kind of like a mix of both. Very very few are qualified who also happen to have the capital, which is creating a negative spiral just now being taken up by media, although it has been discussed in some circles for a long time. Adolescents funding adolescents, few of whom ever built a real business, but rather engineered the new co through relationships. That path can’t end well.

    3) Venture capital has much deeper challenges than just herding relative to building durable businesses– super angels, regional mandates and all the rest are only symptoms in my view. Like most environments that become corrupted in some manner, it becomes nearly impossible for the cream to rise to the top–commonly cited in Congress and Wall St., but it’s getting pretty ugly in SV as most of the money is being crafted, not really earned by value creation. Been said many times that SV has become good at harvesting, or skimming off the top, but lost much of the ability to build new industries–some are still good at it, trying, with some success.

    4) Screw sacred cows. If we don’t fix structural issues no island is remote enough or has sufficient security to escape to.

    5) Two of many on my own blog largely subsidizing search engines and institutions on this topic are worth review –

    What’s Wrong With the Neural Network? Lack of Data Structure that Enables Governance
    http://kyield.wordpress.com/2012/01/31/whats-wrong-with-the-neural-network-lack-of-data-structure-that-enables-governance/

    Large scale job growth requires new ecosystems
    http://kyield.wordpress.com/2010/10/02/large-scale-job-growth-requires-new-ecosystems/

    Good luck with your efforts. -MM @kyield

    • Author
      Steve Faktor February 23, 2012

      Hi Mark, thanks for the comment and the good word on the post/podcast!

      To address your points:

      I agree that this crop of social-media fame-mongering among investors is pure greed and has that pump and dump flavor of stock scams of the late 90′s. Problem is too much money chasing too few good ideas. They know on day 1 those apps are doomed as businesses, but not as investments…if they can get to a liquidity event fast enough.

      Yes, as above, these are not real companies. I wrote about this in Econovation, but now finishing a piece for AOL on how we once again attract capital to businesses that require infrastructure and ecosystems. The kind that create jobs, not enrich a handful of speculators and coders. Bottom line – building a real business is hard, especially if it makes and ships something. The fraudulent illusion of a 300-million person service economy is almost over. We will need to go back to doing the hard work…or be forced to in order to create trade. As I wrote, China is not going to accept payment for new XBoxes in tweets.

      I checked out your post on ecosystems. I especially liked your point about capital distortions. Ironically, I think we need to distort capital once again – towards productive businesses – in order to make up for the undeserving ones getting undue attention.

      • Mark Montgomery February 23, 2012

        Steve,

        I am quite certain that it will not require capital distortion or financial engineering to create jobs in the U.S. — What it will require is just simply focusing on the basics of capitalism — as you say most capital chases the pump and dump schemes in herding fashion based on incestual relationships in PE– that isn’t capitalism by my definition. It will require capital flowing to real entrepreneurs building real companies — I don’t see that as distortion, just fundamentals. It may require some proactive efforts on the part of customers and regions as the rest of the world has strong regional bias now while the degraded U.S. capacity now does not — free market philosophies only work when trading partners share the same practices (see academic business cases on NZ experiment for a good test case).

        In the 1980s regional bias was strong for U.S. start-ups –angel funding, initial customers, and all manner of support from global companies based in the region — that culture moved to Asia along with globalization and perceived interests in many global companies. Growth capital for real companies is plentiful –after all risk is removed and growth trajectory is strong, of course.

        There are plenty of strong entrepreneurs and ventures in America that have been suffering from this insane self-destructive era, and some have grown much stronger in the process. Admittedly, many have left — my own company has been recruited by other countries with packages that are much stronger than anything I’ve even heard about in the U.S., and I’ve been working globally for 30 years.

        One last point — an important one when speaking of venture capital and building companies — competence. While many backgrounds can offer value to building durable industries and companies, a big problem we face today is that very few in VC, PE, media, academia, government — anywhere it seems, have ever been engaged on founding teams building globally competitive companies from scratch. Yet of course all of the above influence if not determine winners and losers. What they think is good for America usually isn’t. It turns out that ignorance isn’t so blissful after all. We need strong entrepreneurs leading a renaissance of American industry with recent, relevant experience, and not protecting incumbents. Prospects in that field are much fewer than most assume. .02–MM

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