But I have to admit that what made me rewrite this newsletter was a sentence quoted in the article, attributed to one (or more) founders.
The profit and loss account, the line goes, is not the best reflection of a start-up’s performance.
Because, you see, in the start-up nation, money isn’t what counts. Glory is the reward (along with the number of likes on the CEO’s latest LinkedIn selfie).
A large part of the start-up ecosystem (founders, VCs, incubators and so on) tries to make you believe that the one and only model is to have a product, test it, then seal each stage with a funding round, without worrying about profitability. Because growth is what shows the product is worth something.
What if that’s wrong?
Apart from the fact that this isn’t how traditional companies work, the 100 member companies of Club Boostrap, a French club of self-funded businesses (and the many others that aren’t members), prove there’s another way to build a company.
It’s all the more problematic given that the vast majority of the big fundraisers and other unicorns don’t make costly products. Worse: most of them are software, SaaS and the like. Everyone can understand why opening a factory costs a lot of money for Ynsect or NW Storm. These industrial companies have a high production cost per unit. But industry, and physical products more broadly, are barely represented among the big start-ups.
If you take the Next40, only Electra (charging stations), Exotec (robotics), Flying Whales (transport), Innovafeed (insects), Ledger (web3), Loft Orbital (aerospace), NW (charging stations), Verko (batteries), Wifirst (ISP), Ynsect (insects) and ZePlug (charging stations, yet again) have physical products, or 27%. A figure that’s up on previous years.
You see the same thing in the FT120, among the unicorns, and also in all the big incubators, from Station F, the giant Paris start-up campus, to Y Combinator.
The reality is that investors prefer to back simpler products and services, with low setup costs. In these companies, the money raised is rarely used to improve the product: it mostly goes on customer acquisition or launching in new countries.
Software and services give the false impression that acquisition costs are easy to control, and so that all you need to do is pump in cash to get growth. Spoiler alert: it’s often not true.