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Meanwhile, over at “Rare Jongens, die Amerikanen” (a Dutch-language sister publication), there is a new article on the problem of payments in the US (expensive, difficult, slow).
Then, finally: For this week’s article I owe a debt of gratitude to M. My conversations with her got me going on the ideas that underlie this week’s Wednesday Wisdom.
In Europe, there is a lot of anxiety these days, because they have figured out that pretty much everyone, from consumers and companies to governments, is dependent on US technology firms for pretty much everything. Governments run their email on Microsoft Outlook and write all their documents with Office365. Companies run their entire corporate workloads on AWS, GCP, or Azure. And consumers are obviously completely beholden to Google, Microsoft, Apple, Meta, and Netflix for their entire digital life, which these days encompasses everything from their media consumption to making phone calls and finding their way to the supermarket.
To a large extent, this anxiety arises from the fact that some legal amateurs have read the Cloud Act and are now under the impression that Donald Trump only has to call Satya Nadella (the CEO of Microsoft) to read the Dutch government’s email or to turn down the email service altogether. Similarly, these people are under the impression that a similar call from the orange clown-god to any American company will be enough to stop essential government services, even when these services run in Dutch datacenters on Dutch soil and are staffed by Dutch engineers.
But, this is not the anxiety that I wanted to talk about this week.
The newfound dependency on US tech companies brought to light a pre-existing anxiety about the state of European technology companies and specifically about the lack of thereof. A spectacular LinkedIn article (warning: Dutch) that was posted last week summarized the sorry state of affairs of the European AI industry in no uncertain terms: “Europe has 20 AI startups valued at over $500 million. The United States has 161. Europe has three frontier AI models; the U.S. has 33. Europe has 5% of global data center capacity; the U.S. has 69%. Eight times as many unicorns. Eleven times as many models. Fourteen times as much computing power.” The old continent is clearly not doing well in new technologies.
In a desperate effort to battle this anxiety, some deluded but positive spirits sometimes post a map of Europe on LinkedIn, sprinkled with a number of icons representing cool startups in an attempt to convince people that the situation is really not entirely bleak. Usually, I respond to these posts with a reply to the effect that I have more cool startups in my zip code in San Francisco, where I literally cannot go to a coffee shop without seeing two people with laptops starting an AI company.
In chat groups populated by Dutch IT experts there is considerable anxiety about this sorry state of affairs and in true European fashion there are lots of calls for the government to do something, because we all know that governments really excel at fostering dynamic startup cultures and creating low-friction environments where these startups can flourish. Everyone who ever received a government subsidy will know that the amount of process and paperwork is out of control and really, which startup wants their first five employees to be lawyers and project managers to interface with government bureaucracy?
Side story: When I was still involved running a Dutch IT company in the Netherlands, one of our activities was to help companies get EU subsidies from a program that was set up to incentivize training employees. That process was so onerous that lots of companies didn’t even try to get these subsidies and so they left considerable sums of money on the table. We employed some lovely young ladies armed with laptops and a solid understanding of the processes and forms involved to help companies bag these subsidies, in return for a percentage of whatever we recovered for them. This was probably one of the most profitable side businesses we ever had.
The anxiety about the startup climate in Europe is well founded, but this is also not the anxiety that I wanted to talk about this week. Instead, I want to talk about the anxiety factories that are most startups (successful or not). But before we get there, I first need to talk about something weird.
Did you ever wonder why the US startup scene is so thoroughly grounded in failures?
Many successful entrepreneurs first had businesses that failed, in some cases burning through millions of dollars of venture capital. So how does that work? VCs give a sack of money to some entrepreneurs who then go and burn it all in a failed business. Then these entrepreneurs come back to the VCs and say: “Well, that didn’t work out, but we have a new idea, can you give us some more money for that?” And then these VCs often do! Now ask yourself this: Why would they? Why would these VCs give more money to people who just showed that they failed to create a business?
Before we go on, please take five minutes to think about these questions. Would you do that? Would you give more money to some failed entrepreneurs? And while you are asking yourself these questions, also ask yourself the following associated question: Would any European banks and governments who are called upon to finance European startups do that?
[5 minute break]
The answer to this conundrum, I think, is that VCs do maybe not select on the idea, but on the people.
Let’s face it, it is incredibly hard to figure out if a novel business idea is going to work. It is all fine and dandy to say with the benefit of hindsight that Uber was always going to be a massive hit, but remember that the core of their business model is that people do exactly what people were always told not to do: Make a connection with a complete stranger on the Internet and then get into their car, often alone.”Or what about AirBnb, whose idea is: Let some complete strangers into your house to stay over while you are sleeping in the room next door.
A lot of successful businesses were once very unlikely ideas and in contrast, some completely obvious ideas never made it. It is hard to predict which ideas are going to work, which is why I think that VCs really do not select on the idea, or at least not on the idea alone.
So, if it is not the idea then, which aspects of the proposals they review do VCs select on. My thought: People! I think that VC’s partly, and maybe even to a large extent, specialize in finding the people that can make an idea work, even a suboptimal idea.
It is a bit of a truism that a mediocre idea executed by the right people will be more successful than a great idea executed by the wrong people. So imagine you are a VC and you see a proposal that asks for some funding. As we discussed, it is really hard to estimate the idea, but what you can possibly do is judge whether the people who make the proposal are the kinds of people who can make an idea work at all, any idea. And that determination is easier if you have seen them at work once or twice already. So, their previous idea failed, but maybe (or probably) nobody could have made that idea work. If these are the people that you think can make a half-way decent idea successful, it makes total sense to give them money for their new idea because even if you cannot accurately judge the idea, you can maybe judge these people.
I think this fact explains why failed entrepreneurs get money for their second or third idea; they have shown that they are the people who will go for the jugular in order to make the company a success.
So who are these people who can make any idea work? These are obviously the world’s go-getters, the people who are extremely goal oriented, who are willing to sacrifice everything to make their startup a success, the people who can (and want to) work 24x7 and who can find and drive other people who have the same mindset. These are the people who, in the pursuit of success, turn their fledgling company into an anxiety factory.
So many startups are anxiety factories because their founders were literally selected for their ability to load up and deal with incredible amounts of stress while pursuing success. And since A’s hire A’s, their first batch of employees are of the same ilk. See here all the ingredients for a combustible work-life imbalance cocktail that can either explode upon lift-off or go to infinity (and beyond). So if you join a startup, do not be surprised if it seems to be fueled by anxiety.
I must admit that I belong to the group of people who do well in these anxiety factories. I am currently working in the epicenter of Big AI and when asked to describe what that is like, I often say that it’s akin to holding on by your fingernails to a launching rocket. I am more stressed than I was ever before, but I am nothing if not goal oriented, so I hang in there and try to make it a success, probably with some detrimental consequences to my short-term health and well-being. “Why do that?”, is a fair question and the answer is probably (at least partly) that I am wired that way. I committed to a professional goal and I might maybe not do everything it takes to reach that, but certainly a lot.
It is an example I would not recommend you follow, unless you are also wired this way.
